AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 22, 1999
REGISTRATION NO.333-87533
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO
FORM S-1/A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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LINUXONE, INC.
(Exact name of registrant as specified in its charter)
Nevada 7375 88-0421462
- -------------------------- ------------------------ -----------------------
(State of other jurisdiction (Primary Standard (Federal Tax Indentifi-
of incorporation or Industrial Classifi- cation Number)
organization) cation Code Number)
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1619 Morgan Court
Mountain View, California 94043
(650) 948-6201
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(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
Dr. Wun C. Chiou, Sr.
Chairman and Chief Executive Officer
LinuxOne, Inc.
1619 Morgan Court
Mountain View, California 94093
(650) 948-6201
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(Name, address including zip code, and telephone number, including area code, of
agent for service)
With Copies To:
Michael J. Morrison, Esq.
1495 Ridgeview Drive, Suite 220
Reno, Nevada 89509
Telephone: (775) 827-6300
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date hereof.
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If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
<TABLE>
<CAPTION>
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CALCULATION OF REGISTRATION FEE
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Title of Each. . . Amount Proposed Proposed
Class of to be Maximum Maximum Registration
Securities to. . . Registered Offering Aggregate Fee
Be Registered Price Per Offering Price
Share (1)
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<S> <C> <C> <C> <C>
Common Stock 3,000,000 $ 8.25 $24,750,000 $6,880.50
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933, as amended.
------------------------------
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
CAPITAL WEST SECURITIES, INC.
One Leadership Square, Suite 200
211 North Robinson
Oklahoma City, OK. 73102
Telephone: (405) 235-5728
SUBJECT TO COMPLETION. DATED , 1999.
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THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
3,000,000 Shares
LinuxOne, Inc.
Common Stock
----------------
This is an initial public offering of shares of LinuxOne, Inc. All of the
3,000,000 shares of common stock are being sold by LinuxOne. It is currently
estimated that the initial public offering price per share will be $8.25.
LinuxOne has reserved up to 300,000 shares of common stock for sale at the
initial public offering price through a directed share program, to directors,
officers and employees of LinuxOne and to open source software developers and
other persons that LinuxOne believes have contributed to the success of the open
source software community and the development of LinuxOne.
Prior to this offering, there has been no public market for the common
stock. Application has been made for quotation of the common stock on the Nasdaq
National Market System under the symbol "LINX".
SEE "RISK FACTORS" BEGINNING ON PAGE 9 TO READ ABOUT CERTAIN FACTORS YOU
SHOULD CONSIDER BEFORE BUYING SHARES OF THE COMMON STOCK.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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<TABLE>
<CAPTION>
Per Share Total
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<S> <C> <C>
Initial public offering price $ 8.25 $24,750,000
Proceeds, before expenses, to LinuxOne $ 8.25 $24,750,000
</TABLE>
LinuxOne expects to deliver the shares against payment in Mountain View,
California on____________________, 1999.
Prospectus dated , 1999.
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TABLE OF CONTENTS
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<TABLE>
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Page
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<S> <C>
Prospectus Summary 5
The Offering 6
Summary Financial Data 7
Risk Factors 8
Special Note Regarding Forward-Looking Statements 21
Use of Proceeds 22
Dividend Policy 22
Capitalization 23
Dilution 23
Selected Financial Data 24
Management's Discussion and Analysis of Financial Condition
and Results of Operations 25
Year 2000 Compliance 31
Plan of Distribution ...33
Business 35
Management 48
Executive Compensation 50
Transactions with Affiliates 51
Principal Stockholders 52
Description of Capital Stock 53
Determination of Offering Price 55
Legal Matters 55
Experts 56
Where You Can Find More Information 56
</TABLE>
------------------------
Through and including , 1999 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealer's obligation to deliver a prospectus when
acting as an underwriter and concerning an unsold allotment or subscription.
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PROSPECTUS SUMMARY
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YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION AND OUR FINANCIAL STATEMENTS AND NOTES TO THOSE STATEMENTS APPEARING
ELSEWHERE IN THIS PROSPECTUS.
LinuxOne, Inc.
==============
Our Business
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We are an emerging developer and provider of open source software and
services, including the LinuxOne Operating System, which we call "LinuxOne OS".
Unlike proprietary software, open source software has publicly available source
code and can be copied, modified and distributed with minimal restrictions. Our
web site, Linuxone.net, is an online source of information and news about open
source software and one of the online communities of open source software users
and developers. In addition to offering content for the open source community,
Linuxone.net serves as a forum for open source software development and offers
software downloads and a shopping site. Our professional services include
technical support, training and education, custom development and consulting. We
are committed to serving the interests and needs of open source software users
and developers and to sharing all of our product developments with the open
source community.
We currently have four products.
* LinuxOne Operating System is our first product. Since it was only
introduced in September, 1999, we do not have a history of operations.
* LinuxMac, our second product, is a software program that facilitates the
reading and writing of Macintosh disks and CDs on a Linux system. This
software package has been completed and is currently available for sale.
* LinuxLite, our third product, is a software product that facilitates
transition from Windows to Linux. This software package has been
completed and is currently available for sale.
* LinuxOne "Ready Drive", a hard drive subsystem (IBM and Fujitsu 13 and
17 gigabytes) with preloaded LinuxOne OS, is currently available for
sale.
Our products are also available via free download from Linuxone.net and
other sites across the Internet, but do not include technical support or printed
user documentation in these instances.
Our Market Opportunity
- ----------------------
The rapid growth of the Internet in recent years has accelerated the
development of open source software. Under the open source software model,
software is created through the collaborative efforts of large communities of
independent developers. Developers work alone or in groups to write code, make
the code available over the Internet, solicit feedback on it from other
developers, then modify and share it with others for general use. This
continuous process results in the rapid evolution and improvement of open source
software.
We believe open source software offers many potential benefits for software
customers, users and vendors. Customers and users are able to acquire the
software at little or no cost, install the software on as many computers as they
wish, and customize the software to suit their particular needs. In addition,
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customers and users can obtain software updates, improvements and support from
multiple vendors, reducing reliance on any single vendor. Vendors are able to
leverage the community of open source developers, allowing them to reduce
development costs and decrease their time to market. Vendors are also able to
distribute their products freely over the Internet, enabling them to create
large global user bases quickly.
Open source software is particularly well-suited to the Internet and
includes the following Internet software and server products, which is
included in our LinuxOne OS distribution:
The Apache Web Server, one of the most common web servers in use today and
one of the most reliable. The Apache software is widely recognized as leading
server software for Linux distributions and currently has a share of the market
in the 38% range. This software is recognized as extremely stable, easy to use,
and easy to configure.
Perl is a standard scripting language for Apache servers and is used on
almost all computer operating environments, including Windows, UNIX, and Linux
for scripting many functions.
Sendmail is an email routing tool that handles a majority of all email
traffic and is a standard on most UNIX and Linux system distributions, easily
having the majority of these systems as its native environment.
The kernel is the heart of the Linux operating system. It is the part of
the operating system that allocates resources and controls processes.
Linux-based operating systems represented 17% of new license shipments of
server operating systems in 1998, according to International Data. Despite
strong initial market acceptance, these operating systems have been slow to
penetrate large corporations at the enterprise level due in part to the lack of
viable open source industry participants to offer technical support and other
services on a long-term basis.
Our History
- -----------
LinuxOne, Inc. was incorporated in Nevada in March 1999. Our principal
executive offices are located at 1619 Morgan Court, Mountain View, California
94093.
"LinuxOne", LinuxOpen", "LinuxOne OS", "LinuxMac", "LinuxOne Lite"
and "One Stop for Linux" are trademarks or service marks of LinuxOne, Inc. Other
trademarks and trade names in this prospectus are the property of their
respective owners.
THE OFFERING
------------
<TABLE>
<CAPTION>
<S> <C>
Shares offered by LinuxOne. . . . . . . . . . . 3,000,000 shares
Shares to be outstanding after the
Offering 9,573,000 shares
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Use of proceeds To provide working capital and
and for other general
corporate purposes including
geographic expansion. See
"Use of Proceeds".
Proposed Nasdaq symbol "LINX"
</TABLE>
The number of shares of common stock to be outstanding after the offering is
based on the number of shares outstanding on October 31 , 1999 and
assuming all Shares are sold in this offering. This number does not include
600,000 shares of common stock reserved as of October 31 , 1999 for future
stock option grants and purchases under our executive compensation plans. See
"Management--Director Compensation" and "Executive Compensation".
SUMMARY FINANCIAL DATA
----------------------
The following table summarizes the financial data of our business. You
should read this information with the discussion in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our financial
statements and notes to those statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Period From Inception
To October 31 , 1999
---------------------
<S> <C>
Statement of Operations Data:
Revenue $ 0
Net Income (Loss) (157,896)
Net Income (Loss) available to Common (157,896)
Stockholders
Earnings (Loss) per common share ( .026)
Weighted Average common shares outstanding
Weighted average common shares outstanding. 6,573,000
</TABLE>
(1) Our fiscal year ends on December 31, 1999.
The following table presents a summary of our balance sheet at
October 31 , 1999:
<TABLE>
<CAPTION>
October 31 , 1999
----------------------
<S> <C>
Balance Sheet Data:
Cash and cash equivalents $ 403,392
Property and Equipment, Net 18,273
-------------
Total assets $ 460,528
Total liabilities $ 36,424
Total stockholders' equity $ 424,104
</TABLE>
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RISK FACTORS
------------
THIS OFFERING INVOLVES A GREAT DEGREE OF RISK. YOU SHOULD CAREFULLY
CONSIDER THE RISKS DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS PROSPECTUS
BEFORE DECIDING TO INVEST IN THE SHARES OF COMMON STOCK.
RISKS RELATED TO OUR LINUX-BASED OPEN SOURCE BUSINESS MODEL
-----------------------------------------------------------
RISKS RELATED TO OUR LINUX-BASED OPEN SOURCE BUSINESS MODEL:
- -----------------------------------------------------------
Our business may not succeed because open source software business models are
unproven.
We have not demonstrated the success of our open source business model,
which gives our customers and all commercial distributors of Linux the
right to freely copy and distribute our software. The requirement of the open
source license is that anyone is free to modify or enhance the Linux operating
system as long as the source code for the changes is available for anyone to
copy it off the Internet and distribute it. All commercial distributions are
subject to this requirement. There is always a risk that the market will settle
for the free version, not purchase our products and no revenues will be
generated. Another risk is that another commercial distribution could take our
source and install codes and copy them for distribution under their own label.
We intend to provide better service and support to overcome this very real
risk. To date, no other company has built a successful open source
business. Few open source software products have gained widespread commercial
acceptance partly due to the lack of viable open source industry participants
to offer adequate service and support on a long-term basis. We intend to use a
third-party support organization to provide service and support to our
customers. In addition, open source vendors are not able to provide industry
standard warranties and indemnities for their products, since these products
have been developed largely by independent parties over whom open source vendors
exercise no control or supervision. If open source software should fail to gain
widespread commercial acceptance, we would not be able to generate any
revenues and our business could fail.
Our reliance on the support of Linux Torvalds and other prominent Linux
developers could impair our ability to release major product upgrades and
establish market share.
We may not be able to release major product upgrades of our products on a
timely basis because the heart of our products, the Linux kernel, is maintained
by third parties. Linux Torvalds, the original developer of the Linux kernel,
and a small group of independent engineers are primarily responsible for the
development and evolution of the Linux kernel. If this group of developers fails
to further develop the Linux kernel or if Mr. Torvalds or other prominent Linux
developers were to join one of our competitors or no longer work on the Linux
kernel, we will have to either rely on another party to further develop the
kernel or develop it ourselves. We cannot predict whether enhancements to the
kernel would be available from reliable alternative sources. We could be forced
to rely to a greater extent on our own development efforts, which would increase
our development expenses and may delay our product release and upgrade
schedules. In addition, any failure on the part of the kernel developers to
further develop and enhance the kernel could stifle the development of
additional Linux-based applications.
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We may not be able to effectively assemble and test our software because it
contains codes developed by independent third parties over whom we exercise no
control, which could result in unreliable products and damage to our reputation.
LinuxOne OS, in compressed form, consists of approximately 570 megabytes
(MB) of code and in uncompressed form, consists of approximately 1400 MB of
code. A small portion of the core source and applications are written and
developed by independent third parties; however, the majority are written and
will be maintained by our in-house engineers. Included within these codes
are numerous distinct software components which we must assemble and test before
we can release a new version of LinuxOne OS. We believe our engineers can
compile the code, test it with a high degree of accuracy and detect the majority
of compilation errors; however, we have no guarantee that we will find all
errors. If we are unable to detect all errors through testing, LinuxOne OS
could fail, resulting in serious damage to our reputation and potential
litigation. Although we attempt to assemble only the best available components,
we cannot be sure that we will be able to identify the highest quality and most
reliable components, or successfully assemble and test them. In addition, if
these components were no longer available, we would have to develop them
ourselves, which would significantly increase our development expenses.
The scarcity of software applications for Linux-based operating systems could
prevent commercial adoption of our products.
Our products will likely not gain widespread commercial adoption until there
are more third-party software applications designed to operate on Linux-based
operating systems. These applications include word processors, databases,
accounting packages, spreadsheets, e-mail programs, Internet browsers,
presentation and graphics software and personal productivity applications.
There are currently a number of third-party software applications available;
some are free, others are commercial products. The commercial products are
available from companies such as Corel and Applix (office suites with word
processing, spreadsheets, email and fax), Oracle and IBM (database), Sybase and
Informix, with more being developed on an almost daily basis. We intend to
encourage the development of additional applications that operate on Linux-based
operating systems by attracting third-party developers to the Linux platform and
through marketing and technical support for third-party developers. If we are
not successful in achieving these goals, however, our products will not gain
widespread commercial acceptance and we will not be able to establish our
product sales growth.
We may not be able to generate revenue from sales of LinuxOne OS if users
can more quickly download it from the Internet.
We intend to derive revenues from the sale of our products in a packaged
format on CD, with written instruction manuals and technical support, even
though our products are freely available for download on our Internet site.
However, the free download versions do not include the manuals or technical
support. In addition, because the downloads can take up to 36 hours using
a standard telephone connection via a 36K modem, and involve relatively new
products unfamiliar to most, we anticipate that many users will purchase
the product on CD, with the instruction manual and technical support. If
hardware and data transmission technology advances in the future to the point
where increased bandwidth allows users to more quickly download our products
from the Internet, such as cable modems or DSL technology (where the download
would only take 2-3 hours), users may no longer choose to purchase our
products. This could lead to a significant loss of projected product revenues.
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Our customers may find it difficult to install and implement LinuxOne OS, which
could lead to customer dissatisfaction and damage our reputation.
Installation and implementation of LinuxOne OS, especially in the server
environment, often involves a significant commitment of resources, financial
and otherwise, by our customers. This process can be lengthy due to the size and
complexity of our products and the possible need to purchase and install
new applications. The installation of LinuxOne OS as a workstation is similar
to an installation of a Microsoft Windows product. The failure by us to
attract and retain services personnel to support our customers or a delay in
implementation for any other reason could result in dissatisfied customers. This
could seriously damage our reputation and the LinuxOne OS brand.
RISKS RELATED TO OUR FINANCIAL RESULTS AND CONDITION:
- ----------------------------------------------------
We have no operating revenues or profits and may be unable to continue as a
going concern.
We are a development stage company and, to date, have not generated any
revenues from operations or realized a profit. We are presently investing
substantial resources in the testing and development of our Linux software
products, but there is no guarantee we will ever be able to generate revenues or
will ever realize a profit from sale of our products. Existing cash and
available credit are insufficient to fund our cash flow needs for the next year
and we are relying on the proceeds of this offering to continue as a going
concern and expand our current operations. See "Liquidity and Capital
Resources."
We have a limited operating history and it is difficult to evaluate our
business.
LinuxOne, Inc. was formed in March 1999, and has not yet had any earnings.
We face all the risks inherent in a new business such as lack of an
established market for our products, lack of experience in the Linux software
industry, new personnel working together in management and software development
and lack of sales. There can be no assurance we will be successful and/or
profitable. We began offering LinuxOne software, in beta form, in September
1999. Our limited operating history makes it difficult to evaluate the risks
and uncertainties that we face. Our failure to address these risks and
uncertainties could cause our business results to suffer and result in the loss
of all or part of your investment.
We expect to incur substantial losses in the future.
We have incurred operating losses of $157,896 from inception to
October 31, 1999, the date of our audited financial statements. We
expect to incur significant losses at least through the fiscal year ending
December 31, 2001 as we continue to test and improve our LinuxOne OS and
LinuxMac products and begin research and development on building Software
Development Kid (SDK) products in multi-lingual platforms, currently in the
planning stages in French, Spanish, German, Japanese and Chinese. We
expect substantial increases in our sales and marketing, research and
development and administrative expenses in the estimated sum of
approximately $14,000,000. As a result, we cannot be sure when or if
we will achieve sustained profitability. Failure to become and remain profitable
may adversely affect the market price of our common stock and our ability to
raise capital and continue operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Overview", "Results of
Operations" and "Liquidity and Capital Resources".
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Our anticipated future operating results may be affected by various market
factors.
We have not established a market for our products and our future operating
results may be negatively affected by many factors, including:
- our ability to establish customers, attract new customers and
satisfy our customers' demand;
- changes in gross margins of our current and future products and services;
- the timing of our release of upgrade versions of our products;
- introduction of new products and services by us or our competitors;
- changes in the market acceptance of Linux-based operating systems;
- changes in the usage of the Internet and online services;
- timing of upgrades and developments in the Linux kernel and other open
source software products;
- the effects of acquisitions and other business combinations, including
one-time charges, goodwill amortization and integration expenses or
difficulties; and
- technical difficulties or system downtime affecting the Internet or our
web site.
We arbitrarily established our offering price for shares.
The offering price of the Shares was established by us in order for us to
raise a gross amount of approximately $23,750,000 in this offering. Among
the factors considered were our limited operating history, the proceeds to be
raised by the offering, the nature of our assets, estimates of our business
potential, the amount of capital to be contributed by investors in this offering
in proportion to the amount of stock to be retained by the existing stock-
holders, and the general condition of the securities market. The offering price
bears no relationship whatsoever to our assets, earnings, book value or other
criteria of value and the market value of common stock you purchase could be
less than the offering price. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations", "Business", "Principal
Stockholders" and "Financial Statements".
We may not be able to successfully recruit and retain qualified professionals,
who are currently in demand and whose numbers are limited.
We compete intensely with other software companies nation-wide to recruit
and hire from a limited pool of qualified personnel. If we cannot attract and
hire additional qualified sales and marketing, professional services and
software engineering and development personnel, our business results will
suffer.
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Our management team may not be able to successfully implement our business
strategies because it has only recently begun to work together.
Our business is very dependent on the ability of our management to
work together effectively to meet the demands of our growth. Our senior
management team, including our President, Wun C. Chiou, Sr., our Vice
President-Marketing, Robert Philips, have only been working together since April
1999, and Tessy Albin, our Chief Financial Officer and Treasurer, has only been
with our management team since December 1999. These individuals have not
previously worked together as a management team. The failure of our management
team to work together effectively could prevent efficient decision-making by our
executive team, affecting product development and sales and marketing efforts,
which could negatively impact our operating results.
We could lose Dr. Wun Chiou, Sr., Tessy Albin , Robert Philips or other
key personnel, which could prevent us from executing our business strategies.
Our future success depends on the continued services of our current key
personnel, who consist of our officers and directors: Dr. Wun Chiou, Sr.,
Tessy Albin and Robert Philips. The loss of the technical knowledge and
industry expertise of any of these key personnel could seriously impede
our success.
We may lack the financial and operational resources needed to increase
our market share and compete effectively with Microsoft, other established
operating systems developers and other service and support providers.
In the market for operating systems, we face significant competition from
larger companies with greater financial resources and name recognition than we
have. These competitors, which offer hardware-independent multi-user operating
systems for Intel platforms and/or UNIX-based operating systems, include
Microsoft, Novell, IBM, Sun Microsystems, The Santa Cruz Operation, AT&T,
Compaq, Hewlett-Packard, Olivetti and Unisys. We do not believe that any of
these competitors currently produce and market any open source software
products.
As we increase our services offerings, we may face competition from larger
and more capable companies that currently service and support other operating
systems, particularly UNIX-based operating systems, due to the fact that Linux
and UNIX-based operating systems share many common features. These companies may
be able to leverage their existing service organizations and provide better
levels of support on a more cost-effective basis than we can. We may not be
able to compete successfully with these current or potential competitors. See
"Business--Competition".
We may not be able to match the promotional activities and pricing policies
offered by other suppliers of Linux-based and other open source operating
systems, which could result in an inability to establish or a loss of
market share.
In the new and rapidly-evolving market for Linux-based operating systems, we
face intense competition from a number of other suppliers of Linux-based
operating systems, especially Red Hat, Inc. We also face competition to a lesser
extent from developers of non-Linux-based open source operating systems such as
BSD-based operating systems. BSD-based operating systems such as FreeBSD, NetBSD
and OpenBSD are open source operating systems produced by communities of
developers working together via the Internet, and which are published and
distributed by Walnut Creek CD-ROM, among others. Since competition in the
commercial versions of Linux are based on enhancements, packaging that includes
12
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many free applications, documentation and service and support, customers are
offered more than is available from the free distributions or Internet download
versions. We expect competition in broader open source operating systems and
the Linux-based operating systems market to intensify. In addition, companies
like Sun Microsystems, Corel and Cygnus Solutions, which have large customer
bases and greater financial resources and name recognition than we do, have
indicated a growing interest in the market for Linux-based operating systems.
These companies may be able to undertake more extensive promotional activities,
adopt more aggressive pricing policies and offer more attractive terms to their
customers than we can. Furthermore, because Linux-based operating systems can be
downloaded from the Internet for free from all commercial distributors,
including Red Hat, Mandrake, VA Linux Caldera, SuSE and others, or purchased
at a nominal cost and modified and re-sold with few restrictions, traditional
barriers to entry are minimal. Therefore, it is possible that new competitors or
partnerships formed between existing competitors may emerge and rapidly
acquire significant market share. See "Business--Competition".
If we fail to establish and maintain necessary distribution and other
business relationships with established companies, we may not be able to attract
and retain an adequate customer base.
Our success depends on our ability to establish and maintain distribution
and other business relationships with established hardware manufacturers,
distributors, software vendors and enterprise solutions providers. These
relationships are necessary because they allow us to offer our products
and services to a much larger customer base than we would otherwise be able to
through our direct sales and marketing efforts. We may not be able to establish
these relationships or, if established, to replace them on attractive terms.
In addition, business relationships we may establish may not afford us
any exclusive marketing or distribution rights. As a result, the companies with
which we may enter into agreements will be free to pursue alternative
technologies and to develop alternative products and services in addition to or
in lieu of our products and services, either on their own or in collaboration
with others, including our competitors. Moreover, we cannot guarantee that the
companies with which we may establish strategic relationships will market our
products effectively or devote the resources necessary to provide us with
effective sales, marketing and technical support. See "Business--Sales,
Marketing and Distribution".
We may not be able to generate any revenue from our planned international
expansion to offset the costs that will be associated with establishing and
maintaining such foreign operations.
A key component of our future growth strategy is to establish our
presence in selected foreign markets. We are in the process of
establishing subsidiaries in Hong Kong, Japan, Taiwan, China and Singapore and
are considering further expansion within Europe. We do not yet have any
subsidiaries. We may also enter other markets as opportunities arise.
There will be leasing and administrative costs associated with establishing
international facilities and operations, promoting our brand internationally,
and developing localized web sites and other systems. Any revenue
realized from international activities may not offset the expense of
establishing and maintaining these foreign operations. In addition, because
the current management team has only 4 years of combined experience in
marketing and distributing products or services in international markets,
we will incur the expense of hiring and training professionals in
international marketing prior to our proposed expansion and, therefore, may
not benefit from any first-to-market advantages.
13
<PAGE>
We face risks inherent in international business and expansion.
We will seek to enter into marketing and/or development agreements with various
foreign systems integration companies and/or manufacturing companies who will
bundle their products with our products and share revenues with us, all as
part of our overall corporate strategy for global expansion. These potential
partners could develop or manufacture products, such as motherboards, add-on
cards, sound cards, video cards and scanners, which could be bundled with our
LinuxOne products to enhance our distribution. There are no guarantees we
will be able to successfully market, sell and deliver our products in any
foreign markets. Further, there are definite risks inherent in doing
business within a global marketplace, including, but not limited to:
- political and economic instability within the foreign marketplace;
- foreign law and regulation;
- unexpected changes in regulatory requirements;
- tariffs and export controls, difficulties in managing foreign
operations;
- highly complex financial instruments (e.g., letters of credit); and
fluctuations in currency exchange rates and currency hedges and issues
related to taxation of international business transactions.
Such global risk exposure could adversely affect our business. See "Business".
Attempts to expand by means of business combinations or joint ventures may not
be successful and may harm our operational efficiency, financial performance and
relationships with employees and third parties.
We may expand our operations or market presence by entering into business
combinations, investments, joint ventures or other partnerships with
hardware manufacturers, software vendors, Internet companies, open source
software developers or other companies, both in the United States and
internationally. Our ability to expand in this way may be limited due to the
many financial and operational risks accompanying these transactions. The
material risks associated with these types of proposed transactions are as
follows:
- we may have difficulty assimilating the operations, technology and
personnel of the combined companies;
- our business may be disrupted by the allocation of resources to consummate
these transactions;
- we may have problems retaining key technical and managerial personnel from
acquired companies;
- all existing stockholders' ownership interest in our company will be
diluted if we issue equity to fund these transactions;
- acquired businesses may initially be unprofitable, resulting in our
assumption of operating losses and increased expenses;
- our reputation may be harmed if the open source development community does
not approve of these transactions; and
14
<PAGE>
- our relationships with newly-acquired employees, customers and
potential business partners may be weakened or terminated as a result
of these transactions.
RISKS RELATED TO OUR INTERNET STRATEGY
- --------------------------------------
We are subject to problems inherent in Internet commerce.
Even though we provide free downloads of our basic products via our web site,
we also have an online store where our customers, using a credit card, can place
an order for our expanded products, which contain additional bundled enhancement
software and technical support. Security on the Internet has always been a
concern to companies which conduct business via the Web; however, with money now
exchanging hands in Internet transactions, it is an even greater concern. The
potential for viruses which can virtually destroy a system is a distinct
possibility and hackers now have the potential technology to wreak havoc on any
business operation. Unsecured transactions on the Internet are subject to
inspection by just about anyone who knows how to access the information
regarding them. As credit card or checking account numbers are being exchanged,
the window of opportunity for theft is wide open. There is no guarantee we
will not be subject to an attack on our network facilities, or that we will
not experience a virus from hackers attempts. We will attempt to obtain the
best security measures for our site. See "Business".
We may fail to promote and enhance our web site effectively, which may prevent
us from attracting new visitors, advertisers or potential electronic
commerce partners to our web site.
Enhancing the Linuxone.net web site is critical to our ability to
Attract customers and realize revenues. In order to attract and retain
Internet customers, advertisers and potential electronic commerce
partners, we intend to substantially increase our expenditures for enhancing and
further developing our web site. Our success in promoting and enhancing the
Linuxone.net web site will also depend on our ability to provide, at a
minimum, industry standard content, features and functionality. We do not
currently have advertising on our web site, nor do we have a program in place
yet to attract advertisers. If we fail to promote our web site successfully
or if visitors to our web site or advertisers do not perceive our services to be
useful, current or of higher quality than our competitors, our ability to
generate revenue from our web site will be significantly impaired.
Because there is no industry standard for the measurement of the effectiveness
of Internet advertising, advertisers may not increase or even maintain their
current levels of Internet advertising, which would prevent us from generating a
measurable amount of revenue from our web site.
As we execute our Internet strategy, in the future, we expect to
Derive some measurable percentage of our revenue from sponsorships and
advertising on our web site; however, to date, we have not yet generated any
advertising revenues and we do not yet advertise on any other web site. We
may not generate any revenues if we do not attract new
advertisers and not only establish, but also maintain or possibly
increase Internet advertising on our web site. As there is no
industry standard for the measurement of the effectiveness of Internet
advertising, advertisers that currently advertise on the Internet may reduce or
eliminate this form of advertising and advertisers that have traditionally
relied upon other advertising media may be reluctant to begin to advertise on
the Internet. Moreover, widespread adoption of currently available software
15
<PAGE>
programs that limit or prevent advertisements from being delivered to an
Internet user's computer would negatively affect the commercial viability of
Internet advertising and would further deter advertisers from increasing or
maintaining current levels of Internet advertising. Our ability to successfully
execute our Internet strategy will be adversely affected if the market for
Internet advertising fails to develop or develops more slowly than expected.
We may be unable to adequately measure the demographics of visitors to our web
site, which is critical to our ability to attract advertising revenue.
We expect that it will be important to our advertisers that we accurately
measure the demographics of the visitors to our web site. While we have not
committed any resources to the measurement of demographics to date, we are
currently designing systems to record demographic data on our web site's
visitors. We have not yet collected any demographic data. Since we have not
yet entered into any agreements with advertisers, the costs of implementing a
demographics program are not yet known. However, if a demographic program is not
constructed effectively, we may not be able to accurately measure the
demographic characteristics of our web site's visitors. Until our program is
developed and functional, we will need to rely on third parties to provide
demographic measurement services to us and to any advertisers we may enter
into agreements with, which might not be readily available or affordable
to us. Companies may choose not to advertise on our web site or may pay less
for advertising if they do not perceive our demographic measurements or
measurements made by third parties to be reliable.
Our Internet strategy will fail if the infrastructure of the Internet is not
continually developed and maintained.
The success of our Internet strategy will depend in large part on the
continued development and maintenance of the infrastructure of the Internet.
Because global commerce and the online exchange of information is new and
evolving, we cannot predict with any certainty that the Internet will be a
viable commercial marketplace in the long term. The Internet has experienced,
and we expect it to continue to experience, significant growth in the number of
users and amount of traffic. If the Internet continues to experience an
increased number of users, frequency of use or increased bandwidth requirements
of users, it may not be able to support the demands placed upon it by this
growth, and its performance and reliability may suffer. Furthermore, the
Internet has experienced a variety of outages and other delays as a result of
damage to portions of its infrastructure, and could face similar outages and
delays in the future. Any outage or delay could affect the level of Internet
usage, as well as the volume of traffic on our web site. If the necessary
infrastructure, standards or protocols or complementary products, services or
facilities are not developed, or if the Internet does not become a viable
commercial marketplace, our Internet strategy will not succeed.
Our operations may be adversely affected by government regulation of the
Internet.
Although there are currently very few Internet content or commerce regulations,
we anticipate there could be substantial new regulations in the very near
future. Currently, there are many pending proposals, some of which are:
- - impose and regulate taxes;
- - establish encryption standards;
16
<PAGE>
- - regulation of pornographic content;
- - truth in advertising laws; and
- - many regarding e-commerce.
Depending on the number and extent of laws, rules and regulations imposed in the
future, the Internet and e-commerce, particularly, could lose its viability,
which could severely impact our business operations. However, at this time,
there is no way to predict which laws, rules or regulations will be
approved and/or implemented or how such laws, rules or regulations
may affect our business operations.
We are vulnerable to unexpected network interruptions caused by system failures,
which may result in reduced visitor traffic on our web site, failure to
realize revenues and harm to our reputation.
We project our revenue sources will be through direct customer sales and
from web site sales; however, our projected web site sales are vulnerable to
interruptions. Substantially all of our communications hardware and other
hardware related to our web site is located at our facilities in Mountain View,
California. Fire, floods, earthquakes, power loss, telecommunications failures,
break-ins and similar events could damage these systems. In addition, although
we have implemented network security measures, our servers are vulnerable to
computer viruses, electronic break-ins, human error and other similar disruptive
problems which could adversely affect our systems and web site. Although we try
to prevent unauthorized access to our systems, we cannot eliminate this risk
entirely. We could lose revenue and suffer damage to our reputation if our
systems were affected by any of these occurrences. We do not have any
insurance which would compensate us for any losses that may occur due to
failures or interruptions in our systems. We do not presently have any
secondary "off-site" systems or a formal disaster recovery plan.
Visitors to our web site could experience delays and decreased performance
during periods of heavy traffic, which could result in dissatisfaction with our
web site and damage to our reputation.
Our web site could experience slower response times or decreased traffic
during periods of heavy traffic for a variety of reasons, including,
overload caused by too many simultaneous attempts to access the server,
communications link errors, updates to the site slowing traffic, or the T-1 link
provider not meeting the guaranteed minimum service level. These occurrences
may have a material impact on our business. These types of occurrences in the
future could materially adversely affect our reputation and brand name and could
cause users to perceive our web site as not functioning properly. Under these
circumstances,our users might choose another web site or other methods to obtain
Linux-based operating systems or Linux-related information. While our service
levels to date have been well within industry standards, outages can and will
occur, and they are completely unpredictable.
RISKS RELATED TO LEGAL UNCERTAINTY:
- ----------------------------------
We could be prevented from selling or developing our products if the GNU general
public license and similar licenses under which our products are developed and
licensed are not enforceable.
17
<PAGE>
The Linux kernel was developed by an independent third party in Finland,
Mr. Linus Torvalds, and is licensed worldwide under the GNU General Public
License and similar licenses. We developed our LinuxOne OS based on the Linux
kernel and the GNU License. These licenses state that any program licensed
under them may be liberally copied, modified and distributed. We know of no
circumstance under which these licenses have been challenged or interpreted in
court. Accordingly, it is possible that a court would hold these licenses to be
unenforceable in the event that someone were to file a claim asserting
proprietary rights in a program developed and distributed under them. Any ruling
by a court that these licenses are not enforceable, or that Linux-based
operating systems, or significant portions of them, may not be liberally copied,
modified or distributed, would have the effect of preventing us from selling or
developing our products. In addition, if the licenses are declared invalid,
then our access to the kernel would be denied and our continued operations would
be completely dependent upon our other products and/or services unrelated to the
Linux kernel, and we currently have no such unrelated products.
Our products may contain defects that may be costly to correct, delay market
acceptance of our products and expose us to litigation.
Despite testing by us and our customers, errors may be found in our
software products or in software we bundle with our distribution once we
commence commercial shipments. This risk is exacerbated by the fact that most of
the code in our products is developed by independent parties over whom we
exercise no supervision or control. If code errors are discovered, we may
have to make significant expenditures of capital to eliminate them and yet may
not be able to successfully correct them in a timely manner or at all. Errors
and failures in our products could result in a loss of, or delay in, market
acceptance of our products and could damage our reputation and our ability to
convince commercial users of the benefits of Linux-based operating systems and
other open source software products.
In addition, failures in our software products, or software
products bundled with our distribution, could cause system failures or
other computer-related problems for our customers who may then assert
warranty and/or other claims for substantial damages against us, which may
not be covered by any product liability insurance which we may obtain, or the
product liability insurance of our third-party bundlers. Although our
standard license agreement with our customers contains provisions designed to
limit our exposure to potential product liability claims, it is possible that
these provisions may not be effective or enforceable under the laws of some
jurisdictions, and we could fail to realize revenues and suffer damage to
our reputation as a result of, or in defense of, a substantial claim which would
not be covered under any product liability insurance which we may obtain in the
future. We currently do not carry product liability insurance.
We are vulnerable to claims that our products infringe third-party intellectual
property rights particularly because our products are comprised of many distinct
software components developed by thousands of independent parties.
We may be exposed to future litigation based on claims that our products
infringe the intellectual property rights of others. This risk is exacerbated by
the fact that most of the code in our products is developed by independent third
parties over whom we exercise no supervision or control and have no written
agreements with. these independent third parties could infringe on the
intellectual property rights of others without our knowledge. Any such claims
of infringement by established companies could require us to re-
18
<PAGE>
engineer our products or seek to obtain licenses from the infringed party,
in order to continue offering our products. In addition, an adverse legal
decision affecting our intellectual property, or the use of significant
resources to defend against this type of claim, could place a significant strain
on our financial resources and harm our reputation.
Our efforts to protect our trademarks may not be adequate to prevent third
parties from misappropriating our intellectual property rights.
Our most valuable intellectual property is our collection of trademarks and
service marks. We have filed for and currently have trademarks/service marks
pending with the U.S. Patent and Trademark Office for the following:
- - LinuxOne
- - One Stop for Linux
- - LinuxOpen
- - Center for Open Sources
- - LinuxMac
- - LinuxOne Lite
We do not know of any competing trademark applications pending for any of
our trademarks or service marks, but this does not guarantee that none have been
or may be filed.
We also intend to file trademark and/or service mark registrations
for these marks in Canada, Singapore, Europe, Hong Kong, Japan and China.
Effective trademark and/or service mark protection may not be available in every
country in which we offer or intend to offer our products and services. Failure
to adequately protect our rights could damage or even destroy the LinuxOne brand
and impair our ability to compete effectively. Furthermore, defending or
enforcing our rights could result in the expenditure of significant financial
and managerial resources.
The protective steps of filing federal trademark/service mark
applications we have taken may be inadequate to deter future
misappropriation of our trademark and/or service mark rights. Although we do not
believe that we have suffered any misappropriation to date, we may be unable to
detect the unauthorized use of, or take appropriate steps to enforce, our
rights. See "Business-- Intellectual Property".
We cannot trademark the Linux brand, and the license on the Linux-based
software is freely available under the worldwide GNU License from Linus
Torvalds. If the GNU License is declared invalid, we would lose our rights to
use it and our business would likely be destroyed.
If we fail to protect our rights, other persons may use our trademarks
and/or service marks on their products, causing confusion in the marketplace and
loss of revenues to us.
We may be sued as a result of information published or posted on or accessible
from our LinuxOne.net web site.
We may be subjected to claims for defamation, negligence, copyright or
trademark/service mark infringement or other claims relating to the information
we publish on our web site. These types of claims have been brought, sometimes
successfully, against online services in the past, and can be costly to defend.
We may also be subjected to claims based on content that is accessible from our
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<PAGE>
web site through links to other web sites or through content and materials that
may be posted by visitors to our web site. We believe that the scope and amount
of our general liability insurance is appropriate, given our current financial
position. However, this insurance may not adequately protect us against these
types of claims. We have not been a party to any lawsuit of this type to date.
Our software products, as well as those of our customers and suppliers, could
fail as a result of the Year 2000 problem.
We have conducted a review of LinuxOne and our internal systems to identify
functions that need correction to be "Year 2000 compliant". We have not,
however, tested our other products and have not tested or sought certifications
from third parties bundling software applications and components with
LinuxOne OS. Any failure by our products or third-party software bundled
with our products to function in the Year 2000 may decrease the value of our
products, give rise to warranty claims and tarnish the LinuxOne brand.
Additionally, the Year 2000 problem may affect us by causing disruptions in
the business operations of, or delay technology purchases by, companies with
which we do business, such as customers and suppliers causing a decrease in our
product revenue. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000 Compliance".
RISKS RELATED TO THIS OFFERING:
- ------------------------------
Ownership of 45% of our issued and outstanding common stock by Dr. Wun C. Chiou,
an officer and director of our Company, may limit your ability to influence
corporate matters.
Immediately following this offering, Dr. Wun C. Chiou, an officer and
director of our Company, will hold, directly and indirectly, approximately
45% of our outstanding common stock. Dr. Chiou, together with other
stockholders holding any amount in excess of 6% of our total outstanding common
stock, could determine the outcome of actions taken by us that require
stockholder approval. For example, Dr. Chiou and these stockholders,
holding 6% of the stock, could elect all of our directors, delay or
prevent a transaction in which stockholders might receive a premium over the
prevailing market price for their shares and control changes in management.
Investors in this offering will suffer immediate substantial dilution.
Our existing stockholders acquired their shares at a price substantially less
than that which the purchasers in this offering will pay for their shares.
Accordingly, an investment in our shares in this offering will result in the
immediate and substantial dilution of the net tangible book value of any shares
you purchase from the initial public offering price of $8.25 per share to
$2.35 per share, or a reduction in the value of your shares of $5.90 per share.
See "Dilution" and "Financial Statements".
Anti-takeover provisions of our corporate charter and By-laws may delay
or prevent transactions that many stockholders may favor.
The indemnification and stockholder meeting provisions of our
certificate of incorporation, by-laws and Nevada corporate laws may be deemed
anti-takeover provisions because they may discourage, delay or prevent a
merger or acquisition that stockholders may consider favorable, including
transactions in which you might otherwise receive a premium for your shares.
20
<PAGE>
The indemnification provision may require us to pay for or reimburse damage
claims asserted against our officers, directors, employees and agents and this
potential financial liability may be deemed unacceptable by a merger candidate.
Also, the stockholder meeting provision requires prior notice of 10 to 60 days
and this may also frustrate a merger transaction. See "Description of
Capital Stock-Nevada Law and Certain Charter and By-Law Provisions."
Our stock price may be extremely volatile and you may not be able to resell your
shares at or above the initial offering price.
Following this offering, the price at which our common stock will trade,
assuming a market develops, may be extremely volatile and may fluctuate
significantly. We will determine the initial public offering price of our common
stock based on an assessment of the valuation of our stock. The public market
may not agree with or accept this valuation. In addition, the stock market has,
from time to time, experienced significant price and volume fluctuations that
have affected the market prices for the securities of technology companies,
particularly software and Internet companies. After this offering, therefore,
you might not be able to resell your shares at or above the initial public
offering price.
A substantial number of shares of our common stock could be sold into the public
market within one year after this offering, which could depress our stock price.
Once a trading market develops for our common stock, many of our
stockholders will have an opportunity to sell their stock for the first time.
More than 6,000,000 shares, or three times the number of shares sold in this
offering will become eligible for sale in the public market at various dates
beginning approximately 6 months after the date of this prospectus. Sales of a
substantial number of shares of common stock in the public market, or the threat
that substantial sales might occur, could cause the market price of our stock to
decrease significantly. These factors could also make it difficult for us to
raise additional capital by selling stock. See "Description of Capital
Stock-Shares Eligible for Future Sale".
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
-------------------------------------------------
Some of the statements under "Prospectus Summary", "Risk Factors",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", "Business", and elsewhere in this prospectus constitute
forward-looking statements. In some cases, you can identify forward-looking
statements by terminology such as "may", "will", "should", "expects", "plans",
"anticipates", "believes", "estimated", "predicts", "potential", or "continue"
or the negative of such terms or other comparable terminology. These statements
are only predictions and involve known and unknown risks, uncertainties, and
other factors that may cause our or our industry's actual results, levels of
activity, performance, or achievements to be materially different from any
future results, levels of activity, performance, or achievements expressed or
implied by such forward-looking statements. These factors include, among other
things, those listed under "Risk Factors" and elsewhere in this prospectus.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance, or achievements.
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<PAGE>
USE OF PROCEEDS
---------------
We estimate the net proceeds to us from the sale of 3,000,000 shares of
common stock in this offering to be approximately $22,096,250, assuming an
initial public offering price of $8.25 per share, and after deducting the
estimated offering expenses.
The principal purposes of this offering are to increase our capitalization
and financial flexibility, to provide a public market for the common stock and
to facilitate access to public equity markets.
Assuming completion of the offering and receipt of proceeds from the
sale of all shares offered, the proceeds are expected to be disbursed over the
next 12 months, in the priority and approximate sums set forth below:
<TABLE>
<CAPTION>
<S> <C>
Total Proceeds $24,750,000
Less: Legal, Accounting, Printing
and Offering Expenses 550,000
Underwriting Commissions 2,103,750
-----------
Net Proceeds $22,096,250
Wages and Salaries $ 2,000,000
Web site Development/Enhancement 1,000,000
Product Inventory 2,000,000
Research and Product Development 4,000,000
Computer Hardware and Equipment 1,000,000
Marketing and Sales 4,000,000
Establishment of Foreign Offices 3,000,000
Applications for Foreign Trademarks 200,000
Legal and Accounting 500,000
Working Capital 4,396,250
----------
Total Use of Net Proceeds $22,096,250
</TABLE>
A portion of the working capital may be used for the acquisition of
businesses, products and technologies that are complementary to our own, as well
as to expanding our software products and consulting services. We have not yet
identified any acquisitions. Any unused proceeds of this offering will be
invested in short-term, interest-bearing, investment-grade securities until
allocated for specific use.
In the event less funds are received from this offering, we intend to
reduce all expenditures on a prorata basis.
DIVIDEND POLICY
---------------
We have never paid any cash dividends on our common stock and do not
anticipate paying any cash dividends in the foreseeable future. We presently
intend to retain future earnings, if any, to finance the expansion and growth of
our business. Payment of future dividends, if any, will be at the discretion of
our Board of Directors after taking into account various factors, including our
22
<PAGE>
financial condition, operating results, current and anticipated cash needs and
plans for expansion.
CAPITALIZATION
--------------
The following table sets forth the capitalization of LinuxOne as of
October 31 , 1999:
You should read this information together with our financial statements and
the notes to those statements appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
Actual as of
October 31 , 1999
-----------------------
<S> <C>
Stockholders' equity:
Common stock, par value $.001 -
(Actual) 25,000,000 shares authorized,
6,573,000 shares issued and outstanding; $ 6,573
(Pro forma after offering) 25,000,000
authorized, 9,573,000 shares issued
and outstanding $ 9,573
Additional paid-in capital $23,747,000
Accumulated deficit $ (157,896)
-----------
Total stockholders' equity $23,598,677
</TABLE>
DILUTION
--------
Our net tangible book value per share immediately after this offering will
be substantially less than the assumed initial public offering price. Our net
tangible book value as of October 31, 1999 was $424,104, or $.06 per
share. Net tangible book value per share represents the amount of total tangible
assets less total liabilities, divided by the number of shares of common stock
outstanding. After giving effect to the sale by us of the 3,000,000 shares of
common stock in this offering at an assumed initial public offering price of
$8.25 per share, after deducting the estimated offering expenses, the
adjusted net tangible book value of LinuxOne will be $22,520,354, or $2.35
per share. This represents an immediate increase in pro forma as adjusted
net tangible book value of $2.29 per share to existing stockholders and
an immediate dilution of $5.90 per share to investors purchasing common
stock in this offering. The following table illustrates this per share dilution:
23
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Assumed initial public offering price $8.25
Net tangible book value per share prior to this offering .06
Increase per share attributable to this offering 2.29
Adjusted net tangible book value per share after this offering 2.35
---------
Dilution per share to new investors $5.90
</TABLE>
The following table summarizes, on a pro forma as adjusted basis, the
difference between the number of shares of common stock purchased from us, the
total consideration paid to us, and the average price per share paid by existing
stockholders and by new investors at an assumed initial public offering price of
$8.25 per share, before deducting the estimated offering expenses.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
---------------------------- -------------------
Number Percent Price Per Amount Percent
Share
------ ------- --------- ------ -------
<S> <C> <C> <C> <C> <C>
Existing stockholders 6,573,000 69% $ .09 $ 575,600 2%
New investors 3,000,000 31% $8.25 $24,750,000 98%
------------ ----- ----------- -----
Total 9,573,000 100% $25,325,600 100%
</TABLE>
SELECTED FINANCIAL DATA
-----------------------
The statement of operations data presented below for the period from
inception to October 31 , 1999, and the balance sheet data as of
October 31 , 1999 have been derived from our financial statements which
have been audited by Mark Bailey & Co., Ltd., independent accountants, and are
included elsewhere in this prospectus. You should read the data presented below
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and notes to those
statements appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
Period from Inception
To October 31 , 1999
---------------------
STATEMENT OF OPERATIONS DATA:
<S> <C>
Revenue: $ 0
Other Income
Interest Income 3,097
Costs and Expenses
Operating and administrative expenses 159,791
Depreciation expense 1,084
----------
Net Loss $ 157,896
Loss per share $ .026
24
<PAGE>
Shares of common stock used in computing
Net income (loss) per share: 6,573,000
</TABLE>
<TABLE>
<CAPTION>
As of October 31 , 1999
----------------------------------
<S> <C>
BALANCE SHEET DATA:
Current Assets
Cash $ 403,392
-------------
Total current assets $ 403,392
Property and Equipment
Property and Equipment, Net $ 18,273
----------
Other Assets
Deferred Offering Costs $ 37,909
Computer Software Costs 954
----------
Total Assets $ 460,528
Total liabilities $ 36,424
Total stockholders' equity $ 424,104
- -------------------------
(1) Our fiscal year ends on December 31, 1999.
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH OUR
FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN THIS PROSPECTUS.
SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS".
Overview
- --------
LinuxOne, Inc. is a newly-formed developer and provider of open source
software products and services, and has built a web site dedicated to the open
source software community, which became available in early October 1999.
LinuxOne, Inc. was incorporated in Nevada in March 1999. We have financed our
activities to date through proceeds from the private sale of equity securities.
Sales of LinuxOne OS, our principal product, have not resulted in any
revenue since its introduction in September 1999. We will seek to derive our
software and related products revenue primarily from the sale of software
products:
- through distributors (which we anticipate establishing) to enterprise and
retail accounts;
- directly to individual users and enterprises through our Linuxone.net web
site and our call center; and
- from original equipment manufacturers which we intend to solicit to
license our software directly.
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<PAGE>
We anticipate that we will recognize revenue from software product sales to
distributors and original equipment manufacturers for which no technical support
is provided at the time our products are shipped, net of a reserve for estimated
sales returns. This reserve is recognized based on our estimated distributors'
rates of sell-through to the end user. Revenue from the sale of software
products to individual users and enterprises for which no technical support is
provided is expected to be recognized on the date we ship the software products.
In accordance with the provisions of Statement of Opinion No. 97-2 "Software
Revenue Recognition", we intend to recognize all of the revenue from the sale of
LinuxOne OS ratably over the period that the technical support services are
provided in proportion to the costs incurred to provide such technical support
services as compared to estimated total costs to be incurred.
We introduced our Linuxone.net web site during the first week of October,
1999. We intend to develop additional features for our web site which we
believe will result in a substantial increase in the number of visitors who
access our web site. Such features will include links to other Linux Community
web sites, discussion forums, news and product features. In addition,
advertising revenue is anticipated to be derived from short-term advertising
contracts in which we typically will guarantee a minimum number of impressions
to be delivered to users over a specified period of time for a fixed fee.
Advertising rates are typically measured on a cost per thousand impressions
basis. Advertising revenue recognized ratably in the period in which the
advertisement is displayed, provided that we have no significant remaining
obligations, at the lesser of the ratio of impressions delivered over total
guaranteed impressions or the straight line basis over the term of the contract.
If we do not meet minimum guaranteed impressions requirements, we defer
recognition of the corresponding revenue until the minimum number of guaranteed
impressions is achieved. We have not yet generated revenue from the sale of
advertising on our web site. However, we believe that the expected increase in
traffic on our web site, along with our focus on marketing our advertising
services, may generate some advertising revenue in the future.
Prior to September 1999, we did not provide any service offerings to our
customers. In September 1999, we began offering our service to include
comprehensive support and maintenance, custom development, consulting and
education services. These services have not generated any amount of revenue.
We intend to market and attempt to sell our software products worldwide. In
September 1999, we commenced plans to establish international operations and we
expect that total revenue derived from sales outside of North America will
increase in the fiscal year ending December 31, 2000 as we seek to expand these
operations.
We plan to expand sales through distributors as well as direct sales through
our web site. We also plan to establish original equipment manufacturer
relationships in the fiscal year ending December 31, 2000 and, therefore, expect
that our original equipment manufacturer-related revenue for this fiscal year
will increase.
As of October 31, 1999, we had a total of 10 employees, consisting of the
following:
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Job Classification Number Annual Salary Range
- ------------------ ------ -------------------
Chief Executive Officer 1 $200,000
Chief Financial Officer 1 $150,000
Engineers 7 $60,000-$80,000
Marketing 1 $60,000
</TABLE>
We expect to continue to increase expenses associated with our sales and
marketing, research and development and general and administrative groups in
anticipation of growth and expansion. Given the expected increase in headcount,
which cannot be quantified until market conditions warrant such hiring,
we anticipate that we will need to either expand our existing offices or lease
additional office space within the next 12 to 18 months. We believe that this
expansion will result in an increase in total facilities costs.
If we receive the total net proceeds from this offering, we anticipate
adding 10 more engineers and 5 more marketing persons over the next 12 months.
We will also hire 4 additional administrative persons. These hirings would
result in a corresponding cost increase in the approximate sum of $1,500,000.
RESULTS OF OPERATIONS
---------------------
The following table sets forth our results of operations. The historical
results are not necessarily indicative of results to be expected for any future
period.
<TABLE>
<CAPTION>
For the period from Inception
on March 10 1999
To October 31 , 1999
-----------------------------
<S> <C>
Revenue $ 0
Other Income
Interest Income $ 3,097
Costs and Expenses
Operating and administrative expenses . . . . $ 159,791
Interest Expense 118
Depreciation expense 1,084
-----------
Net loss $ (157,896)
Loss per share $ (.026)
</TABLE>
Total Revenue
- -------------
We have not yet realized any revenues from our business operations.
Operating Expense -
Sales and Marketing
- -------------------
Sales and marketing expense consists primarily of salaries and other related
costs for sales and marketing personnel, sales commissions, travel, public
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<PAGE>
relations, marketing materials and tradeshows. There were no sales and marketing
expenses for the period from inception to October 31 , 1999, since we have
just completed production of our initial LinuxOne OS product and have not yet
commenced distribution and sales. We expect sales and marketing expense to
increase in the foreseeable future as we promote the expansion of our services
offerings and web site and expand our international operations.
Research and Development
- ------------------------
Research and development expense consists primarily of personnel and related
costs for our software products and web development efforts. Research and
development expense for the period from inception to October 31 , 1999,
totaled $4,677 We expect research and development expenses to continue
to increase in the future as we develop our web site and expand features in
LinuxOne.
General and Administrative
- --------------------------
General and administrative expense consists primarily of personnel and
related costs for general corporate functions, including finance, accounting,
legal, human resources, facilities and information system expenses. General and
administrative expense for the period from inception to October 31 , 1999,
totaled 159,791 $.
We expect general and administrative expense to continue to increase in the
next 12 months as we add administrative personnel to support our business
expansion.
Provision for Income Taxes
- --------------------------
We had no provision for income taxes for the period from inception to July
31, 1999, as we incurred losses during this period.
Net Loss
- --------
Since we are in the development stage and our operations to date have
principally involved research and development, market analysis and other
business planning activities, we have not yet generated any revenues from our
business activities and have incurred a net loss of ($157,896)since inception.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
We derived all of our liquidity and operating capital from private sales of
our restricted common stock since inception. At October 31 , 1999, cash
and cash equivalents totaled $403,392 , all of which was attributed to
private sales of our common stock. We did not realize any revenues from sales of
our products during the period from inception to October 31 , 1999, as
LinuxOne OS was not completed and offered for sale until September, 1999.
Cash used by operations of $159,791 for the period from inception to
October 31 , 1999, resulted primarily from our net loss of ($157,896)
These costs resulted from development and release of LinuxOne OS in late
September 1999.
Cash generated by financing activities of $578,600 for the period
from inception to October 31 , 1999 constituted net proceeds from the
private sales of our common stock.
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<PAGE>
We have experienced substantial operating expenses since our inception in
connection with the growth of our operations and staffing and the expansion of
our services operation and web site. Our capital requirements during the fiscal
year ending December 31, 2000 will depend on numerous factors, including the
amount of resources we devote to:
- fund our domestic and international expansion;
- enhance our Linuxone.net web site;
- improve and extend our consulting services offerings;
- make possible investments in businesses, products and technologies; and
- expand our sales and marketing programs and conduct more aggressive brand
promotions.
Our anticipated future operating results may be affected by various
factors, some of which are:
- our ability to establish customers, attract new customers and
satisfy our customers' demand;
- changes in gross margins of our current and future products and services;
- the timing of our release of upgrade versions of our products;
- introduction of new products and services by us or our competitors;
- changes in the market acceptance of Linux-based operating systems;
- changes in the usage of the Internet and online services;
- timing of upgrades and developments in the Linux kernel and other open
source software products;
- the effects of acquisitions and other business combinations, including
one-time charges, goodwill amortization and integration expenses or
difficulties; and
- technical difficulties or system downtime affecting the Internet or our
web site.
These factors, all of which, we believe, have equal importance in our
future performance, may have an adverse effect on not only our quarterly
results, but also the long-term viability of our Company.
For these reasons, you should not rely on period-to-period comparisons of
our financial results to forecast our future performance. Our future operating
results may fall below expectations of securities analysts or investors, which
would likely cause the trading price of our common stock to decline
significantly.
We believe that the net proceeds from this offering, together with our cash
and cash equivalents, short-term investments and cash flow from operations, will
be sufficient to meet our anticipated cash needs for working capital and capital
expenditures for at least the next 12 months, as we are projecting that our
29
<PAGE>
capital needs will be approximately $20 million during this period. We may need
to raise additional funds, however, in order to fund more rapid expansion. We
may seek to sell additional equity or debt securities or to obtain a credit
facility. The sale of additional equity or debt securities, if Convertible,
could result in additional dilution to our stockholders. The incurrence of
indebtedness would result in increased fixed obligations and could result in
operating covenants that would restrict our operations. We cannot guarantee that
financing will be available in amounts or on terms acceptable to us, if at all.
Without the proceeds of this offering, there will only be sufficient cash
to fund operations for approximately three months. We are dependent on the
proceeds from this offering to continue funding and expanding our business
operations. We have no external source of liquidity.
Our Company has been issued a going concern audit opinion and we
have established what we consider a viable plan to continue in operation, which
is to scale back operations and expenses and continue business on a smaller
scale than originally planned.
RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities". This statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. As issued, this
statement is effective for all fiscal quarters of all fiscal years beginning
after June 15, 1999, with earlier application encouraged. In May 1999, the
Financial Accounting Standards Board delayed the effective date of this
statement for one year, to fiscal years beginning after June 15, 2000. We do not
currently nor do we intend in the future to use derivative instruments and
therefore do not expect that the adoption of Statement of Accounting Standards
No. 133 will have any impact on our financial position or results of operations.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants, issued Statement of Position No.
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use", which provides guidance regarding when software developed or
obtained for internal use should be capitalized. This statement is effective for
transactions entered into in fiscal years beginning after December 15, 1998. We
do not expect that the adoption of this statement will have a material impact on
our financial position or results of operations.
In December 1998, the Accounting Standards Executive Committee issued
Statement of Position No. 98-9, "Modification of Statement of Position No. 97-2,
Software Revenue Recognition, with Respect to Certain Transactions". Statement
of Position No. 98-9 amends Statement of Position No. 97-2 to require
recognition of revenue using the "residual method" in circumstances outlined in
Statement of Position No. 98-9. Under the residual method, revenue is recognized
as follows:
- the total fair value of undelivered elements, as indicated by vendor
specific objective evidence is deferred and subsequently recognized in
accordance with the relevant sections of Statement of Position No. 97-2;
and
- the difference between the total arrangement fee and the amount deferred
for the undelivered elements is recognized as revenue related to the
delivered elements.
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<PAGE>
Statement of Position No. 98-9 is effective for transactions entered into in
fiscal years beginning after March 15, 1999. Also, the provisions of Statement
of Position No. 97-2 that were deferred by Statement of Position No. 98-4 will
continue to be deferred until the date Statement of Position No. 98-9 becomes
effective. We do not expect that the adoption of Statement of Position No. 98-9
will have a significant impact on our results of operations or financial
position.
YEAR 2000 COMPLIANCE
--------------------
In July 1999, we formed a committee consisting of our President, Chief
Financial Officer, and a systems administrator, as part of our effort to perform
a coordinated audit of:
- our proposed products;
- the software components and applications with which our proposed products
will be bundled; and
- the systems upon which we rely for our internal operations.
Products
- --------
The committee has tested versions of LinuxOne OS, LinuxMac and LinuxOne
Lite by accelerating the date within these software programs to December 31,
1999 and observing which software components failed as the date changed to
January 1, 2000. These tests revealed that all versions of these 3 products
were Year 2000 compliant. In addition, in September 1999, we hired an
independent contractor to test LinuxOne OS for Year 2000 readiness. The
independent contractor certified the products as Year 2000 compliant. In light
of the testing results and certification, we do not plan to generate a
contingency plan if any of our products is later found not to be
Year 2000 compliant. Since all of our other products are only in the
development stage and will not be released until after January 2000, we have not
tested any products other than LinuxOne OS, LinuxMac and LinuxOne Lite.
If it is later determined that products that we have not tested are not Year
2000 compliant, we believe that we have the resources, either in-house or within
the open source community, to quickly remedy any non-compliant products. If it
is necessary to remedy problems related to the Year 2000 issue, such efforts
could otherwise divert our resources from pursuing our business strategy. In
addition, known or unknown errors or defects in our products could result in
delay or loss of revenue, diversion of development resources, damage to our
reputation, or increased service and warranty costs, any of which could
materially adversely affect our business, operating results or financial
condition. Furthermore, some commentators have predicted significant litigation
regarding Year 2000 compliance issues, and we are aware of such claims and
actions against other software vendors. Because of the unprecedented nature of
this litigation, we cannot predict whether or to what extent, if any, we may
be affected by it.
Third-Party Products
- --------------------
We bundle third-party applications and software components with LinuxOne OS.
The committee is currently contacting all third-parties, including
suppliers and service providers, with whom we do business for Year 2000
readiness and compliance assurances. We have been verbally assured by
the majority of our third-party providers that they are Year 2000 compliant.
However, the software we distribute is bundled with programs contributed by
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<PAGE>
thousands of developers around the world and is freely available to anyone. It
would be impossible for us to contact all these programmers and designers to
determine whether their bundled software is Year 2000 compliant. Nevertheless,
it is possible that the costs associated with the failure of any
third-party products could be material to our business, results of
operations and/or financial condition. We do not intend to expend
resources to seek out and correct problems before they arise. Accordingly, it
is possible that some of our customers may experience difficulties related to
bundled third-party software, which may affect the performance of our
products and may lead to adverse results such as an unusually number of calls
to our technical support department or other unusual requests for information
or assistance. Responding to these requests may divert resources from pursuing
our business strategy. Any failure of applications bundled with
our software may reduce the value of our products, decrease or delay revenues,
tarnish our brand, give rise to breach of warranty claims or divert resources,
any of which could materially adversely affect our business, results of
operations and financial condition.
Internal Systems
- ----------------
We are in the process of identifying and evaluating the Year 2000 compliance
of systems upon which we rely for internal operations such as our computer
hardware, software, web server and other related equipment and systems, such as
phone systems and security systems. In October 1999, we plan to test our
internal systems by simulating a century roll-over. We do not believe that the
costs involved in making our internal systems Year 2000 compliant will be
material because all of our internal mission-critical hardware and enterprise
software vendors and systems are certified Year 2000 compliant. In addition,
most of our internal systems run on LinuxOne OS. Most of our computer hardware
is new, but in the event any of our hardware malfunctions, we will replace it.
We do not expect to incur material costs to replace any such defective hardware.
The lessor of our corporate headquarters has verbally indicated that our
offices are Year 2000 compliant. We currently house substantially all of our
communications hardware and our other computer operations related to our web
site on site at our facilities.
Worst Case Scenario
- -------------------
We have not tested any of our products other than LinuxOne OS and have not
tested software provided by, nor sought certifications from, third parties
bundling software with LinuxOne OS. Our likely worst case Year 2000 scenario
would be that these products and bundled software from third-parties fail in the
year 2000, resulting in a decreased demand for our products and damage to the
LinuxOne OS brand. In the event of a Year 2000 failure we would devote
resources to correct it. Because of our skilled in-house developers and
relationships with the open source community and third-parties whose
software we bundle with LinuxOne OS, we believe we will be able to respond
promptly to any failures that occur. The costs of such response and the
diversion of resources, however, could have a material adverse effect on our
business, results of operation and financial condition.
Contingency Plans and Expected Costs
- ------------------------------------
The committee is in the process of developing further checklists of software
applications to test and systems upon which we rely and intend to contact
and will seek certification documents from the developers and providers
regarding Year 2000
32
<PAGE>
compliance of their systems and products. The committee will develop contingency
plans based on the responses regarding its critical systems that it receives, or
does not receive, from its providers and developers. We presently expect that we
will complete this effort by the end of the year.
To date, we have not expended a material amount of capital resources on Year
2000 compliance and do not anticipate future expenditures to be material to our
business, results of operations and financial condition. We have not hired
additional personnel to specifically address our Year 2000 compliance issues,
and presently, we do not expect to do so. Through October 31 1999, we have
incurred approximately $500 in costs to make our internal systems Year 2000
compliant. These costs were primarily incurred to update our accounting and
financial management software and systems. The product and testing expenditures
to date relate primarily to on-going salary costs of personnel, including
committee members, participating at various levels in our compliance efforts, as
well as payments of approximately $500 to the independent contractor that tested
LinuxOne OS. All costs related to achieving Year 2000 readiness are being
expensed as incurred, unless they relate to the cost of new software or hardware
for our internal systems. We anticipate the costs of Year 2000 compliance to
be in the approximate amount of $2,500.
PLAN OF DISTRIBUTION
====================
Subject to the terms and conditions contained in the underwriting agreement, the
underwriters named below, for which Capital West Securities, Inc. is serving as
a representative, have severally agreed to purchase from us, an aggregate of
3,000,000 shares of common stock at the initial public offering price, less the
underwriting discounts and commissions, set forth on the cover page of this
prospectus. The number of shares of common stock that each underwriter has
agreed to purchase is set forth opposite its name below:
<TABLE>
<CAPTION>
Name Number of Shares
- ---- ----------------
<S> <C>
Capital West Securities, Inc.
---------
Total 3,000,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares of common stock are subject to certain
conditions, including the absence of any material adverse change to us and the
receipt of certificates, opinions and letters from us, our counsel and
independent auditors. The underwriters are obligated to purchase all of the
shares of common stock offered by this prospectus (other than those covered by
the over-allotment option described below), if any are purchased.
The representative of the underwriters has advised us that the underwriters
propose initially to offer the common stock to the public at the initial public
offering price set forth on the cover page of this prospectus and to certain
dealers at such price less a concession not in excess of $ per share, and
that the underwriters and such dealers may reallow a concession of not in excess
of $_____ per share to other dealers. The initial public offering price and the
concessions and discount to dealers may be changed by the representative after
the initial public offering.
33
<PAGE>
We have granted an option to the representative, expiring at the close of
business on the 45-day period after the date of this prospectus, to purchase up
to an additional 450,000 shares on the same terms as set forth in this
prospectus, including the initial public offering price. The representative may
only exercise the option (in whole or in part) to cover over-allotments incurred
in connection with the sale of common stock in this offering.
The representative has advised us that the underwriters do not expect any
sales to accounts for which any of the underwriters will exercise discretion as
to such sale.
The underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with regulations
of the Securities and Exchange Commission. Over-allotment involves syndicate
sales in excess of the offering size, which creates a syndicate short position.
Stabilizing transactions permit bids to purchase the underlying security so long
as the stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the securities in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the representative to reclaim a selling concession from a
syndicate member when the securities originally sold by such syndicate member
are purchased in a syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on the American Stock Exchange or otherwise and, if commenced, may be
discontinued at any time.
Neither LinuxOne nor the underwriters can predict the effect that the
transactions described above may have on the price of the common stock. In
addition, neither LinuxOne nor the underwriters represent that the underwriters
will engage in such transactions. If commenced, such transactions may be
discontinued at any time without notice. The underwriters are not obligated to
make a market in the common stock and if they do so may discontinue making a
market at any time. There is no assurance an active trading market will ever
develop for the common stock.
Upon completion of this offering, we will sell to the representative for
$300 warrants to purchase 300,000 shares of common stock. The representative's
warrants will become exercisable one year from the effective date of this
offering at a per share exercise price equal to 120% of the initial public
offering price and will expire five years from the effective date. During the
exercise period, holders of the representative's warrants are entitled to
certain demand and incidental rights with respect to the shares of common stock
issuable upon exercise of the representative's warrants. The common stock
issuable on exercise of the representative's warrants is subject to adjustment
in certain events to prevent dilution.
We will pay the representative a nonaccountable expense allowance of 3.0%
of the gross proceeds of the offering, which will include proceeds from the
over-allotment option, if exercised. The representative's expenses in excess of
the non-accountable expense allowance, including their legal expenses, will be
borne by the representatives. We have paid $25,000 to the representative as an
advance for these expenses.
34
<PAGE>
We have agreed to indemnify the underwriters against certain liabilities,
including civil liabilities under the Securities Act, and to contribute to
payments which the underwriters may be required to make regarding these
liabilities.
The officers, executive directors and 5% or more beneficial shareholders of
LinuxOne have agreed with the underwriters that, without the prior written
consent of Capital West on behalf of the underwriters, they will not sell or
otherwise dispose of any common stock or any securities convertible into common
stock for a period of two years following the date of this prospectus.
Prior to this offering, there has been no public market for the common
stock. Consequently, the initial public offering price has been determined by
negotiations among us and the representative. Among the principal factors
considered in determining the initial public offering price of the common stock
were our history and prospects, the industry in which we operate, the abilities
of our management, the status of our products and proposed services, our past
and present operating results, and the general condition of the securities
markets at the time of this offering.
The estimated initial public offering price per share set forth on the
cover of this preliminary prospectus is subject to change as a result of the
above and other factors.
Capital West Securities, Inc., one of the underwriters, was first
registered as a broker-dealer in May 1995. Capital West has participated in
only ten public equity offerings as an underwriter, although certain of its
employees have had experience in underwriting public offerings while employed by
other broker-dealers. Prospective purchasers of the securities offered hereby
should consider Capital West's limited underwriting experience in evaluating
this offering.
BUSINESS
========
We are a newly-formed developer and provider of open source software and
services, including the LinuxOne Operating System. Our web site, Linuxone.net,
is a new online source of information and news about open source software and
one of the online communities of open source software users and developers. In
addition to offering content for the open source community, Linuxone.net serves
as a forum for open source software development and offers software downloads
and a shopping site. Our professional services, which commenced in October,
1999, include custom development and consulting, technical support, training
and education. We are committed to serving the interests and needs of open
source software users and developers and to sharing all of our product
developments with the open source community.
INDUSTRY BACKGROUND
-------------------
Impact of the Internet
- ----------------------
The Internet has emerged as a global communications medium, enabling
millions of people to gather information, communicate and conduct business
electronically.
35
<PAGE>
The Internet's ability to empower customers, reduce transaction costs and
product development times and accelerate the pace of business transactions has
dramatically transformed the competitive landscape of a wide range of
industries. The Internet provides customers with a broader selection, increased
purchasing power and unparalleled convenience while enabling businesses to reach
a global audience, increase economies of scale and operate with minimal
infrastructure. The Internet has facilitated the emergence of new competitors
and is increasingly affecting the methods by which incumbent competitors sell
goods and services and manage relationships with customers.
For example, in the software industry, the Internet is profoundly changing
the way that software is developed and distributed. The Internet has enabled
multiple groups of developers to collaborate on specific projects from remote
locations around the globe. Developers can write code alone or in groups, make
their code available over the Internet, give and receive comments on other
developers' code and modify it accordingly. The Internet has also provided an
avenue not only for less expensive and speedier delivery of code, but also for
support and other online services.
Open Source Software
- ---------------------
The Internet has accelerated the development of open source software. Open
source software has its origins in the academic and research environments and is
based on an open, collaborative approach to the development and distribution of
software. The growth of the Internet has greatly increased the scale and
efficiency of open source development through the availability of collaborative
technologies such as e-mail lists, news groups and web sites. These technologies
have enabled increasingly large communities of independent developers to
collaborate on more complex open source projects. An early example of open
source development is the X Windows system, a graphical user interface developed
by the X Consortium. The members of the X Consortium, originally Digital,
Hewlett-Packard, IBM and Sun Microsystems, wanted a common user interface for
their own proprietary operating systems. By openly sharing development ideas and
coding efforts, these companies were able to quickly and cost-effectively
develop a superior user interface.
Open source software has emerged as a viable alternative to traditional
proprietary software. Under the proprietary model of software development, a
software developer generally licenses to the user only the object or binary
code. Binary code consists of the 1s and 0s that only the computer understands.
By contrast, under the open source development model, the software developer
provides to the user access to both the binary code and the source code. Source
code is the language used by the developers. The principal differentiating
points of open source software include:
- development process--open source software allows a company's in-house
development team to collaborate with a community of independent
developers;
- license terms--under open source licenses, the user has access to both
binary and source code, and the rights to copy, modify, alter and
redistribute the software; and
- shared improvements--under the open source model, the user has ongoing
access to improvements made to the software by others.
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<PAGE>
We believe open source software offers many potential benefits for software
customers, users and vendors. Customers and users are able to acquire the
software at little or no cost, install the software on as many computers as they
wish, and customize the software to suit their particular needs. In addition,
customers and users can obtain software updates, improvements and support from
multiple vendors, reducing reliance on any single vendor. Vendors are able to
leverage the community of open source developers, allowing them to reduce
development costs and decrease their time to market. Vendors are also able to
distribute their products freely over the Internet, enabling them to create
large global user bases quickly.
Participants in open source development can generate revenue in a variety of
ways, including:
- making their own open source products widely available, and then offering
technical support, custom development, and related services to customers;
- using open source products as a means of attracting visitors to their web
sites, where they can earn money from the sale of other products,
services, and advertising; and
- developing brand loyalty and a reputation for quality by providing
technically superior open source software products, which they can
leverage to sell additional products and services to customers.
Just as the open source model has benefited from the success of the
Internet, it has also greatly contributed to the Internet's success. Open source
software comprises much of the Internet's infrastructure, from domain name
server software to web servers and e-mail router software. While it is
difficult to estimate the workstation population, servers based on Linux and
Apache software are estimated to be up to 40% of the active Internet devices.
However, there is no statistical data available to validate this estimate.
Open source software is particularly well-suited to the Internet. With access to
the source code, system administrators and developers can collaborate to debug,
fix and optimally configure their software on a real-time basis. This enables
them to improve performance and keep data flowing continually across the
Internet, minimizing the disruptions and downtime common with proprietary
software.
The following examples demonstrate the prevalence of open source software on
the Internet:
- Apache Web Server--based on code originally written at the National Center
for Supercomputing Applications at the University of Illinois at
Champaign-Urbana, is the most common web server in use today according to
a survey conducted by Netcraft.
- Perl--a standard scripting language for Apache servers.
- Sendmail--the Internet's standard e-mail routing tool
One of the better known open source products is the Linux kernel, the engine
or center of all operating system activity, of Linux-based operating
systems. An operating system is the software that allows a computer and its
various hardware and software components to interact. An initial goal of the
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<PAGE>
open source software movement was to develop an operating system that was
better, faster and more reliable than the proprietary operating systems then
available. Viewing UNIX as the best commercially-available operating system,
the open source community decided to incorporate the best design ideas from
UNIX. Open source developers rewrote all of the underlying source code so that
it could not be controlled by a single corporation or individual. By the early
1990s, these efforts had resulted in a number of significant software
initiatives but had fallen short of building a complete operating system. Still
missing from the project was the engine upon which the new operating system was
to run, known as the kernel.
In 1991, Linus Torvalds, a young Finnish developer, supplied a stable and
powerful open source kernel, known as Linux, to run the operating system.
Operating systems based on the Linux kernel are stable and capable of all
UNIX functionality, plus the Linux extensions and are supported and extended by
developers around the world. Thousands of developers worldwide continually
collaborate on improving Linux-based operating systems and update them on a
regular basis.
Since 1991, the use of Linux-based operating systems has been increasing
Beginning in 1998, a number of major technology industry leaders, including
IBM, Intel and Hewlett-Packard, announced support for Linux-based operating
systems. The Linux kernel and the standards around which it is developed remain
under the close supervision of Linus Torvalds and a small group of kernel
developers working under his leadership. Linus Torvalds and his team continue
to test and improve the Linux kernel. Some distributions of Linux have been
certified as POSIX compliant, but, in general, Linux is its own standard. All
UNIX applications run under Linux. However, the open source community has
extended Linux and its applications well beyond Linux proper.
Some of the benefits enjoyed by users of Linux-based operating systems
include:
- reduced licensing costs;
- flexibility resulting from access to and legal right to modify source
code;
- stability and performance resulting in fewer software stalls or
crashes;
- comprehensive Internet support; and
- multi-platform capability. Linux runs on Intel, alpha, Sun, or any
other UNIX platform. The C++ code may be compiled and run on virtually
any Hardware platform in existence.
Despite a strong initial market acceptance of Linux-based operating systems
and other open source products, there exists a number of obstacles to widespread
adoption within the enterprise, including:
- lack of service and support for free downloads and distributions;
- scarcity of applications supporting Linux-based operating systems; and
- lack of well-financed, viable open source industry participants.
The ability of a Linux-based operating system to penetrate large businesses
on an enterprise-wide basis and to gain widespread acceptance as a viable
alternative to operating systems developed under the proprietary software model,
depends, in large part, on the emergence of a proven leader in the open source
community. This open source leader must demonstrate to the business enterprise,
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as well as to the community of application developers upon whom the business
enterprise relies, a successful business model and the ability to support and
service its products at a consistently reliable and effective level.
THE LINUXONE SOLUTION
---------------------
To address the challenges facing the open source software market, our
product and services offer the following features and benefits:
Open Source Product Offerings
- -----------------------------
Since Linux is the only open source operating system, we engineer what
we believe to be the most technically advanced open source operating system,
LinuxOne OS. Our software engineers continuously seek to remain abreast of
technical advances, plans for development of new features and timing of
releases, as well as other information related to the development of the Linux
kernel and other open source projects. As a result, we are able to react
quickly to new developments and to contribute to the future direction of the
Linux kernel and the open source concept.
We compile and integrate approximately 570 separate software packages into
LinuxOne OS consisting of some of the most technically advanced software
products available, including compilers and web, e-mail, file transfer protocol
and file servers. LinuxOne OS is:
- flexible and scalable--capable of running a single desktop machine or the
entire network of a large business enterprise;
- functional--able to handle discrete or multiple applications being
accessed by multiple users;
- adaptable--allowing the user to modify the software to meet particular
needs and requirements; and
- reliable--constantly monitored and fine-tuned by thousands of developers
worldwide.
In addition to offering technically advanced products, we intend to provide
purchasers of our LinuxOne OS with extensive written documentation and limited
installation support. Our technical writers work closely with our software
development engineers to prepare manuals and other documentation that accurately
and clearly describe the many features of LinuxOne OS and advise the user on how
to exploit these features. In addition, we make LinuxOne OS available to users
via free download from our web site. However, written documentation and
installation support will only be available to purchasers of LinuxOne OS and not
to users who download the software from our web site.
Online Destination for the Open Source Community
- ------------------------------------------------
We have established our web site as a new online destination related to the
open source movement. We are dedicated to serving the interests and needs of
open source software users and developers online. Our web site is a
comprehensive resource for the latest information related to Linux and other
open source projects. It contains news of interest to open source users and
developers, software updates and downloads, and a shopping center for our
shrink-wrapped products and support offerings. We intend to make our web site a
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clearinghouse of open source and Linux-related information, and facilitating the
interaction of developers, businesses and technology enthusiasts in the open
source movement.
Commitment to the Open Source Model
- -----------------------------------
LinuxOne has fully embraced the open source model. Others have incorporated
some of the aspects of the open source software model into their
businesses, while retaining various features of the proprietary model. Our
product offerings are true open source offerings. We share all of our
developments on and improvements to the Linux kernel and other open source
products with the development community. In this way, we benefit independent
developers by making our products more useful for them in their own development
projects. In addition, we have promoted and distributed our products in the
marketplace by making them available free of charge by download from our web
site, and by issuing free CD-ROMs containing LinuxOne through direct mailing
campaigns.
Professional Services
- ---------------------
In October, we also began offering professional services relating
to the development and use of open source products. These services include
technical support, custom development, consulting, training, and education
relating to open source products and our LinuxOne OS. We believe that
providing these services and establishing ourselves as our customers' technology
development partner will allow us to facilitate the widespread adoption of
LinuxOne OS as a full scale enterprise solution.
Future Marketing/Distribution Relationships
- -------------------------------------------------
In an effort to increase the market acceptance of open source software in
general, and the LinuxOne operating system in particular, we will seek to
establish development, marketing and/or distribution relationships with leading
technology companies. In addition, we intend to share our development efforts
with and commit resources to third party developers and vendors in order to
expand the number of applications available for Linux-based operating systems.
By establishing and maintaining these relationships, we will seek to increase
market awareness of open source software. See "Sales, Marketing and
Distribution".
STRATEGY
--------
Our objective is to establish our position as a leading worldwide developer
and provider of advanced, open source products and services, both via
traditional channels and the Internet. The key elements of our strategy are:
Continue to Develop Our Web Site
- --------------------------------
We are continuing to develop our web site in an effort to create the
definitive online destination for open source software products, software
updates, news, and other information related to Linux-based operating systems
and other open source projects, and to provide advertisers with a large and
technically sophisticated audience. At Linuxone.net, people from around the
world will be able to obtain updates to open source software, purchase a wide
array of open source products and services, access and copy code for their own
programming efforts, read news, link to related topics of interest to the
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community and interact with other community members. New features we anticipate
adding to our web site include:
- software update notification;
- automatic software updating for those who want it;
- open source classifieds (including products for sale and employment
listings);
- schedule of Linux-related events, including trade shows; and
- virtual trade shows.
By adding these features to our web site, we believe that our visitors will
continue to visit on a regular basis, and that we will attract an increasing
number of new visitors. In addition, we believe that these new features and
offerings will keep visitors on our site for longer periods of time, which we
believe will be crucial to our ability to generate significant advertising
revenue.
Expand Service Capabilities to Address the Enterprise Needs of Large
Corporations
- ---------------------------------------------------------------------
We believe that we must expand our services capabilities to address the
market need for quality custom engineering and development. We are currently
making plans to expand our professional services organization to enhance our
ability to provide such services. We believe that as our user base grows, more
of our customers, particularly our larger customers, will look to us to help
them customize their operating systems to perform optimally within their
particular computing environments. We believe that by increasing our capacity to
offer such services, we will be able to significantly increase our services
revenue and establish ourselves as one of the premier open source service
providers.
Increase Market Acceptance of Open Source Software
- --------------------------------------------------
Although recent years have seen a substantial increase in the market
acceptance of Linux-based operating systems and other open source software, we
intend to promote further acceptance of open source software through a variety
of means, including establishing business relationships with other
information technology companies. The strength of these relationships is
crucial to the expansion of the open source community, the technical advancement
and widespread distribution of open source products and the development of
third-party applications suitable for Linux-based operating systems.
Although we intend to increase our own engineering and development efforts,
we believe that by entering into and maintaining marketing and/or
distribution relationships with other well-known software development and
hardware companies, and sharing technical information and data, we
will help LinuxOne continue to keep abreast of technical
developments, and that such development is compatible with the technological
innovations of other key vendors in our industry. Relationships with these
companies will assist us in providing additional value-added software to the
Linux community and our customers and in developing new device drivers,
applications and products which will enhance our LinuxOne OS.
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By entering into marketing and/or distribution relationships with
major distributors, retail outlets, original equipment manufacturers, and value-
added resellers worldwide, we intend to make LinuxOne and other open source
products more widely available. As of the date of this offering, we have
entered into three (3) distribution agreements:
1. On October 28, 1999, we entered into a non-exclusive agreement with
SRINET, Inc. to sell, reproduce and distribute the Japanese and Chinese versions
of LinusOne OS in China and Japan. We have derived no revenues from this
agreement to date.
2. On December 2, 1999, we entered into a distribution agreement with
Data Becker Corp., a German book and software publisher. The agreement provides
for Data Becker Corp. to insert CD-Rom copies of Linux-One Lite into 5 magazines
it distributes in Germany and other parts of Europe. We do not derive any
revenues from Data Becker Corp., but will receive free distribution and
publicity, as Data Becker Crop. pays all costs and expenses for the CD-Rom and
distribution.
3. On December 15, 1999, we entered into an exclusive distribution
agreement with Sichuan International Economy, Science & Technology Promotion
Association, which provides for distribution of all Linux One products in
Southwest China. To date, we have received no revenues from this agreement.
Additional means of increasing the market acceptance for Linux-based
operating systems and other open source software include expanding our
international presence, broadening our services offerings and attending trade
shows.
Develop and Continue to Enhance the LinuxOne Brand
- --------------------------------------------------
We believe that building the LinuxOne brand is vital to the creation and
expansion of our customer base. We intend to aggressively promote our web site
as a definitive source for open source products, services, resources and other
information. In addition, we expect to design tightly-focused advertising
campaigns, both in computer related publications and in general purpose media,
in order to attract new users to LinuxOne and open source software. Through
these measures, we intend to build the LinuxOne brand into a symbol of quality
for open source software.
PRODUCTS AND SERVICES
---------------------
We intend to become an emerging provider of open source software products
and services. Our product offerings include LinuxOne OS and related tools,
documentation, manuals and general merchandise. Our professional services
offerings include technical support, training and education, consulting and
custom development.
LinuxOne and Related Software
- -----------------------------
LinuxOne OS is our principal product. We first released LinuxOne OS in
September, 1999, in beta form, and began shipping in September, 1999. LinuxOne
OS provides everything the user needs to perform a wide variety of server
functions, including setting-up a web, e-mail, file or print server as well as
using the computer as a general purpose desktop workstation to perform virtually
any computing function. LinuxOne OS comes with a number of third-party
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applications, including office productivity and e-commerce applications, as well
as comprehensive user manuals and limited installation support. The suggested
retail price for LinuxOne OS will be $29.95, without support, and $79.95 for
LinuxOne OS Professional, with technical support for 30 days.
We plan to introduce versions of our LinuxOne software products tailored for
six distinct language markets: Chinese, Japanese, French, Spanish, German and
English. In addition to the English version, the Chinese version will be the
first international version to be delivered, with a penetration strategy that
focuses first on a very low cost version, followed by upgrades and enhancements
sold at competitive market prices. These language versions are currently in
development and are currently projected for public release as follows:
<TABLE>
<CAPTION>
<S> <C>
Language Version Projected Release Date
---------------- ----------------------
Chinese 4th Quarter - 1999
Japanese 1st Quarter - 2000
German 2nd Quarter - 2000
French 3rd Quarter - 2000
Spanish 4th Quarter - 2000
</TABLE>
Linuxone.net
- ------------
As of August 31, 1999 we had 3 professionals focused on the development
and maintenance of our Linuxone.net web site. Linuxone.net offers users access
to broad and authoritative content on open source software including news,
employment and links to other Linux-related sites. We also offer extensive
features for the open source community, software updates and downloads and a
shopping center for our shrink-wrapped products and support offerings.
We also intend to create and offer the following benefits via our web site:
- Personalization--users will be able to register on the site and select
custom presentations of information that are specifically tailored to
their needs.
- Advertising and sponsorships--the Linuxone.net target audience is
very focused and technically sophisticated, representing an attractive
target market of computing professionals for advertisers.
- Commerce--we intend to build the LINUXONE.NET store into one of the most
comprehensive open source shopping resources for Linux-related products.
LinuxOne Games
- ---------------
We are presently compiling games and other graphic applications for
operation on our Linux software. We intend to build a web site with the
operating software available for $19.95. With each copy, the purchaser may elect
to join and become a member of a game club for $9.95, which provides an online
library of available games that will grow monthly. Parents can request a PIN to
control access to violent or sex-content games. Once the fee has been paid,
members will have perpetual access. Games will be rated, and all will be
certified for operation on the Linux software. The "Games" phase is intended to
provide us with early market recognition, build interest and set the stage for
follow-up products and services.
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Professional Services
- ---------------------
Although we have not generated any revenue to date from our professional
services, which we started offering in October 1999, we have recently
significantly expanded the scope of our service offerings to include
technical support, custom development, consulting, training and education,
and expect them to generate significant revenues in the future. These
services will be marketing to the Linux users community and our software
customers.
Support and Maintenance
- -----------------------
Customers who purchase our LinuxOne OS professional product are entitled to
30 days of telephone installation support at no additional charge. Customers
may purchase an additional 30 days of telephone technical support with
a toll-free number for a flat rate of $50.00 US. We have a trained and
skilled staff of technical support engineers to provide these services to our
customers.
Training and Education
- ----------------------
We intend to provide training and educational programs to those customers
who want to learn how to optimize their use of LinuxOne OS. We also intend to
conduct on-site training for customers. We anticipate that we will work with
third-party training and educational program providers to develop and offer
additional training courses on a variety of topics related to LinuxOne OS and
open source software.
Consulting and Custom Development
- ---------------------------------
We intend to offer specific consulting and custom development services on an
individualized basis. We intend to develop our consulting and custom
development capabilities in the near future.
SALES, MARKETING AND DISTRIBUTION
---------------------------------
Software Products and Services
- ------------------------------
We intend to sell our products and services worldwide through direct
marketing and telesales campaigns and our web site, and indirectly through our
proposed distributors, retailers, catalogs and original equipment manufacturers.
Our direct sales force of 3 individuals, as of August 31, 1999, is
focused on establishing worldwide sales. As of August 31, 1999, our
indirect distribution channel was in the planning stage. We cannot be certain
that our sales, marketing and distribution strategies will be successful.
Initially, we intend to target large corporations and universities with
internal UNIX server strategies as our primary customer targets. This strategy
will help minimize the required investment, while attempting to build a
solid customer base and market share. During this phase, we will also
attempt to position Dr. Chiou as a leading presence in the Linux market through
speaking engagements, publications, and other media exposure.
We anticipate that our direct marketing efforts will support our sales and
distribution efforts through participation in industry trade shows, targeted
advertising, public relations campaigns, retail promotions, customer surveys and
the promotion of our products through our web site. In addition, we offer our
software products for free download from Linuxone.net.
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Linuxone.net Web Site
- ---------------------
We are preparing materials designed to sell advertising on our web site. We
expect to generate significant revenue from the sale of advertising and
sponsorships in the future.
COMPETITION
-----------
In the market for operating systems, we compete with a number of large and
well-established companies that have significantly greater financial resources,
larger development staffs and more extensive marketing and distribution
capabilities. These competitors include Microsoft, Novell, IBM, Sun Microsystems
and The Santa Cruz Operation, all of which offer hardware-independent multi-user
operating systems for Intel platforms, and AT&T, Compaq, Hewlett-Packard,
Olivetti and Unisys, each of which, together with IBM and Sun Microsystems,
offers its own version of the UNIX operating system. Many of these competitors
bundle competitive operating systems with their own hardware offerings, thereby
making it more difficult for us to penetrate their customer bases.
In the newer and rapidly evolving Linux-based operating system market, we
compete with a number of well-respected vendors and development projects. These
competitors have established and stable customer bases and continue to attract
new customers. We also compete for services revenue with a number of companies
that provide technical support and other professional services to users of
Linux-based operating systems. Most of these companies have larger and more
experienced organizations than we do. In addition, we face potential competition
from several companies with larger customer bases and greater financial
resources and name recognition than we have, such as Red Hat, SuSE, Caldera, and
Mandrake, each of which is established in the Linux-based operating systems
market.
The Linux-based operating systems market is not characterized by the
traditional barriers to entry that are found in most other markets, due to the
open source nature of our products. For example, anyone can copy, modify and
redistribute LinuxOne themselves. Accordingly, it is possible that new
competitors or strong partnerships among competitors may emerge and rapidly
acquire significant market share.
We believe that the major factors affecting the competitive landscape for
our products include:
- name and reputation of vendor;
- product performance, functionality and price;
- strength of relationships in the open source community;
- availability of user applications;
- ease of use;
- networking capability;
- breadth of hardware compatibility;
- quality of support and customer services;
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- distribution strength; and
- relationships with related companies in the industry .
Although we believe that we can compete favorably with many of our
competitors in a number of respects, including product performance,
functionality and price, networking capability, and breadth of hardware
compatibility, we believe that many of our competitors enjoy greater name
recognition, have superior distribution capabilities and offer more extensive
support services than we currently do. In addition, there are significantly more
user applications available for competing operating systems, such as Windows NT
and UNIX, than there are for Linux-based operating systems. An integral part of
our strategy in the near future, however, is to address these shortcomings by,
among other things, establishing strategic relationships in an effort to enhance
our name recognition, expand our distribution capabilities and attract more
attention to the open source movement, which in turn, should create additional
incentives for software developers to write more applications for LinuxOne.
In the market for advertising revenue, we will compete with other online
content providers and traditional forms of media such as newspapers, magazines,
radio and television. We believe that the principal competitive factors in
attracting advertisers include the amount of traffic on LinuxOne, brand
recognition, customer service and support, the demographics of our users and
visitors, our ability to attract targeted audiences and the overall
cost-effectiveness of the advertising medium that we offer.
SOFTWARE ENGINEERING AND DEVELOPMENT
------------------------------------
We have invested, and intend to continue to invest, substantial amounts of
our resources in product and technology development. We intend to focus and
modify our product development efforts based on the needs of users and changes
in the marketplace. We are currently focusing our development efforts on
improving the Linux kernel, as well as commercializing our software innovations
into new products and product enhancements that are easier to use and provide
greater functionality.
Our software engineers have contributed to the development and maintenance
of some of the most important components of the LinuxOne OS, including the
installation program and the package management program. The installation
program provides users with a single method to install the hundreds of separate
software programs that are included with LinuxOne OS so that, from the user's
perspective, the hundreds of programs appear as one. This simplified process
sharply reduces the time and effort required to install a Linux-based operating
system, as compared to the alternative of gathering the hundreds of programs one
by one via the Internet. The installation program provides default settings for
the user depending upon whether the user wishes to use LinuxOne OS as a server
operating system or as a workstation operating system. The installation also
provides advanced users with the ability to customize the programs that are
installed, allowing for significant flexibility and control over the operating
system. The installation also automatically detects the type of hardware that
comprises the user's computer, in order to ensure that all programs necessary
for LinuxOne OS to work on the hardware are properly installed.
Our software development engineers perform extensive testing of LinuxOne to
ensure that it is properly assembled and works as a coherent whole from the
user's perspective. We use industry standard methods of quality assurance
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testing to ensure that LinuxOne is solidly engineered and ready for use by our
customers when shipped. We also operate a beta testing program for LinuxOne OS.
Under this beta testing program, we post a beta or test version of the operating
system on the Internet. Developers and users around the world then suggest
improvements and identify bugs. Each suggestion is circulated over the Internet
in an attempt to encourage others to assist in the programming of a solution. In
this way, LinuxOne OS users are treated as co-developers. Bug fixes and
enhancements are tested by other users and our engineers, and when corrected,
added to the next release. When the beta version is viewed as stable and
complete, it becomes the next production version, and a new beta cycle begins.
Our web development team consists of in-house engineers with
Considerable experience in developing scalable web-based applications, along
with subcontractors we use through the Internet. We continue to develop
applications on LinuxOne.net for user registration, commerce, and content
management and publication. We test these programs and have built in the
software which we feel is necessary to help ensure visits to our
web site.
Most of our software engineering and development work takes place at our
headquarters. As of August 31, 1999, we employed 7 individuals in our
engineering group, all of whom are software engineers with experience in Linux
software development.
INTELLECTUAL PROPERTY
---------------------
LinuxOne has been developed and made available for licensing under the GNU
General Public License and similar licenses. These licenses generally permit
anyone to copy, modify and distribute the software, subject only to the
restriction that any resulting or derivative work is made available to the
public under the same terms. Therefore, although we retain the copyrights to the
code that we develop ourselves, due to the open source nature of our software
products and the licenses under which we develop and distribute them, our most
valuable intellectual property is our collection of trademarks. We rely
primarily on a combination of trademarks and copyrights to protect our
intellectual property. We also enter into confidentiality and nondisclosure
agreements with our employees and consultants, and generally control access to
and distribution of our documentation and other proprietary information.
We have registered the trademarks/service marks "LinuxOne", "LinuxOne
OS","One Stop for Linux", "LinuxMac", "LinuxOne Lite" and "LinuxOpen" in
the United States and will seek registrations in Hong Kong, Japan, China, Taiwan
and Singapore. We will also pursue protection of our marks in Europe.
Despite our efforts to protect our trademark/service mark rights,
unauthorized third parties may attempt to misappropriate our rights. We can't
be sure that we will succeed in preventing the misappropriation of our
trademarks/service marks in these circumstances or that we will be able to
prevent unauthorized use in the future. The laws of some foreign countries do
not protect our trademark/service mark rights to the same extent as do the laws
of the United States. In addition, policing unauthorized use of our rights is
difficult, expensive and time consuming. The loss of any material trademark or
service mark could have a material adverse effect on our business, operating
results and financial condition.
Although we do not believe that our products infringe the rights of third
parties, third parties may, in the future, assert infringement claims against us
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which may result in costly litigation or require us to obtain a license to
third-party intellectual rights. There can be no assurance that such licenses
will be available on reasonable terms or at all, which could have a material
adverse effect on our business, operating results and financial condition.
EMPLOYEES
---------
As of August 31, 1999, we had a total of 10 employees. Of the total
employees, 7 were in software engineering, 1 in sales and marketing, 1 in
customer service and technical support, and 1 in finance and administration. Our
future success will depend in part on our ability to attract, retain and
motivate highly qualified technical and management personnel, for whom
competition is intense. From time to time we may also employ independent
contractors to support our professional services, product development, sales,
marketing and business development organizations. Our employees are not
represented by any labor union and are not organized under a collective
bargaining agreement, and we have never experienced a work stoppage. We believe
our relations with our employees are good.
FACILITIES
----------
Our headquarters are currently located in a leased facility in Mountain
View, California, consisting of approximately 2,500 square feet under a verbal
monthly lease. The monthly rental expense under this lease is approximately
$4,200. We believe that additional space will be required as our business
expands and will be available on acceptable terms.
LEGAL PROCEEDINGS
-----------------
We are not a party to any material legal proceedings. We may from time to
time become a party to various legal proceedings arising in the ordinary course
of our business.
MANAGEMENT
----------
Executive Officers and Directors
- --------------------------------
The following table sets forth our executive officers, directors and key
employees, their ages and the positions held by them as of October 31 ,
1999:
<TABLE>
<CAPTION>
Name Age Position(s)
- ---------------------------- --- -------------------------------
<S> <C> <C>
Wun C. Chiou, Sr. 57 President, Director, Chairman of
the Board
Tessy Albin 52 Chief Financial Officer,
Treasurer
Robert Philips 45 Vice President-Marketing
Paul Kraus 54 Secretary and Director
</TABLE>
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Background of Officers and Directors
- ------------------------------------
Dr. Wun C. Chiou, Sr. has been the President, Chief Executive Officer and
Chairman of the Board of Directors of our Company since inception. He has been
active in the computer industry for more than 15 years. He holds a B.S. Degree
from National Taiwan University in General Science and Psychology; a Masters
Degree from Bowling Green State University in Physics and Mathematics; and a
Ph.D. from Ohio State University in Biophysics. Dr. Chiou has also completed
post-doctoral work at Ohio State University on image modeling. Dr. Chiou has
held a variety of positions including Research Physicist for the U.S. Army,
Areomed (1974-1979); Senior Staff Engineer for Hughes Aircraft Co. (1979-1981);
Research Scientist for Teledyne Systems, Co., Northridge (1981-1982); Senior
Technologist for the California Institute of Technology, Jet Propulsion
Laboratory (1982-1984); Chief of Artificial Intelligent Branch of NASA Ames
Research Center (1984-85); Consultant for Peterson & Co., Northridge; Senior
Scientist for Lockheed, Palo Alto Research Center where he organized Lockheed's
Artificial Intelligence Center (1985-1987); Founder, President and Director of
Pacific Microelectronics, Inc. (1987-1996), which became NetUSA, Inc., a public
corporation (1996-1999). Dr. Chiou resigned from NetUSA, Inc. and formed the
Company in March 1999. Dr. Chiou has also taught at Cal State, Northridge and
U.C. Berkeley Extension. He possesses knowledge and research experience
regarding expert systems, artificial intelligence, image modeling, optical
information processing, and system integration, among others. Prior to founding
the Company, he was the Branch Chief of Artificial Intelligence software at
NASA, at Ames Research Center in Mountain View. He has published many
scientific articles in a variety of periodicals. Dr. Chiou is a member of the
Optical Society of America, Society of Photo-Instrumentation Engineers, and the
National Association for Artificial Intelligence. He devotes full time
to the business of our Company.
Tessy Albin has been the Treasurer and Chief Financial Officer of our
Company since December, 1999. From 1998 to December 1999, she was Vice President
of Finance for Highpoint International Telecom, Inc., a telecommunications
company in Mountain View, California, managing all financial operations, merger
and acquisition programs. From 1996 to 1998, she was a Consulting Vice
President of Finance/Controller for Deloitte Resources and David Powell, Inc.,
consulting companies in San Jose and Woodside, California, respectively. Her
responsibilities at both firms included asset financing, financial modeling,
cash management and investments, systems improvement, cost analysis, mergers
and acquisitions, and SEC reporting..From 1995 to 1996, she was Controller for
Trident Microsystems, a Silicon Valley firm which manufactures videographics
chips. Ms. Albin was responsible for all Trident's domestic and international
financial and operating systems, including the negotiation of key technology
which allowed Trident's rapid penetration of the Notebook PC and significant
tax restructuring for the company. Ms. Albin received B.S.C. and M.B.A. Degrees
in Accounting from the University of Santa Clara. She will devote full time to
the business of the Company.
Robert Philips has been Vice President of Marketing for our Company since
April, 1999. From 1996 to October 1999, he was a Communications Engineer
for NEC Electronics, Inc. From 1995 to 1996, he was Vice President of
Engineering and Marketing for GIK Technology and from 1991 to 1995, he was Vice
President of Marketing for Mobile Link Solutions, Inc. From 1982 to 1991,
he was a founding executive for three Silicon Valley start up firms:
Mobile Link Solutions Inc., which specialized in mobile wireless systems for the
trucking industry; Systems Software Alternatives, a mainframe consulting firm;
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and Reel Concepts, Inc., a manufacturer of high-quality cassette tapes. His
responsibilities included the development of business plans, proposals,
collateral materials, advertising and public relations. Mr. Philips has a
technical background in hardware, software, and network technology that provides
insight to high-technology products. He holds a B.S. Degree in Physics, a B.S.
Degree in Philosophy, an MBA Degree in Marketing and his MBA Degree-Extended
Edition in High Technology Management. Mr. Philips devotes full time to
the business of our Company.
Paul Kraus has been a Director and Secretary of our Company since April,
1999. He is a licensed California architect and founder of the Design
Partnership in San Francisco, California. He was also founder and principal of
Investpac Inc., a company which developed real estate during the 1980's. From
1992 to the present, he has been the President/CEO of Goodco Press Inc., a
lithographic company located in Silicon Valley. Mr. Kraus is currently
employed at Goodco Press, Inc. and devotes approximately 5% of his time to
the business of our Company.
Election of Officers and Directors
- ----------------------------------
Our executive officers are elected by the Board of Directors on an annual
basis and serve until their successors are duly elected and qualified. There are
no family relationships among any of our executive officers or directors.
Director Compensation
- ---------------------
Directors are reimbursed for reasonable out-of-pocket expenses incurred in
attending meetings of the Board of Directors and for meetings of any committees
of the Board of Directors on which they serve. Directors are also eligible to
participate in our 1999 Employee Stock Option and Incentive Plan. See
"Executive Compensation - 1999 Employee Stock Option and Incentive Plan."
EXECUTIVE COMPENSATION
----------------------
None of our officers or directors have received any cash compensation to
date. However, our officers and directors have received options to purchase an
aggregate of 520,000 shares, at an exercise price of $1.00 per share, valid for
three (3) years, as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Number of Aggregate Aggregate
Shares Value Based Value Based on
Date Including on Exercise Price of Shares
Name of Officer/Director Granted Options Price in this Offering
- ------------------------ ------- -------- ----------- ----------------
Dr. Wun C. Chiou, Jr. 6-15-99 290,000 $ 290,000 $ 2,392,500
Robert Philips 6-15-99 115,000 $ 115,000 $ 948,750
Stan Kawczynski 6-15-99 115,000 $ 115,000 $ 948,750
</TABLE>
These options were granted on August 1, 1999, and were approved by Paul Kraus, a
Director, who also deemed the exercise price to be the fair value of the shares.
1999 Employee Stock Option and Incentive Plan
- ---------------------------------------------
The 1999 Employee Stock Option and Incentive Plan was adopted by the Board
of Directors and approved by the stockholders in March, 1999. The Plan provides
50
<PAGE>
for the issuance of up to a maximum of 600,000 shares of restricted
common stock and is administered by the Board of Directors. As of October 31,
1999, no shares have been allocated, granted or issued under the Plan.
The Board of Directors, or a committee appointed by the Board, has sole
discretion to determine the type of award to be made under the Plan, the amount
awarded to any employee, and the factors to be considered in determining the
award, whether incentive stock options or non-qualified stock options. Options
may be granted only for shares of Common Stock.
Directed Share Program
- ----------------------
We have reserved up to 300,000 shares of common stock for sale at the
initial public offering price through a directed share program, to directors,
officers and employees and to open source software developers and other persons
that we believe have contributed to the success of the open source software
community and the development of LinuxOne.
Limitation of Liability and Indemnification of Officers and Directors
- ---------------------------------------------------------------------
Our Articles of Incorporation and By-Laws provide that our directors and
officers shall be indemnified by us to the fullest extent permitted by Nevada
law, as it now exists or may in the future be amended, against all expenses and
liabilities reasonably incurred in connection with their service for or on our
behalf. Nevada Revised Statute 78.7502, provides indemnification for any
officer, director, employee or agent of our corporation who is party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, provided he/she was acting in good
faith and in a manner which he/she reasonably believed to be in or not opposed
to the best interests of the corporation. The indemnification includes all
expenses, including attorney's fees, judgments, fines and settlement amounts.
In addition, the Articles of Incorporation provide that our directors will
not be personally liable for monetary damages to us for breaches of their
fiduciary duty as directors, unless they violated their duty of loyalty to us or
our stockholders, acted in bad faith, knowingly or intentionally violated the
law, authorized illegal dividends or redemptions or derived an improper personal
benefit from their action as directors.
TRANSACTIONS WITH AFFILIATES
----------------------------
On March 12, 1999, Wun C. Chiou, Sr. contributed organizational services,
proprietary rights and business plans, valued at $2,400, and cash in the sum of
$2,600, to the Company as consideration for the issuance of 5,000,000 shares of
restricted Common Stock, par value, $.001. The shares were purchased for
$.001 per share. . On that date, he gifted 2,000,000 shares of the 5,000,000
shares to Global Village Foundation, a charitable organization of which Dr.
Chiou serves as a director. He also made gifts of an additional 1,000,000 of the
5,000,000 shares to members of his family, the largest gift being in the amount
of 300,000 shares. Dr. Chiou presently owns 2,000,000 shares and has voting
power as to the 2,000,000 shares owned by Global Village Foundation.
Global Village Foundation also purchased 100,000 shares of common stock,
on June 18, 1999, in a private placement for $1.00 per share. The
aggregate purchase price was $100,000 and the aggregate value of the shares,
based on the proposed offering price of the shares in this offering, is
$825,000. This price was deemed to be fair value by Paul Kraus, a Director of
Registrant.
51
<PAGE>
Dr. Chiou has no direct or indirect ownership or control over the 1,000,000
shares he gifted to his family members.
On August 16, 1999, Paul Kraus, an officer and director, purchased 12,500
shares for $1.00 per share, which was the per share price paid by other
purchasers during August 1999.
We believe that all transactions set forth above were made on terms no less
favorable to us than would have been obtained from unaffiliated third parties.
PRINCIPAL STOCKHOLDERS
----------------------
The following table sets forth information known to us regarding beneficial
ownership of our common stock as of October 31 , 1999 and as adjusted to
reflect the sale of the shares of common stock in this offering by:
- each person known by us to be the beneficial owner of more than 5% of our
common stock;
- each executive officer whose salary and bonus during the fiscal year ended
October 31 , 1999 exceeded $100,000 for such fiscal year;
- each of our directors; and
- all executive officers and directors as a group.
Unless otherwise indicated, to our knowledge, each stockholder possesses
sole voting and investment power over the shares listed, except for shares owned
jointly with that person's spouse.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
--------------------
NAME AND ADDRESS OF BEFORE AFTER
BENEFICIAL OWNER (1) SHARES BENEFICIALLY OWNED OFFERING OFFERING
- --------------------------- -------------------------- --------- ---------
<S> <C> <C> <C>
Wun C. Chiou, Sr.
1619 Morgan Court
Mountain View, CA. 94093 4,100,000 (2) 62% 43%
Paul Kraus 12,500 Less Less
1619 Morgan Court than 1% than 1%
Mountain View, CA. 94093
- ------------------------- _____________ __________________
All executive officers and 4,112,500 62% 43%
directors as a group
</TABLE>
(1) Owners have direct beneficial ownership and possess sole voting rights over
their shares.
(2) 2,100,000 of these shares are held in the name of Global Village
Foundation, a non-profit, charitable corporation of which Dr. Chiou serves as
a director and has sole voting power.
52
<PAGE>
DESCRIPTION OF CAPITAL STOCK
----------------------------
General
- -------
Our authorized capital stock consists of 25,000,000 shares of common stock,
par value $.001 per share.
The following summary description of our capital stock is not intended to be
complete and is qualified by reference to the provisions of Nevada
Corporation Law and to our Certificate of Incorporation and By-laws, filed
as exhibits to the registration statement of which this prospectus is a part.
Common Stock
- ------------
As of October 31 , 1999, there were 6,573,000 shares of common
stock outstanding held by 21 stockholders of record. Based upon the number of
shares outstanding as of that date and giving effect to the issuance of the
3,000,000 shares of common stock we are offering, there will be 9,573,000
shares of common stock outstanding upon the closing of this offering.
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Directors are elected by a plurality of the votes of the shares present
in person or by proxy at the meeting and entitled to vote in such election.
Holders of common stock are entitled to receive ratably such dividends, if any,
as may be declared by the Board of Directors out of funds legally available
therefor, after provision has been made for any preferential dividend rights of
outstanding preferred stock. Upon the liquidation, dissolution or winding up of
our Company, the holders of common stock are entitled to receive ratably any of
our net assets available after the payment of all of our debts and other
liabilities and after the satisfaction of the rights of any outstanding
preferred stock. Holders of our common stock have no preemptive, subscription,
redemption or conversion rights, nor are they entitled to the benefit of any
sinking fund. The outstanding shares of common stock are, and the shares offered
by us in this offering will be, when issued and paid for, validly issued, fully
paid and non-assessable. The rights, powers, preferences and privileges of
holders of common stock are subordinate to, and may be adversely affected by,
the rights of the holders of shares of any series of preferred stock which we
may designate and issue in the future.
Nevada Law, Anti-Takeover , and Certain Charter and By-Law Provisions
- ---------------------------------------------------------------------------
Our By-Laws provide that any action required or permitted to be taken by our
stockholders at an annual meeting or special meeting of stockholders may only be
taken if it is properly brought before the meeting and may not be taken by
written action in lieu of a meeting. Our By-laws provide that special meetings
of the stockholders may only be called by the Board of Directors, the Chairman
of the Board of Directors, the Chief Executive Officer or our President. Our
By-laws further provide that in order for any matter to be considered "properly
brought" before a meeting, a stockholder must comply with requirements regarding
advance notice to us of not less than 10 nor more than 60 days. The
foregoing provisions could have the effect of delaying until the next
stockholders' meeting stockholder actions which are favored by the holders of a
majority of our outstanding voting securities. These provisions may also
discourage another person or entity from making a tender offer for our common
stock, because such person or entity, even if it acquired a majority of our
53
<PAGE>
outstanding voting securities, would be able to take action as a stockholder,
such as electing new directors or approving a merger, only at a duly called
stockholders meeting, and not by written consent.
In addition, our Articles of Incorporation and By-Laws, and Nevada Revised
Statute 78.7502, provide indemnification for any officer, director, employee or
agent of our corporation who is party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, provided he/she was acting in good faith and in a manner which
he/she reasonably believed to be in or not opposed to the best interests of the
corporation. The indemnification includes all expenses, including attorney's
fees, judgments, fines and settlement amounts.
Transfer Agent and Registrar
- ----------------------------
The transfer agent and registrar for our common stock is Transfer Online,
227 S.W. Pine Street, Suite 300, Portland, Oregon 97204.
Shares Eligible for Future Sale
- -------------------------------
Prior to this offering, there has been no market for our common stock.
After this offering, there will still be 15,427,000 shares of our
authorized, but unissued common stock. Future sales of substantial amounts of
common stock in the public market could adversely affect prevailing market
prices from time to time. Furthermore, 6,573,000 outstanding shares will
be available for sale approximately 6 months after this offering because certain
legal restrictions on resale will lapse. Sales of substantial amounts of our
common stock in the public market after the restrictions lapse could adversely
affect the prevailing market price and our ability to raise equity capital in
the future.
Sale of Restricted Shares
- -------------------------
Based on shares outstanding at October 31 , 1999, upon completion of
this offering, we will have outstanding an aggregate of 9,573,000 shares
of common stock. Of these shares, the 3,000,000 shares sold in this offering
will be freely tradable without restrictions or further registration under the
Securities Act, unless such shares are purchased by an existing affiliate of
LinuxOne. An "affiliate" is defined as one of our directors or executive
officers, any of our shareholders who beneficially owns, directly or indirectly,
5% or more of our common stock, or any member of the immediate family of any
director, officer or principal shareholder.
The remaining 6,573,000 shares of common stock held by existing
stockholders are restricted shares or are restricted by the contractual
provisions described below. Restricted shares may be sold in the public market
only if registered or if they qualify for an exemption from registration under
Rule 144, 144(k) or 701 promulgated under the Securities Act, which are
summarized below. Of these restricted shares, none of the outstanding shares
will be available for resale in the public market in reliance on Rule 144(k).
Under Rule 144 as currently in effect, a person who has beneficially owned
restricted shares for at least one year, and has complied with the requirements
described below, would be entitled to sell some of their of shares within
any three-month period. That number of shares cannot exceed the greater of one
percent of the number of shares of common stock then outstanding, which will
equal approximately 9,573,000 shares immediately after this offering, or
the average weekly trading volume of the common stock on the Nasdaq National
54
<PAGE>
Market during the four calendar weeks preceding the filing of a notice on Form
144 reporting such sale. Sales under Rule 144 are also restricted by manner of
sale provisions, notice requirements and the availability of current public
information about our Company. Rule 144 also provides that affiliates of our
Company who are selling shares of common stock that are not restricted shares
must nonetheless comply with the same restrictions applicable to restricted
shares with the exception of the holding period requirement.
Stock Options
- -------------
Rule 701 provides that the shares of common stock acquired upon the exercise
of options or other rights granted under our stock plans may be resold by
persons, other than affiliates, beginning 90 days after the date of this
prospectus, restricted only by the manner of sale provisions of Rule 144, and by
affiliates in accordance with Rule 144, without compliance with its one-year
minimum holding period. As of October 31 , 1999, no outstanding shares
will be available for resale in the public market in reliance on Rule 701.
We intend to file one or more registration statements on Form S-8 under the
Securities Act following this offering to register all shares of common stock
which are issuable upon exercise of outstanding stock options or other rights
granted under our Stock Option and Incentive Plan. These registration
statements are expected to become effective upon filing. Shares covered by these
registration statements will thereupon be eligible for sale in the public
markets.
Effect of Sales of Shares
- --------------------------
Prior to this offering, there has been no public market for our common stock
and no predictions can be made as to the effect, if any, that market sales of
shares of common stock prevailing from time to time, or the availability of
shares for future sale, may have on the market price for the common stock,
assuming a market develops. Sales of substantial amounts of common stock, or the
perception that such sales could occur, could adversely effect prevailing market
prices, if any, for the common stock and could impair our future ability to
obtain capital through an offering of equity securities.
DETERMINATION OF OFFERING PRICE
-------------------------------
The public offering price of the shares does not bear any relationship to
our assets, book value, earnings, or other established criteria for valuing a
privately held company. In determining the number of shares to be offered and
the offering price, our capital structure, financial condition, prospects for
business operations, the computer software industry in general, and the overall
condition of the securities market were factors considered by us. Accordingly,
the offering price should not be considered an indication of the actual value of
our securities.
55
<PAGE>
LEGAL MATTERS
-------------
The validity of the shares of common stock to be issued in this offering
will be passed upon for us by Michael J. Morrison, Chtd., 1495 Ridgeview Drive,
Suite 220, Reno, Nevada 89509.
EXPERTS
-------
The financial statements for the period from inception to the period ended
October 31 , 1999 included in this prospectus have been so included in
reliance upon the report of Mark Bailey & Co., Ltd., independent accountants,
given on the authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
-----------------------------------
LinuxOne has filed with the Commission a registration statement on Form
S-1 under the Securities Act registering the common stock to be sold in
this offering. As permitted by the rules and regulations of the Commission, this
prospectus omits some of the information contained in the registration
statement and the exhibits and schedules filed as a part of the registration
statement. For further information concerning LinuxOne and the common stock to
be sold in this offering, you should refer to the registration statement and to
the exhibits and schedules filed as part of the registration statement.
Statements contained in this prospectus regarding the contents of any agreement
or other document filed as an exhibit to the registration statement are not
necessarily complete, and in each instance reference is made to the copy of the
agreement filed as an exhibit to the registration statement each statement
being qualified by this reference. The registration statement, including the
exhibits and schedules filed as a part of the registration statement, may be
inspected at the public reference facilities maintained by the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at its regional offices located at Seven World Trade Center, New York, New York
10007 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and
copies of all or any part thereof may be obtained from such offices upon payment
of the prescribed fees. You may call the Commission at 1-800-SEC-0330 for
further information on the operation of the public reference rooms and you can
request copies of the documents upon payment of a duplicating fee, by writing to
the Commission. In addition, the Commission maintains a web site that contains
reports, proxy and information statements and other information regarding
registrants (including LinuxOne) that file electronically with the Commission
which can be accessed at http://www.sec.gov. The registration statement may
also be viewed at Nasdaq.com, where we have applied for quotation of our common
stock under the symbol LINX.
56
<PAGE>
LINUXONE, INC.
FINANCIAL STATEMENTS
FROM INCEPTION (MARCH 10, 1999)
THROUGH
OCTOBER 31 , 1999
WITH
AUDIT REPORT OF
CERTIFIED PUBLIC ACCOUNTANTS
57
<PAGE>
MARK BAILEY & CO. LTD.
Certified Public Accountants
Management Consultants
Office Address: Mailing Address:
1495 Ridgeview Drive, Suite 200 P.O. Box 6060
Reno, Nevada 89509-6634 Reno, Nevada 89513
Independent Auditors' Report
December 21, 1999
Board of Directors
LinuxOne, Inc.
We have audited the accompanying balance sheet of LinuxOne, Inc. (a Company in
the development stage) as of July 31, 1999 and the related statements of
operations, stockholders' equity and cash flows from inception (March 10, 1999)
through October 31 , 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of LinuxOne, Inc. (a Company in
the development stage), as of October 31 , 1999 and the results of its
operations and its cash flows from inception (March 10, 1999) through
October 31 , 1999 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note 1 to the
financial statements, the Company is in the development stage, and existing cash
and available credit are insufficient to fund the Company's cash flow needs for
the next year. Management's plans in regard to these matters are also described
in Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Mark Bailey & Co., Ltd.
Reno, Nevada
58
<PAGE>
<PAGE>
LINUXONE, INC.
(A Company in the Development Stage)
BALANCE SHEET
-------------
October 31 , 1999
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
CURRENT ASSETS
- --------------
Cash $ 403,392
-----------
Total current assets $ 403,392
PROPERTY AND EQUIPMENT (NOTE 1)
- -------------------------------
Computer equipment $ 19,357
Accumulated depreciation (1,084)
------------
Total Property and Equipment $ 18,273
-----------
OTHER ASSETS (NOTES 3)
- ----------------------
Deferred Offering costs $ 37,909
Computer Software costs 954
-----------
Total other Assets $ 38,863
-----------
Total Assets $ 460,528
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
- --------------------
Accounts payable $ 35,757
Accrued payroll taxes 667
-----------
Total Liabilities $ 36,424
-----------
STOCKHOLDERS' EQUITY
- --------------------
Common stock, $.001 par value, 25,000,000
authorized, 6,573,500 shares issued
and outstanding $ 6,573
Additional paid-in-capital 575,427
Deficit accumulated during the development stage (157,896)
-----------
Total stockholders' equity 424,104
-----------
Total liabilities and stockholders' equity $ 460,528
===========
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements
59
<PAGE>
LINUXONE, INC.
(A Company in the Development Stage)
STATEMENT OF OPERATIONS
-----------------------
For the Period From Inception (March 10, 1999) Through October 31, 1999
<TABLE>
<CAPTION>
<S> <C>
REVENUE $ -
OTHER INCOME
Interest income (3,097)
COST AND EXPENSES
Operating and administrative expenses (159,791)
Interest Expense (118)
Depreciation expense (1,084)
-----------
Net loss (157,896)
===========
Loss per share ($0.026)
===========
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements
60
<PAGE>
LINUXONE, INC.
(A Company in the Development Stage)
STATEMENT OF STOCKHOLDERS' EQUITY
---------------------------------
For the Period From Inception (March 10, 1999) through October 31, 1999
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Retained Total
Shares Amount Capital Deficit Equity
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Issuance of
shares to founder
of LinuxOne Inc.
for cash on
3/12/99 . . . . . 2,600,000 $2,600 $ - $ - $ 2,600
Issuance of shares
to founder of Linux
One, Inc. for
services rendered in
conjunction with
initial set up of the
Company on 3/12/99 at
$.001 per share. Stock
was issued based on
the fair market value
of the services
rendered 2,400,000 $2,400 $ - $ - $ 2,400
Issuance of
shares to
unrelated
parties for
services on
5/25/99 1,000,000 $1,000 $ - $ - $ 1,000
Issuance of
shares to
a related party
for cash
on 6/18/99 100,000 $ 100 $ 99,900 $ - $ 100,000
Issuance of
shares to
unrelated parties
for cash from
5/4/99 to
10/31/99 at $1.00
per share 471,000 $ 471 $ 470,529 $ - $ 471,000
Issuance of shares
to an unrelated
party for cash on
9/28/99 at $2.50
per share 2,000 $ 2 $ 4,998 $ - $ 5,000
Net loss for the
period. . . . . . - - - $(157,896)$(157,896)
------------------------------------------------------------
6,573,000 $6,573 $ 575,427 $(157,896)$ 424,104
=============================================================
</TABLE>
61
<PAGE>
LINUXONE, INC.
(A Company in the Development Stage)
STATEMENT OF CASH FLOWS
------------------------------------------
For the Period from Inception (March 10, 1999) through October 31, 1999
<TABLE>
<CAPTION>
Cash Flows from Operating Activities
- ------------------------------------
<S> <C>
Net Loss $ (157,896)
Adjustment to reconcile net loss to net cash
used in Operating activities:
Depreciation $ 1,084
Consulting service expenses paid via stock
issuance 3,400
Increase in accounts payable 10,454
Increase in accrued payroll liabilities 667
----------
Net cash used in operating activities $ (142,291)
Cash Flows from Investing Activities
- ------------------------------------
Purchase of equipment $ (19,357)
Deferred offering cost (12,606)
Computer software cost (954)
----------
Net cash used in investing activities $ (32,917)
Cash Flows from Financing Activities
- ------------------------------------
Proceeds received from issuance of stock $ 578,600
---------
Net cash provided by financing activities $ 578,600
Net increase in cash and cash equivalents (Note 1) $ 403,392
Cash and cash equivalents at March 10, 1999 $ -
---------
Cash and cash equivalents at October 31, 1999 $ 403,392
=========
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements
62
<PAGE>
Supplementary Schedule of Non Cash Activities
- ---------------------------------------------
On March 12, 1999, the President of the Company acquired 5,000,000 shares of the
Company' common stock for $2,600 in cash, and $2,400 in consulting services
Provided. On the same date, three unrelated parties acquired a total of
1,000,000 shares of the Company's common stock as payment for consulting
services provided (see Note 6).
During the period ended October 31, 1999, the Company incurred legal fees of
$25,303, relating to deferred offering costs (see Note 3).
During the period ended October 31, 1999, the Company paid $118 in interest and
$0 in income taxes
LINUXONE, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
October 31, 1999
1. Organization and Significant Accounting Policies
The Company was incorporated in the State of Nevada on March 10, 1999. The
Company is in the development stage as its operations principally involve
research and development, market analysis, and other business planning
activities, The Company has not begun operations , correspondingly, no revenue
has been generated from its intended business activities. The Company intends
to create software products for the Linux operating system.
These financial statements have been prepared assuming that the Company will
continue as a going concern. The Company is currently in the development stage,
and existing cash and available credit are insufficient to fund the Company's
cash flow needs for the next year based on the Company's current business plan.
The Company raised $578,600 through private offerings between March 1999 and
October 1999. The Company intends to raise $24,000,000 within the next few
months by offering to sell 3,000,000 shares of its common stock pursuant to a
registration statement to be filed under Form S-1, promulgated under the
Securities Act of 1933, as amended. Management believes that the $24,000,000
expected to be raised by the offering, combined with the $578,600 already
raised, will provide the Company sufficient funding for its cash flow needs
for the coming year.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
63
<PAGE>
Property and Equipment
Property and equipment are depreciated using the straight line method over the
estimated useful lives of the assets. Depreciation expense from inception to
October 31, 1999 was $1,084.
Research and Development
Research and development costs are related to computer software development.
Total research and development cost incurred for the period ended October 31,
1999 was $4,677, of which $3,723 was expensed as incurred, and $954 was
capitalized in accordance with Generally Accepted Accounting Principles as
prescribed by Statement of Financial Accounting Standards 86.
Statement of Financial Accounting Standards 86 specifies that costs incurred
internally in creating a computer software product shall be charged to expense
when incurred as research and development until technological feasibility
has been established for the product. Thereafter, all software production
costs shall be capitalized and subsequently reported at the lower of
unamortized cost or net realizable value. Capitalized costs are amortized
based on current and future revenue for each product with an annual minimum
equal to the straight-line amortization over the remaining estimated economic
life of the product.
Advertising Costs
Advertising costs are charged to expense when incurred. Total advertising
costs charged to expense for the period ended October 31, 1999 was $3,024.
Revenue Recognition
The Company has not begun operations, and corresponsingly, does not have any
revenues for the period ended October 31, 1999. When the Company begins
operations, the revenue from the sale of software will be recognized based on
the provisions of the American Institute of Certified Public Accountants
Statement of Position 97-2.
Statement of Position 97-2 provides recognition and measurement guidance in
Accounting for revenue from selling, leasing or licensing software.
2. Federal Income Taxes
The Company will be taxed under Subchapter C of the Internal Revenue Code
for its U. S. operations.
3. Other Assets
During the period ended October 31, 1999, the Company incurred a total
of $37,909 in attorney fees and filing fees related to its preparation of a
registration statement with the Securities and Exchange Commission, which
would enable the Company to sell its stock to the general public.. As of
October 31, 1999, the Company has not been authorized by the Securities
and Exchange Commission to offer stock to the general public. Correspond-
ingly, no proceeds have been received. The entire amount of $37,909
incurred, therefore, was capitalized as deferred offering costs, but
will be offset against proceeds received from the future public stock
offerings.
64
<PAGE>
The Company incurred a total of $4,677 in computer software development
costs, of which $3,723 was expensed when incurred (see Note 1) and $954
was capitalized. In early October 1999, the Company had completed its
software product coding and testing. Further costs to produce the
software, therefore, were capitalized and will be amortized using the
straight-line method over the useful life of the software as soon as the
product is available for general release to customers.
4. Related Party Transactions
On March 12, 1999, the President of the Company acquired 5,000,000 shares of the
Company's common stock at $0.001 per share for a total of $2,600 in cash and
$2,400 in services provided (see Note 6). On the same date, he gifted 3,000,000
shares out of the 5,000,000 shares he acquired to his family members and to a
not-for-profit organization, for which he is the director. On June 18, 1999,
the same not-for-profit organization acquired 100,000 shares of the Company's
common stock at $1.00 per share for a total of $100,000 in cash.
6. Fair Value of Financial Investments
Financial Accounting Standards Board ("FASB") Statement No. 107, "Disclosure
About Fair Value of Financial Instruments" is a part of a continuing process by
the FASB to improve information on financial statements. The following methods
and assumptions were used by the Company in estimating its fair value
disclosures for such financial instruments as defined by the Statement.
The carrying amount reported in the balance sheet for cash approximates fair
value at October 31, 1999.
The carrying amount reported in the balance sheet for accounts payable
approximates fair value at October 31, 1999 as it matures in less than
one year.
6. Stockholders' Equity
On March 12, 1999, the Company issued 5,000,000 shares of common stock to its
President at $0.001 per share for a total of $2,600 in cash and $2,400 in
consulting services provided (see Note 4). On the same date, the Company also
issued 1,000,000 shares of its common stock to three unrelated parties at $0.001
per share for a total of $1,000 in consulting services provided. On both
occasions, common stock was issued based on the fair market value of the
services provided. On June 18, 1999, the Company issued 100,000 shares of its
common stock to a related party at $1.00 per share for a total of $100,000 in
cash (see Note 4). In addition, the Company issued 473,000 shares of its common
stock to unrelated parties at various times from May 5, 1999 through October
31, 1999. Of the 473,000 shares issued, 471,000 shares were issued at $1.00 per
share for a total of $471,000 in cash, and 2,000 shares were issued at $2.50 per
share for a total of $5,000 in cash.
7. Contingencies
The Company maintains amounts on deposit with financial institutions which
exceed federally insured limits. The Company has not experienced any
significant losses in such accounts, nor does the Company believe it is exposed
to any significant credit risk.
65
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimated expenses payable in connection with the sale of the common stock
in this offering are as follows:
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee $ 6,672
NASD filing fee 2,900
Nasdaq National Market listing fee 14,000
Printing and engraving expenses 125,000
Legal fees and expenses 500,000
Accounting fees and expenses 25,000
Transfer agent and registrar fees and expenses 10,000
Miscellaneous.(Selling and Administrative Expenses) 319,328
-----------
Total $ 1,000,000
------------
</TABLE>
The registrant will bear all of the expenses shown above.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Nevada General Corporation Law, the registrant's charter and by-laws
provide for indemnification of the registrant's directors and officers for
liabilities and expenses that they may incur in such capacities. In general,
directors and officers are indemnified with respect to actions taken in good
faith in a manner reasonably believed to be in, or not opposed to, the best
interests of the registrant, and with respect to any criminal action or
proceeding, actions that the indemnitee had no reasonable cause to believe were
unlawful. Reference is made to the registrant's corporate charter filed as
Exhibit 3.1 and the registrant's by-laws filed as Exhibit 3.2 hereto.
The registrant intends to apply for a directors' and officers' insurance
policy.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years preceding the filing of this registration statement, the
registrant has sold the following securities that were not registered under the
Securities Act:
On March 12, 1999, the registrant issued 5,000,000 shares of its common stock to
Dr. Wun C. Chiou, Sr., for (1) organizational/consulting services, proprietary
rights and business plans, in the amount of $2,400.00 and (2) cash in the sum of
$2,600.00. On that same date, the registrant also issued 1,000,000 to three (3)
consultants for services and expenses. These shares were issued in private
placement transactions pursuant to Sec. 4(2) of the Securities Act of 1933, as
amended. The transactions did not involve a public offering; all parties were
accredited investors; and the offering did not involve advertising or
solicitation.
66
<PAGE>
Between May 4, 1999 and October 31, 1999, the registrant issued 571,000
shares of common stock in private placements, for $1.00 per share, to
twenty-seven (27) separate investors, and 2,000 shares to one (1) investor,
Gofu Song, for $2.50 per share. One of the investors was Global Village
Foundation, which purchased 100,000 shares on June 18, 1999; it is a principal
shareholder and affiliate of the registrant. None of the other investors, except
Paul Kraus, an officer and director of the registrant, are affiliates of the
registrant. The other investors who purchased shares are: Richard & Son's Sales
& Service - 5,000 shares; Integrity Auto Sales, Inc. - 5,000 shares; Frank Mahan
- - 5,000 shares; Nona Swan - 5,000 shares; Jerry Novakowski - 2,500 shares; Mark
Swan Managerial Agency - 5,000 shares; Royal Alliance Charitable Trust - 30,000
shares; Robert Bedrossian - 20,000 shares; Dr. Joseph Gregurich - 3,000 shares;
Linda Owings - 5,000 shares; Shorland Hunsaker - 40,000 shares; Alan McCulloch -
30,000 shares; JCZ Leasing, Inc. - 5,000 shares; Glenn J. Shrader - 10,000
shares; Pro Motor Co. - 5,000 shares; William K. Goslawski - 15,000 shares;
Yung-Tsai Yen - 25,000 shares; Ho-Tzu Yen - 25,000 shares; Shu-Chun Ma - 30,000
shares; Wenburg John - 25,000 shares; Paul W. Kraus - 12,500 shares; Tina Chuang
- - 8,000 shares; Ryan Lee - 5,000 shares; Matson Hayes Whitehead - 20,000 shares;
Jeffrey S.C. Chang - 100,000 shares; and Michael Schoendorf - 5,000 shares. The
sales were in transactions pursuant to Regulation D, Rule 506.
The consultants were Kiowa Oil Co. - 400,000 shares; Corporate Strategies,
Inc. - 300,000 shares; and Amazing Grace Co., - 300,000 shares. The aggregate
value of the services was $1,000, or $.001 per share.
No underwriters were involved in the foregoing sales of securities. Such
sales were made in reliance upon the exemption provided by Section 4(2) and/or
3(b)of the Securities Act for transactions not involving a public offering
and/or Rule 701 and/or Regulation S.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS:
<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibit
- --------- ----------------------------------------------------------
<S> <C>
1. Underwriting Agreement
3.1 Certificate of Incorporation of the registrant
3.2 By-laws of the registrant
4.1 Specimen certificate representing the common stock
5.1 Opinion of counsel, Michael J. Morrison, Chtd. (See Ex. 23.1)
10.1 SRINET, Inc. Distribution Agreement
10.2 Data Becker Corp. Distribution Areement
67
<PAGE>
10.3 Cooperation Agreement with China Sichuan International Economy,
Science & Technology Promotion Association
23.1 Consent of Michael J. Morrison, Chtd. (included in Exhibit 5.1)
23.2 Consent of Mark Bailey & Co., Ltd., Certified Public Accountants
27.1 Financial Data Schedule
</TABLE>
(b) FINANCIAL STATEMENTS SCHEDULES:
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions, the required information is disclosed in the notes to the
financial statements or the schedules are inapplicable, and therefore have been
omitted.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to provisions described in Item 14 above, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The registrant hereby undertakes (1) to promptly provide to the purchasers
stock certificates in such denominations and registered in such names as
required;(2) that for purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective; and (3) that for the purpose
of determining any liability under the Securities Act, each post-effective
amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
68
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Mountain View, California on
December 22, 1999.
LINUXONE, INC.
BY: /S/ Wun C. Chiou, Sr.
CHIEF EXECUTIVE OFFICER
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------- -------------------
<S> <C> <C>
/s/ Wun C. Chiou, Sr. Chairman and Chief December 22, 1999
(principal) Executive
Officer and Director
/s/ Tessy Albin Chief Financial Officer December 22, 1999
(principal financial and
accounting officer)
/s/ Robert Philips Vice-President-Marketing December 22,1999
/s/ Robert Philips
/s/ Paul Kraus Secretary and Director December 22, 1999
</TABLE>
File #C5826-99
March 10, 1999
In the Office of
Dean Heller
Secretary of State
ARTICLES OF INCORPORATION
OF
LinuxOne, Inc.
The undersigned, to form a Nevada corporation, CERTIFIES THAT:
I. NAME: The name of the corporation is: LinuxOne, Inc.
II. REGISTERED OFFICE; RESIDENT AGENT: The location of the
registered office of this corporation within the State of Nevada is 1025
Ridgeview Drive, Suite 400, Reno, Nevada 89509; this corporation may maintain an
office or offices in such other place within or without the State of Nevada as
may be from time to time designated by the Board of Directors or by the By-Laws
of the corporation; and this corporation may conduct all corporation business of
every kind or nature, including the holding of any meetings of directors or
shareholders, inside or outside the State of Nevada, as well as without the
State of Nevada.
The Resident Agent for the corporation shall be Michael J. Morrison,
Esq., 1025 Ridgeview Drive, Suite 400, Reno, Nevada 89509.
III. PURPOSE: The purpose for which this corporation is formed is: To
engage in any lawful activity.
IV. AUTHORIZATION OF CAPITAL STOCK: The amount of the total
authorized capital stock of the corporation shall be Twenty-Five Thousand
Dollars ($25,000), consisting of Twenty-Five Million (25,000,000) shares of
Common Stock, par value $.001 per share.
V. INCORPORATOR: The name and post office address of the Incorporator
signing these Articles of Incorporation is as follows:
NAME POST OFFICE ADDRESS
Rita S. Dickson 1025 Ridgeview Drive, Suite 400
Reno, Nevada 89509
VI. DIRECTORS: The governing board of this corporation shall be known
as directors, and the first Board shall consist of one (1) director.
The number of directors may, pursuant to the By-Laws, be increased or
decreased by the Board of Directors, provided there shall be no less than one
(1) nor more than nine (9) Directors.
The name and post office address of the directors constituting the
first Board of Directors is as follows:
NAME POST OFFICE ADDRESS
Wun C. Chiou, Sr. 210 San Antonio Circle, Suite C250
Mountain View, California 94040
VII. STOCK NON-ASSESSABLE: The capital stock, or the holders thereof,
after the amount of the subscription price has been paid in, shall not be
subject to any assessment whatsoever to pay the debts of the corporation.
VIII. TERM OF EXISTENCE: This corporation shall have perpetual
existence.
IX. CUMULATIVE VOTING: No cumulative voting shall be permitted in the
election of directors.
X. PREEMPTIVE RIGHTS: Shareholders shall not be entitled to preemptive
rights.
XI. LIMITED LIABILITY: No officer or director of the Corporation
shall be personally liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as an officer or director, except for
liability (i) for any breach of the officer or director's duty of loyalty to the
Corporation or its Stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, or (iii) for
any transaction from which the officer or director derived any improper personal
benefit. If the Nevada General Corporation Law is amended after the date of
incorporation to authorize corporate action further eliminating or limiting the
personal liability of officers or directors, then the liability of an officer
or director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the Nevada General Corporation Law, or amendments thereto.
No repeal or modification of this paragraph shall adversely affect any right or
protection of an officer or director of the Corporation existing at the time of
such repeal or modification.
XII. INDEMNIFICATION: Each person who was or is made a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
for whom he or she is the legal representative, is or was an officer or
director of the Corporation or is or was serving at the request of the
Corporation as an officer or director of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans whether the basis of such proceeding is
alleged action in an official capacity as an officer or director or in any other
capacity while serving as an officer or director shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the Nevada
General Corporation Law, as the same exists or may hereafter be amended, (but,
in the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be an officer or
director and shall inure to the benefit of his or her heirs, executors and
administrators; provided, however, that except as provided herein with respect
to proceedings seeking to enforce rights to indemnification, the Corporation
shall indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the Board of Directors of the Corporation.
The right to indemnification conferred in this Section shall be a contract right
and shall include the right to be paid by the Corporation the expenses incurred
in defending any such proceeding in advance of its final disposition; provided
however, that, if the Nevada General Corporation Law requires the payment of
such expenses incurred by an officer or director in his or her capacity as an
officer or director (and not in any other capacity in which service was or is
rendered by such person while an officer or director, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, payment shall be made only upon delivery to the
Corporation of an undertaking, by or on behalf of such officer or director, to
repay all amounts so advanced if it shall ultimately be determined that such
officer or director is not entitled to be indemnified under this Section or
otherwise.
If a claim hereunder is not paid in full by the Corporation within
ninety days after a written claim has been received by the Corporation, the
claimant may, at any time thereafter, bring suit against the Corporation to
recover the unpaid amount of the claim and, if successful, in whole or in part,
the claimant shall be entitled to be paid the expense of prosecuting such claim.
It shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in defending any proceeding in advance of
its final disposition where the required undertaking, if any, is required, has
been tendered to the Corporation) that the claimant has not met the standards of
conduct which make it permissible under the Nevada General Corporation Law for
the Corporation to indemnify the claimant for the amount claimed, but the burden
of proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Nevada General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
Section shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the
Certificate of Incorporation, By-Law, agreement, vote of Stockholders or
disinterested directors or otherwise.
The Corporation may maintain insurance, at its expense, to protect
itself and any officer, director, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Nevada General Corporation Law.
The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification to any employee or agent of
the Corporation to the fullest extent of the provisions of this section with
respect to the indemnification and advancement of expenses of officers and
directors of the Corporation or individuals serving at the request of the
Corporation as an officer, director, employee or agent of another corporation or
of a partnership, joint venture, trust or other enterprise.
THE UNDERSIGNED, being the Incorporator hereinbefore named for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Nevada, does make and file these Articles of Incorporation, hereby
declaring and certifying the facts herein stated are true, and, accordingly, has
hereunto set her hand this 10th day of March, 1999.
/s/ Rita S. Dickson
STATE OF NEVADA )
) ss.
COUNTY OF WASHOE )
On this 10th day of March, 1999, before me, a Notary Public, personally
appeared Rita S. Dickson, who acknowledged to me that she executed the above
instrument.
/s/ Michael J. Morrison,
Notary Public
My commission expires: August 24, 2002
CERTIFICATE OF ACCEPTANCE OF APPOINTMENT BY RESIDENT AGENT
I, Michael J. Morrison, hereby accept the appointment as Resident Agent of
the above-entitled corporation in accordance with NRS 78.090. Furthermore, that
the mailing address for the above registered office is 1495 Ridgeview Drive,
Suite 220, Reno, Nevada 89509.
IN WITNESS WHEREOF, I hereunto set my hand this 10th day of March, 1999.
/s/ Michael J. Morrison, Resident Agent
3
Underwriting Agreement.
3,000,000 Shares
LinuxOne, Inc.
(a Nevada corporation)
(Par Value $.001 Per Share)
UNDERWRITING AGREEMENT
December , 1999
CAPITAL WEST SECURITIES, INC.
211 N. Robinson, Suite 200
One Leadership Square
Oklahoma City, Oklahoma 73102
Ladies/Gentlemen:
LinuxOne, Inc., a Nevada corporation (the "Company"), hereby confirms its
agreement with Capital West Securities, Inc. ("Capital West" or "you") as
representative of the several underwriters named in Schedule A hereto
(collectively, the "Underwriters") as follows:
1. Description of Shares.
The Company proposes to issue and sell approximately 3,000,000 shares
(the "Firm Shares") of its authorized and unissued common
stock, par value $.001 per share (the "Common Stock"), to the Underwriters upon
the terms and subject to the conditions set forth herein. The Company also
proposes to grant to the Underwriters an option to purchase, for the sole
purpose of covering over-allotments in connection with the sale of the Firm
Shares, an aggregate of up to 450,000 additional shares ("Option Shares") of
Common Stock upon the terms and subject to the conditions set forth herein and
as provided in Section 7 hereof. As used in this Agreement, the term "Shares"
shall include the Firm Shares and the Option Shares. All shares of Common Stock
of the Company, including the Shares, are hereinafter referred to as "Common
Stock."
2. Representations, Warranties and Agreements of the Company.
The Company represents and warrants to and agrees with the Underwriters,
as follows:
(a) A registration statement on Form S-1 (File No. 333-87533) (the
"Registration Statement") with respect to the Shares, including a prospectus
subject to completion, has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
and the applicable rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") under the Securities Act,
and has been filed with the Commission. Any amendments to such registration
statement and any amended prospectuses subject to completion, as may have been
required prior to the date hereof, have been similarly prepared and filed with
the Commission. The Company will file any additional amendments to the
Registration Statement and any amended prospectuses subject to completion, as
may hereafter be required. The Company meets the requirements for use of a
registration statement on Form S-1. Copies of the Registration Statement and any
amendments and copies of each related prospectus subject to completion have been
delivered to you.
If the Registration Statement has been declared effective under the Securities
Act by the Commission, the Company will prepare and promptly file with the
Commission the information omitted from the Registration Statement pursuant to
Rule 430A(a) of the Rules and Regulations or as part of a post-effective
amendment to the Registration Statement (including a final form of prospectus).
If the Registration Statement has not been declared effective under the
Securities Act by the Commission, the Company will prepare and promptly file a
further amendment to the Registration Statement, including a final form of
prospectus. The term "Registration Statement" as used in this Agreement shall
mean such Registration Statement, including financial statements, schedules and
exhibits, in the form in which it became or becomes, as the case may be,
effective (including, if the Company omitted information from the Registration
Statement pursuant to Rule 430A(a) of the Rules and Regulations, the information
deemed to be a part of the Registration Statement at the time it became
effective pursuant to Rule 430A(b) of the Rules and Regulations) and, in the
event of any amendment thereto after the effective date of such Registration
Statement, shall also mean (from and after the effectiveness of such amendment)
such Registration Statement as so amended. The term "Prospectus" as used in
this Agreement shall mean the prospectus relating to the Shares as included in
the Registration Statement at the time it becomes effective (including, if the
Company omitted information from the Registration Statement pursuant to Rule
430A(a) of the Rules and Regulations, the information deemed to be a part of the
Registration Statement at the time it became effective pursuant to Rule 430A(b)
of the Rules and Regulations), except that if any revised prospectus shall be
provided to the Underwriters by the Company for use in connection with the
offering of the Shares that differs from the Prospectus on file with the
Commission at the time the Registration Statement became or becomes, as the case
may be, effective (whether or not such revised prospectus is required to be
filed with the Commission pursuant to Rule 424(b)(3) of the Rules and
Regulations), the term "Prospectus" shall refer to such revised prospectus from
and after the time it is first provided to the Underwriters for such use.
(b) The Commission has not issued any order preventing or suspending the use of
any preliminary prospectus or instituted proceedings for that purpose, and each
such preliminary prospectus has conformed in all material respects to the
requirements of the Securities Act and the Rules and Regulations and, as of its
date, has not included any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and at the time the
Registration Statement became or becomes, as the case may be, effective and at
all times subsequent thereto up to and on the Closing Date (hereinafter defined)
and on any later date on which Option Shares are to be purchased, (i) the
Registration Statement and the Prospectus, and any amendments or supplements
thereto, contained and will contain all material information required to be
included therein by the Securities Act and the Rules and Regulations, and will
in all material respects conform to the requirements of the Securities Act and
the Rules and Regulations, and (ii) neither the Registration Statement nor the
Prospectus, nor any amendments or supplements thereto, will include any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(c) Each contract, agreement, instrument, lease, license or other item required
to be described in the Registration Statement or the Prospectuses or filed as an
exhibit to the Registration Statement has been so described or filed, as the
case may be.
(d) The Company and each of its Subsidiaries (as such term is defined in Rule
405 under the Securities Act) has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the jurisdiction of its
organization, with full corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Registration
Statement; each of the Company and its Subsidiaries is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
in which the ownership or leasing of its properties or the conduct of its
business requires such qualification except where the failure to be so qualified
or to be in good standing would not have a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its Subsidiaries considered as a whole; each of the
Company and its Subsidiaries is in possession of and operating in compliance
with all authorizations, licenses, certificates, consents, orders and permits
from state, Federal and other regulatory authorities which are material to the
conduct of its business, all of which are valid and in full force and effect;
neither the Company nor its Subsidiaries is in violation of its charter or
bylaws or in default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any material
indenture, mortgage, deed of trust, loan agreement, bond, debenture, note
agreement or other evidence of indebtedness, or any material lease, contract,
joint venture, or other agreement or instrument to which it is a party or by
which its property is bound or in violation of any law, order, rule, regulation,
writ, injunction, judgment or decree of any government, governmental agency or
body or court, domestic or foreign, of which it has knowledge except such
failures to comply as would not, individually or in the aggregate, have a
material adverse effect on the Company and its Subsidiaries considered as a
whole.
(e) The Company has full legal right, power and authority to enter into this
Agreement and perform the transactions contemplated hereby. This Agreement and
the Warrant Agreement of even date herewith by and between the Company and the
Managing Underwriter (the "Warrant Agreement") have been duly authorized,
executed and delivered by the Company and are valid and binding agreements on
the part of the Company, enforceable in accordance with their respective terms,
except as rights to indemnification and contribution hereunder may be limited by
applicable law and except as the enforcement hereof may be limited by applicable
bankruptcy, insolvency, reorganization moratorium or other similar laws relating
to or affecting creditors' rights generally, or by general equitable principles;
the performance of this Agreement and the Warrant Agreement and the consummation
of the transactions herein and therein contemplated will not result in a breach
or violation of any of the terms and provisions of, or constitute a default
under, (i) any material indenture, mortgage, deed of trust, loan agreement,
bond, debenture, note agreement or other evidence of indebtedness, or any
material lease, contract, joint venture or other agreement or instrument to
which the Company is a party or by which the property of the Company is bound
including any licenses from third parties, or (ii) the charter and bylaws of the
Company or its subsidiaries, or (iii) any law, order, rule, regulation, writ,
injunction, judgment or decree of any government or governmental agency or body
or court, domestic or foreign, having jurisdiction over the Company or its
Subsidiaries or over the properties of the Company or its Subsidiaries, except
for breaches, violations or defaults that individually or in the aggregate,
would not have a material adverse effect on the Company; and no consent,
approval, authorization or order of any court or governmental agency or body is
required for the consummation of the transactions herein contemplated, except
such as may be required under the Securities Act, the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or under state or other securities or
Blue Sky laws, all of which requirements have been satisfied in all material
respects.
(f) Except as disclosed in the Registration Statement or the Prospectus,
there is no action, suit or proceeding before or by any court or governmental
agency or body, domestic or foreign, now pending, or threatened, against or
affecting the Company or its Subsidiaries which (i) is required to be disclosed
in the Registration Statement or the Prospectus or which might result in any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
Subsidiaries considered as one enterprise, or which might materially and
adversely affect the properties or assets thereof; or (ii) which might be
expected to materially and adversely affect the consummation of the transactions
contemplated by this Agreement; all pending legal or governmental proceedings to
which the Company or its Subsidiaries is a party or of which any of their
respective properties or assets is the subject which are not described in the
Registration Statement, including ordinary routine litigation incidental to the
Company's business, could not reasonably be expected to result in a material
adverse change in the condition, financial or otherwise, or the earnings,
business affairs or business properties of the Company and its Subsidiaries
considered as one enterprise; and there are no contracts or documents of the
Company or its Subsidiaries which are required to be described in the
Registration Statement or the Prospectus, or to be filed as exhibits thereto, by
the Securities Act or by the Rules and Regulations which have not been
accurately described in all material respects and filed as exhibits to the
Registration Statement. The contracts so described in the Prospectus are in full
force and effect on the date hereof, and neither the Company nor its
Subsidiaries is in breach of or default under, and to the Company's knowledge,
no other party is in material breach of or material default under, any of such
contracts.
(g) All outstanding shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid and nonassessable, have been
issued in compliance with all Federal and state securities laws, were not issued
in violation of or subject to any preemptive rights or other rights to subscribe
for or purchase securities (other than such preemptive rights or other rights to
subscribe for or purchase securities as were fully complied with or expressly
waived or with respect to the violation of which the right to make claim is
barred by the applicable statute of limitations), and the authorized and
outstanding capital stock of the Company conforms in all material respects to
the statements relating thereto contained in the Registration Statement and the
Prospectus (and such statements correctly state the substance of the instruments
defining the capitalization of the Company); the Firm Shares and the Option
Shares to be purchased from the Company hereunder have been duly authorized for
issuance and sale to the Underwriters pursuant to this Agreement and, when
issued and delivered by the Company against payment therefor in accordance with
the terms of this Agreement, will be duly and validly issued and fully paid and
nonassessable; the [300,000] shares of Common Stock issuable under the warrants
to be granted to the Managing Underwriter under the Warrant Agreement (the
"Managing Underwriter's Warrants") have been duly authorized for issuance and
sale to the Managing Underwriter pursuant to this Agreement and, when issued and
delivered by the Company against payment therefor in accordance with the terms
of the Warrant Agreement, will be duly and validly issued and fully paid and
nonassessable; and no preemptive right, co-sale right, registration right, right
of first refusal or other similar right of stockholders exists with respect to
any of the Firm Shares, Option Shares or shares of Common Stock issuable under
the Managing Underwriter's Warrants or the issuance and sale thereof other than
those that have been expressly waived prior to the date hereof and those that
will automatically expire upon the consummation of the transactions contemplated
on the Closing Date. No further approval or authorization of any stockholder,
the Board of Directors or others is required for the issuance and sale or
transfer of the Shares except as may be required under the Securities Act, the
Exchange Act or under state or other securities or Blue Sky laws. Except as
disclosed in or contemplated by the Prospectus and the financial statements of
the Company (including the notes thereto) included in the Prospectus, the
Company has no outstanding options to purchase, or any preemptive rights or
other rights to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell, shares of
its capital stock or any such options, rights, convertible securities or
obligations. The description of the Company's stock option, stock bonus and
other stock plans or arrangements, and the options or other rights granted and
exercised thereunder, set forth in the Prospectus accurately and fairly presents
the information required to be shown with respect to such plans, arrangements,
options and rights. The shares of Common Stock reserved for issuance upon
exercise of the Company's outstanding options and warrants have been duly and
validly authorized and are sufficient in number to meet the exercise
requirements of such options.
(h)Mark Bailey & Co., Ltd., which has examined the financial statements
(together with related schedules and notes) of the Company filed with the
Commission as a part of the Registration Statement and which are included in the
Prospectus, are independent accountants within the meaning of the Securities Act
and the Rules and Regulations; the audited and pro forma financial statements of
the Company, together with the related schedules and notes, and the unaudited
financial information, forming part of the Registration Statement and
Prospectus, fairly present the financial position and the results of operations
of the Company at the respective dates and for the respective periods to which
they apply; and all audited and pro forma financial statements, together with
the related schedules and notes, and the unaudited and pro forma financial
information, filed with the Commission as part of the Registration Statement,
have been prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved except as may be otherwise
stated therein. The selected and summary financial and statistical data included
in the Registration Statement present fairly the information shown therein and
have been compiled on a basis consistent with the audited financial statements
presented therein. No other financial statements or schedules are required to be
included in the Registration Statement.
(i) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, except as otherwise stated therein,
(i) there has been no material adverse change in the business, properties,
operations, condition (financial or otherwise) or in the earnings, business
affairs or business prospects of the Company and its Subsidiaries, whether or
not arising in the ordinary course of business, (ii) there have been no
transactions entered into by the Company other than those in the ordinary course
of business, which are material with respect to the Company, (iii) there has
been no obligation that is material to the Company, direct or contingent,
incurred by the Company or any Subsidiary, except obligations incurred in the
ordinary course of business, (iv) there has been no change in the capital stock
of the Company, (v) there has been no change in the outstanding indebtedness of
the Company which is material to the Company, (vi) there has been no dividend or
distribution of any kind declared, paid or made by the Company on behalf of any
class of its respective capital stock, (vii) there has been no redemption,
purchase or acquisition or agreement to redeem, purchase or acquire shares of
Common Stock of the Company, or (viii) there has been no change in any Federal,
state, or other laws, rules, or regulations (or interpretations thereof)
applicable to the business of the Company that would have a material adverse
effect on the Company, and, to the knowledge of the Company, no such change is
proposed other than as described in the Prospectus.
(j) Except as described in the Prospectus, (i) the Company and its
Subsidiaries have good and marketable title to all properties and assets
described in the Prospectus as owned by them, free and clear of all liens,
charges, encumbrances or restrictions of any kind, except those described in the
Prospectus, or those not material, singly or in the aggregate, to the business
of the Company and its Subsidiaries considered as a whole, (ii) the agreements
to which the Company is a party described in the Prospectus are valid
agreements, enforceable by the Company, except as the enforcement thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting creditors' rights generally or by general equitable
principles, and (iii) the Company has valid and enforceable leases for the
properties described in the Prospectus as leased by it except as enforcement may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles.
(k) All Federal, state, local and foreign tax returns required to be filed by
the Company or its Subsidiaries in any jurisdiction have been filed, and all
material taxes, including withholding taxes, penalties and interest,
assessments, fees and other charges due or claimed to be due from such entities
have been paid other than those being contested in good faith and for which
adequate reserves have been provided or those currently payable without penalty
or interest; and adequate charges, accruals and reserves have been provided for
in the financial statements referred to in Section 2(g) above in respect of all
Federal, state, local and foreign taxes for all periods as to which the tax
liability of the Company or its Subsidiaries has not been finally determined or
remains open to examination by applicable taxing authorities.
(l) No labor dispute with the employees of the Company or its Subsidiaries
exists or, to the knowledge of the Company, is imminent; and the Company is not
aware of any existing or imminent labor disturbance by the employees of any of
its principal suppliers, manufacturers, contractors or customers which might be
expected to result in any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company and its Subsidiaries considered as one enterprise. No collective
bargaining agreement exists with any of the Company's employees and, to the
Company's knowledge, no such agreement is imminent.
(m) The Company and its Subsidiaries own or possess, or can acquire on
reasonable terms, the patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), trademarks,
service marks and trade names presently employed by them in connection with the
business now operated by them and neither the Company nor its Subsidiaries has
received any notice or is otherwise aware of any infringement of or conflict
with asserted rights of others with respect to any patent or proprietary rights
or of any facts or circumstances which would render any patent and proprietary
rights invalid or inadequate to protect the interest of the Company or its
Subsidiaries therein, and which infringement or conflict (if the subject of any
unfavorable decision, ruling or finding) or invalidity or inadequacy singly or
in the aggregate, would result in any material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of the Company and its Subsidiaries considered as one enterprise.
(n) Except as set forth in the Prospectus, the Company and its Subsidiaries are
in compliance in all material respects with all applicable laws, statutes,
ordinances, rules or regulations, the enforcement of which, individually or in
the aggregate, would be reasonably expected to have a material adverse effect on
the condition, financial or otherwise, or the earnings, business affairs or
business prospects of the Company and its Subsidiaries considered as one
enterprise.
(o) The Common Stock has been approved for quotation on the Nasdaq National
Market, subject to official notice of issuance.
(p) The Company has been advised concerning the Investment Company Act of 1940,
as amended (the "1940 Act"), and the rules and regulations thereunder, and has
in the past conducted, and intends in the future to conduct, its affairs in such
a manner as to ensure that it will not become an "investment company" within the
meaning of the 1940 Act and such rules and regulations.
(q) The Company has not distributed and will not distribute prior to the
Closing Date or on any date on which Option Shares are to be purchased, as the
case may be, any offering material in connection with the offering and sale of
the Shares other than the Prospectus, the Registration Statement and other
materials permitted by the Securities Act.
(r) The Company has not at any time during the last five years (i) made any
unlawful contribution to any candidate for foreign office, or failed to disclose
fully any contribution in violation of law, or (ii) made any payment to any
Federal or state governmental officer or official, or other person charged with
similar public or quasi-public duties, other than payments required or permitted
by the laws of the United States or any jurisdiction thereof.
(s) The Company has not taken and will not take, directly or indirectly, any
action designed to or that might be reasonably expected to cause or result in
stabilization or manipulation of the price of the Common Stock to facilitate the
sale or resale of the Shares. The Company has not effected any sales of
securities required to be disclosed in Item 15 of Form S-1 under the Securities
Act, other than as disclosed in the Registration Statement.
(t) Each officer and director of the Company and each beneficial owner of at
least 5% of the outstanding shares of Common Stock and options and warrants to
purchase Common Stock outstanding prior to the effective date of the
Registration Statement have agreed in writing that such persons will not offer
to sell, contract to sell, sell short, or otherwise sell or dispose of any
shares of Common Stock of the Company, any options or warrants to purchase any
shares of Common Stock of the Company, or any securities convertible into or
exchangeable for shares of the Common Stock owned directly by such person or
with respect to which such person has the power of disposition otherwise than
(i) as a gift or gifts, provided the donee or donees thereof agree to be bound
by this restriction or (ii) with the prior written consent of Capital West, for
a period expiring two years after the effective date of the Registration
Statement
(u) Except as described in the Registration Statement, (i) neither the Company
nor its Subsidiaries is in violation of any Federal, state, local or foreign
laws or regulations relating to pollution or protection of human health, the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including, without
limitation, laws and regulations relating to the release or threatened release
of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous
substances, petroleum or petroleum products (collectively, "Environmental
Materials") or to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Environmental Materials
(collectively, the "Environmental Laws"), except such violations as would not,
singly or in the aggregate, have a material adverse effect on the condition,
financial or otherwise, or the earnings, business affairs or business prospects
of the Company and its Subsidiaries considered as one enterprise, and (ii) to
the Company's knowledge, there are no events or circumstances that could form
the basis of an order for clean-up or remediation, or an action, suit or
proceeding by any private party or governmental body or agency, against or
affecting the Company or its Subsidiaries relating to any Environmental
Materials or the violation of any Environmental Laws, which, singly or in the
aggregate, could reasonably be expected to have a material adverse effect on the
condition, financial or otherwise, or the earnings, business affairs or business
prospects of the Company and its Subsidiaries considered as one enterprise.
(v) The Company and its Subsidiaries maintain a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorizations;
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles as in
effect in the United States and to maintain asset accountability; (iii) access
to bank accounts is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(w) There are no outstanding loans, advances (except normal advances for
business expenses in the ordinary course of business) or guarantees of
indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of the families of any of them,
except as disclosed in the Registration Statement and the Prospectus. Neither
the Company nor any employee or agent of the Company has made any payment or
transfer of any funds or assets of the Company or conferred any personal benefit
by use of the Company's assets, or received any funds, assets or personal
benefit in violation of any law, rule or regulation.
(x) On the Closing Date and upon delivery of the Option Shares, as applicable,
all transfer and other taxes (other than income taxes) that are required to be
paid in connection with the sale and transfer of the Shares to the Underwriters
will have been paid.
(y) The Company does not currently have and has never had any pension plan
subject to the provisions of the Employee Retirement Income Security Act of
1974, as amended, including the regulations and published interpretations
thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred
with respect to any "pension plan" (as defined in ERISA) for which the Company
would have any liability, the Company has not incurred and does not expect to
incur liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal
Revenue Code of 1986, as amended, including the regulations and published
interpretations thereunder (the "Code"); and each "pension plan" for which the
Company would have any liability that is intended to be qualified under Section
401(a) of the Code is so qualified in all material respects and nothing has
occurred, whether by action or by failure to act, which would cause the loss of
such qualification.
(z) The Company confirms as of the date hereof that it is in compliance with all
provisions of Section 517.075, Florida Statutes (Chapter 92-198, Laws of
Florida) An Act Relating to Disclosure of Doing Business with Cuba (the "Cuba
Act"), and the Company further agrees that if it commences engaging in business
with the government of Cuba or with any person or affiliate located in Cuba
after the date the Registration Statement becomes or has become effective with
the Commission or the Florida Department of Banking and Finance (the
"Department"), whichever date is later, or if the information reported or
incorporated by reference in the Prospectus, if any, concerning the Company's
business in Cuba or with any person or affiliate located in Cuba changes in any
material way, the Company will provide the Department notice of such business or
change, as appropriate, in a form acceptable to the Department.
(aa) Any certificate signed by any officer of the Company and delivered to the
Underwriters or to counsel for the Underwriters shall be deemed a representation
and warranty by the Company to each Underwriter as to the matters covered
thereby.
(bb) Except as may be set forth in the Prospectus, the Company has not incurred
any liability for a fee, commission, or other compensation on account of the
employment of a broker or finder in connection with the transactions
contemplated by the Underwriting Agreement.
(cc) The Company and each subsidiary is insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
are prudent and customary in the businesses in which the Company and the
subsidiaries are engaged.
3. Purchase, Sale and Delivery of Shares. On the basis of the
------------------------------------------
representations and warranties herein contained and subject to the terms and
-----
conditions herein set forth, the Company agrees to sell to each Underwriter,
severally and not jointly, and each Underwriter, severally and not jointly,
agrees to purchase from the Company, respectively, at a purchase price of
[$8.00] per Share less an underwriting discount of 8.5%, the number of Shares
set forth in Schedule A hereto (subject to adjustment as provided in Section
-----------
10).
Delivery of definitive certificates for the Firm Shares to be purchased by the
Underwriters pursuant to this Section 3 shall be made against payment of the
purchase price therefor by the Underwriters by certified or official bank check
in next day funds, payable to the order of the Company at the offices of Capital
West Securities, Inc., 211 N. Robinson, Suite 200, One Leadership Square,
Oklahoma City, Oklahoma 73102, or at such other place as shall be agreed upon by
the Underwriters and the Company, at 9:30 a.m. on the fourth business day
following the first day that Shares are traded (or at such time and date to
which payments and delivery shall have been postponed pursuant to Section 10
hereof), such time and date of payment and delivery being herein called the
"Closing Date." The certificates for the Firm Shares to be so delivered will be
made available to you at such office or at such other location as you may
reasonably request for checking at least one business day prior to the Closing
Date and will be in such names and denominations as you may request, such
request to be made at least two business days prior to the Closing Date. If the
Underwriters so elect, delivery of the Shares may be made by credit through full
fast transfer to the accounts at Depository Trust Company designated by the
Underwriters.
It is understood that Capital West, individually and not as representative of
the several Underwriters, may (but shall not be obligated to) make payment of
the purchase price on behalf of any Underwriter or Underwriters whose check or
checks shall not have been received by Capital West prior to the Closing Date
for the Firm Shares to be purchased by such Underwriter or Underwriters. Any
such payment by Capital West shall not relieve any such Underwriter or
Underwriters of any of its or their obligations hereunder.
After the Registration Statement becomes effective, the several Underwriters
intend to offer the Firm Shares to the public as set forth in the Prospectus.
The information set forth in the last paragraph on the front cover page (insofar
as such information relates to the Underwriters) and under "Underwriting" in any
Preliminary Prospectus and in the final form of Prospectus filed pursuant to
Rule 424(b) constitutes the only information furnished by the Underwriters to
the Company for inclusion in any Preliminary Prospectus, the Prospectus or the
Registration Statement, and you, on behalf of the Underwriters, represent and
warrant to the Company that the statements made therein do not include any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make such statements, in the light of the
circumstances in which they were made, not misleading.
4. Further Covenants of the Company. The Company covenants with the several
-------------------------------------
Underwriters as follows:
-
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date that
this Agreement is executed and delivered by the parties hereto, to become
effective as promptly as possible; it will notify Capital West, promptly after
it shall receive notice thereof, of the time when the Registration Statement or
any subsequent amendment to the Registration Statement has become effective or
any supplement to the Prospectus has been filed; if the Company omitted
information from the Registration Statement at the time it was originally
declared effective in reliance upon Rule 430A(a) of the Rules and Regulations,
the Company will provide evidence satisfactory to Capital West that the
Prospectus contains such information and has been filed, within the time period
prescribed, with the Commission pursuant to subparagraph (1) or (4) of Rule
424(b) of the Rules and Regulations or as part of a post-effective amendment to
such Registration Statement as originally declared effective which is declared
effective by the Commission; if for any reason the filing of the final form of
Prospectus is required under Rule 424(b)(3) of the Rules and Regulations, it
will provide evidence satisfactory to Capital West that the Prospectus contains
such information and has been filed with the Commission within the time period
prescribed; it will notify Capital West promptly of any request by the
Commission for the amending or supplementing of the Registration Statement or
Prospectus or for additional information; promptly upon request of Capital West,
it will prepare and file with the Commission any amendments or supplements to
the Registration Statement or Prospectus which, in the opinion of counsel for
the several Underwriters, may be necessary or advisable in connection with the
distribution of the Shares by the Underwriters; it will promptly prepare and
file with the Commission, and promptly notify Capital West of the filing of, any
amendments or supplements to the Registration Statement or Prospectus which may
be necessary to correct any statements or omissions, if, at any time when a
prospectus relating to the Shares is required to be delivered under the
Securities Act, any event shall have occurred as a result of which the
Prospectus or any other prospectus relating to the Shares as then in effect
would include any untrue statement of a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; in case any Underwriter is required to deliver a
prospectus nine months or more after the effective date of the Registration
Statement in connection with the sale of the Shares, it will prepare promptly
upon request, but at the expense of such Underwriter, such amendment or
amendments to the Registration Statement and such prospectus or prospectuses as
may be necessary to permit compliance with the requirements of Section 10(a)(3)
of the Securities Act; and it will file no amendment or supplement to the
Registration Statement or Prospectus which shall not previously have been
submitted to Capital West a reasonable time prior to the proposed filing thereof
or to which Capital West shall reasonably object in writing, subject, however,
to compliance with the Securities Act, the Rules and Regulations thereunder and
the provisions of this Agreement.
(b) The Company will advise Capital West, promptly after it shall receive notice
or obtain knowledge thereof of the issuance of any stop order by the Commission
suspending the effectiveness of the Registration Statement or of the initiation
or threat of any proceeding for that purpose; and it will promptly use its best
efforts to prevent the issuance of any stop order or to obtain its withdrawal at
the earliest possible moment if such stop order should be issued.
(c) The Company will cooperate with the Underwriters and Underwriters' counsel
in connection with their efforts to qualify the Shares for offering and sale
under the securities laws of such jurisdictions as Capital West may designate as
to continue such qualifications in effect for so long as may be required for
purposes of the distribution of the Shares, except that the Company shall not be
required in connection therewith or as a condition thereof to qualify as a
foreign corporation or to execute a general consent to service of process in any
jurisdiction or to make any undertaking with respect to the conduct of its
business. In each jurisdiction in which the Shares shall have been qualified as
above provided, the Company will make and file such statements and reports in
each year as are or may be reasonably required by the laws of such jurisdiction.
(d) The Company will furnish Capital West, as soon as available, copies of the
Registration Statement (three of which will be signed and include all exhibits),
each Preliminary Prospectus, the Prospectus and any amendments or supplements to
such documents, including any prospectus prepared to permit compliance with
Section 10(a)(3) of the Securities Act, all in such quantities as you may from
time to time reasonably request.
(e) The Company will make generally available to its stockholders as soon as
practicable, but in any event not later than the 45th day following the end of
the fiscal quarter first occurring after the first anniversary of the effective
date of the Registration Statement, an earnings statement (which will be in
reasonable detail but need not be audited) complying with the provisions of
Section 11(a) of the Securities Act and covering a twelve-month period beginning
after the effective date of the Registration Statement.
(f) As long as the Company is a reporting company under the Exchange Act,
the Company will furnish to its stockholders, as soon as practicable after the
end of each respective period, annual reports (including financial statements
audited by independent certified public accountants) and unaudited quarterly
reports of operations for each of the first three quarters of the fiscal year,
and for a period of five years after the effective date of the Registration
Statement, the Company will furnish to the several Underwriters hereunder, upon
request (i) concurrently with furnishing such reports to its stockholders,
statements of operations of the Company for each of the first three quarters in
the form furnished to the Company's stockholders; (ii) concurrently with
furnishing to its stockholders, a balance sheet of the Company as of the end of
such fiscal year, together with statements of operations, of stockholders'
equity, and of cash flows of the Company for such fiscal year, accompanied by a
copy of the certificate or report thereon of independent accountants; (iii) as
soon as they are available, copies of all reports and financial statements
furnished to or filed with the Commission, any securities exchange or the
National Association of Securities Dealers, Inc. ("NASD"); (v) every material
press release and every material news item or article in respect of the Company
or its affairs which was released or prepared by the Company (excluding, in each
case customary product-related press releases and articles); and (vi) any
additional information of a public nature concerning the Company, or its
business which you may reasonably request. During such five-year period, if the
Company shall have active subsidiaries, the foregoing financial statements shall
be on a consolidated basis to the extent that the accounts of the Company and
its Subsidiaries are consolidated, and shall be accompanied by similar financial
statements for any significant subsidiary which is not so consolidated. For a
period of five years from the date of the Registration Statement, the Company
will furnish to Capital West and, upon request, to each of the other
Underwriters, as soon as available, a copy of each report of the Company mailed
to holders of the Common Stock or publicly filed with the Commission or any
automated quotation system or national securities exchange on which any class of
securities of the Company is listed.
(g) The Company will apply the net proceeds from the sale of the Shares
being sold by it in the manner set forth under the caption "Use of Proceeds" in
the Prospectus.
(h) The Company will maintain a transfer agent and, if necessary under the
jurisdiction of incorporation of the Company, a registrar (which may be the same
entity as the transfer agent) for its Common Stock.
(i) The Company shall comply with all provisions of all undertakings contained
in the Registration Statement.
(j) If the transactions contemplated hereby are not consummated by reason of any
failure, refusal or inability on the part of the Company to perform any
agreement on its part to be performed hereunder or to fulfill any condition of
the Underwriters' obligations hereunder, or if Capital West shall terminate
this Agreement under Section 11(b), the Company will reimburse the several
Underwriters for all expenses (including fees and disbursements of counsel for
the several Underwriters) incurred by the Underwriters in investigating,
preparing to market or marketing the Shares.
(k) If at any time during the 90-day period after the Registration Statement
becomes effective, any rumor, publication or event relating to or affecting the
Company shall occur as a result of which in your opinion the market price of the
Common Stock has been or is likely to be materially affected (regardless of
whether such rumor, publication or event necessitates a supplement to or
amendment of the Prospectus), the Company will, after written notice from
Capital West advising the Company to the effect set forth above, forthwith
prepare, consult with Capital West concerning the substance of, and disseminate
a press release or other public statement, reasonably satisfactory to you,
responding to or commenting on such rumor, publication or event.
(l) On the Closing Date, the Company will sell to Capital West, for $.001
per share of Common Stock covered by each warrant, the Managing Underwriter's
Warrants to purchase one share of Common Stock of the Company for each ten
shares of the Company's Common Stock which have been sold (or purchased by the
Underwriters), excluding any over-allotment shares, as set forth in the
Prospectus. The Managing Underwriter's Warrants shall have the terms and be in
the form filed as an exhibit to the Registration Statement. At any time during
the period commencing twelve months and ending five years after the effective
date of the Offering and at the written request of the then holders of 51% of
the Managing Underwriter's Warrants and the Common Stock of the Company issued
upon the exercise of the Managing Underwriter's Warrants, the Company will file
with the Commission and process to effectiveness a registration statement
covering not less than 51% of the shares of the Common Stock of the Company
issuable and/or issued upon the exercise of the Managing Underwriter's Warrants.
The Company must file a registration statement only if the shares of Common
Stock issuable under the Managing Underwriter's Warrants cannot be sold without
registration under Rule 144 promulgated under the Securities Act. The Company
agrees to use its commercially reasonable best efforts to cause the filing to
become effective. The costs of the filing of such registration statement,
including but not limited to, legal (including legal fees relating to clearance
in the various states, limited however to such states as may be reasonably
requested), accounting and printing fees, shall be borne by the Company, but the
Company shall not be responsible for the cost of any separate counsel to review
the registration statement on behalf of or to advise the selling stockholders
and shall not be responsible for the payment of any underwriting discount or
commissions with respect to such sale. Such registration statement shall comply
with any undertaking applicable to such shares. If the Company otherwise than
upon the request of the owners of the Managing Underwriter's Warrants or the
shares of Common Stock issuable upon the exercise thereof files a registration
statement under the Securities Act with respect to any of its securities at any
time (other than on Form S-4, S-8, or any other form that does not provide for
resales by selling security holders), the Company will give such persons 30
days' notice of its intention to do so, and at their written request given
within ten days of the receipt of such notice, will include in such registration
statement such number of such Shares as they may specify, all at no cost to them
(except for underwriting discounts and the fees and expenses of counsel to such
holders). In connection with any such registration statement covering all or a
part of such shares, the Company agrees that it will covenant with the owners of
such shares with respect to such shares and the offering thereof, in customary
form substantially to the effect contained in this Section 4. If the offering
pursuant to any registration statement provided for herein is made through
Underwriters, the Company agrees to enter into an underwriting agreement in
customary form with such underwriters in which the Company and the underwriters
and each person who controls such underwriters within the meaning of the
Securities Act grant to each other customary reciprocal indemnities against
liabilities under the Securities Act.
(m) As long as the Company is a reporting company under the Exchange Act,
the Company will comply with the Securities Act, the Exchange Act, the rules and
regulations of the NASD and applicable state securities or Blue Sky laws so as
to permit the continuance of sales and dealings in the Common Stock under the
Securities Act, the Exchange Act, the rules and regulations of the NASD, and
applicable state securities or Blue Sky laws, including the filing with the NASD
and the Commission of all reports required to be filed pursuant to the
applicable provisions of the rules and regulations of the NASD, the Securities
Act, and the Exchange Act, and will deliver to the holders of the Common Stock
all reports required to be provided to such holders pursuant to the applicable
provisions of the rules and regulations of the NASD, the Securities Act, the
Exchange Act, and applicable state securities or Blue Sky
5. Expenses.
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(a) The Company agrees with each Underwriter that the Company will pay and
bear all costs and expenses in connection with the preparation, printing and
filing of the Registration Statement (including financial statements, schedules
and exhibits), Preliminary Prospectuses and the Prospectus and any amendments or
supplements thereto; the printing of this Agreement, the Preliminary Blue Sky
Survey and any Supplemental Blue Sky Survey, the Underwriters' Questionnaire and
Power of Attorney and any instruments related to any of the foregoing; the
issuance and delivery of the Shares hereunder to the Underwriters, including
transfer taxes, if any, and the cost of all certificates representing the Shares
and transfer agents' and registrars' fees; the fees and disbursements of counsel
for the Company; all fees and other charges of the Company's independent public
accountants; the cost of furnishing to the Underwriters copies of the
Registration Statement (including appropriate exhibits), Preliminary Prospectus
and the Prospectus, and any amendments or supplements to any of the foregoing;
NASD filing fees (including filing fees, expenses and disbursements of counsel
to the Underwriters in connection with such NASD filings), and all postage costs
incurred in connection with the qualification of the Shares under the laws of
such jurisdictions as you may designate; and all other expenses directly
incurred by the Company in connection with the performance of its obligations
hereunder.
(b) Capital West shall be entitled to receive from the Company, for itself and
not as representative of the Underwriters, a nonaccountable expense allowance
equal to 3.0% of the aggregate public offering price of shares sold to the
Underwriters in connection with the Offering, reduced by any amounts advanced by
the Company to Capital West pursuant to the terms of the Letter of Intent dated
December 1, 1999.
6. Conditions of Underwriters' Obligations. The obligations of the
------------------------------------------
Underwriters to purchase and pay for Shares as provided herein shall be subject
to the accuracy, as of the date hereof and the Closing Date and any later date
on which Option Shares are to be purchased (the "Option Closing Date"), as the
case may be, of the representations and warranties of the Company herein, to the
performance by the Company of its obligations hereunder, and to the following
additional conditions:
(a) The Registration Statement shall have become effective not later than
5:30 p.m. on the date hereof, or with the consent of the Underwriters, at a
later time and date, not later, however, than 5:30 p.m. on the first business
day following the date hereof, or at such later time and date as may be approved
by a majority in interest of the Underwriters; and no stop order suspending the
effectiveness of the Registration Statement shall have been issued under the
Securities Act or proceedings therefor initiated or threatened by the Commission
and any request on the part of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to the reasonable satisfaction of counsel to the
Underwriters. If the Company has elected to rely upon Rule 430A of the Rules and
Regulations, the price of the Shares and any price-related information
previously omitted from the effective Registration Statement pursuant to such
Rule 430A shall have been transmitted to the Commission for filing pursuant to
Rule 424(b) of the Rules and Regulations within the prescribed time period, and
prior to the Closing Date the Company shall have provided evidence satisfactory
to the Underwriters of such timely filing, or a post-effective amendment
providing such information shall have been promptly filed and declared effective
in accordance with the requirements of Rule 430A of the Rules and Regulations.
Qualification under the securities laws of such states as you may deem necessary
to the success of the underwriting of the issue and sale of the Shares upon the
terms and conditions set forth in this Agreement or contemplated by this
Agreement and containing no provisions unacceptable to you will have been
secured, and no stop order (or the equivalent thereof) will be in effect denying
or suspending effectiveness of such qualification, nor will any stop order
proceedings (or the equivalent thereof) with respect thereto be instituted or
pending or threatened under such laws.
(b) At the Closing Date and the Option Closing Date, if any, counsel for the
Underwriters shall have been furnished with such documents and opinions as they
may require for the purpose of enabling them to pass upon the issuance and sale
of the Shares as contemplated herein and related proceedings or in order to
evidence the accuracy of any of the representations and warranties, or the
fulfillment of any of the conditions, herein contained; and all proceedings
taken by the Company in connection with the issuance and sale of the Shares as
herein contemplated shall be satisfactory in form and substance to the
Underwriters and counsel for the Underwriters.
(c) There shall not have been, since the date hereof or since the respective
dates as of which information is given in the Registration Statement and the
Prospectus, any change in the condition (financial or otherwise), earnings,
operations, business affairs or business prospects of the Company and its
Subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business which, in your sole judgment, is material and
adverse and that makes it, in your sole judgment, impracticable or inadvisable
to proceed with the public offering of the Shares as contemplated by the
Prospectus, and the Underwriters shall have received a certificate of the
President or Vice President of the Company and of the chief financial or chief
accounting officer of the Company, dated as of the Closing Date, to the effect
that (i) there has been no such material adverse change, (ii) the
representations and warranties in Section 2 hereof are true and correct with the
same force and effect as though expressly made at and as of the Closing Date,
(iii) the Company has complied with all agreements and satisfied all conditions
on its part to be performed or satisfied at or prior to the Closing Date, and
(iv) no stop order suspending the effectiveness of the Registration Statement
has been issued and no proceedings for that purpose have been initiated or
threatened by the Commission or any Blue Sky jurisdiction.
(d) At the Closing Date the Underwriters shall have received:
(1) The opinion, dated as of the Closing Date, of Michael J. Morrison,
Chtd., counsel for the Company, in form and substance satisfactory to counsel
for the Underwriters, to the effect that:
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Nevada.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Registration Statement and the Prospectus and to enter into and perform its
obligations under this Agreement and to issue, sell and deliver to the
Underwriters the Firm Shares or the Option Shares, as the case may be, to be
issued and sold by it hereunder.
(iii) The Company is duly qualified to do business as a foreign corporation and
is in good standing in the jurisdictions where such qualification is required,
and is not required to be qualified to do business as a foreign corporation in
any other jurisdiction.
(iv) At the Closing Date, after giving effect to the sale of the Firm Shares,
the authorized capital stock of the Company is as set forth in the Prospectus
under the caption "Capitalization" as of the dates stated therein; the issued
and outstanding shares of Common Stock have been duly authorized and validly
issued under Nevada corporate law and are fully paid and nonassessable and have
not been issued in violation of any preemptive right contained in the Articles
of Incorporation or By-laws of the Company or any co-sale right, registration
right, right of first refusal or other similar right (other than such preemptive
rights or other rights to subscribe for or purchase securities as were fully
complied with or expressly waived or with respect to the violation of which the
right to make a claim is barred by the applicable statute of limitation).
(v) The Firm Shares and the Option Shares, as the case may be, to be purchased
from the Company hereunder have been duly authorized for issuance and sale to
the Underwriters pursuant to this Agreement and, when issued and delivered by
the Company pursuant to this Agreement against payment therefor in accordance
with the terms hereof, will be validly issued and fully paid and nonassessable,
and will not be issued in violation of any preemptive right under the Articles
of Incorporation or By-laws of the Company or any co-sale right, right of first
refusal or other similar right and the stockholders of the Company have no
preemptive right under the Articles of Incorporation or By-laws of the Company
or other rights to purchase any of the Shares; the shares of Common Stock
reserved for issuance upon the exercise of the Managing Underwriter's Warrants
have been duly and validly authorized and are sufficient in number to meet the
exercise requirements thereof, and such shares of Common Stock, when issued upon
exercise, will be duly and validly issued, fully paid (assuming exercise in
accordance with the Warrant Agreement and receipt by the Company of the exercise
price thereof) and nonassessable; the stockholders of the Company have no
preemptive right under the Articles of Incorporation or By-laws of the Company
or other rights to purchase any of the Shares; and the shares of Common Stock
reserved for issuance upon the exercise of the Company's outstanding options
have been duly and validly authorized and are presently sufficient in number to
meet the exercise requirements of such options, and such shares of Common Stock,
when issued upon exercise, will be duly and validly issued, fully paid (assuming
exercise in accordance with the governing instruments therefor and receipt by
the Company of the exercise price thereof) and nonassessable.
(vi) The issuance of the Shares to be purchased hereunder is not subject to
preemptive or other similar rights arising by operation of law or otherwise.
(vii) Each Subsidiary has been duly incorporated and is validly existing as a
corporation and is in good standing under the laws of the jurisdiction of its
incorporation, has full corporate power and authority to own, lease and operate
its properties and to conduct it business as described in the Registration
Statement, and is duly qualified as a foreign corporation to transact business
and is in good standing in every jurisdiction in which the Company's business
requires such qualification and any Subsidiary is not required to be qualified
to do business as a foreign corporation in any other jurisdiction; all of the
issued and outstanding capital stock of each such Subsidiary has been duly
authorized and validly issued, is fully paid and nonassessable and is owned by
the Company, directly or through subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity.
(viii) This Agreement and the Warrant Agreement have been duly authorized by all
necessary corporate action on the part of the Company and have been duly
executed and delivered by the Company and, assuming due authorization, execution
and delivery by the Underwriters, are valid and binding agreements of the
Company, except insofar as indemnification and contribution provisions may be
limited by applicable law or equitable principles, and except as enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors' rights generally or any general equitable principles.
(ix) The Registration Statement has been declared effective under the Securities
Act; any required filing of the Prospectus pursuant to Rule 424(b) has been made
in the manner and within the time period required by Rule 424(b) and no stop
order suspending the effectiveness of the Registration Statement has been issued
under the Securities Act or proceedings therefor have been initiated or are
pending or threatened by the Commission.
(x) The Registration Statement, Prospectus and each amendment or supplement to
the Registration Statement and Prospectus, as of their respective effective or
issue dates (other than the financial statements and supporting schedules
included therein, as to which no opinion need be rendered) complied as to form
in all material respects with the requirements of the Securities Act and the
applicable Rules and Regulations.
(xi) The terms and provisions of the capital stock of the Company conform in all
material respects to the description thereof contained in the Prospectus under
the caption "Description of Securities."
(xii) The information in the Prospectus under the caption "Description of
Securities" to the extent that they constitute matters of law or legal
conclusions, has been reviewed by such counsel and accurately and fairly
summarizes in such counsel's opinion the matters described therein and there are
no outstanding options, warrants, convertible securities, or other rights to
acquire from the Company any capital stock, except as described in the
Registration Statement.
(xiii) Except as set forth in the Prospectus, there is not pending or threatened
any action, suit, proceeding, inquiry or investigation, to which the Company or
its Subsidiaries is a party, or to which the property of the Company or its
Subsidiaries is subject, before or brought by any court or government agency or
body, which might reasonably be expected to result in any material adverse
change in the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Company and its Subsidiaries considered as
one enterprise, or which might reasonably be expected to materially and
adversely affect the properties or assets thereof or the consummation of this
Agreement or the performance by the Company of its obligations hereunder; and
all pending legal or governmental proceedings to which the Company or its
Subsidiaries is a party or that affect any of their respective properties that
are not described in the Prospectus, including ordinary routine litigation
incidental to the business, could not reasonably be expected to result in a
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
Subsidiaries considered as one enterprise.
(xiv) The information in the Prospectus under the captions "Business - Legal
Proceedings", " - Governmental Regulation", "Certain Transactions" and
"Description of Capital Stock" in the Prospectus and Items 14 and 15 of Part II
of the Registration Statement, to the extent that such items constitute matter
of law, summaries of legal matters, documents or proceedings, or legal
conclusions, has been reviewed by them and is correct in all material respects,
and there are no legal or governmental actions, suits or proceedings pending or
threatened against the Company or its Subsidiaries that are required to be
described in the Prospectus but are not described as required by the Securities
Act or the applicable Rules and Regulations.
(xv) All descriptions in the Prospectus of contracts and other documents are
accurate in all material respects; to the best of their knowledge and
information, there are no agreements, no contracts, indentures, mortgages, loan
agreements, notes, leases or other instrument required to be described or
referred to in the Registration Statement or to be filed as exhibits thereto
other than those described or referred to therein or filed as exhibits thereto,
the descriptions thereof or references thereto are correct in all material
respects, and the Company is not in default, and no other party is in default in
the due performance or observance of any material obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage, loan
agreement, note, lease or other instrument so described, referred to or filed as
exhibits thereto.
(xvi) No authorization, approval, consent or order of any court or governmental
authority or agency (other than under the Securities Act or the Rules and
Regulations, which have been obtained, or as may be required under the
securities or Blue Sky laws of the various states or foreign jurisdiction) is
required in connection with the due authorization, execution and delivery of
this Agreement or for the offering, issuance or sale of the Shares to the
Underwriters; and the execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated herein and compliance by the
Company with its obligations hereunder will not, whether with or without the
giving of notice or lapse of time or both, conflict with or constitute a breach
or violation of, or default under, or result in the creation or imposition of
any lien, charge or encumbrance upon any property or assets of the Company or
its Subsidiaries pursuant to any material contract, indenture, mortgage, loan
agreement, note, lease or other instrument (A) which is an exhibit to the
Registration Statement and (B) to which the Company or its Subsidiaries is a
party or by which it or any of them may be bound, or to which any of the
property or assets of the Company or its Subsidiaries is subject, nor will such
action result in any violation of the provisions of the Articles of
Incorporation or Bylaws of the Company, or any applicable law, administrative
regulation or court decree, provided, however, no opinion need be rendered
concerning state securities or Blue Sky laws.
(xvii) With the exception of the Managing Underwriter's Warrants, no holder of
any security of the Company has any right to require registration of any shares
of Common Stock or any other security of the Company and, except as set forth in
the Registration Statement and Prospectus, all holders of securities of the
Company having rights to registration of such shares of Common Stock, or other
securities, because of the filing of the Registration Statement by the Company
have, with respect to the offering contemplated thereby, waived such rights or
such rights have expired by reason of lapse of time following notification of
the Company's intent to file the Registration Statement, or have included
securities in the Registration Statement pursuant to the exercise of such
rights.
(xviii) The Company is not an "investment company" or an entity "controlled" by
an "investment company" as such terms are defined in the 1940 Act.
(xix) Neither the Company nor its Subsidiaries are in violation of their charter
or by-laws.
In rendering such opinion, such counsel may rely as to matters of fact (but
not as to legal conclusions) to the extent they deem proper, on certificates of
responsible officers of the Company and public officials. All references in the
above opinions to "such counsel's knowledge" or "known to us" or similar phrases
mean the conscious awareness of facts or other information by the lawyer who
signs this opinion and other lawyers at our firm who have active involvement in
representing the Company after reasonable inquiry. Such opinion shall not state
that it is to be governed or qualified by, or that it is otherwise subject to,
any treatise, written policy or other document relating to legal opinions,
including with limitation, the Legal Opinion Accord of the ABA Section of
Business Law (1991).
In giving their opinion required by subsection (d)(1) of this Section, Michael
J. Morrison, Chtd. shall additionally state that nothing has come to their
attention that would lead them to believe that the Registration Statement, at
the time it became effective, contained an untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading or that the Prospectus, at the
effective date of the Registration Statement (unless the term "Prospectus"
refers to a prospectus which has been provided to the Underwriters by the
Company for use in connection with the offering of the Shares which differs from
the Prospectus declared effective by the Commission, in which case at the time
it is first provided to the Underwriters for such use) or at the Closing Date,
included an untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Such opinion may state
that such counsel does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement and the Prospectus except as otherwise expressly provided in such
opinion, and such counsel need express no opinion or belief as to the financial
statements, schedules, and other financial or statistical data included in the
Registration Statement or Prospectus.
(2) The opinion, dated as of Closing Date, of McAfee & Taft A Professional
Corporation, counsel for the Underwriters, in form and substance satisfactory to
you, with respect to the sufficiency of all such corporate proceedings and other
legal matters relating to this Agreement and the transactions contemplated
hereby as you may reasonably require, and the Company shall have furnished to
such counsel such papers, opinions and information as they request to enable
them to pass upon such matters.
(e) At the time of the execution of this Agreement, the Underwriters shall
have received from Mark Bailey & Co., Ltd. a letter dated such date, in form and
substance satisfactory to the Underwriters, to the effect that:
(1) they are independent public accountants with respect to the Company and
its Subsidiaries within the meaning of the Securities Act and the Rules and
Regulations;
(2) it is their opinion that the consolidated balance sheet included in the
Registration Statement and covered by their opinion therein complies as to form
in all material respects with the applicable accounting requirements of the
Securities Act and the Rules and Regulations;
(3) based upon limited procedures set forth in detail in such letter, nothing
has come to their attention which causes them to believe that, at a specified
date not more than three days prior to the date of this Agreement, (A) the
unaudited consolidated balance sheet of the Company and its Subsidiaries
included in the Registration Statement does not comply as to form in all
material respects with the applicable accounting requirements of the Securities
Act and the Rules and Regulations or is not presented in conformity with
generally accepted accounting principles applied on a basis substantially
consistent with that of the audited financial statements included in the
Registration Statement, or (B) at a specified date not more than three days
prior to the date of this Agreement, there has been any change in the capital
stock of the Company or any increase in the combined long term debt of the
Company and its Subsidiaries or any decrease in combined net current assets or
net assets as compared with the amounts shown in the September 30, 1999 balance
sheet included in the Registration Statement or, during the period from
September 30, 1999, to a specified date not more than three days prior to the
date of this Agreement, there were any decreases, as compared with the
corresponding period in the preceding year, in combined revenues, net income or
net income per share of the Company and its Subsidiaries, except in all
instances for changes, increases or decreases which the Registration Statement
and the Prospectus disclose have occurred or may occur;
(4) in addition to the examination referred to in their opinion and the limited
procedures referred to in clause (3) above, they have carried out certain
specified procedures, not constituting an audit, with respect to certain
amounts, percentages and financial information which are included in the
Registration Statement and Prospectus and which are specified by the
Underwriters, and have found such amounts, percentages and financial information
to be in agreement with the relevant accounting, financial and other records of
the Company and its Subsidiaries identified in such letter; and
(5) they have compared the information in the Prospectus under selected captions
with the disclosure requirements of Regulation S-B and on the basis of limited
procedures specified in such letter nothing came to their attention as a result
of the foregoing procedures that caused them to believe that this information
does not conform in all material respects with the disclosure requirements of
Regulation S-B.
(f) At the Closing Date, the Underwriters shall have received from Mark
Bailey & Co., Ltd. a letter, dated as of the Closing Date, to the effect that
they reaffirm the statements made in the letter furnished pursuant to subsection
(e) of this Section 6, except that the specified date referred to shall be a
date not more than three days prior to the Closing Date and, if the Company has
elected to rely on Rule 430A of the 1933 Act Regulations, to the further effect
that they have carried out procedures as specified in clause (4) of subsection
(e) of this Section 6 with respect to certain amounts, percentages and financial
information specified by the Underwriters and deemed to be a part of the
Registration Statement pursuant to Rule 430(A)(b) and have found such amounts,
percentages and financial information to be in agreement with the records
specified in such clause (4).
(g) At the Closing Date, the Common Stock shall have been approved for listing
on the Nasdaq National Market.
(h) In the event that the Underwriters exercise their option provided in
Section 7 hereof to purchase all or any portion of the Option Shares, the
representations and warranties of the Company contained herein and the
statements in any certificates furnished by the Company hereunder shall be true
and correct as of the Option Closing Date and, at the Option Closing Date, the
Underwriters shall have received:
(1) A certificate, dated the Option Closing Date, of the President or a
Vice President of the Company and of the Chief Financial or Chief Accounting
Officer of the Company confirming that the certificate delivered at the Closing
Date pursuant to Section 5(c) hereof remains true and correct as of the Option
Closing Date (except that all references in such Section to "Closing Date" shall
be deemed to refer to the "Option Closing Date").
(2) The opinions of Michael J. Morrison, Chtd., counsel for the Company, in
form and substance satisfactory to counsel for the Underwriters, dated the
Option Closing Date, relating to the Option Shares and otherwise to the same
effect as the opinion required by Section 5(b)(1) hereof (except that all
references in such Section to "Closing Date" shall be deemed to refer to the
"Option Closing Date").
(3) The opinion of McAfee & Taft A Professional Corporation, counsel for the
Underwriters, dated the Option Closing Date, relating to the Option Shares to be
purchased on the Option Closing Date and otherwise to the same effect as the
opinion required by Section 5(b)(2) hereof (except that all references in such
Section to "Closing Date" shall be deemed to refer to the "Option Closing
Date").
(4) A letter from Mark Bailey & Co., Ltd. in form and substance satisfactory to
the Underwriters and dated the Option Closing Date, substantially the same in
form and substance as the letter furnished to the Underwriters pursuant to
Section 5(e) hereof, except that the "specified date" in the letter furnished
pursuant to this Section 6(h)(4) shall be a date not more than three days prior
to the Option Closing Date.
(i) The Company and the Underwriters shall have entered into the Warrant
Agreement and the Company shall have sold to the Managing Underwriter the
Managing Underwriter's Warrants, which shall be in the form attached as an
exhibit to the Warrant Agreement.
If any condition specified in this Section shall not have been fulfilled
when and as required to be fulfilled, this Agreement may be terminated by
Capital West by notice to the Company at any time at or prior to Closing Date,
and such termination shall be without liability of any party to any other party
except as provided in Section 4 and except that Sections 4(i) and 8 shall
survive any such termination and remain in full force and effect.
7. Option Shares.
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(a) On the basis of the representations and warranties herein contained,
but subject to the terms and conditions herein set forth, the Company hereby
grants to the several Underwriters, for the purpose of covering over-allotments
in connection with the distribution and sale of the Firm Shares only, a
non-transferable option to purchase up to an aggregate 450,000 Option Shares at
the purchase price per share for the Firm Shares set forth in Section 3 hereof.
Such option may be exercised by Capital West on behalf of the several
Underwriters on one occasion in whole or in part during the period of 45
business days from and after the date on which the Firm Shares are initially
offered to the public, by giving notice to the Company. At the discretion of
Capital West, the number of Option Shares to be purchased by each Underwriter
upon the exercise of such option shall be the same proportion of the total
number of Option Shares to be purchased by the several Underwriters pursuant to
the exercise of such option as the number of Firm Shares purchased by such
Underwriter (set forth in Schedule A hereto) bears to the total number of Firm
----------
Shares purchased by the several Underwriters (set forth in Schedule A hereto),
----------
adjusted by the Underwriters in such manner as to avoid fractional shares.
Delivery of definitive certificates for the Option Shares to be purchased by the
several Underwriters pursuant to the exercise of the option granted by this
Section 7 shall be made against payment of the purchase price therefor by the
several Underwriters by certified or official bank check or checks drawn in same
day funds, payable to the order of the Company. Such delivery and payment shall
take place at the offices of Capital West Securities, Inc., 211 N. Robinson,
Suite 200, Oklahoma City, Oklahoma 73102 or at such other place as may be agreed
upon between the Underwriters and the Company on the Closing Date, if written
notice of the exercise of such option is received by the Company not later than
three full business days prior to the Closing Date.
The certificates for the Options Shares so to be delivered will be made
available to you at such office or other location including, without limitation,
in Oklahoma City, as you may reasonably request for checking at least two full
business days prior to the date of payment and delivery and will be in such
names and denominations as you may request, such request to be made at least
three full days prior to such date of payment and delivery. If the Underwriters
so elect, delivery of the Shares may be made by credit through full fast
transfer to the accounts at Depository Trust Company by the Underwriters.
It is understood that Capital West, individually, and not as the representative
of the Underwriters, may (but shall not be obligated to) make payment of the
purchase price on behalf of any Underwriter or Underwriters whose check or
checks shall not have been received by you prior to the date of payment and
delivery for the Option Shares to be purchased by such Underwriter or
Underwriters. Any such payment by Capital West shall not relieve any Underwriter
of any of its or their obligations hereunder.
(b) Upon exercise of any option provided for in Section 7(a) hereof the
obligations of the Underwriters to purchase such Option Shares will be subject
(as of the date hereof and as of the date of payment for such Option Shares) to
the accuracy of and compliance with the representations and warranties of the
Company herein, to the accuracy of the statements of the Company and officers of
the Company made pursuant to the provisions hereof, to the performance by the
Company of their respective obligations hereunder, and to the condition that all
proceedings taken at or prior to the payment date in connection with the sale
and transfer of such Option Shares shall be satisfactory in form and substance
to you and to Underwriters' counsel, and you shall have been furnished with all
such documents, certificates and opinions as you may reasonably request in order
to evidence the accuracy and completeness of any of the representations,
warranties or statements, the performance of any of the covenants of the Company
or the compliance with any of the conditions herein contained.
8. Indemnification and Contribution.
-----------------------------------
(a) The Company agrees to indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, as
incurred, to which such Underwriter may become subject under the Securities Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon (i) any breach of any
representation, warranty, agreement or covenant of the Company herein contained,
or (ii) any untrue statement or alleged untrue statement made by the Company in
Section 2 hereof, or (iii) any untrue statement or alleged untrue statement of a
material fact contained (A) in the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto, or (B) in any
blue sky application or other document executed by the Company specifically for
that purpose or based upon written information furnished by the Company filed in
any state or other jurisdiction in order to qualify any or all of the Shares
under the securities laws thereof (any such application, documents or
information being hereinafter called a "Blue Sky Application"), or (iv) the
omission or alleged omission to state in the Registration Statement or any
amendment thereto a material fact required to be stated therein or necessary to
make the statements therein not misleading, or the omission or alleged omission
to state in any Preliminary Prospectus, the Prospectus or any supplement thereto
or in any Blue Sky Application a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and shall reimburse each Underwriter
for any legal or other expenses reasonably incurred by such Underwriter in
connection with investigating or defending against or appearing as a third-party
witness in connection with any such loss, claim, damage, liability or action,
notwithstanding the possibility that payments for such expenses might later be
held to be improper, in which case the person receiving them shall promptly
refund them; except that the Company shall not be liable in any such case to the
extent, but only to the extent, that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in the Registration Statement, such
Preliminary Prospectus or the Prospectus, or any amendment or supplement, in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of any Underwriter specifically for use in the
preparation thereof and, provided further, that the indemnity agreement provided
in this Section 8(a) with respect to any Preliminary Prospectus shall not inure
to the benefit of any Underwriter from whom the person asserting any losses,
claims, charges, liabilities or litigation based upon any untrue statement or
alleged untrue statement of material fact or omission or alleged omission to
state therein a material fact purchased Shares, if a copy of the Prospectus in
which such untrue statement or alleged untrue statement or omission or alleged
omission was corrected has not been sent or given to such person within the time
required by the Securities Act and the Rules and Regulations thereunder, unless
such failure is the result of noncompliance by the Company with Section 4(d)
hereof.
(b) Each Underwriter severally, but not jointly, shall indemnify and hold
harmless the Company against any losses, claims, damages or liabilities, joint
or several, as incurred, to which the Company may become subject, under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any untrue statement or alleged untrue statement of a material fact contained
(A) in the Registration Statement, Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or (B) in any Blue Sky Application, or (ii) the
omission or alleged omission to state in the Registration Statement or any
amendment thereto a material fact required to be stated therein or necessary to
make the statements therein not misleading, or the omission or alleged omission
to state in any Preliminary Prospectus, the Prospectus or any supplement thereto
or in any Blue Sky Application a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; except that such indemnification
shall be available in each such case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company through the Underwriters by or on behalf of such
Underwriter specifically for use in the preparation thereof; and shall reimburse
any legal or other expenses reasonably incurred by the Company in connection
with investigation or defending against any such loss, claim, damage, liability
or action.
(c) Promptly after receipt by an indemnified party under subsection (a) or (b)
above of notice of any claim or the commencement of any action, the indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the claim or the commencement of that action; the failure to notify
the indemnifying party shall not relieve it from any liability which it may have
to an indemnified party otherwise than under such subsection. If any such claim
or action shall be brought against an indemnified party, and it shall notify the
indemnifying party thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party; provided, however, if
the defendants in any such action include both the indemnified parties and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties. After notice from the indemnifying party to the indemnified party of
its election to assume the defense of such claim or action, the indemnifying
party shall not be liable to the indemnified party under such subsection for any
legal or other expenses subsequently incurred by the indemnified party in
connection with the defense thereof unless (i) the indemnified party shall have
employed separate counsel in accordance with the proviso to the preceding
sentence (it being understood, however, that the indemnifying party shall not be
liable for the expenses of more than one separate counsel (together with
appropriate local counsel) approved by the indemnifying party, representing all
the indemnified parties under Section 8(a) and 8(b) hereof who are parties to
such action), (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the claim or action, or (iii)
the indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party. In no event shall
any indemnifying party be liable in respect of any amounts paid in settlement of
any action unless the indemnifying party shall have approved the terms of such
settlement; provided, however, that such consent shall not be unreasonably
withheld.
(d) In order to provide for just and equitable contribution in any action in
which a claim for indemnification is made pursuant to this Section 8 for which
it is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 8 provides for
indemnification in such case, all the parties hereto shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that the Underwriters are
responsible pro rata for the portion represented by the percentage that the
underwriting discount bears to the initial public offering price, and the
Company is responsible for the remaining portion; provided, however, that (i) no
Underwriter shall be required to contribute any amount in excess of the
underwriting discount applicable to the Shares purchased by such Underwriter,
and (ii) no person guilty of a fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to a contribution from
any person who is not guilty of such fraudulent misrepresentation. This
subsection (d) shall not be operative as to any Underwriter to the extent that
the Company has received indemnity under this Section 8.
(e) The obligations of the Company under this Section 8 shall be in addition to
any liability which the Company may otherwise have, and shall extend, upon the
same terms and conditions, to each officer and director of each Underwriter and
to each person, if any, who controls any Underwriter within the meaning of the
Securities Act; and the obligations of the Underwriters under this Section 8
shall be in addition to any liability that the respective Underwriters may
otherwise have, and shall extend, upon the same terms and conditions, to each
director of the Company (including any person who, with his consent, is named in
the Registration Statement as about to become a director of the Company), to
each officer of the Company who has signed the Registration Statement and to
each person, if any, who controls the Company within the meaning of the
Securities Act, in either case, whether or not such person is a party to any
action or proceeding.
(f) The parties to this Agreement hereby acknowledge that they are sophisticated
business persons who were represented by counsel during the negotiations
regarding the provisions hereof including without limitation the provisions of
this Section 8, and are fully informed regarding said provisions. They further
acknowledge that the provisions of this Section 8 fairly allocate the risks in
light of the ability of the parties to investigate the Company and its business
in order to assure that adequate disclosure is made in the Registration
Statement and Prospectus as required by the Securities Act and the Exchange Act.
The parties are advised that Federal or state public policy, as interpreted by
the courts in certain jurisdictions, may be contrary to certain of the
provisions of this Section 8, and the parties hereto hereby expressly waive and
relinquish any right or ability to assert such public policy as a defense to a
claim under this Section 8 and further agree not to attempt to assert any such
defense.
9. Representations, Warranties and Agreements to Survive Delivery. All
-------------------------------------------------------------------
representations, warranties, covenants and agreements of the Company contained
in this Agreement (including, without limitation, the agreements of the Company
set forth in Sections 4(i)-(k)), or contained in certificates of officers of the
Company submitted pursuant hereto, and the indemnity and contribution agreements
contained in Section 8 hereof, shall remain operative and in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter
or controlling person, or by or on behalf of the Company, or any of its
officers, controlling persons or directors and shall survive delivery of the
Shares to the several Underwriters hereunder or termination of this Agreement.
10. Substitution of Underwriter. If any Underwriter or Underwriters shall fail
----------------------------
to take up and pay for the number of Firm Shares agreed by such Underwriter or
Underwriters to be purchased hereunder upon tender of such Firm Shares in
accordance with the terms hereof, and if the aggregate number of Firm Shares
which such defaulting Underwriter or Underwriters so agreed but failed to
purchase does not exceed 10% of the Firm Shares, the remaining Underwriters
shall be obligated, severally in proportion to their respective commitments
hereunder, to take up and pay for the Firm Shares of such defaulting Underwriter
or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters agreed but failed to
take up and pay for exceeds 10% of the Firm Shares, the remaining Underwriters
shall have the right, but shall not be obligated, to take up and pay for (in
such proportions as may be agreed upon among them) the Firm Shares which the
defaulting Underwriter or Underwriters so agreed but failed to purchase. If such
remaining Underwriters do not, at the Closing Date, take up and pay for the Firm
Shares which the defaulting Underwriter or Underwriters so agreed but failed to
purchase, the Closing Date shall be postponed for twenty-four hours to allow the
several Underwriters the privilege of substituting within twenty-four hours
(including non-business hours) another underwriter or underwriters (which may
include any non-defaulting Underwriter) satisfactory to the Company. If no such
underwriter or underwriters shall have been substituted as aforesaid by such
postponed Closing Date, the Closing Date may, at the option of the Company, be
postponed for a further twenty-four hours, if necessary to allow the Company the
privilege of finding another underwriter or underwriters, satisfactory to you,
to purchase the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase. If it shall be arranged for the remaining
Underwriters or substituted underwriters to take up the Firm Shares of the
defaulting Underwriter or Underwriters as provided in this Section, (i) the
Company shall have the right to postpone the time of delivery for a period of
not more than seven full business days, in order to effect whatever changes may
thereby be made necessary in the Registration Statement or the Prospectus, or in
any other documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement or supplements to the Prospectus which
may thereby be made necessary, and (ii) the respective number of Firm Shares to
be purchased by the remaining Underwriters and substitute underwriters shall be
taken as the basis of their underwriting obligation. If the remaining
Underwriters shall not take up and pay for all such Firm Shares so agreed to be
purchased by the defaulting Underwriter or Underwriters or substitute another
underwriter or underwriters as aforesaid and the Company shall not find or shall
not elect to seek another underwriter or underwriters for such Firm Shares as
aforesaid, then this Agreement shall terminate.
In the event of any termination of this Agreement pursuant to the preceding
paragraph of this Section, neither the Company shall be liable to any
Underwriter (except as provided in Sections 5 and 8 hereof) nor shall any
Underwriter (other than an Underwriter who shall have failed, otherwise than for
some reason permitted under this Agreement, to purchase the number of Firm
Shares agreed by such Underwriter to be purchased hereunder, which Underwriter
shall remain liable to the Company and the other Underwriters for damages, if
any, resulting from such default) be liable to the Company (except to the extent
provided in Sections 5 and 8 hereof).
The term "Underwriter" in this Agreement shall include any person substituted
for an Underwriter under this Section.
11. Effective Date of this Agreement and Termination.
-------------------------------------------------------
(a) This Agreement shall become effective at the later of (i) execution of
this Agreement, or (ii) when notification of the effectiveness of the
Registration Statement has been released by the Commission.
(b) Capital West shall have the right to terminate this Agreement by giving
notice as hereinafter specified at any time at or prior to the Closing Date (i)
if the Company shall have failed, refused or been unable, to perform any
agreement on its part to be performed, or because any other condition of the
Underwriters' obligations hereunder required to be fulfilled by the Company is
not fulfilled including, without limitation, any change in the financial
condition, earnings, operations, business, management, technical staff, or
business prospects of the Company from that set forth in the Registration
Statement or Prospectus which, in the sole judgment of Capital West, is material
and adverse, or (ii) if trading on the Nasdaq National Market shall have been
suspended, or minimum or maximum prices for trading shall have been fixed, or
maximum ranges for prices for securities shall have been required on the Nasdaq
National Market by the Nasdaq National Market or by order of the Commission or
any other governmental authority having jurisdiction, or if a banking moratorium
shall have been declared by Federal, New York or Oklahoma authorities, or (iii)
if on or prior to the Closing Date, or on or prior to any later date on which
Option Shares are to be purchased, as the case may be, the Company shall have
sustained a loss by strike, fire, flood, earthquake, accident or other calamity
of such character as to interfere materially and adversely with the conduct of
the business and operations of the Company regardless of whether or not such
loss shall have been insured, or (iv) if there shall have been a material
adverse change in the general political or economic conditions or financial
markets in the United States as in your reasonable judgment makes it inadvisable
or impracticable to proceed with the offering, sale and delivery of the Shares,
or (v) if on or prior to the Closing Date, or on or prior to any later date on
which Option Shares are to be purchased, as the case may be, there shall have
been an outbreak or escalation of hostilities or other international or domestic
calamity, crises or material adverse change in political, financial or economic
conditions, the effect of which on the financial markets of the United States is
such as to make it in your reasonable judgment, inadvisable to proceed with the
marketing of the Shares. In the event of termination pursuant to this Section
11(b), the Company shall remain obligated to pay costs and expenses pursuant to
Section 4(j), 5 and 8 hereof.
If you elect to prevent this Agreement from becoming effective or to terminate
this Agreement as provided in this Section 11, you shall promptly notify the
Company by telephone or telecopy, in each case confirmed by letter. If the
Company shall elect to prevent this Agreement from becoming effective, the
Company shall promptly notify you by telephone or telecopy, in each case,
confirmed by letter.
12. Notices. All notices and other communications hereunder shall be in
--------
writing and shall be deemed to have been given if mailed or transmitted by any
standard form of telecommunication. Notices to the Underwriters shall be
directed to the Underwriters in care of Capital West Securities, Inc., 211 N.
Robinson, Suite 200, One Leadership Square, Oklahoma City, Oklahoma 73102,
attention of Robert O. McDonald; notices to the Company shall be directed to it
at 1619 Morgan Court, Mountain View, California 94043, Attention: Dr. Wun C.
Chiou, Sr
13. Parties. This Agreement shall inure to the benefit of and be binding upon
--------
the several Underwriters and the Company and their respective executors,
administrators, successors, and assigns. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person or corporation,
other than the parties hereto and their respective executors, administrators,
successors, and assigns and the controlling persons and officers and directors
referred to in Section 8 hereof any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provisions herein contained. This
Agreement and all conditions and provisions hereof are intended to be for the
sole and exclusive benefit of the parties hereto and their respective executors,
administrators, successors, and assigns and said controlling persons and said
officers and directors, and for the benefit of no other person or corporation.
No purchaser of the Shares from any Underwriter shall be construed to be a
successor by reason merely of such purchase.
14. Governing Law. This Agreement shall be governed by and construed in
--------------
accordance with the laws of the State of Oklahoma applicable to agreements made
----
and to be performed in said State. Specified times of day refer to Central
time.
15. Counterparts. This Agreement may be signed in several counterparts, each of
-------------
which will constitute an original.
16. Binding Arbitration. Each party to this Agreement agrees that any dispute or
--------------------
controversy arising between any of the parties to this agreement, or any person
or entity in privity therewith, out of the transactions effected and
relationships created pursuant to this Agreement and each other agreement
created in connection herewith, including any dispute or controversy regarding
the formation, terms, or construction of this Agreement, regardless of kind or
character, must be resolved through binding arbitration. Each party to this
Agreement agrees to submit such dispute or controversy to arbitration before the
American Arbitration Association (the "Association") in Oklahoma City, Oklahoma,
and further agrees to be bound by the determination of an arbitration panel
consisting of three persons. If demand for arbitration is made, each party will
have the right to select one independent arbitrator. If the party upon whom the
demand of arbitration is served fails to select an arbitrator within 20 days,
then the Association may select a second arbitrator upon application by either
party. The two arbitrators shall select a third arbitrator. If the two
arbitrators fail to select a third arbitrator within 20 days, the third
arbitrator may be selected and appointed by the Association upon application by
either party. The arbitrators' decision concerning the claim, controversy or
dispute, including allocation among the parties of costs and expenses associated
with the arbitration, shall be final and binding on the parties and judgment on
the award may be entered in any court of competent jurisdiction. Any party to
this Agreement may bring an action, including a summary or expedited proceeding,
to compel arbitration of any such dispute or controversy in a court of competent
jurisdiction and, further, may seek provisional or ancillary remedies including
temporary or injunctive relief in connection with such dispute or controversy in
a court of competent jurisdiction, provided that the dispute or controversy is
ultimately resolved through binding arbitration conducted in accordance with the
terms and conditions of this section.
If the foregoing correctly sets forth your understanding of our agreement,
please sign in the space provided below for that purpose, whereupon this
instrument, along with all counterparts, will become a binding agreement between
the Underwriters and the Company in accordance with its terms.
*******
<PAGE>
LinuxOne, Inc.
By:
CONFIRMED AND ACCEPTED, as of the date first above written:
CAPITAL WEST SECURITIES, INC.
By:
<PAGE>
SCHEDULE A
Underwriter Shares Purchased
- ----------- -----------------
Capital West Securities, Inc.
Total number of shares:
BYLAWS
OF
LINUXONE, INC.
ARTICLE 1.
OFFICES
1.1 Business Office
The principal business office ("principal office") of the corporation
shall be located at any place either within or without the State of Nevada as
designated in the corporation's most current Annual Report filed with the Nevada
Secretary of State. The corporation may have such other offices, either within
or without the State of Nevada, as the Board of Directors may designate or as
the business of the corporation may require from time to time. The corporation
shall maintain at its principal office a copy of certain records, as specified
in Section 2.14 of Article 2.
1.2 Registered Office
The registered office of the corporation shall be located within
Nevada and may be, but need not be, identical with the principal office,
provided the principal office is located within Nevada. The address of the
registered office may be changed from time to time by the Board of Directors.
ARTICLE 2.
SHAREHOLDERS
2.1 Annual Shareholder Meeting
The annual meeting of the shareholders shall be held in March of each
year, or at a date and time fixed by the Board of Directors, for the purpose of
electing directors and for the transaction of such other business as may come
before the meeting. If the day fixed for the annual meeting shall be a legal
holiday in the State of Nevada, such meeting shall be held on the next
succeeding business day.
If the election of directors shall not be held on the day designated
herein for any annual meeting of the shareholders, or at any subsequent
continuation after adjournment thereof, the Board of Directors shall cause the
election to be held at a special meeting of the shareholders as soon thereafter
as convenient.
2.2 Special Shareholder Meetings.
Special meetings of the shareholders, for any purpose or purposes
described in the notice of meeting, may be called by the President, the Chairman
of the Board of Directors, the Chief Executive Officer or the Board of
Directors, and shall be called by the President at the written request of the
holders of not less than one-third of all
outstanding shares of the corporation entitled to vote on any issue at the
meeting.
2.3 Place of Shareholder Meetings
The Board of Directors may designate any place, either within or
without the State of Nevada, as the place for any annual or any special meeting
of the shareholders, unless by written consent, which may be in the form of
waivers of notice or otherwise, all shareholders entitled to vote at the meeting
designate a different place, either within or without the State of Nevada, as
the place for the holding of such meeting. If no designation is made by either
the Board of Directors or unanimous action of the voting shareholders, the place
of meeting shall be the principal office of the corporation in the State of
Nevada.
2.4 Notice of Shareholder Meeting
(a) Required Notice. Written notice stating the place, day and hour of any
annual or special shareholder meeting shall be delivered not less than 10 nor
more than 60 days before the date of the meeting, either personally or by mail,
by or at the direction of the President, the Board of Directors, the Chairman of
the Board of Directors, or other persons calling the meeting, to each
shareholder of record entitled to vote at such meeting and to any other
shareholder entitled by the laws of the State of Nevada governing corporations
(the "Act") or the Articles of Incorporation to receive notice of the meeting.
Notice shall be deemed to be effective at the earlier of: (1) when deposited in
the United States mail, addressed to the shareholder at his address as it
appears on the stock transfer books of the corporation, with postage thereon
prepaid; (2) on the date shown on the return receipt if sent by registered or
certified mail, return receipt requested, and the receipt is signed by or on
behalf of the addressee; (3) when received; or (4) 5 days after deposit in the
United States mail, if mailed postpaid and correctly addressed to an address,
provided in writing by the shareholder, which is different from that shown in
the corporation's current record of shareholders.
(b) Adjourned Meeting. If any shareholder meeting is adjourned to a
different date, time, or place, notice need not be given of the new date, time,
and place if the new date, time, and place is announced at the meeting before
adjournment. But if a new record date for the adjourned meeting is, or must be
fixed (see Section 2.5 of this Article 2) then notice must be given pursuant to
the requirements of paragraph (a) of this Section 2.4, to those persons who are
shareholders as of the new record date.
(c) Waiver of Notice. A shareholder may waive notice of the meeting (or
any notice required by the Act, Articles of Incorporation, or Bylaws), by a
writing signed by the shareholder entitled to the notice, which is delivered to
the corporation (either before or after the date and time stated in the notice)
for inclusion in the minutes of filing with the corporate records.
A shareholder's attendance at a meeting:
(1) waives objection to lack of notice or defective notice of the
meeting unless the shareholder, at the beginning of the meeting, objects to
holding the meeting or transacting business at the meeting; and
(2) waives objection to consideration of a particular matter at the
meeting that is not within the purpose or purposes described in the meeting
notice, unless the shareholder objects to consideration of the matter when it is
presented.
(d) Contents of Notice. The notice of each special shareholder meeting
shall include a description of the purpose or purposes for which the meeting is
called. Except as provided in this Section 2.4(d), or as provided in the
corporation's articles, or otherwise in the Act, the notice of an annual
shareholder meeting need not include a description of the purpose or purposes
for which the meeting is called.
If a purpose of any shareholder meeting is to consider either: (1) a proposed
amendment to the Articles of Incorporation (including any restated articles
requiring shareholder approval); (2) a plan of merger or share exchange; (3)
the sale, lease, exchange or other disposition of all, or substantially all of
the corporation's property; (4) the dissolution of the corporation; or (5)
the removal of a director, the notice must so state and be accompanied by,
respectively, a copy or summary of the: (a) articles of amendment; (b) plan of
merger or share exchange; and (c) transaction for disposition of all, or
substantially all, of the corporation's property. If the proposed corporate
action creates dissenters' rights, as provided in the Act, the notice must state
that shareholders are, or may be entitled to assert dissenters' rights, and must
be accompanied by a copy of relevant provisions of the Act. If the corporation
issues, or authorizes the issuance of shares for promissory notes or for
promises to render services in the future, the corporation shall report in
writing to all the shareholders the number of shares authorized or issued, and
the consideration received with or before the notice of the next shareholder
meeting. Likewise, if the corporation indemnifies or advances expenses to an
officer or a director, this shall be reported to all the shareholders with or
before notice of the next shareholder meeting.
<PAGE>
(e) Shareholder Proposals. In order for any shareholder proposals to be
properly brought before any meeting of shareholders, a written notice thereof
must be given to the Board of Directors not later than thirty (30) days before
the date of the shareholder meeting.
2.5 Fixing of Record Date
For the purpose of determining shareholders of any voting group
entitled to notice of or to vote at any meeting of shareholders, or shareholders
entitled to receive payment of any distribution or dividend, or in order to make
a determination of shareholders for any other proper purpose, the Board of
Directors may fix in advance a date as the record date. Such record date shall
not be more than 70 days prior to the date on which the particular action
requiring such determination of shareholders entitled to notice of, or to vote
at a meeting of shareholders, or shareholders entitled to receive a share
dividend or distribution. The record date for determination of such
shareholders shall be at the close of business on:
(a) With respect to an annual shareholder meeting or any special shareholder
meeting called by the Board of Directors or any person specifically authorized
by the Board of Directors or these Bylaws to call a meeting, the day before the
first notice is given to shareholders;
(b) With respect to a special shareholder meeting demanded by the shareholders,
the date the first shareholder signs the demand;
(c) With respect to the payment of a share dividend, the date the Board of
Directors authorizes the share dividend;
(d) With respect to actions taken in writing without a meeting pursuant to
Article 2, Section 2.12), the first date any shareholder signs a consent; and
(e) With respect to a distribution to shareholders, (other than one involving a
repurchase or reacquisition of shares), the date the Board of Directors
authorizes the distribution.
When a determination of shareholders entitled to vote at any meeting
of shareholders has been made, as provided in this section, such determination
shall apply to any adjournment thereof unless the Board of Directors fixes a new
record date, which it must do if the meeting is adjourned to a date more than
120 days after the date fixed for the original meeting.
If no record date has been fixed, the record date shall be the date
the written notice of the meeting is given to shareholders.
2.6 Shareholder List
The officer or agent having charge of the stock transfer books for
shares of the corporation shall, at least ten (10) days before each meeting of
shareholders, make a complete record of the shareholders entitled to vote at
each meeting of shareholders, arranged in alphabetical order, with the address
of and the number of shares held by each. The list must be arranged by class or
series of shares. The shareholder list must be available for inspection by any
shareholder, beginning two business days after notice of the meeting is given
for which the list was prepared and continuing through the meeting. The list
shall be available at the corporation's principal office or at a place in the
city where the meeting is to be held, as set forth in the notice of meeting. A
shareholder, his agent, or attorney is entitled, on written demand, to inspect
and, subject to the requirements of Section 2.14 of this Article 2, to copy the
list during regular business hours and at his expense, during the period it is
available for inspection. The corporation shall maintain the shareholder list
in written form or in another form capable of conversion into written form
within a reasonable time.
2.7 Shareholder Quorum and Voting Requirements
A majority of the outstanding shares of the corporation entitled to
vote, represented in person or by proxy, shall constitute a quorum at a meeting
of shareholders. If less than a majority of the outstanding shares are
represented at a meeting, a majority of the shares so represented may adjourn
the meeting from time to time without further notice. At such adjourned meeting
at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
Once a share is represented for any purpose at a meeting, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting, unless a new record date is or must be set for that
adjourned meeting.
If a quorum exists, a majority vote of those shares present and voting
at a duly organized meeting shall suffice to defeat or enact any proposal unless
the Statutes of the State of Nevada, the Articles of Incorporation or these
Bylaws require a greater-than-majority vote, in which event the higher vote
shall be required for the action to constitute the action of the corporation.
2.8 Increasing Either Quorum or Voting Requirements
For purposes of this Section 2.8, a "supermajority" quorum is a
requirement that more than a majority of the votes of the voting group be
present to constitute a quorum; and a "supermajority" voting requirement is any
requirement that requires the vote of more than a majority of the affirmative
votes of a voting group at a meeting.
The shareholders, but only if specifically authorized to do so by the
Articles of Incorporation, may adopt, amend, or delete a Bylaw which fixes a
"supermajority" quorum or "supermajority" voting requirement.
The adoption or amendment of a Bylaw that adds, changes, or deletes a
"supermajority" quorum or voting requirement for shareholders must meet the same
quorum requirement and be adopted by the same vote required
to take action under the quorum and voting requirement then if effect or
proposed to be adopted, whichever is greater.
A Bylaw that fixes a supermajority quorum or voting requirement for
shareholders may not be adopted, amended, or repealed by the Board of Directors.
2.9 Proxies
At all meetings of shareholders, a shareholder may vote in person, or
vote by written proxy executed in writing by the shareholder or executed by his
duly authorized attorney-in fact. Such proxy shall be filed with the secretary
of the corporation or other person authorized to tabulate votes before or at the
time of the meeting. No proxy shall be valid after eleven (11) months from the
date of its execution unless otherwise specifically provided in the proxy or
coupled with an interest.
2.10 Voting of Shares
Unless otherwise provided in the articles, each outstanding share
entitled to vote shall be entitled to one vote upon each matter submitted to a
vote at a meeting of shareholders.
Shares held by an administrator, executor, guardian or conservator may
be voted by him, either in person or by proxy, without the transfer of such
shares into his name. Shares standing in the name of a trustee may be voted by
him, either in person or by proxy, but trustee shall be entitled to vote shares
held by him without transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into his name if authority to do so
is contained in an appropriate order of the Court by which such receiver was
appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares are transferred into the name of the pledgee, and
thereafter, the pledgee shall be entitled to vote the shares so transferred.
Shares of its own stock belonging to the corporation or held by it in
a fiduciary capacity shall not be voted, directly or indirectly, at any meeting,
and shall not be counted in determining the total number of outstanding shares
at any given time.
Redeemable shares are not entitled to vote after notice of redemption
is mailed to the holders and a sum sufficient to redeem the shares has been
deposited with a bank, trust company, or other financial institution under an
irrevocable obligation to pay the holders the redemption price on surrender of
the shares.
2.11 Corporation's Acceptance of Votes
(a) If the name signed on a vote, consent, waiver, or proxy appointment
corresponds to the name of a shareholder, the corporation, if acting in good
faith, is entitled to accept the vote, consent, waiver, or proxy appointment and
give it effect as the act of the shareholder.
(b) If the name signed on a vote, consent, waiver, or proxy appointment does
not correspond to the name of its shareholder, the corporation, if acting in
good faith, is nevertheless entitled to accept the vote, consent, waiver, or
proxy appointment and give it effect as the act of the shareholder if:
(1) the shareholder is an entity, as defined in the Act, and the name signed
purports to be that of an officer or agent of the entity;
(2) the name signed purports to be that of an administrator, executor,
guardian or conservator representing the shareholder and, if the corporation
requests, evidence of fiduciary status acceptable to the corporation has been
presented with respect to the vote, consent, waiver, or proxy appointment;
(3) the name signed purports to be that of a receiver or trustee in
bankruptcy of the shareholder and, if the corporation requests, evidence of this
status acceptable to the corporation has been presented with respect to the
vote, consent, waiver or proxy appointment;
(4) the name signed purports to be that of a pledgee, beneficial owner, or
attorney-in-fact of the shareholder and, if the corporation requests, evidence
acceptable to the corporation of the signatory's authority to sign for the
shareholder has been presented with respect to the vote, consent, waiver, or
proxy appointment; or
(5) the shares are held in the name of two or more persons as co-tenants or
fiduciaries and the name signed purports to be the name of at least one of the
co-owners and the person signing appears to be acting on behalf of all the
co-owners.
(c) The corporation is entitled to reject a vote, consent, waiver, or proxy
appointment if the secretary or other officer or agent authorized to tabulate
votes, acting in good faith, has reasonable basis for doubt about the validity
of the signature on it or about the signatory's authority to sign for the
shareholder.
(d) The corporation and its officer or agent who accepts or rejects a vote,
consent, waiver, or proxy appointment in good faith and in accordance with the
standards of this Section 2.11 are not liable in damages to the shareholder for
the consequences of the acceptance or rejection.
(e) Corporation action based on the acceptance or rejection of a vote,
consent, waiver, or proxy appointment under this section is valid unless a court
of competent jurisdiction determines otherwise.
2.12 No Informal Action by Shareholders
Notwithstanding the provisions of NRS 78.320, no action required or
permitted by the shareholders may be taken by written consent.
2.13 Voting for Directors
Unless otherwise provided in the Articles of Incorporation, directors
are elected by a plurality of the votes cast by the shares entitled to vote in
the election at a meeting at which a quorum is present.
2.14 Shareholders' Rights to Inspect Corporate Records
Shareholders shall have the following rights regarding inspection of
corporate records:
(a) Minutes and Accounting Records - The corporation shall keep, as
permanent records, minutes of all meetings of its shareholders and Board of
Directors, a record of all actions taken by the shareholders or Board of
Directors without a meeting, and a record of all actions taken by a committee of
the Board of Directors in place
of the Board of Directors on behalf of the corporation. The corporation shall
maintain appropriate accounting records.
(b) Absolute Inspection Rights of Records Required at Principal Office - If
a shareholder gives the corporation written notice of his demand at least five
business days before the date on which he wishes to inspect and copy, he, or his
agent or attorney, has the right to inspect and copy, during regular business
hours, any of the following records, all of which the corporation is required
to keep at its principal office:
(1) its Articles or restated Articles of Incorporation and all amendments to
them currently in effect;
(2) its Bylaws or restated Bylaws and all amendments to them currently in
effect;
(3) resolutions adopted by its Board of Directors creating one or more
classes or series of shares, and fixing their relative rights, preferences and
imitations, if shares issued pursuant to those resolutions are outstanding;
(4) the minutes of all shareholders' meetings, and records of all action
taken by shareholders without a meeting, for the past three years;
(5) all written communications to share- holders within the past three
years, including the financial statements furnished for the past three years to
the shareholders;
(6) a list of the names and business addresses of its current directors and
officers; and
(7) its most recent annual report delivered to the Nevada Secretary of
State.
(c) Conditional Inspection Right - In addition, if a shareholder gives the
corporation a written demand, made in good faith and for a proper purpose, at
least five business days before the date on which he wishes to inspect and copy,
describes with reasonable particularity his purpose and the records he desires
to inspect, and the records are directly connected to his purpose, a shareholder
of a corporation, or his duly authorized agent or attorney, is entitled to
inspect and copy, during regular business hours at a reasonable location
specified by the corporation, any of the following records of the corporation:
(1) excerpts from minutes of any meeting of the Board of Directors; records
of any action of a committee of the Board of Directors on behalf of the
corporation; minutes of any meeting of the shareholders; and records of action
taken by the shareholders or Board of Directors without a meeting, to the extent
not subject to inspection under paragraph (a) of this Section 2.14;
(2) accounting records of the corporation; and
(3 the record of shareholders (compiled no earlier than the date of the
shareholder's demand).
(d) Copy Costs - The right to copy records includes, if reasonable, the
right to receive copies made by photographic, xerographic, or other means. The
corporation may impose a reasonable charge, to be paid
by the shareholder on terms set by the corporation, covering the costs of labor
and material incurred in making copies of any documents provided to the
shareholder.
(e) "Shareholder" Includes Beneficial Owner - For purposes of this Section
2.14, the term "shareholder" shall include a beneficial owner whose shares are
held in a voting trust or by a nominee on his behalf.
2.15 Financial Statements Shall Be Furnished to the Shareholders.
(a) The corporation shall furnish its shareholders annual financial
statements, which may be consolidated or combined statements of the corporation
and one or more of its subsidiaries, as appropriate, that include a balance
sheet as of the end of the fiscal year, an income statement for that year, and a
statement of changes in shareholders' equity for the year, unless that
information appears elsewhere in the financial statements. If financial
statements are prepared for the corporation on the basis of generally accepted
accounting principles, the annual financial statements for the shareholders must
also be prepared on that basis.
(b) If the annual financial statements are reported upon by a public
accountant, his report must accompany them. If not, the statements must be
accompanied by a statement of the president or the person responsible for the
corporation's accounting records:
(1) stating his reasonable belief that the statements were prepared on the
basis of generally accepted accounting principles and, if not, describing the
basis of preparation; and
(2) describing any respects in which the statements were not prepared on a
basis of accounting consistent with the statements prepared for the preceding
year.
(c) A corporation shall mail the annual financial statements to each
shareholder within 120 days after the close of each fiscal year. Thereafter, on
written request from a shareholder who was not mailed the statements, the
corporation shall mail him the latest financial statements.
2.16 Dissenters' Rights.
Each shareholder shall have the right to dissent from and obtain
payment for his shares when so authorized by the Act, Articles of Incorporation,
these Bylaws, or a resolution of the Board of Directors.
2.17 Order of Business.
The following order of business shall be observed at all meetings of
the shareholders, as applicable and so far as practicable:
(a) Calling the roll of officers and directors present and determining
shareholder quorum requirements;
(b) Reading, correcting and approving of minutes of previous meeting;
(c) Reports of officers;
(d) Reports of Committees;
(e) Election of Directors;
(f) Unfinished business;
(g) New business; and
(h) Adjournment.
ARTICLE 3.
BOARD OF DIRECTORS
3.1 General Powers.
Unless the Articles of Incorporation have dispensed with or limited
the authority of the Board of Directors by describing who will perform some or
all of the duties of a Board of Directors, all corporate powers shall be
exercised by or under the authority of, and the business and affairs of the
corporation shall be managed under the direction of the Board of Directors.
3.2 Number, Tenure and Qualification of Directors.
Unless otherwise provided in the Articles of Incorporation, the
authorized number of directors shall be not less than 1 (minimum number) nor
more than 9 (maximum number). The initial number of directors was established in
the original Articles of Incorporation. The number of directors shall always be
within the limits specified above, and as determined by resolution adopted by
the Board of Directors. After any shares of this corporation are issued,
neither the maximum nor minimum number of directors can be changed, nor can a
fixed number be substituted for the maximum and minimum numbers, except by a
duly adopted amendment to the Articles of Incorporation duly approved by a
majority of the outstanding shares entitled to vote. Each director shall hold
office until the next annual meeting of shareholders or until removed. However,
if his term expires, he shall continue to serve until his successor shall have
been elected and qualified, or until there is a decrease in the number of
directors. Unless required by the Articles of Incorporation, directors do not
need to be residents of Nevada or shareholders of the corporation.
3.3 Regular Meetings of the Board of Directors.
A regular meeting of the Board of Directors shall be held without
other notice than this Bylaw immediately after, and at the same place as, the
annual meeting of shareholders. The Board of Directors may provide, by
resolution, the time and place for the holding of additional regular meetings
without other notice than such resolution. (If permitted by Section 3.7, any
regular meeting may be held by telephone).
3.4 Special Meeting of the Board of Directors.
Special meetings of the Board of Directors may be called by or at the
request of the president or any one director. The person or persons authorized
to call special meetings of the Board of Directors may fix any place, either
within or without the State of Nevada, as the place for holding any special
meeting of the Board of Directors or, if permitted by Section 3.7, any special
meeting may be held by telephone.
3.5 Notice of, and Waiver of Notice of, Special Meetings of the Board of
Directors.
Unless the Articles of Incorporation provide for a longer or shorter
period, notice of any special meeting of the Board of Directors shall be given
at least two days prior thereto, either orally or in writing. If mailed, notice
of any director meeting shall be deemed to be effective at the earlier of: (1)
when received; (2) five days after deposited in the United States mail,
addressed to the director's business office, with postage thereon prepaid; or
(3) the date shown on the return receipt, if sent by registered or certified
mail, return receipt requested, and the receipt is signed by or on behalf of the
director. Notice may also be given by facsimile and, in such event, notice shall
be deemed effective upon transmittal thereof to a facsimile number of a
compatible facsimile machine at the director's business office. Any director may
waive notice of any meeting. Except as otherwise provided herein, the waiver
must be in writing, signed by the director entitled to the notice, and filed
with the minutes or corporate records. The attendance of a director at a
meeting shall constitute a waiver of notice of such meeting, except where a
director attends a meeting for the express purpose of objecting to the
transaction of any business and at the beginning of the meeting, or promptly
upon his arrival, objects to holding the meeting or transacting business at the
meeting, and does not thereafter vote for or assent to action taken at the
meeting. Unless required by the Articles of Incorporation or the Act, neither
the business to be transacted at, nor the purpose of, any special meeting of the
Board of Directors need be specified in the notice or waiver of notice of such
meeting.
3.6 Director Quorum.
A majority of the number of directors fixed, pursuant to Section 3.2
of this Article 3, shall constitute a quorum for the transaction of business at
any meeting of the Board of Directors, unless the Articles of Incorporation or
the Act require a greater number for a quorum.
Any amendment to this quorum requirement is subject to the provisions
of Section 3.8 of this Article 3.
Once a quorum has been established at a duly organized meeting, the
Board of Directors may continue to transact corporate business until
adjournment, notwithstanding the withdrawal of enough directors to leave less
than a quorum.
3.7 Actions By Directors.
The act of the majority of the directors present at a meeting at which
a quorum is present when the vote is taken shall be the act of the Board of
Directors, unless the Articles of Incorporation or the Act require a greater
percentage. Any amendment which changes the number of directors needed to take
action is subject to the provisions of Section 3.8 of this Article 3.
Unless the Articles of Incorporation provide otherwise, any or all
directors may participate in a regular or special meeting by, or conduct the
meeting through the use of, any means of communication by which all directors
participating may simultaneously hear each other during the meeting. Minutes of
any such meeting shall be prepared and entered into the records of the
corporation. A director participating in a meeting by this means is deemed to
be present in person at the meeting.
A director who is present at a meeting of the Board of Directors or a
committee of the Board of Directors when corporate action is taken is deemed to
have assented to the action taken unless: (1) he objects at the beginning of
the meeting, or promptly upon his arrival, to holding it or transacting business
at the meeting; or (2) his dissent or abstention from the action taken is
entered in the minutes of the meeting; or (3) he delivers written notice of his
dissent or abstention to the presiding officer of the meeting before its
adjournment or to the corporation within 24 hours after adjournment of the
meeting. The right of dissent or abstention is not available to a director who
votes in favor of the action taken.
3.8 Establishing a "Supermajority" Quorum or Voting Requirement for the
Board of Directors.
For purposes of this Section 3.8, a "supermajority" quorum is a
requirement that more than a majority of the directors in office constitute a
quorum; and a "supermajority" voting requirement is one which requires the vote
of more than a majority of those directors present at a meeting at which a
quorum is present to be the act of the directors.
A Bylaw that fixes a supermajority quorum or supermajority voting
requirement may be amended or repealed:
(1) if originally adopted by the shareholders, only by the shareholders
(unless otherwise provided by the shareholders); or
(2) if originally adopted by the Board of Directors, either by the
shareholders or by the Board of Directors.
A Bylaw adopted or amended by the shareholders that fixes a
supermajority quorum or supermajority voting requirement for the Board of
Directors may provide that it may be amended or repealed only by a specified
vote of either the shareholders or the Board of Directors.
Subject to the provisions of the preceding paragraph, action by the
Board of Directors to adopt, amend, or repeal a Bylaw that changes the quorum or
voting requirement for the Board of Directors must meet the same quorum
requirement and be adopted by the same vote required to take action under the
quorum and voting requirement then in effect or proposed to be adopted,
whichever is greater.
3.9 Director Action Without a Meeting.
Unless the Articles of Incorporation provide otherwise, any action
required or permitted to be taken by the Board of Directors at a meeting may be
taken without a meeting if all the directors sign a written consent describing
the action taken. Such consents shall be filed with the records of the
corporation. Action taken by consent is effective when the last director signs
the consent, unless the consent specifies a different effective date. A signed
consent has the effect of a vote at a duly noticed and conducted meeting of the
Board of Directors and may be described as such in any document.
3.10 Removal of Directors.
The shareholders may remove one or more directors at a meeting called
for that purpose if notice has been given that a purpose of the meeting is such
removal. The removal may be with or without cause unless the Articles of
Incorporation provide that directors may only be removed for cause. If
cumulative voting is not authorized, a director may be removed only if the
number of votes cast in favor of removal exceeds the number of votes cast
against removal.
3.11 Board of Director Vacancies.
Unless the Articles of Incorporation provide otherwise, if a vacancy
occurs on the Board of Directors, excluding a vacancy resulting from an increase
in the number of directors, the director(s) remaining in office shall fill the
vacancy. If the directors remaining in office constitute fewer than a quorum of
the Board of Directors, they may fill the vacancy by the affirmative vote of a
majority of all the directors remaining in office.
If a vacancy results from an increase in the number of directors, only
the shareholders may fill the vacancy.
A vacancy that will occur at a specific later date (by reason of a
resignation effective at a later date) may be filled by the Board of Directors
before the vacancy occurs, but the new director may not take office until the
vacancy occurs.
The term of a director elected to fill a vacancy expires at the next
shareholders' meeting at which directors are elected. However, if his term
expires, he shall continue to serve until his successor is elected and qualifies
or until there is a decrease in the number of directors.
3.12 Director Compensation.
Unless otherwise provided in the Articles of Incorporation, by
resolution of the Board of Directors, each director may be paid his expenses, if
any, of attendance at each meeting of the Board of Directors, and may be paid a
stated salary as director or a fixed sum for attendance at each meeting of the
Board of Directors, or both. No such payment shall preclude any director from
serving the corporation in any other capacity and receiving compensation
therefor.
3.13 Director Committees.
(a) Creation of Committees. Unless the Articles of Incorporation provide
otherwise, the Board of Directors may create one or more committees and appoint
members of the Board of Directors to serve on them. Each committee must have
two or more members, who serve at the pleasure of the Board of Directors.
(b) Selection of Members. The creation of a committee and appointment of
members to it must be approved by the greater of (1) a majority of all the
directors in office when the action is taken, or (2) the number of directors
required by the Articles of Incorporation to take such action.
(c) Required Procedures. Sections 3.4, 3.5, 3.6, 3.7, 3.8 and 3.9 of this
Article 3 apply to committees and their members.
<PAGE>
(d) Authority. Unless limited by the Articles of Incorporation or the Act,
each committee may exercise those aspects of the authority of the Board of
Directors which the Board of Directors confers upon such committee
in the resolution creating the committee. Provided, however, a committee
may not:
(1) authorize distributions to shareholders;
(2) approve or propose to shareholders any action that the Act requires be
approved by shareholders;
(3) fill vacancies on the Board of Directors or on any of its committees;
(4) amend the Articles of Incorporation;
(5) adopt, amend, or repeal Bylaws;
(6) approve a plan of merger not requiring shareholder approval;
(7) authorize or approve reacquisition of shares, except according to a
formula or method prescribed by the Board of Directors; or
(8) authorize or approve the issuance or sale, or contract for sale of
shares, or determine the designation and relative rights, preferences, and
limitations of a class or series of shares; except that the Board of Directors
may authorize a committee to do so within limits specifically prescribed by the
Board of Directors.
ARTICLE 4.
OFFICERS
4.1 Designation of Officers.
The officers of the corporation shall be a president, a secretary, and
a treasurer, each of whom shall be appointed by the Board of Directors. Such
other officers and assistant officers as may be deemed necessary, including any
vice-presidents, may be appointed by the Board of Directors. The same
individual may simultaneously hold more than one office in the corporation.
4.2 Appointment and Term of Office.
The officers of the corporation shall be appointed by the Board of
Directors for a term as determined by the Board of Directors. If no term is
specified, they shall hold office until the first meeting of the directors held
after the next annual meeting of shareholders. If the appointment of officers
is not made at such meeting, such appointment shall be made as soon thereafter
as is convenient. Each officer shall hold office until his successor has been
duly appointed and qualified, until his death, or until he resigns or has been
removed in the manner provided in Section 4.3 of this Article 4.
The designation of a specified term does not grant to the officer any
contract rights, and the Board of Directors can remove the officer at any time
prior to the termination of such term.
Appointment of an officer shall not of itself create any contract
rights.
4.3 Removal of Officers.
Any officer may be removed by the Board of Directors at any time, with
or without cause. Such removal shall be without prejudice to the contract
rights, if any, of the person so removed.
4.4 President.
The president shall be the principal executive officer of the
corporation and, subject to the control of the Board of Directors, shall
generally supervise and control all of the business and affairs of the
corporation. He shall, when present, preside at all meetings of the
shareholders. He may sign, with the secretary or any other proper officer of
the corporation thereunto duly authorized by the Board of Directors,
certificates for shares of the corporation and deeds, mortgages, bonds,
contracts, or other instruments which the Board of Directors has authorized to
be executed, except in cases where the signing and execution thereof shall be
expressly delegated by the Board of Directors or by these Bylaws to some other
officer or agent of the corporation, or shall be required by law to be otherwise
signed or executed. The president shall generally perform all duties incident
to the office of president and such other duties as may be prescribed by the
Board of Directors from time to time.
4.5 Vice-President.
If appointed, in the absence of the president or in the event of the
president's death, inability or refusal to act, the vice-president (or in the
event there be more than one vice-president, the vice-presidents in the order
designated at the time of their election, or in the absence of any designation,
then in the order of their appointment) shall perform the duties of the
president, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the president. If there is no vice-president, then
the treasurer shall perform such duties of the president. Any vice-president
may sign, with the secretary or an assistant secretary, certificates for shares
of the corporation the issuance of which have been authorized by resolution of
the Board of Directors. A vice-president shall perform such other duties as
from time to time may be assigned to him by the president or by the Board of
Directors.
4.6 Secretary.
The secretary shall (a) keep the minutes of the proceedings of the
shareholders and of the Board of Directors in one or more books provided for
that purpose; (b) see that all notices are duly given in accordance with the
provisions of these Bylaws or as required by law; (c) be custodian of the
corporate records and of any seal of the corporation and, if there is a seal of
the corporation, see that it is affixed to all documents, the execution of which
on behalf of the corporation under its seal is duly authorized; (d) when
requested or required, authenticate any records of the corporation; (e) keep a
register of the post office address of each shareholder, as provided to the
secretary by the shareholders; (f) sign with the president, or a vice-resident,
certificates for shares of the corporation, the issuance of which has been
authorized by resolution of the Board of Directors; (g) have general charge of
the stock transfer books of the corporation; and (h) generally perform all
duties incident to the office of secretary and such other duties as from time to
time may be assigned to him by the president or by the Board of Directors.
4.7 Treasurer.
The treasurer shall (a) have charge and custody of and be responsible
for all funds and securities of the corporation; (b) receive and give receipts
for moneys due and payable to the corporation from any source whatsoever, and
deposit all such moneys in the name of the corporation in such banks, trust
companies, or other depositaries as may be selected by the Board of Directors;
and (c) generally perform all of the duties incident to the office of treasurer
and such other duties as from time to time may be assigned to him by the
president or by the Board of Directors.
If required by the Board of Directors, the treasurer shall give a bond
for the faithful discharge of his duties in such sum and with such surety or
sureties as the Board of Directors shall determine.
4.8 Assistant Secretaries and Assistant Treasurers.
The assistant secretaries, when authorized by the Board of Directors,
may sign with the president, or a vice-president, certificates for shares of the
corporation, the issuance of which has been authorized by a resolution of the
Board of Directors. The assistant treasurers shall respectively, if required by
the Board of Directors, give bonds for the faithful discharge of their duties in
such sums and with such sureties as the Board of Directors shall determine. The
assistant secretaries and assistant treasurers, generally, shall perform such
duties as may be assigned to them by the secretary or the treasurer,
respectively, or by the president or the Board of Directors.
4.9 Salaries.
The salaries of the officers, if any, shall be fixed from time to time
by the Board of Directors.
ARTICLE 5.
INDEMNIFICATION OF DIRECTORS, OFFICERS, AGENTS,
AND EMPLOYEES
5.1 Indemnification of Officers, Directors, Employees and Agents.
Unless otherwise provided in the Articles of Incorporation, the
corporation shall indemnify any individual made a party to a proceeding because
he is or was an officer, director, employee or agent of the corporation against
liability incurred in the proceeding, all pursuant to and consistent with the
provisions of NRS 78.751, as amended from time to time.
5.2 Advance Expenses for Officers and Directors.
The expenses of officers and directors incurred in defending a civil
or criminal action, suit or proceeding shall be paid by the corporation as they
are incurred and in advance of the final disposition of the action, suit or
proceeding, but only after receipt by the corporation of an undertaking by or on
behalf of the officer or director on terms set by the Board of Directors, to
repay the expenses advanced if it is ultimately determined by a court of
competent jurisdiction that he is not entitled to be indemnified by the
corporation.
5.3 Scope of Indemnification.
The indemnification permitted herein is intended to be to the fullest
extent permissible under the laws of the State of Nevada, and any amendments
thereto.
ARTICLE 6.
CERTIFICATES FOR SHARES AND THEIR TRANSFER
6.1 Certificates for Shares.
(a) Content
Certificates representing shares of the corporation shall at minimum, state on
their face the name of the issuing corporation; that the corporation is formed
under the laws of the State of Nevada; the name of the person to whom issued;
the certificate number; class and par value of shares; and the designation of
the series, if any, the certificate represents. The form of the certificate
shall be as determined by the Board of Directors. Such certificates shall be
signed (either manually or by facsimile) by the president or a vice-president
and by the secretary or an assistant secretary and may be sealed with a
corporate seal or a facsimile thereof. Each certificate for shares shall be
consecutively numbered or otherwise identified.
(b) Legend as to Class or Series
If the corporation is authorized to issue different classes of shares or
different series within a class, the designations, relative rights, preferences,
and limitations applicable to each class and the variations in rights,
preferences, and limitations determined for each series (and the authority of
the Board of Directors to determine variations for future series) must be
summarized on the front or back of the certificate indicating that the
corporation will furnish the shareholder this information on request in writing
and without charge.
(c) Shareholder List
The name and address of the person to whom the shares are issued, with the
number of shares and date of issue, shall be entered on the stock transfer books
of the corporation.
(d) Transferring Shares
All certificates surrendered to the corporation for transfer shall be canceled
and no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and canceled, except that in case
of a lost, destroyed, or mutilated certificate, a new one may be issued therefor
upon such terms as the Board of Directors may prescribe, including
indemnification of the corporation and bond requirements.
6.2 Registration of the Transfer of Shares.
Registration of the transfer of shares of the corporation shall be
made only on the stock transfer books of the corporation. In order to register
a transfer, the record owner shall surrender the share certificate to the
corporation for cancellation, properly endorsed by the appropriate person or
persons with reasonable assurances that the endorsements are genuine and
effective. Unless the corporation has established a procedure by which a
beneficial owner of shares held by a nominee is to be recognized by the
corporation as the owner, the person in whose name shares stand on the books of
the corporation shall be deemed by the corporation to be the owner thereof for
all purposes.
6.3 Restrictions on Transfer of Shares Permitted.
The Board of Directors may impose restrictions on the transfer or
registration of transfer of shares, including any security convertible into, or
carrying a right to subscribe for or acquire shares. A restriction does not
affect shares issued before the restriction was adopted unless the holders of
the shares are parties to the restriction agreement or voted in favor of the
restriction.
A restriction on the transfer or registration of transfer of shares
may be authorized:
(1) to maintain the corporation's status when it is dependent on the number
or identity of its shareholders;
(2) to preserve exemptions under federal or state securities law; or
(3) for any other reasonable purpose.
A restriction on the transfer or registration of transfer of shares may:
(1) obligate the shareholder first to offer the corporation or other persons
(separately, consecutively, or simultaneously) an opportunity to acquire the
restricted shares;
(2) obligate the corporation or other persons (separately, consecutively, or
simultaneously)
to acquire the restricted shares;
(3) require the corporation, the holders or any class of its shares, or
another person to
approve the transfer of the restricted shares, if the requirement
is not manifestly unreasonable;
or
(4) prohibit the transfer of the restricted shares to designated persons or
classes of persons, if the prohibition is not manifestly unreasonable.
A restriction on the transfer or registration of transfer of shares is
valid and enforceable against the holder or a transferee of the holder if the
restriction is authorized by this Section 6.3 and its existence is noted
conspicuously on the front or back of the certificate. Unless so noted, a
restriction is not enforceable against a person without knowledge of the
restriction.
6.4 Acquisition of Shares.
The corporation may acquire its own shares and unless otherwise
provided in the Articles of Incorporation, the shares so acquired constitute
authorized but unissued shares.
If the Articles of Incorporation prohibit the reissue of shares
acquired by the corporation, the number of authorized shares is reduced by the
number of shares acquired, effective upon amendment of the Articles of
Incorporation, which amendment shall be adopted by the shareholders, or the
Board of Directors without shareholder action (if permitted by the Act). The
amendment must be delivered to the Secretary of State and must set forth:
(1) the name of the corporation;
(2) the reduction in the number of authorized shares, itemized
by class and series; and
(3) the total number of authorized shares, itemized by class and series,
remaining after reduction of the shares.
ARTICLE 7.
DISTRIBUTIONS
7.1 Distributions.
The Board of Directors may authorize, and the corporation may make,
distributions (including dividends on its outstanding shares) in the manner and
upon the terms and conditions provided by law.
ARTICLE 8.
CORPORATE SEAL
8.1 Corporate Seal.
The Board of Directors may adopt a corporate seal which may be
circular in form and have inscribed thereon any designation, including the name
of the corporation, Nevada as the state of incorporation, and the words
"Corporate Seal."
ARTICLE 9.
EMERGENCY BYLAWS
9.1 Emergency Bylaws.
Unless the Articles of Incorporation provide otherwise, the following
provisions shall be effective during an emergency, which is defined as a time
when a quorum of the corporation's directors cannot be readily assembled because
of some catastrophic event. During such emergency:
(a) Notice of Board Meetings
Any one member of the Board of Directors or any one of the following officers:
president, any vice-president, secretary, or treasurer, may call a meeting of
the Board of Directors. Notice of such meeting need be given only to those
directors whom it is practicable to reach, and may be given in any practical
manner, including by publication and radio. Such notice shall be given at least
six hours prior to commencement of the meeting.
(b) Temporary Directors and Quorum
One or more officers of the corporation present at the emergency board meeting,
as is necessary to achieve a quorum, shall be considered to be directors for the
meeting, and shall so serve in order of rank, and within the same rank, in order
of seniority. In the event that less than a quorum (as determined by Section
3.6 of Article 3) of the directors are present (including any officers who are
to serve as directors for the meeting), those directors present (including the
officers serving as directors) shall constitute a quorum.
(c) Actions Permitted To Be Taken
The Board of Directors, as constituted in paragraph (b), and after notice as set
forth in paragraph (a), may:
(1) Officers' Powers
Prescribe emergency powers to any officer of the
corporation;
(2) Delegation of Any Power
Delegate to any officer or director, any of the powers of the Board of
Directors;
(3) Lines of Succession
Designate lines of succession of officers and agents, in the event that any of
them are unable to discharge their duties;
(4) Relocate Principal Place of Business
Relocate the principal place of business, or designate successive or
simultaneous principal places of business;
(5) All Other Action
Take any other action which is convenient, helpful, or necessary to carry on the
business of the corporation.
ARTICLE 10.
AMENDMENTS
10.1 AMENDMENTS
The Board of Directors may amend or repeal the corporation's Bylaws
unless:
(1) the Articles of Incorporation or the Act reserve this power exclusively
to the shareholders, in whole or part; or
(2) the shareholders, in adopting, amending, or repealing a particular
Bylaw, provide expressly that the Board of Directors may not amend or repeal
that Bylaw; or
(3) the Bylaw either establishes, amends or deletes a "supermajority"
shareholder quorum or voting requirement, as defined in Section 2.8 of Article
2.
Any amendment which changes the voting or quorum requirement for the
Board of Directors must comply with Section 3.8 of Article 3, and for the
shareholders, must comply with Section 2.8 of Article 2.
The corporation's shareholders may also amend or repeal the
corporation's Bylaws at any meeting held pursuant to Article 2.
CERTIFICATE OF SECRETARY
I hereby certify that I am the Secretary of LinuxOne, Inc. and that
the foregoing Bylaws, consisting of twenty-three (23) pages, constitutes the
Code of LinuxOne, Inc. as duly adopted by the Board of Directors of the
corporation on this 12th day of March, 1999.
IN WITNESS WHEREOF, I have hereunto subscribed my name this 12th day
of March, 1999.
/s/ Wun C. Chiou, Sr., Secretary
Software License Agreement
This Software License Agreement ( the "Agreement") is made effective October 28,
1999 ("Effective Date") between LinuxOne, Inc. 201 San Antonio Cir. #250,
Mountain View, CA 94040 ("Licensor") AND SRINET, Inc., 2F,2-21-25 Kamiogi-ku,
Tokyo, 167-0043 Japan ("Licensee").
DEFINITIONS:
7.5 "Licensed Software" shall mean all:
(a) Computer software described in Exhibit A;
(b) Fixes, and
(c) Enhancements and New Programs accepted by Licensee pursuant to article 5
below.
1.2 "Intellectual Property Rights" shall mean the following rights that
pertain to the Licensed Software under common law, state law, federal law, and
foreign law:
(a) Rights in letters patent and applications for letters patent;
(b) Rights in copyrights and rights of authorship; and
7 Rights in trade secrets, including trademarks.
7.5 "Object Code" shall mean any machine executable code derived in whole
or part from the Licensed Software.
1.4 "Documentation" shall mean non-confidential materials which Licensor
delivers to Licensee pursuant to Exhibit C.
7.5 "Developmental Work" shall mean the development work to be preformed by
Licensor, as more particularly described in Exhibit D.
1.6 "Fixes" shall mean all fixes, workarounds, and other modifications to
the Licensed Software other than Enhancements, which are made by or on behalf of
Licensor during the Term in order to correct defects in the Software.
1.7 "Enhancements" shall mean all improvements to the Licensed Software made
by or on behalf of Licensor during the Term, in order to add features to
otherwise improve functionality or performance.
1.8 "New Programs" shall mean all software programs developed by or for
Licensor during the Term to supplement or replace Licensed Software.
1.9 "Confidential Information" shall mean any proprietary and confidential
information delivered by one party to the other pursuant to this Agreement.
7.5 Royalty(ies)" shall mean the royalties descried in paragraph 3.1 below.
1.11 "Infringement Action" shall mean any claim, suit, or proceeding brought
against Licensee or its customers that Licensed Software or Documentation
infringes any Intellectual Property Rights of the third party.
1.12 "Infringing Product" shall mean any restriction on the use of the
Licensed Software as the result of any Infringement Action.
1.13 "Term" shall mean the period this Agreement is in effect, connecting on
the Effective Date.
2. GRANT CLAUSES
2.1 Licensor hereby grants the Licensee, under Licensor's Intellectual
Property Right, a royalty bearing, non-exclusive, non-transferable (subject to
2.2 below) license in the Licensed Software, Object Code, and Documentation to
use, sell. And distribute outside of the Territory of the American Continent
(including Canada, US, Mexico, Caribbean, South America). The main marketplace
will be in Japan and China.
2.2 Licensee's licenses rights under section 2.1 may be sublicensed or
otherwise delegated to its third party channels of distribution or its
subcontractors.
2.3 Expect as expressly provided in this Agreement, Licensor retains all
right, title, and interest in the licensed Software and Document.
3. CONSIDERATION:
3.1 For the rights granted in section 2.1 above, Licensee shall pay
royalties in accordance with Exhibit E.
3.2 Royalties due Licensor shall be paid within thirty days after the end of
each Licensee fiscal quarter, without any invoice. Such payments shall reflect
all Royalties due for that quarter, less credits and other adjustments, and
shall be accompanied by a report detailing how the Royalties were calculated.
3.3 Licensee shall maintain accurate records for the calculation of
Royalties. Licensor may, at its expense, engage an independent auditor to review
such records. Any such audit shall be subject to Licensee's security and
confidentiality requirements.
4.DELIVERY, MANUFACTORING, AND MARKETING
4.1 Licensor shall perform the Development Work at no charge to Licensee.
Upon completion of any Development Work, Licensor shall deliver a master copy of
the necessary Code, Programs, diskettes, CD's, and appropriate manuals
translated into the English language and ready for manufacture.
4.2 License is reasonable for reproducing and manufacturing the Licensed
Software, for sales in the Territory.
4.3 In marketing the Licensed Software, Licensee shall comply with any
naming requirements in Exhibit B.
4.4 Licensee may market the Licensed Software to the extent it deems
appropriate, in its sole discretion. This Agreement does not create any
partnership, agency, or other relationship other than licensee and Licensor.
5. ENHANCEMENTS AND NEW PROGRAMS
5.1 As soon as possible but in any event at least thirty days prior to the
commercial release of any New Program or Enhancement, Licensor, shall deliver to
Licensee a complete copy of the New Program or Enhancement.
5.2 For purposes of this article 5, a "complete copy" shall be sufficient to
enable Licensee to fully evaluate the New Program or Enhancement, and shall
include:
(a) A disk, CD, or other tangible media in a form to enable Licensee to
reproduce and manufacture Licensed Software;
(b) All available user manuals in hard copy form in English, and
(c) Any other documentation which Licensee reasonably requests.
5.3 Licensee may evaluate each New Program and Enhancement by any reasonable
means. Licensee shall have thirty days after receipt of a complete copy of a New
Program or Enhancement to either accept it or reject it. Licensee shall give
Licensor notice of the evaluation results.
5.4 At its discretion, Licensee may reject any New Program or Enhancement.
If Licensee rejects an Enhancement, Licensee shall be entitled to continue to
distribute the version of the Licensed Software prior to such Enhancement.
5.5 If Licensor updates or otherwise changes any Documentation, Licensor
shall provide Licensee one copy of the update or changes as soon as practical.
6. SUPPORT
7.5 Licensor shall, at no charge to the Licensee, provide Licensee with
support for all Licensed Software, as set forth in Exhibit F.
7.6 Licensor shall support its customers.
6.3 Licensor's support obligations shall continue for as long after the
termination of this Agreement as Licensee shall have the obligation to support
its customers who have been sold the Licensed Software.
7. CONFIDENTIAL INFORMATION
7.1 All Confidential Information shall either (1) be marked as confidential
at the time of disclosure, or (ii) if unmarked when disclosed but treated as
confidential (for example disclosed verbally), be described in a written
memorandum set to the recipient's Account Manager within thirty days after
disclosure.
7.2 A recipient of Confidential Information shall protect such information
by using the same degree of care, but no less than a reasonable degree of care,
as the recipient uses to protect its own information of a similar nature.
7.3 A recipient shall restrict access to Confidential Information to those
of its employees having a need to know.
7.4 A recipient's obligations of confidentiality shall continue for three
years from its disclosure.
7.5 A recipient of Confidential Information agrees that:
(a) The disclosure will be irreparably injured by the disclosure of
Confidential Information in violation of this Agreement, and
(b) In addition to any other remedies available at law or in equity, the
disclosure may obtain an injunction to prevent or stop any unauthorized
disclosure.
7.6 Confidential Information does not include information that:
(a) Was in the recipient's possession before receipt from the disclosure.
(b) Is or becomes a matter of public knowledge through no fault of the
recipient;
(c) Is rightfully received by the recipient from a third party without a
duty of confidentiality;
8. WARRANTIES
8.1 Licensor warrants that:
(a) It has full power and authority to grant the rights under this
Agreement;
(b) The Licensed Software will comply with the requirements in
Exhibit A;
and
c) The Licensed Software and Documentation do not violate or
infringe any third party's intellectual property.
8.2 With respect to any Infringing Product, Licensor shall, at its
expense and option:
(a) Procure for Licensee the rights to continue using the Product;
(b) Replace the Product with a non-infringing product or
comparable
function or performance, or
c) Modify the Product to be non-infringing.
8.3 Licensor shall have no liability under Section 8.2 to the extent
the Infringement Action is based upon:
(a) Any unauthorized modification of the Licensed Software or
Documentation; or
(b) Any combination, operation, or use of the Licensed Software or
Documentation with equipment, software, documentation, or other items
not
supplied by either Licensor or Licensee.
8.4 Except as expressly provided in this Article 8, Licensor makes no
other
warranties, either express or implied, regarding the Licensed Software or
the Documentation, including as to their merchantability or fitness for any
particular purpose.
8.5 In no event shall either party be liable for any indirect, special,
incidental, or consequential damages (including loss of profits) arising out of
any performance of this Agreement, or in furtherance of the provisions and
objectives of this Agreement, whether such damages are based on tort,
contract, or any other legal theory and whether advised of the possibility
of such damages.
9. TERM AND TERMINATION
9.1 The Term of this Agreement shall be the life of the intellectual
property rights licensed herein, but not more than twenty (20) years.
9.2 Either party may terminate this Agreement if the other party
breaches this Agreement and if such breach is not cured within ninety days
after notice from the non-breaching party advising of such breach. For
purposes of this Section 9.2, to the extent permitted by applicable law, a
breach of this Agreement shall include either party:
(a) Being the subject of a petition in bankruptcy whether
voluntary or involuntary;
(b) Becoming insolvent, or ceasing to do business in the normal
course;
9.3 Either party may terminate this Agreement by sending a thirty (30)
days notice to the other.
9.3 Upon the expiration or termination of this Agreement, Licensee
shall cease distributing all Licensed Software. The expiration or
termination of this Agreement shall not affect the rights of end-users,
whose rights are perpetual.
10. MISCELLANEOUS PROVISIONS
10.1 All notices under this Agreement shall be in writing and shall be
considered given upon personal delivery or delivery by electronic means
(fax), or forty-eight hours after sending by air courier. All notices shall
be addressed as specified below:
Licensee: Licensor:
SRINET Inc. LinuxOne, Inc.
2F, 2-21-25 Kamiogi, Suginami-ku 201 San Antonio Circle, Suite 250
Tokyo, 167-0043 Japan Mountain View, CA. 94040
10.2 Neither party shall disclose to any third party the terms of this
Agreement which is a strictly confidential agreement.
10.3 Neither party may assign or otherwise transfer its rights or
responsibilities in this Agreement without written permission of the other
party except in the event of a merger, acquisition or other reorganization.
10.4 This Agreement represents the entire agreement between the parties
as to the matters set forth and integrates all prior discussion and
understandings between them. This Agreement may only be modified by a
written instrument signed by an authorized representative of Licensor and
Licensee.
10.5 This Agreement shall be governed by, and construed in accordance
with the laws of the State of California. Exclusiveness shall be Mountain
View, CA.
10.6 All disputes under this Agreement shall be resolved exclusively by
binding non-appealable arbitration by the American Arbitration Association,
under the Commercial Arbitration Rules. The prevailing party shall be
entitled, in addition to any other award to all attorney's fees, costs and
expenses related to this dispute and arbitration.
LICENSOR LICENSEE
LinuxOne SRINET
Date: October 28, 1999 Date: October 28, 1999
By: /s/ Wun C. Chiou, Sr. /s/ Jimmy Huang
Title: President Title: President
EXHIBITS:
Exhibit A: Licensed Software - Localization and packaging of LinuxOne OS
product into Japanese and Chinese versions.
Exhibit B: No trademark will be licensed in this Agreement. However, licensee
expressly acknowledges LINUXONE as the sole copyright owner of the Licensed
Software.
Exhibit C: Documentation - Necessary user manuals translated from English into
Japanese and Chinese
Exhibit D: The Development Work - As needed to develop and fully test the
software, fixes, enhancements and new programs. All costs for product
development and translation into the Japanese and Chinese languages are to be
paid for by Licensor. The actual work could be undertaken by Licensee with the
written consent by the parties.
Exhibit E: Royalty Schedule - Licensee shall pay Licensor a royalty of 25% of
gross revenues for Licensed Software sales. No royalty shall be paid for
software given away free for promotional purposes. In case of bundle software,
the license fee per copy will be negotiated.
VERY URGENT REQUEST
Your Software LinuxOne Light
Dear Sir/Madam:
The DATA BECKER Corporation is Germany's market leading computer book publisher
and, as a software publisher, has made a commitment to provide its customers
with excellent computer software at value prizes. In general, our magazines "PC
Praxis" (monthly, circulation 380,000 copies per issue); "PC INTERN" (monthly,
circulation 160,000 copies per issue); "Computer furs Geschaft" (circulation
150,000 copies per issue); "Online Praxis" (quarterly, circulation 80,000 copies
per issue); and "PC fur Einsteiger" (i.e., for beginners; twice a year,
circulation 100,000 copies per issue) all come with a CD-ROM, which will also
apply to future DATA BECKER magazines. These CDs contain selected software
which is valuable to our customers. The magazines are either published or are
already projected to be published in various European countries.
Looking for such useful programs, we learned about your software LinuxOne Light
and would very much like to integrate it in our above-mentioned magazines-CDs.
If you are interested in having your software appear on our CDs, we would be
pleased to receive the download address from which we may always download the
ever most recent version of your software along with the signed notice that you
agree on us (DATA BECKER GmbH & Co. KG) copying and distributing the unaltered
most recent version of your software not limited in time or in the number of
copies made and distributed and place of distribution within Europe. This
license may freely be revoked by you with effect to the second issues after
notice of revocation. By signing, you confirm that your software is free from
any third-party property rights or copyrights and that no other rights exist
which prevent or diminish the use of the software by DATA BECKER under the
provisions of this agreement. You shall insofar indemnify DATA BECKER from and
against all third-party claims arising from any infringement of third-party
rights.
Please testify your approval solely by signing this notice and mailing or faxing
it to the address below.
Notice: For your reply to be handled properly, it is necessary that you return
the entire sheet.
DATA BECKER GmbH & Co. KG
Thomas Doring
Merowingerstr. 30
40223 Dusseldorf, Germany
[email protected]
Fax: 0049211-3190498
We look very much forward to hearing from you and hope we will be able to work
together on this project.
Sincerely yours,
Editor
Name: LinuxOne, Inc./ Attn. Dr. Wun C. Chiou, Sr.
Address: 201 San Antonio Circle, C250, Mountain View, CA. 94040
Email Address: [email protected]
Download-Address: www.linuxone.net
Our software is: A regular Commercial Version
The license to the software for end users is not limited in time
Products: LinuxOne Lite
LinuxOne, Inc., a Nevada corporation
By:
/s/ Wun C. Chiou, Sr., President
at Mountain View, CA. 94040
Date: November 30, 1999
COOPERATION
AGREEMENT
After friendly negotiation, China Sichuan International Economy, Science &
Technology Promotion Association (thereafter the Association) and LinuxOne, Inc.
have reached the following agreements of cooperation in the fields of economy,
science & technology as following:
1. On mutually beneficial basis, each side will cooperate fully in the
fields of economy, science & technology, provide convenience and create
conditions actively for the development of the other side's business activities.
2. As the only agent of LinuxOne in the Southwest of China, the Association
should be responsible for LinuxOne's product promotion, technical cooperation,
and business conneciton in this region. LinuxOne should not set up other agents
or representatives in the Southwest of China (including Sichuan Province,
Chongqing City, Yunnan Province, Guiyang Province and Tibet Autonomous Region).
3. LinuxOne should be responsible for providing necessary documents and
funds to the Association for the promotion of Linux software.
4. Cooperation beyond this agreement will be signed later after friendly
negotiation. The agreement is valid for one year, and may be renewable.
5. This agreement has two copies in Chinese and English form, each side will
keep one signed copy.
Sichuan International Economy, LinuxOne, Inc.
Science & Technology Promotion Association
/s/ Secretary General signature /s/ Wun C. Chiou, Sr.,
President
Date: 9-29-99 Date: 9-29-99
December 14, 1999
Dr. Wun C. Chiou, Sr.
LinuxOne, Inc.
1619 Morgan Court
Mountain View, CA. 94093
RE: Registration Statement for sale of up to 3,000,000 Shares of Common Stock
Dear Dr. Chiou:
I have acted as counsel to LinuxOne, Inc. (the "Company") in connection with
The offering of up to 3,000,000 of the Company's Common Stock, pursuant to a
Form S-1 registration statement, filed with the Securities and Exchange
Commission on September 22, 1999 (the "Registration Statement") and related
documents. You have requested my opinion as to certain matters in connection
with said registration statement.
In my capacity as counsel to the Company, I have examined and am familiar with
the originals and/or copies, the authenticity of which has been established to
my satisfaction, of all documents, corporate records and other instruments which
I have deemed necessary to express the opinions hereinafter set forth.
Based upon my examination and upon consideration of applicable laws, rules and
regulations, it is my opinion that the 3,000,000 shares to be issued by the
Company will, upon payment for and delivery of the Shares in the manner
described in the registration statement, be duly authorized, validly issued,
fully paid and non-assessable.
Further, I consent to the use of this opinion as an Exhibit to the registration
statement and to the use of my name in such registration statement and
prospectus included therein, under the heading "Legal Matters"..
Very truly yours,
/s/ Michael J. Morrison, Esq.
MARK BAILEY & CO. LTD.
Certified Public Accountants
Management Consultants
Phone: 775-332-4200
Fax: 775-332-4210
Office Address:
Mailing Address:
1495 Ridgeview Drive, Ste. 200
P.O. Box 6060
Reno, Nevada 89509-6634
Reno, Nevada 89513
E-mail:
Mark Bailey, CPA, ABV
December 22, 1999
Securities and Exchange Commission
Washington, D.C. 20549
RE: LinuxOne, Inc.
Form S-1
To whom it may concern:
We hereby authorize and consent to the use of our report, dated September 13,
1999, as an Exhibit to the above-referenced filing and to the use of our name as
it appears therein.
Sincerely,
/s/ Mark Bailey, CPA/ABV
Mark Bailey & Co., Ltd.
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