UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-8
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
ERF WIRELESS, INC.
------------------
(Exact Name of Registrant as Specified in its Charter)
NEVADA 76-0196431
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
2911 SOUTH SHORE BOULEVARD, SUITE 100
LEAGUE CITY, TEXAS 77573
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(Address of Principal Executive Office)
2008 STOCK OPTION PLAN
----------------------
(Full title of the plan)
RICHARD ROYALL
2911 SOUTH SHORE BOULEVARD, SUITE 100
LEAGUE CITY, TEXAS 77573
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(Name and address of agent for service)
TELEPHONE: (281)538-2101
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(Telephone number, including area code, of agent for service)
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
CALCULATION OF REGISTRATION FEE
========================== ================ ================== ================== ================
TITLE OF PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE AMOUNT BEING OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE
- -------------------------- ---------------- ------------------ ------------------ ----------------
Common Stock, par value
$0.001 per share 15,000,000 $0.54 $8,100,000 $318.33
- -------------------------- ---------------- ------------------ ------------------ ----------------
TOTAL $318.33
========================== ================ ================== ================== ================
(1) Pursuant to Rule 416 under the Securities Act of 1933, as amended, the
number of shares of the issuer's Common Stock registered hereunder will be
adjusted in the event of stock splits, stock dividends or similar
transactions.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(h), on the basis of the average of
the high and low prices for a share of common stock as reported by the
Over-The-Counter Bulletin Board.
PART I
ITEM 1. PLAN INFORMATION
The documents containing the information specified in Item 1 will be sent or
given to participants in the 2008 Stock Option Plan, as specified by Rule
428(b)(1) of the Securities Act of 1933, as amended (the "Securities Act"). Such
documents are not required to be and are not filed with the Securities and
Exchange Commission (the "SEC") either as part of this Registration Statement or
as prospectuses or prospectus supplements pursuant to Rule 424. These documents
and the documents incorporated by reference in this Registration Statement
pursuant to Item 3 of Part II of this Form S-8, taken together, constitute a
prospectus that meets the requirements of Section 10(a) of the Securities Act.
ITEM 2. REGISTRANT INFORMATION AND EMPLOYEE PLAN ANNUAL INFORMATION
Upon written or oral request, any of the documents incorporated by reference in
Item 3 of Part II of this Registration Statement (which documents are
incorporated by reference in this Section 10(a) Prospectus), other documents
required to be delivered to eligible employees, non-employee directors and
consultants, pursuant to Rule 428(b) are available without charge by contacting:
Clareen O'Quinn
ERF Wireless, Inc.
2911 South Shore Boulevard, Suite 100
League City, Texas 77573
(281)538-2101
EXPLANATORY NOTE
Pursuant to General Instruction C of Form S-8, the resale prospectus filed as
part of this Registration Statement has been prepared in accordance with the
requirements of Part I of Form S-3 and may be used for reofferings and resales
of registered shares of common stock which have been issued upon the grants of
common stock and/or options to purchase shares of common stock to executive
officers and directors of ERF Wireless, Inc.
RESALE PROSPECTUS
15,000,000 SHARES OF COMMON STOCK OF
ERF WIRELESS, INC.
This Resale Prospectus relates to the offer and sale of up to 15,000,000 shares
of our common stock from time to time by selling stockholders of shares of our
common stock. The common stock is issuable to the selling stockholders from time
to time under the Plan.
Our common stock is traded on the Over-The-Counter Bulletin Board under the
symbol "ERFW" On April 16, 2008, the closing price of a share of our common
stock was $0.54 per share.
We will not receive any of the proceeds from the sales by the selling
stockholders. The common stock may be sold from time to time by the selling
stockholders either directly in private transactions, or through one or more
brokers or dealers, or any other market or exchange on which the common stock is
quoted or listed for trading, at such prices and upon such terms as may be
obtainable. These sales may be at fixed prices (which may be changed), at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices.
Upon any sale of the common stock, by a selling stockholder and participating
agents, brokers, dealers or market makers may be deemed to be underwriters as
that term is defined in the Securities Act, and commissions or discounts or any
profit realized on the resale of such securities purchased by them may be deemed
to be underwriting commissions or discounts under the Securities Act.
No underwriter is being utilized in connection with this offering. We will pay
all expenses incurred in connection with this offering and the preparation of
this Resale Prospectus.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 2.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF
THIS RESALE PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Resale Prospectus is April 21, 2008
TABLE OF CONTENTS
Risk Factors...................................................................1
Where You can Find More Information............................................6
Incorporation of Certain Documents by Reference................................7
Note Regarding Forward Looking Statements......................................7
Use of Proceeds................................................................8
Dilution.......................................................................8
Selling Stockholders...........................................................9
Plan of Distribution...........................................................9
Description of Securities to be Registered.....................................9
Legal Matters.................................................................12
Experts.......................................................................12
You should rely only on the information contained in this Resale Prospectus or
any supplement. We have not authorized anyone to provide you with information
different from that which is contained in or incorporated by reference to this
Resale Prospectus. The information contained in this Resale Prospectus is
accurate only as of the date of this Resale Prospectus, regardless of the time
of delivery of this Resale Prospectus or of any sale of the common stock.
RISK FACTORS
Any investment in our securities involves a high degree of risk. You should
carefully consider the following information about these risks, together with
the other information contained in this prospectus, before you decide to buy our
securities.
WE HAVE A LIMITED OPERATING HISTORY WITH SIGNIFICANT LOSSES AND EXPECT LOSSES TO
CONTINUE FOR THE FORESEEABLE FUTURE
We have incurred annual operating losses since our inception. As a result, at
December 31, 2007, we had an accumulated deficit of $18,694,000. Our gross
revenues for the twelve months ended December 31, 2007 were $5,569,000, with a
loss from operations of $5,773,000 and a net loss applicable to common
shareholders of $7,067,000. As we pursue our business plan, we expect our
operating expenses to increase significantly, especially in the areas of sales
and marketing. As a result of these expected cost increases, we expect to incur
losses from operations in 2008.
WE HAVE A LIMITED CASH AND LIQUIDITY POSITION AND MAY NEED TO RAISE ADDITIONAL
FUNDS TO FUND OPERATIONS As of December 31, 2007, we had cash and cash
equivalents balances of $2,211,000 and working capital of $224,000. The Company
has a multi-year $4 million unsecured revolving credit facility, and as of
December 31, 2007, there was approximately $1,591,000 available under that
facility. Additionally, we have available project and equipment financing of
$11,000,000. We believe our cash, anticipated cash flow from operations and
available credit facilities afford us adequate liquidity for 2008, although we
will likely need to raise additional capital during this period to fund our
anticipated growth for our banking and Texas Wireless Internet Service Providers
network businesses if acceptable terms are available, and to fund unexpected or
unanticipated working capital expenditures. Moreover, we anticipate that we will
need additional capital in the future to continue to expand our business
operations. We have historically financed our operations through private equity
and debt financings. We do not have any commitments for equity funding at this
time, and additional funding may not be available to us on favorable terms, if
at all. As such there is no assurance that we can raise additional capital from
external sources, the failure of which could cause us to sell assets or curtail
operations.
A DEFAULT OF THE TERMS OF OUR SIGNIFICANT DEBT OBLIGATIONS MAY SUBJECT US TO THE
RISK OF FORECLOSURE ON CERTAIN OF OUR ASSETS
As of December 31, 2007, some operating assets, inventory, furniture and
accounts receivable are pledge as collateral on $2,145, 000 of outstanding notes
and capital leases. The occurrence of an event of default under any of our
obligations might subject us to foreclosure by the lenders to the extent
necessary to repay any amounts due. If a foreclosure were to happen, it would
have a material adverse effect on our financial condition. We are not required
to establish a sinking fund for the repayment of our outstanding debt.
Accordingly, we may be required to obtain funds to repay the debt either through
refinancing or the issuance of additional equity or debt securities. We may be
unable to obtain the funds needed, if any, to repay the obligations from any one
or more of these other sources on favorable economic terms or at all.
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A SIGNIFICANT NUMBER OF SHARES OF COMMON STOCK MAY BE ISSUED DURING 2008. THE
ISSUANCE OF THESE SHARES WILL HAVE A DILUTIVE EFFECT ON OUR COMMON STOCK AND MAY
LOWER OUR STOCK PRICE.
We have reserved for issuance the following:
o 15,000,000 shares of common stock pursuant to the Company's option
plans, of which options to purchase 2,274,753 shares are outstanding
as of December 31, 2007;
o 3,938,579 shares of common stock underlying outstanding common
warrants;
o 544,555 shares of common stock issuable upon conversion of bonds and
exercise of warrants that are issuable only upon conversion of such
bonds;
o 12,369,472 shares of common stock issuable upon conversion of Series
A Preferred Stock. The maximum common shares converted from Series A
Preferred shares are contractually restricted to five percent a
quarter or twenty percent a year of the authorized and issued common
shares outstanding at December 31, 2007.
The weighted average purchase price per share of common stock upon the issuance
of these derivative securities, as if converted on December 31, 2007, is
approximately (i) $2.98 per share of common stock underling the options, (ii)
4.95 per share of common stock underling the warrants, (iii) $1.01 per share of
common stock underlying the bonds and $5.00 for the common stock underlying the
warrant issuable upon conversion of the bonds; and (iv) $0.03 per share of
common stock underling the Series A Preferred Stock. Accordingly the issuance of
these shares will have a dilutive effect from both a net tangible book value per
share basis and from a number of shares of common stock outstanding basis. This
overhang could have a depressive effect on our common stock price.
THE MARKET PRICE OF OUR COMMON STOCK IS VERY VOLATILE AND THE VALUE OF YOUR
INVESTMENT MAY BE SUBJECT TO SUDDEN DECREASES
The trading price for our common stock has been, and we expect it to continue to
be, volatile. For example, the closing bid price of our stock has fluctuated
between $1.01 per share and $.49 per share since January 1, 2008. The price at
which our common stock trades depends upon a number of factors, including our
historical and anticipated operating results and general market and economic
conditions, which are beyond our control. Factors such as fluctuations in our
financial and operating results, technological innovations or new commercial
products and services by us or our competitors, could also cause the market
price of our common stock to fluctuate substantially. In addition, the stock
market has, from time to time, experienced extreme price and volume
fluctuations. These broad market fluctuations may lower the market price of our
common stock. Moreover, during periods of stock market price volatility, share
prices of many companies have often fluctuated in a manner not necessarily
related to their operating performance. Accordingly, our common stock may be
subject to greater price volatility than the stock market as a whole.
THE COMPANY'S REVENUE AND OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY FROM
QUARTER TO QUARTER, AND FLUCTUATIONS IN OPERATING RESULTS COULD CAUSE ITS STOCK
PRICE TO DECLINE.
The Company's revenue and operating results may vary significantly from quarter
to quarter due to a number of factors. In future quarters, operating results may
be below the expectations of public market analysis or investors, and the price
of our common stock may decline. Factors that could cause quarterly fluctuations
include:
o The Company's Enterprise Network Services subsidiary's ability to
secure new regional banking network customers for both the
construction and design of new broadband networks and for the
maintenance and monitoring of these broadband networks.
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o The Company's Wireless Bundled Services Division's ability to
acquire existing rural wireless broadband networks throughout North
America and the ability to secure customers in the rural regions in
which the Company acquires these wireless broadband networks.
o The Company's Wireless Messaging Services Division's ability to keep
current customers and secure new customers.
o The Company's Network Operations Division's ability to acquire new
customers through the Enterprise Network Services Division, the
Wireless Bundled Services Division and third parties.
o The Company's ability to raise the necessary capital to execute
mergers, acquisitions and asset purchases, as needed to implement
the Company's strategic plan.
Accordingly, the failure to obtain significant future revenue, lower than
expected revenue in the future, increased losses in the future, and decreased
working capital could adversely affect our stock price and liquidity.
DURING 2007, THE MAJORITY OF OUR REVENUE WAS GENERATED FROM SHORT-TERM
AGREEMENTS.
For the twelve-month period ended December 31, 2007 the majority of our revenues
from customers resulted from short-term, terminable at will, arrangements. Our
customers that provided in excess of 10% of our revenues in prior periods are
subject to short-term, terminable at will, arrangements, and it is expected that
these customers will not be providing in excess of 10% of our revenues in future
periods. There is no assurance that these customers will continue to conduct
business with us in the future, the failure of which could have a material
adverse effect on our business operations.
WE COMPETE WITH MANY COMPANIES THAT ARE LARGER AND BETTER FINANCED THAN WE ARE,
AND OUR GROWTH AND PROFITABILITY ARE DEPENDENT ON OUR ABILITY TO COMPETE WITH
THESE ENTITIES.
We face competition from many entities with significantly greater financial
resources, well-established brand names and larger customer bases. We may become
subject to severe price competition for our products and services as companies
seek to enter our industry or current competitors attempt to gain market share.
We expect competition to intensify in the future and expect significant
competition from traditional and new telecommunications companies including,
local, long distance, cable modem, Internet, digital subscriber line, microwave,
mobile and satellite data providers. If we are unable to make or keep our
products competitively priced and attain a larger market share in the markets in
which our products compete, our levels of sales and our ability to achieve
profitability may suffer.
A SYSTEM FAILURE COULD DELAY OR INTERRUPT OUR ABILITY TO PROVIDE PRODUCTS OR
SERVICES AND COULD INCREASE OUR COSTS AND REDUCE OUR REVENUES.
Our operations are dependant upon our ability to support a highly complex
network infrastructure. Many of our customers are particularly dependent on an
uninterrupted supply of services. Any damage or failure that causes
interruptions in our operations could result in loss of these customers. To
date, we have not experienced any significant interruptions or delays which have
affected our ability to provide products and services to our clients. Because
our headquarters and infrastructure are located in the Texas Gulf Coast area,
there is likelihood that our operations may be affected by hurricanes or
tropical storms, tornados, or flooding. The occurrence of a natural disaster,
operational disruption or other unanticipated problem could cause interruptions
in the services we provide and significantly impair our ability to generate
revenue and achieve profitability.
3
WE MUST CONTINUALLY ENHANCE OUR SERVICES TO MEET THE CHANGING NEEDS OF OUR
CUSTOMERS OR FACE THE POSSIBILITY OF LOSING FUTURE BUSINESS TO COMPETITORS.
Future success will depend upon the Company's ability to enhance existing
services and to introduce new services to meet the requirements of customers in
a rapidly developing and evolving market. Present or future services may not
satisfy the needs of the market. If the Company is unable to anticipate or
respond adequately to its customers' needs, lost business may result and
financial performance will suffer.
OUR INDUSTRY CHANGES RAPIDLY DUE TO EVOLVING TECHNOLOGY STANDARDS AND OUR FUTURE
SUCCESS WILL DEPEND ON OUR ABILITY TO CONTINUE TO MEET THE SOPHISTICATED NEEDS
OF OUR CUSTOMERS.
Our future success will depend on our ability to address the increasingly
sophisticated needs of our customers. We will have to develop and introduce
enhancements to our existing products and new products on a timely basis to keep
pace with technological developments, evolving industry standards and changing
customer requirements. We expect that we will have to respond quickly to rapid
technological change, changing customer needs, frequent new product
introductions and evolving industry standards that may render existing products
and services obsolete. As a result, our position in existing markets or
potential markets could be eroded rapidly by product advances. The life cycles
of our products are difficult to estimate. Our growth and future financial
performance will depend in part upon our ability to enhance existing
applications, develop and introduce new applications that keep pace with
technological advances, meet changing customer requirements and respond to
competitive products. We expect that our product development efforts will
continue to require substantial investments. We may not have sufficient
resources to make the necessary investments. Any of these events could have a
material adverse effect on our business, quarterly and annual operating results
and financial condition.
WE DEPEND UPON OUR INTELLECTUAL PROPERTY AND OUR FAILURE TO PROTECT EXISTING
INTELLECTUAL PROPERTY OR SECURE AND ENFORCE SUCH RIGHTS FOR NEW PROPRIETARY
TECHNOLOGY COULD ADVERSELY AFFECT OUR FUTURE GROWTH AND SUCCESS.
The Company's ability to successfully protect its proprietary technology is
essential to its success. The Company has filed trademark and patent
applications to protect intellectual property rights for technology that it
develops. The Company's future success also may depend upon its ability to
obtain additional licenses for other intellectual properties. The Company may
not be successful in acquiring additional intellectual property rights with
significant commercial value on acceptable terms. Even if the Company is
successful in acquiring such rights, it can provide no assurance that it will be
successful in adapting or deploying them as to the timing or cost of such
development efforts or as to the commercial success of the resulting products or
services.
OUR COMPETITORS MAY DEVELOP NON-INFRINGING PRODUCTS OR TECHNOLOGIES THAT
ADVERSELY AFFECT OUR FUTURE GROWTH AND REVENUES.
It is possible that our competitors will produce proprietary technologies
similar to ours without infringing on our intellectual property rights. We also
rely on unpatented proprietary technologies. It is possible that others will
independently develop the same or similar technologies or otherwise obtain
access to the unpatented technologies upon which we rely for future growth and
revenues. Failure to meaningfully protect our trade secrets, know-how or other
proprietary information could adversely affect our future growth and revenues.
4
WE MAY INCUR SIGNIFICANT LITIGATION EXPENSES PROTECTING OUR INTELLECTUAL
PROPERTY OR DEFENDING OUR USE OF INTELLECTUAL PROPERTY, WHICH MAY HAVE A
MATERIAL ADVERSE EFFECT ON OUR CASH FLOW.
Significant litigation regarding intellectual property exists in our industry.
Competitors and other third parties may infringe on our intellectual property
rights. Alternatively, competitors may allege that we have infringed on their
intellectual property rights, resulting in significant litigation expenses,
which would reduce our cash flow. Any claims, even those made by third parties
who are without merit, could:
o be expensive and time consuming to defend, resulting in the
diversion of management's attention and resources;
o require us to cease making, licensing or using products or systems
that incorporate the challenged intellectual property; or
o require us to spend significant time and money to redesign,
re-engineer or re-brand our products or systems if feasible.
IF THE WIRELESS BROADBAND MARKET DOES NOT EVOLVE AS WE ANTICIPATE, OUR BUSINESS
MAY BE ADVERSELY AFFECTED.
If we fail to properly assess and address the broadband wireless market or if
our products and services fail to achieve market acceptance for any reason, our
business and quarterly and annual operating results would be materially
adversely affected. Since the market for our products is still evolving, it is
difficult to assess the competitive environment or the size of the market that
may develop. In addition, technologies, customer requirements and industry
standards may change rapidly. If we cannot improve or augment our products as
rapidly as existing technologies, customer requirements and industry standards
evolve, our products or services could become obsolete. The introduction of new
or technologically superior products by competitors could also make our products
less competitive or obsolete. As a result of any of these factors, our position
in existing markets or potential markets could be eroded.
WE MAY NOT BE SUCCESSFUL IN ACQUIRING OTHER EXISTING COMPANIES AND TECHNOLOGIES,
WHICH COULD NEGATIVELY AFFECT OUR PRODUCT AND SERVICES OFFERINGS AND SALES.
Our business plan is dependent on acquiring existing companies and technologies
that expand our business, augment our market coverage, enhance our technical
capabilities, provide us with valuable customer contacts or otherwise offer
growth opportunities, and we may not be able to make such acquisitions. These
acquisitions are important to ensure that our products, services and
technologies are compatible with third-party products and technologies, to
enable us to sale or license our products and technologies to potential new
customers and into potential new markets, and to enable us to continue to enter
into new agreements with our existing customers. There can be no assurance that
we will identify the best acquisitions for our business or enter into
acquisitions of other companies on acceptable terms or at all. The failure to
make strategic acquisitions could have a material adverse effect on our business
or financial results. If we cannot make significant strategic acquisitions as
our target markets and technology evolve, the sales opportunities for our
products and technologies could deteriorate.
FUTURE ACQUISITIONS COULD PROVE DIFFICULT TO INTEGRATE, DISRUPT OUR BUSINESS,
DILUTE STOCKHOLDER VALUE AND STRAIN OUR RESOURCES.
As part of our business strategy, we intend to acquire companies and
technologies that we believe could complement or expand our business, augment
our market coverage, enhance our technical capabilities, provide us with
valuable customer contacts or otherwise offer growth opportunities. If we fail
to achieve the anticipated benefits of any acquisitions we complete, our
business, operating results, financial condition and prospects may be impaired.
Acquisitions and investments involve numerous risks, including:
5
o difficulties in integrating operations, technologies, services,
accounting and personnel;
o difficulties in supporting and transitioning customers of our
acquired companies to our technology platforms and business
processes;
o diversion of financial and management resources from existing
operations;
o difficulties in obtaining regulatory approval for technologies and
products of acquired companies;
o potential loss of key employees;
o if we finance acquisitions by issuing convertible debt or equity
securities, our existing stockholders may be diluted, which dilution
could adversely affect the market price of our stock;
o inability to generate sufficient revenues to offset acquisition or
investment costs; and
o potential write-offs of acquired assets.
Acquisitions also frequently result in recording of goodwill and other
intangible assets, which are subject to potential impairments in the future that
could harm our operating results. It is also possible that at some point in the
future we may decide to enter new markets, thus subjecting ourselves to new
risks associated with those markets.
THE COMPANY MAY ENTER INTO AGREEMENTS THAT WILL ALLOW CERTAIN INVESTORS TO PAY
LESS THAN THE THEN-PREVAILING MARKET PRICE OF OUR COMMON STOCK WHICH COULD CAUSE
THE PRICE OF OUR COMMON STOCK TO DECLINE.
From time to time, the Company may enter into investment agreements that will
allow the investors to purchase our shares at a discount to the market price.
The Company has an investment agreement with Dutchess Capital to issue shares at
discount to the market price upon the effectiveness of a registration statement.
Currently no registration statement is effective, however, if the registration
does become effective Dutchess will be able to purchase our common stock at a
discount to the market price. Each issuance of shares of our common stock will
dilute the value of each share of common stock due to the increase in the number
of outstanding shares. The investors will have a financial incentive to sell our
shares immediately upon receiving the shares to realize the profit between the
discounted price and the market price. If the investor sells our shares, the
price of our common stock may decrease. If our stock price decreases, the
investor may have a further incentive to sell such shares. Accordingly, the
discounted sales price in these investment agreements may cause the price of our
common stock to decline.
ADDITIONAL CAPITAL MAY DILUTE CURRENT STOCKHOLDERS.
In order to provide capital for the operation of our business we may enter into
additional financing arrangements. These arrangements may involve the issuance
of new common stock, preferred stock that is convertible into common stock, debt
securities that are convertible into common stock or warrants for the purchase
of common stock. Any of these items could result in a material increase in the
number of shares of common stock outstanding which would in turn result in a
dilution of the ownership interest of existing common shareholders. In addition,
these new securities could contain provisions, such as priorities on
distributions and voting rights, which could affect the value of our existing
common stock.
WHERE YOU CAN FIND MORE INFORMATION
The Company files annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commission (the
"Commission"). You can inspect, read and copy these reports, proxy statements
and other information at the public reference facilities the Commission
maintains at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549.
6
You can also obtain copies of these materials at prescribed rates by writing to
the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington,
D.C. 20549. You can obtain information on the operation of the public reference
facilities by calling the SEC at 1-800-SEC-0330. The Commission also maintains a
web site http://www.sec.gov that makes available reports, proxy statements and
other information regarding issuers that file electronically with it.
We have filed with the SEC a Registration Statement on Form S-8 under the
Securities Act of 1933, as amended, to register with the SEC the shares of our
common stock described in this Resale Prospectus. This Resale Prospectus is part
of that Registration Statement and provides you with a general description of
the Shares being registered, but does not include all of the information you can
find in the Registration Statement or the exhibits. You should refer to the
Registration Statement and its exhibits for more information about us and the
Shares being registered.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" information into this Resale
Prospectus, which means that we can disclose important information to you by
referring to another document filed separately by us with the SEC. The
information incorporated by reference is deemed to be part of this Resale
Prospectus, except for information superseded by this prospectus. This Resale
Prospectus incorporates by reference the documents set forth below that we have
previously filed with the SEC as of their respective filing dates. These
documents contain important information about us and our finances.
(1) The Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2007, filed on March 31, 2008, as amended on April 1,
2008;
(2) Quarterly Reports on Form 10-QSB for the quarters ended March 31,
2007, filed on May 21, 2007; June 30, 2007, filed on August 13,
2007; and September 30, 2007, filed on November 19, 2007;
(3) Current Reports on Form 8-K, filed on April 3, 2008; filed on
January 17, 2008; and From 8-K/A filed on January 14, 2008, amending
an 8-K filed on November 5, 2007.
All documents filed by ERF Wireless, Inc. with the SEC pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended,
subsequent to the date of this Registration Statement and prior to the
termination of the offering to which it relates shall be deemed to be
incorporated by reference into this Registration Statement and to be a part
hereof from the date of filing of such documents. Any statement contained herein
or in a document incorporated by reference or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Registration Statement to the extent that the statement is modified or
superseded by any other subsequently filed document which is incorporated or is
deemed to be incorporated by reference herein. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Registration Statement. Nothing in this Registration
Statement shall be deemed to incorporate information furnished by us but not
filed with the SEC pursuant to Items 2.02, 7.01 or 9.01 of Form 8-K.
NOTE REGARDING FORWARD LOOKING STATEMENTS
Included in this Resale Prospectus are "forward-looking" statements, as well as
historical information. Although we believe that the expectations reflected in
these forward-looking statements are reasonable, we can give no assurance that
the expectations reflected in these forward-looking statements will prove to be
correct. Our actual results could differ materially from those anticipated in
forward-looking statements as a result of certain factors, including matters
described in the section titled "Risk Factors." Forward-looking statements
include those that use forward-looking terminology, such as the words
"anticipate," "believe," "estimate," "expect," "intend," "may," "project,"
"plan," "will," "shall," "should," and similar expressions, including when used
in the negative. Although we believe that the expectations reflected in these
forward-looking statements are reasonable and achievable, these statements
involve risks and uncertainties and no assurance can be given that actual
results will be consistent with these forward-looking statements. Important
factors that could cause our actual results, performance or achievements to
differ from these forward-looking statements include the factors described in
the "Risk Factors" section and elsewhere in this Resale Prospectus.
7
All forward-looking statements attributable to us are expressly qualified in
their entirety by these and other factors. We undertake no obligation to update
or revise these forward-looking statements, whether to reflect events or
circumstances after the date initially filed or published, to reflect the
occurrence of unanticipated events or otherwise.
Any investment in our securities involves a high degree of risk. You should
carefully consider the following information about these risks, together with
the other information contained in this prospectus, before you decide to buy our
securities.
USE OF PROCEEDS
We will not receive any proceeds from the sale of shares which may be sold
pursuant to this Resale Prospectus for the respective accounts of the selling
stockholders. All such proceeds, net of brokerage commissions, if any, will be
received by the selling stockholders. See "Selling Stockholders" and "Plan of
Distribution."
DILUTION
Dilution represents the difference between the offering price and the net
tangible book value per share immediately after completion of this offering. Net
tangible book value is the amount that results from subtracting total
liabilities and intangible assets from total assets. Dilution arises mainly as a
result of our arbitrary determination of the offering price of the shares being
offered. Dilution of the value of the shares you purchase is also a result of
the lower book value of the shares held by our existing shareholders.
As of December 31, 2007, the net tangible book value of our common stock was
(1,332,000) or (0.02) per share, based upon 61,541,358 shares outstanding on
December 31, 2007. Due to the nature of the 2008 Stock Option Plan, the purchase
price paid by our officer, directors, employees and consultants under the 2008
Stock Option Plan is variable, as is the purchase price paid by the public upon
the resale by our officer, directors, employees and consultants of our common
stock. The following tables show the dilution based upon a resale price of our
common stock at $0.54 per share.
Without taking into account any changes in the pro forma net tangible book value
prior to this offering, other than to give effect to the issuance of 15,000,000
shares at an offering price of $0.54 per share (based upon the closing price of
our common stock on April 16, 2008) and the application of the net proceeds of
$8,100,000, the pro forma net tangible book value of the Company's common stock
after this offering will be $6,768,000 or $0.09 per share. Consequently, based
on the above assumptions, the purchasers of the common stock offered hereby will
sustain an immediate substantial dilution (i.e., the difference between the
purchase price of $0.54 per share of common stock and the net tangible book
value per share) after the offering of $0.45 per share. The following table
illustrates such dilution:
Per Share Price.......................................................$ 0.54
Per Share Pro Forma Net Tangible Book Value as of December 31, 2007...$(0.02)
Per Share Increase Attributable to New Investors......................$ 0.11
Per Share Pro Forma Net Tangible Book Value After the Offering........$ 0.09
Per Share Dilution to New Investors...................................$ 0.45
8
SELLING STOCKHOLDERS
The selling stockholders will be our current or future officers, directors,
consultants and employees who acquire shares of our common stock pursuant to the
Plan and are considered our "affiliates" as that term is defined in the federal
securities laws. The selling stockholders may from time to time resell all, a
portion, or none of the shares of our common stock covered by this Resale
Prospectus.
As of the date of this Prospectus, no shares of common stock were subject to
existing options under the Plan, and 15,000,000 were available for future
grants.
PLAN OF DISTRIBUTION
The Shares may be sold from time to time by the selling stockholders, or by
pledgees, donees, transferees or other successors in interest. Such sales may be
made on one or more exchanges or in the over-the-counter market, or otherwise,
at prices and at terms then prevailing or at prices related to the then current
market price, or in negotiated transactions. The shares may be sold by one or
more of the following, without limitation:
(a) a block trade in which the broker or dealer so engaged will attempt
to sell the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
(b) purchases by a broker or dealer as principal and resale by such
broker or dealer or for its account pursuant to the Resale
Prospectus, as supplemented;
(c) an exchange distribution in accordance with the rules of such
exchange; and
(d) ordinary brokerage transactions and transactions in which the broker
solicits purchasers.
(e) the selling stockholder and sales to and through other
broker-dealers or agents that participate with the selling
stockholder in the sale of the shares may be deemed to be
"underwriters" within the meaning of the Securities Act in
connection with these sales. In that event, any commissions received
by the broker-dealers or agents and any profit on the resale of the
Shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
In addition, any securities covered by this Resale Prospectus that qualify for
sale pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to
this Resale Prospectus, as supplemented. From time to time, the selling
stockholder may engage in short sales, short sales against the box, puts and
calls and other transactions in our securities or derivatives thereof, and may
sell and deliver the shares in connection therewith. Sales may also take place
from time to time through brokers pursuant to pre-arranged sales plans intended
to qualify under SEC Rule 10b5-1.
There is no assurance that the selling stockholder will sell all or any portion
of the shares covered by this Resale Prospectus.
All expenses of registration of the common stock, other than commissions and
discounts of underwriters, dealers or agents, shall be borne by us. As and when
we are required to update this Resale Prospectus, we may incur additional
expenses.
DESCRIPTION OF SECURITIES TO BE REGISTERED
General
We are authorized to issue 475,000,000 shares of common stock, $.001
par value, and 25,000,000 shares of preferred stock, $0.001 par value, of which
5,000,000 have been designated Series A Preferred Stock.
9
Common Stock
As of March 31, 2008, there were 72,190,054 shares of common stock issued
and outstanding that was held of record by approximately 575 stockholders.
The holders of common stock are entitled to one vote per share with
respect to all matters required by law to be submitted to stockholders. The
holders of common stock have the sole right to vote, except as otherwise
provided by law or by our certificate of incorporation, including provisions
governing any preferred stock. The common stock does not have any cumulative
voting, preemptive, subscription or conversion rights. Election of directors and
other general stockholder action requires the affirmative vote of a majority of
shares represented at a meeting in which a quorum is represented. The
outstanding shares of common stock are validly issued, fully paid and
non-assessable.
Subject to the rights of any outstanding shares of preferred stock, the
holders of common stock are entitled to receive dividends, if declared by our
board of directors out of funds legally available. In the event of liquidation,
dissolution or winding up of the affairs of ERF Wireless, the holders of common
stock are entitled to share ratably in all assets remaining available for
distribution to them after payment or provision for all liabilities and any
preferential liquidation rights of any preferred stock then outstanding.
Nevada anti-takeover statue and charter provisions.
NEVADA ANTI-TAKEOVER STATUE. Nevada's "Business Combinations" statute, Sections
78.411 through 78.444 of the Nevada Revised Statutes, which applies to Nevada
corporations having at least 200 shareholders which have not opted-out of the
statute, prohibits an "interested shareholder" from entering into a
"combination" with the corporation, unless certain conditions are met. A
"combination" includes (a) any merger or consolidation with an "interested
shareholder", or any other corporation which is or after the merger or
consolidation would be, an affiliate or associate of the interested shareholder,
(b) any sale, lease, exchange, mortgage, pledge, transfer or other disposition
of assets, in one transaction or a series of transactions, to or with an
"interested shareholder," having (i) an aggregate market value equal to 5% or
more of the aggregate market value of the corporation's assets determined on a
consolidated basis, (ii) an aggregate market value equal to 5% or more of the
aggregate market value of all outstanding shares of the corporation or (iii)
representing 10% or more of the earning power or net income of the corporation
determined on a consolidated basis, (c) any issuance or transfer of shares of
the corporation or its subsidiaries, to any interested shareholder, having an
aggregate market value equal to 5% or more of the aggregate market value of all
the outstanding shares of the corporation, except under the exercise of warrants
or rights to purchase shares offered, or a dividend or distribution paid or made
pro rata to all shareholders of the corporation, (d) the adoption of any plan or
proposal for the liquidation or dissolution of the corporation proposed by or
under any agreement, arrangement or understanding, whether or not in writing,
with the "interested shareholder," (e) certain transactions which would have the
effect of increasing the proportionate share of outstanding shares of the
corporation owned by the "interested shareholder," or (f) the receipt of
benefits, except proportionately as a shareholder, of any loans, advances or
other financial benefits by an "interested shareholder".
An interested shareholder is a person who (i) directly or indirectly
beneficially owns 10% or more of the voting power of the outstanding voting
shares of the corporation or (ii) an affiliate or associate of the corporation
which at any time within three years before the date in question was the
beneficial owner, directly or indirectly, of 10% or more of the voting power of
the then outstanding shares of the corporation.
A corporation to which the statute applies may not engage in a combination
within three years after the interested shareholder acquired its shares, unless
the combination or the interested shareholder's acquisition of shares was
approved by the board of directors before the interested shareholder acquired
the shares. If this approval was not obtained, then after the three-year period
expires, the combination may be consummated if all the requirements in the
corporation's Articles of Incorporation are met and either (a)(i) the board of
directors of the corporation approves, prior to the "interested shareholder's"
10
date of acquiring shares, or as to which the purchase of shares by the
"interested shareholder" has been approved by the corporation's board of
directors before that date or (ii) the combination is approved by the
affirmative vote of holders of a majority of voting power not beneficially owned
by the "interested shareholder" at a meeting called no earlier than three years
after the date the "interested shareholder" became such or (b) the aggregate
amount of cash and the market value of consideration other than cash to be
received by holders of common shares and holders of any other class or series of
shares meets the minimum requirements set forth in Sections 78.411 through
78.443 of the Nevada Revised Statutes, inclusive, and prior to the consummation
of the combination, except in limited circumstances, the "interested
shareholder" will not have become the beneficial owner of additional voting
shares of the corporation.
Nevada law permits a Nevada corporation to "opt out" of the application of the
Business Combinations statute by inserting a provision doing so in its original
Articles of Incorporation or Bylaws. We have not inserted such a provision our
Articles of Incorporation or our Bylaws. The Articles may be amended at any time
to subject us to the effect of the "Business Combinations" statutes. Under
Nevada law, our Articles of Incorporation may be amended pursuant to a
resolution adopted by our Board of Directors and ratified by a vote of a
majority of the voting power of our outstanding voting stock.
Nevada's "Control Share Acquisition" statute, Sections 78.378 through 78.3793 of
the Nevada Revised Statutes, prohibits an acquiror, under certain circumstances,
from voting shares of a target corporation's stock after crossing certain
threshold ownership percentages, unless the acquiror obtains the approval of the
target corporation's shareholders. The statute specifies three thresholds: at
least one-fifth but less than one-third, at least one-third but less than a
majority, and a majority or more, of all the outstanding voting power. Once an
acquiror crosses one of the above thresholds, shares, which it acquired in the
transaction taking it over the threshold or within ninety days become "Control
Shares" which are deprived of the right to vote until a majority of the
disinterested shareholders restore that right. A special shareholders' meeting
may be called at the request of the acquiror to consider the voting rights of
the acquiror's shares no more than 50 days (unless the acquiror agrees to a
later date) after the delivery by the acquiror to the corporation of an
information statement which sets forth the range of voting power that the
acquiror has acquired or proposes to acquire and certain other information
concerning the acquiror and the proposed control share acquisition. If no such
request for a shareholders' meeting is made, consideration of the voting rights
of the acquiror's shares must be taken at the next special or annual
shareholders' meeting. If the shareholders fail to restore voting rights to the
acquiror or if the acquiror fails to timely deliver an information statement to
the corporation, then the corporation may, if so provided in its Articles of
Incorporation or Bylaws, call certain of the acquiror's shares for redemption.
The Control Share Acquisition statute also provides that the shareholders who do
not vote in favor of restoring voting rights to the Control Shares may demand
payment for the "fair value" of their shares (which is generally equal to the
highest price paid in the transaction subjecting the shareholder to the
statute).
The Control Share Acquisition statute only applies to Nevada corporations with
at least 200 shareholders, including at least 100 shareholders who have
addresses in Nevada appearing on the stock ledger of the corporation, and which
do business directly or indirectly in Nevada. We do not have at least 100
shareholders who have addresses in Nevada appearing on our stock ledger.
Therefore, the Control Share Acquisition statute does not currently apply to us.
If the "Business Combination" statute and/or the "Control Share Acquisition"
statute becomes applicable to us in the future, the cumulative effect of these
terms may be to make it more difficult to acquire and exercise control over us
and to make changes in management more difficult.
CERTIFICATE OF INCORPORATION. Our certificate of incorporation provides
for the authorization of our board of directors to issue, without further action
by the stockholders, up to 25,000,000 shares of preferred stock in one or more
series and to fix the rights, preferences, privileges and restrictions on the
preferred stock.
These provisions are intended to enhance the likelihood of continuity and
stability in the composition of our board of directors and in the policies
formulated by our board of directors and to discourage transactions that may
involve an actual or threatened change of control of ERF Wireless. These
provisions are designed to reduce the vulnerability of ERF Wireless to an
unsolicited proposal for a takeover of ERF Wireless. However, these provisions
could discourage potential acquisition proposals and could delay or prevent a
change in control of ERF Wireless. These provisions may also have the effect of
preventing changes in the management of ERF Wireless.
11
LEGAL MATTERS
The validity of the common stock issuable under the Plan has been passed upon
for us by Brewer & Pritchard, PC. Thomas Pritchard has received shares of common
stock in lieu of cash for past services rendered and in the future may receive
shares of common stock for services rendered. Neither Thomas Pritchard nor
Brewer & Pritchard currently own any shares of the Company's common stock.
Neither Thomas C. Pritchard, nor the law firm of Brewer & Pritchard has been
employed on a contingent basis. Other than the shares of Company common stock to
be issued, neither Mr. Pritchard nor Brewer & Pritchard has or is to receive a
substantial interest direct or indirect in Registrant, nor are either of them
connected with Registrant other than in their role as outside legal counsel for
the Company.
EXPERTS
The financial statements and management's assessment of the effectiveness of
internal control over financial reporting (which is included in Management's
Report on Internal Control over Financial Reporting) incorporated in this
Prospectus by reference to the Annual Report on Form 10-KSB for the year ended
December 31, 2007 have been so incorporated in reliance on the report of LBB &
Associates LTD., LLP, an independent registered public accounting firm, given on
the authority of said firm as experts in auditing and accounting.
12
PART II
ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents filed by ERF Wireless, Inc. ("the Company") with the
Securities and Exchange Commission ("SEC") are incorporated in this Form S-8 by
reference:
(1) The Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2007, filed on March 31, 2008, as amended on April 1,
2008;
(2) Quarterly Reports on Form 10-QSB for the quarters ended March 31,
2007, filed on May 21, 2007; June 30, 2007, filed on August 13,
2007; and September 30, 2007, filed on November 19, 2007;
(3) Current Reports on Form 8-K, filed on April 3, 2008; filed on
January 17, 2008; and From 8-K/A filed on January 14, 2008, amending
an 8-K filed on November 5, 2007; and
(4) The description of the Company's common stock contained in the
Company's Form 10-SB filed September 27, 1999 (File No. 000-27467;
Accession Number 0000890566-99-001311), including any amendment or
report filed for the purpose of updating such description.
All documents filed by ERF Wireless, Inc. with the SEC pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended,
subsequent to the date of this Registration Statement and prior to the
termination of the offering to which it relates shall be deemed to be
incorporated by reference into this Registration Statement and to be a part
hereof from the date of filing of such documents. Any statement contained herein
or in a document incorporated by reference or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Registration Statement to the extent that the statement is modified or
superseded by any other subsequently filed document which is incorporated or is
deemed to be incorporated by reference herein. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Registration Statement. Nothing in this Registration
Statement shall be deemed to incorporate information furnished by us but not
filed with the SEC pursuant to Items 2.02, 7.01 or 9.01 of Form 8-K.
ITEM 4. DESCRIPTION OF SECURITIES
Our common stock is registered under Section 12(g) of the Securities Exchange
Act of 1934 and is listed on the Over-The-Counter Bulletin Board under the
symbol "ERFW."
ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL
The law firm of Brewer & Pritchard, of which Thomas C. Pritchard is a member,
has provided legal advice to the Registrant, and has also rendered a legal
opinion attached hereto as an Exhibit, as to the validity and due issuance of
the shares of the Company's common stock to be issued and registered hereby.
Brewer & Pritchard does not currently own any shares of the Company's common
stock; however, the Company will from time to time issue shares of its common
stock to Brewer & Pritchard or Thomas C. Pritchard as payment for legal services
rendered. Neither Thomas C. Pritchard, nor the law firm of Brewer & Pritchard
has been employed on a contingent basis. Other than the shares of Company common
stock to be issued, neither Mr. Pritchard nor Brewer & Pritchard has or is to
receive a substantial interest direct or indirect in Registrant, nor are either
of them connected with Registrant other than in their role as outside legal
counsel for the Company.
13
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's officers and directors are indemnified as provided by the Nevada
Revised Statutes and the Company's bylaws.
Under the Nevada Revised Statutes, director immunity from liability to a company
or its shareholders for monetary liabilities applies automatically unless it is
specifically limited by a company's Articles of Incorporation, the Bylaws or by
Agreement. The Articles of Incorporation do not specifically limit the
directors' liability; however the Bylaws specify the extent and nature of any
liability of directors, as detailed below. There are currently no agreements in
effect, which would limit such liability. Excepted from that immunity are: (a) a
willful failure to deal fairly with the company or its shareholders in
connection with a matter in which the director has a material conflict of
interest; (b) a violation of criminal law, unless the director had reasonable
cause to believe that his or her conduct was lawful or no reasonable cause to
believe that his or her conduct was unlawful; (c) a transaction from which the
director derived an improper personal profit; and (d) willful misconduct.
Our bylaws provide that the Company will indemnify the directors and officers to
the fullest extent not prohibited by Nevada law; provided, however, that the
Company may modify the extent of such indemnification by individual contracts
with the directors and officers; and, provided, further, that we shall not be
required to indemnify any director or officer in connection with any proceeding,
or part thereof, initiated by such person unless such indemnification: (a) is
expressly required to be made by law, (b) the proceeding was authorized by the
board of directors, (c) is provided by us, in our sole discretion, pursuant to
the powers vested us under Nevada law or (d) is required to be made pursuant to
the bylaws.
The Company's bylaws provide that the Company will advance to any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or officer, of
the company, or is or was serving at the request of the company as a director or
executive officer of another company, partnership, joint venture, trust or other
enterprise, prior to the final disposition of the proceeding, promptly following
request therefore, all expenses incurred by any director or officer in
connection with such proceeding upon receipt of an undertaking by or on behalf
of such person to repay said amounts if it should be determined ultimately that
such person is not entitled to be indemnified under the bylaws or otherwise.
The Company's bylaws provide that no advance shall be made by it to an officer
of the company, except by reason of the fact that such officer is or was a
director of the Company in which event this paragraph shall not apply, in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative, if a determination is reasonably and promptly made: (a) by the
board of directors by a majority vote of a quorum consisting of directors who
were not parties to the proceeding, or (b) if such quorum is not obtainable, or,
even if obtainable, a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, that the facts known to the
decision-making party at the time such determination is made demonstrate clearly
and convincingly that such person acted in bad faith or in a manner that such
person did not believe to be in or not opposed to the best interests of the
Company. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling an
issuer pursuant to the foregoing provisions, the opinion of the Commission is
that such indemnification is against public policy as expressed in the
Securities Act of 1933 and is therefore unenforceable.
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED
Not applicable.
14
ITEM 8. EXHIBITS
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
----------- -------------------------
4.1 2008 Stock Option Plan
5.1 Opinion of Brewer & Pritchard, P.C.
23.1 Consent of Brewer & Pritchard, P.C. *
23.2 Consent of Independent Auditor
- ----------------------------
* Included in its opinion filed as Exhibit 5.1
ITEM 9. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
i. To include any prospectus required by Section 10(a)(3) of the
Act;
ii. To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement; and
iii. To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
Provided, however, that paragraphs (a)(1)(i) and (ii) do not
apply if the registration statement is on Form S-3 or Form
S-8, and the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed with or furnished to the Commission by
the registrant pursuant to Section 13 or 15(d) of the Exchange
Act that are incorporated by reference in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
15
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Exchange Act) that
is incorporated by reference in the registration statement 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.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 6 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.
16
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-8 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Houston, Texas on this 21 day of April, 2008.
ERF WIRELESS, INC.
By: /s/ H. Dean Cubley
----------------------------------------
H. Dean Cubley, Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities indicated
on this 21st day of April 2008.
- --------------------------- ----------------------------- --------------------
SIGNATURE TITLE DATE
- --------------------------- ----------------------------- --------------------
/s/ H. Dean Cubley Chief Executive Officer & April 21, 2008
- ------------------ Chairman of the Board
H. Dean Cubley
- --------------------------- ----------------------------- --------------------
/s/ Richard Royall Chief Financial Office, April 21, 2008
- ------------------ Principal Office Financial
Richard Royall Officer & Director
- --------------------------- ----------------------------- --------------------
/s/ R. Greg Smith Director April 21, 2008
- -----------------
R. Greg Smith
- --------------------------- ----------------------------- --------------------
/s/ Bartus H. Batson Director April 21, 2008
- --------------------
Bartus H. Batson
- --------------------------- ----------------------------- --------------------
17
PROSPECTUS
ERF WIRELESS, INC.
15,000,000 SHARES OF COMMON STOCK
(PAR VALUE $.001 PER SHARE)
----------------
2008 STOCK OPTION PLAN
----------------
This document relates to a maximum of 15,000,000 shares of the common
stock, par value $.001 (the "Common Stock"), of ERF Wireless, Inc., issuable to
key employees, officers, directors, and consultants of the Company and it's
affiliates pursuant to awards granted under the Company's 2008 Stock Option Plan
(the "Plan").
The Common Stock of the Company is traded on the Over-The-Counter Bulletin
Board. The principal executive offices of the Company are located at 2911 South
Shore Boulevard, Suite 100, League City, Texas 77573, and its telephone number
is (281) 538-2101.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
The date of this Prospectus is April 21, 2008
TABLE OF CONTENTS
Available Information..........................................................3
The Company....................................................................4
2008 Stock Option Plan.........................................................4
General...................................................................4
Purpose...................................................................4
Eligibility .............................................................4
Administration............................................................4
Options and SARs..........................................................5
Termination of Options or SARs............................................5
Reload Options............................................................6
Restricted Stock Awards...................................................6
Award of Performance Stock................................................6
Transferability...........................................................7
Amendment or Termination of the Plan......................................7
Changes in the Company's Capital Structure................................7
Applicability of ERISA; Tax Qualification.................................8
Tax Consequences..........................................................8
Incorporation of Certain Documents by Reference...............................11
2
AVAILABLE INFORMATION
The Company files annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange Commission (the
"Commission"). You can inspect, read and copy these reports, proxy statements
and other information at the public reference facilities the Commission
maintains at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549.
You can also obtain copies of these materials at prescribed rates by
writing to the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You can obtain information on the operation of the
public reference facilities by calling the SEC at 1-800-SEC-0330. The Commission
also maintains a web site http://www.sec.gov that makes available reports, proxy
statements and other information regarding issuers that file electronically with
it.
This prospectus is part of a registration statement on Form S-8 that the
Company has filed with the Commission. This prospectus does not contain all of
the information we have included in the registration statement and the
accompanying exhibits and schedules as permitted by the rules and regulations of
the Commission. The registration statement, exhibits and schedules are available
at the Commission's public reference room or through its website.
3
THE COMPANY
The issuer of the shares of common stock covered by this Prospectus is ERF
Wireless, Inc., a Nevada corporation. The Company's principal executive offices
are located at 2911 South Shore Boulevard, Suite 100, League City, Texas 77573,
and its telephone number is (281)538-2101.
SUMMARY OF THE PLAN
GENERAL
The Board of Directors adopted the 2008 Stock Option Plan ("Plan") in
March 2008. The Plan allows stock option grants, performance stock awards,
restricted stock awards, and stock appreciation rights ("SAR") as determined by
the Committee.
As of the date of this Prospectus, no shares of Common Stock were subject
to existing options under the Plan, and 15,000,000 shares were available for
future grants.
Certain highlights of the Plan are set forth below. The entire text of the
Plan was filed with the Commission on April 21, 2008 as an exhibit to the
Company's registration statement of Form S-8. The following description is
qualified in its entirety by reference to the Plan.
PURPOSE
The purpose of the Plan is to foster and promote the financial success of
the Company and increase stockholder value by enabling eligible key employees
and others to participate in the long-term growth and financial success of the
Company. The Company relies on equity incentives in the form of stock option
grants in order to attract and retain key employees and believes that such
equity incentives are necessary for it to remain competitive in the marketplace
for executive talent and other key employees.
ELIGIBILITY
The Plan is open to key employees, officers, directors, and consultants of
the Company and its affiliates ("Eligible Persons").
ADMINISTRATION
The Plan is administered by the Company's Compensation Committee
consisting of not less than two non-employee members of the Board appointed
annually by and serving at the pleasure of the Board. The Compensation Committee
presently consists of the following directors: Dean Cubley and Bartus Batson.
The address at which members of the Compensation Committee may be contacted is
as follows: Compensation Committee, ERF Wireless, Inc., at 2911 South Shore
Boulevard, Suite 100, League City, Texas 77573.
The Compensation Committee may prescribe, amend and rescind rules and
regulations for administration of the Plan and will have full power and
authority to construe and interpret the Plan. Taking into consideration each
employee's contribution to the success of the Company and other considerations,
the Compensation Committee will have the full and exclusive right to grant all
options and SARs and to make all awards under the Plan, and to cause the
issuance of shares of Common Stock pursuant to such grants and awards. The
Compensation Committee shall also have the authority consult with and receive
recommendations from officers and other employees of ERF and its subsidiaries
with regard to these matters.
4
OPTIONS AND SARS.
The Company may grant incentive or nonqualified stock options.
OPTION PRICE. The exercise price of incentive options shall not be less
than the greater of: (a) 100% of the fair market value of the shares of stock on
the date the option is granted or (b) the aggregate par value of the shares of
stock on the date the option is granted. The Compensation Committee in its
discretion may provide that the price at which shares of stock may be purchased
under an incentive option shall be more than 100% of fair market value. In the
case of any 10% Stockholder, the price at which shares of stock may be purchased
under an incentive option shall not be less than 110% of the fair market value
of the stock on the date the Incentive option is granted. A "10% Stockholder"
means an individual who, at the time the option is granted, owns shares of
Common Stock possessing more than 10% of total combined voting power of all
classes of stock of the Company or any affiliate. The price at which shares of
stock may be purchased under a nonqualified option shall be such price as shall
be determined by the Committee in its sole discretion but in no event lower than
the par value of the shares of stock on the date the option is granted.
DURATION. No option or SAR may be exercisable after the period of 10
years. In the case of a 10% Stockholder, no incentive option may be exercisable
after the expiration of five years.
AMOUNT EXERCISABLE-INCENTIVE OPTIONS. Each option may be exercised from
time to time, in whole or in part, in the manner and subject to the conditions
the Committee, in its sole discretion, may provide in the option agreement, as
long as the option is valid and outstanding. To the extent that the aggregate
fair market value (determined as of the time an incentive option is granted) of
the stock with respect to which incentive options first become exercisable by
the optionee during any calendar year (under the Plan and any other incentive
stock option plan(s) of the Company or any affiliate) exceeds $100,000, the
portion in excess of $100,000 of the incentive option shall be treated as a
nonqualified option. In making this determination, incentive options shall be
taken into account in the order in which they were granted.
EXERCISE OF OPTIONS. Each Option shall be exercised by the delivery of
written notice to the Committee setting forth the number of shares of stock with
respect to which the Option is to be exercised, together with: (a) cash,
certified check, bank draft, or postal or express money order payable to the
order of the Company for an amount equal to the option price of the shares; (b)
stock at its Fair Market Value on the date of exercise (if approved in advance
in writing by the Committee); (c) an election to make a cashless exercise
through a registered broker-dealer (if approved in advance in writing by the
Committee); (d) an election to have shares of stock, which otherwise would be
issued on exercise, withheld in payment of the exercise price (if approved in
advance in writing by the Committee); and/or (e) any other form of payment which
is acceptable to the Committee, including without limitation, payment in the
form of a promissory note, and specifying the address to which the certificates
for the shares are to be mailed.
SARS. SARs may, at the discretion of the Compensation Committee, be
included in each option granted under the Plan to permit the holder of an option
to surrender that option, or a portion of the part which is then exercisable,
and receive in exchange, upon the conditions and limitations set by the
Compensation Committee, an amount equal to the excess of the fair market value
of the stock covered by the option, or the portion of it that was surrendered,
determined as of the date of surrender, over the aggregate exercise price of the
stock. In the event of the surrender of an option, or a portion of it, to
exercise the SAR, the shares represented by the option or that part of it which
is surrendered, shall not be available for reissuance under the Plan. Each SAR
issued in tandem with an option (a) will expire not later than the expiration of
the underlying option, (b) may be for no more than 100% of the difference
between the exercise price of the underlying option and the fair market value of
a share of stock at the time the SAR is exercised, (c) is transferable only when
the underlying option is transferable, and under the same conditions, and (d)
may be exercised only when the underlying option is eligible to be exercised. If
granted as a stand-alone SAR award, the terms of the award shall be provided in
a SAR agreement.
5
TERMINATION OF OPTIONS OR SARS.
Unless expressly provided in the option or SAR agreement, options or SARs
shall terminate three months after an employee's severance of employment with
the Company, with or without cause, other than by death, disability or
retirement.
DEATH. Unless it is expressly provided otherwise in the option or SAR
agreement, the option or SAR may be exercised until the earlier of the option's
or SAR's expiration date or six months following the date of his death.
DISABILITY. Unless it is expressly provided otherwise in the option or SAR
agreement, if, before the expiration of an Option or SAR, the Employee shall be
severed from the employ of the Company for disability, the Option or SAR shall
terminate on the earlier of the Option's or SAR's expiration date or six months
after the date he was severed because of disability.
RETIREMENT. Unless it is expressly provided otherwise in the option or SAR
agreement before the expiration of an Option or SAR, the Employee shall be
retired in good standing from the employ of the Company under the then
established rules of the Company, the Option or SAR may be exercised until the
earlier of the Option's or SAR's expiration date or three months following the
date of his retirement, unless it is expressly provided otherwise in the Option
or SAR agreement.
RELOAD OPTIONS.
The Board of Directors or Compensation Committee shall have the authority
(but not an obligation) to include as part of any Option Agreement a provision
entitling the Eligible Person to a further option (a "Reload Option") in the
event the Eligible Person exercises the option evidenced by the option
Agreement, in whole or in part, by surrendering other shares of stock in
accordance with the Plan and the terms and conditions of the option agreement.
Any such Reload Option (a) shall be for a number of shares equal to the number
of shares surrendered as part or all of the exercise price of such option; (b)
shall have an expiration date which is the greater of (i) the same expiration
date of the option the exercise of which gave rise to such Reload Option or (ii)
one year from the date of grant of the Reload Option; and (c) shall have an
exercise price which is equal to one hundred percent (100%) of the fair market
value of the stock subject to the Reload Option on the date of exercise of the
original option. Notwithstanding the foregoing, a Reload Option which is an
incentive option and which is granted to a 10% Stockholder, shall have an
exercise price which is equal to one hundred ten percent (110%) of the fair
market value of the stock subject to the Reload Option on the date of exercise
of the original option and shall have a term which is no longer than five (5)
years.
Any such Reload Option may be an incentive option or a nonqualified
option, as the Board of Directors or Compensation Committee may designate at the
time of the grant of the original option; provided, however, that the
designation of any Reload Option as an incentive option shall be subject to the
provisions of the Internal Revenue Code of 1986, as amended. There shall be no
Reload Options on a Reload Option. Any such Reload Option shall be subject to
the availability of sufficient shares under the Plan and shall be subject to
such other terms and conditions as the Board of Directors or Compensation
Committee may determine which are not inconsistent with the express provisions
of the Plan regarding the terms of options.
STOCK AWARDS.
The Compensation Committee may issue shares of stock to an Eligible Person
subject to the terms of a restricted stock agreement. The restricted stock may
be issued for no payment by the Eligible Person or for payment below the fair
market value on the date of grant. Restricted stock shall be subject to
restrictions as to sale, transfer, alienation, pledge or other encumbrance and
generally will be subject to vesting over a period of time specified in the
restricted stock agreement. The Compensation Committee shall determine the
period of vesting, the number of shares, the price, if any, of stock included in
a restricted stock award, and the other terms and provisions which are included
in a restricted stock agreement.
6
The Compensation Committee may award shares of stock, without any cash
payment for such shares or without any restrictions, to designated Eligible
Persons for services rendered to the Company. The Stock may be awarded at, above
or below the Fair Market Value on the date of grant. The designation of a stock
award shall be made by the Compensation Committee in writing at any time after
such Eligible Person has provided value to the Company (or within such period as
permitted by IRS regulations). The Compensation Committee reserves the right to
make downward adjustments in the maximum amount of an Award if in its discretion
unforeseen events make such adjustment appropriate.
AWARD OF STOCK.
The Compensation Committee may award shares of stock, without any payment
for such shares, to designated Eligible Persons if specified performance goals
established by the Compensation Committee are satisfied. The terms and provision
relating to these performance-based awards are intended to satisfy Section
162(m) of the Code and regulations issued thereunder. The designation of an
employee eligible for a specific performance stock award shall be made by the
Compensation Committee in writing prior to the beginning of the period for which
the performance is measured (or within such period as permitted by IRS
regulations). Additionally, the Compensation Committee may award shares of
stock, without any cash payment for such shares or without any restrictions, to
designated Eligible Persons for services rendered to the Company. The
designation of a Stock Award shall be made by the Compensation Committee in
writing at any time after such Eligible Person has provided value to the Company
(or within such period as permitted by IRS regulations). The Committee reserves
the right to make downward adjustments in the maximum amount of an Award if in
its discretion unforeseen events make such adjustment appropriate.
TRANSFERABILITY.
The grants are not transferable.
AMENDMENT OR TERMINATION OF THE PLAN.
The Board may amend, terminate or suspend the Plan at any time, in its
sole and absolute discretion; provided, however, that to the extent required to
qualify the Plan under Rule 16b-3 promulgated under Section 16 of the Exchange
Act, no amendment that would (a) materially increase the number of shares of
stock that may be issued under the Plan, (b) materially modify the requirements
as to eligibility for participation in the Plan, or (c) otherwise materially
increase the benefits accruing to participants under the Plan, shall be made
without the approval of the Company's stockholders; provided further, however,
that to the extent required to maintain the status of any incentive option under
the Code, no amendment that would (a) change the aggregate number of shares of
stock which may be issued under incentive options, (b) change the class of
employees eligible to receive incentive options, or (c) decrease the option
price for incentive options below the fair market value of the stock at the time
it is granted, shall be made without the approval of the stockholders. Subject
to the preceding sentence, the Board shall have the power to make any changes in
the Plan and in the regulations and administrative provisions under it or in any
outstanding incentive option as in the opinion of counsel for the Company may be
necessary or appropriate from time to time to enable any incentive option
granted under the Plan to continue to qualify as an incentive stock option or
such other stock option as may be defined under the Code so as to receive
preferential federal income tax treatment.
CHANGES IN THE COMPANY'S CAPITAL STRUCTURE.
The Plan will not affect the right of the Company to authorize
adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure. In the event of an adjustment, recapitalization or
reorganization, the award shall be adjusted accordingly. In the event of a
merger, consolidation, or liquidation, the Eligible Person will be eligible to
receive a like number of shares of stock in the new entity he would have been
entitled to if immediately prior to the merger he had exercised his option. The
Board may waive any limitations imposed under the Plan so that all options are
immediately exercisable. All outstanding options may be canceled by the Board
upon written notice to the Eligible Person and by granting a period in which the
options may be exercised.
7
(a) The Plan will not affect the right of the Company to authorize any
or all adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior preference
stock ahead of or affecting the stock or its rights, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding, whether of a
similar character or otherwise. If the Company shall effect a subdivision or
consolidation of shares or other capital readjustment, the payment of a stock
dividend, or other increase or reduction of the number of shares of the stock
outstanding, without receiving compensation for it in money, services or
property, then (a) the number, class, and per share price of shares of stock
subject to outstanding options under the Plan shall be appropriately adjusted in
such a manner as to entitle an Eligible Person to receive upon exercise of an
option, for the same aggregate cash consideration, the equivalent total number
and class of shares he would have received had he exercised his option in full
immediately prior to the event requiring the adjustment; and (b) the number and
class of shares of stock then reserved to be issued under the Plan shall be
adjusted by substituting for the total number and class of shares of stock then
reserved, that number and class of shares of stock that would have been received
by the owner of an equal number of outstanding shares of each class of stock as
the result of the event requiring the adjustment.
(b) If the Company is merged or consolidated with another corporation
and the Company is not the surviving corporation, or if the Company is
liquidated or sells or otherwise disposes of substantially all its assets while
unexercised Options remain outstanding under the Plan (each of the foregoing
referred to as a "Corporate Transaction"):
(i) Subject to the provisions of clause (ii) below, in the event
of such a Corporate Transaction, any unexercised options shall
automatically accelerate so that they shall, immediately prior to the
specified effective date for the Corporate Transaction become 100% vested
and exercisable; provided, however, that any unexercised options shall not
accelerate if and to the extent such option is, in connection with the
Corporate Transaction, either to be assumed by the successor corporation
or parent thereof (the "Successor Corporation") or to be replaced with a
comparable award for the purchase of shares of the capital stock of the
Successor Corporation. Whether or not any unexercised option is assumed or
replaced shall be determined by the Company and the Successor Corporation
in connection with the Corporate Transaction. The Board of Directors shall
make the determination of what constitutes a comparable award to the
unexercised option, and its determination shall be conclusive and binding.
The unexercised option shall terminate and cease to remain outstanding
immediately following the consummation of the Corporate Transaction,
except to the extent assumed by the Successor Corporation.
(ii) All outstanding options may be canceled by the Board of
Directors as of the effective date of any Corporate Transaction, if (i)
notice of cancellation shall be given to each holder of an option and (ii)
each holder of an option shall have the right to exercise that option in
full (without regard to any limitations set out in or imposed under the
Plan or the option agreement granting that option) during a period set by
the Board of Directors preceding the effective date of the merger,
consolidation, liquidation, sale, or other disposition and, if in the
event all outstanding options may not be exercised in full under
applicable securities laws without registration of the shares of stock
issuable on exercise of the options, the Board of Directors may limit the
exercise of the options to the number of shares of stock, if any, as may
be issued without registration. The method of choosing which options may
be exercised, and the number of shares of stock for which options may be
exercised, shall be solely within the discretion of the Board of
Directors.
(c) After a merger of one or more corporations into the Company or after
a consolidation of the Company and one or more corporations in which the Company
shall be the surviving corporation, each Eligible Person shall be entitled to
have his restricted stock and shares earned under a performance stock award
appropriately adjusted based on the manner the stock was adjusted under the
terms of the agreement of merger or consolidation.
8
(d) In the event of a Corporate Transaction, the Committee will make
similar adjustments, as appropriate, in outstanding SARs.
(e) The issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, for cash or property,
or for labor or services either upon direct sale or upon the exercise of rights
or warrants to subscribe for them, or upon conversion of shares or obligations
of the Company convertible into shares or other securities, shall not affect,
and no adjustment by reason of such issuance shall be made with respect to, the
number, class, or price of shares of stock then subject to outstanding awards.
APPLICABILITY OF ERISA; TAX QUALIFICATION.
The Plan is not subject to the provisions of the Employee Retirement
Income Security Act of 1974, and is not qualified under Section 401(a) of the
Internal Revenue Code.
TAX CONSEQUENCES
The following discussion is a general summary of the principal United
States federal income tax consequences under current law relating to awards
under the Plan. This summary is not intended to be exhaustive and, among other
things, does not describe state, local or foreign income and other tax
consequences. The Company encourages participants to consult their own tax
advisors with respect to the tax consequences of their participation in the
Plan.
Incentive Stock Options (ISOs). A participant will not recognize taxable
income upon the grant or the exercise of an ISO, and the Company is not entitled
to an income tax deduction as the result of the grant or exercise of an ISO. Any
gain or loss resulting from the subsequent sale of shares of Common Stock
acquired upon exercise of an ISO will be a capital gain or loss if the sale is
made after the later of:
o two years from the date of grant of the ISO; or
o one year from the date of exercise of the ISO.
The amount by which the fair market value, determined on the date of
exercise, of the shares of Common Stock purchased upon exercise of an ISO
exceeds the exercise price is also an item of tax preference that may be subject
to alternative minimum tax in the year that the ISO is exercised.
If a participant sells Common Stock acquired upon the exercise of an ISO
prior to the expiration of both of these periods, the sale will be a
"disqualifying disposition" under the federal tax laws. The participant will
generally recognize ordinary income in the year of the disqualifying disposition
in an amount equal to the lesser of (1) the fair market value of the stock on
the date of exercise minus the option price or (2) the amount realized on
disposition minus the option price. The Company will be entitled to an income
tax deduction equal to the amount taxable as ordinary income to the participant.
Any additional gain recognized by the participant upon the disqualifying
disposition will be taxable as capital gain.
Non-qualified Stock Options (NQSOs). A participant will not recognize
taxable income on the grant of an NQSO, and the Company is not entitled to an
income tax deduction as the result of the grant of an NQSO. However, upon the
exercise of an NQSO, the participant generally will recognize ordinary income,
and the Company will be entitled to an income tax deduction, in the amount by
which the fair market value of the shares of Common Stock purchased upon
exercise, determined as of the date of exercise, exceeds the exercise price.
Upon the sale of shares of Common Stock acquired upon the exercise of an
NQSO, the participant will recognize capital gain or loss in an amount equal to
the difference between the proceeds received upon sale and the fair market value
of the shares on the date of exercise.
9
Payment of Option Price with Shares of Common Stock. To the extent a
participant pays all or part of the exercise price of an option by tendering
shares of its Common Stock owned by the participant, the tax consequences
described above with respect to ISOs or NQSOs, as the case may be, generally
would apply. However, the number of shares received upon exercise of the option
that is equal to the number of shares surrendered in payment of the aggregate
exercise price will have the same basis and tax holding period as the shares
surrendered. The additional shares received upon such exercise will have a tax
basis equal to the amount of ordinary income recognized plus any cash paid on
such exercise and a holding period which commences on the date of exercise.
If a participant exercises an option by tendering shares previously
acquired on the exercise of an ISO, a disqualifying disposition will occur if
the applicable holding period requirements have not been satisfied with respect
to the surrendered stock. The consequence of such a disqualifying disposition is
that the participant may recognize ordinary income at that time.
Stock Appreciation Rights. Generally: (a) the recipient will not realize
income upon the grant of a SAR; (b) the recipient will realize ordinary income,
and the Company will be entitled to a corresponding deduction, in the year cash,
shares of Common Stock, or a combination of cash and shares are delivered to the
recipient upon exercise of a SAR; and (c) the amount of such ordinary income and
deduction will be the amount of cash received plus the fair market value of the
shares of Common Stock received on the date of issuance. The federal income tax
consequence of a disposition of shares received by the recipient upon exercise
of a SAR is the same as a disposition of shares received as a stock grant as
described below.
Stock Grants. Generally, at the time of a stock grant, the participant
will recognize taxable ordinary income in the amount by which the fair market
value of the shares awarded to the participant at the time of the stock grant
exceeds the amount, if any, paid by the participant for the shares.
However, if the shares of Common Stock awarded to a participant as a stock
grant are restricted as to transferability and subject to a substantial risk of
forfeiture (e.g., unvested shares that are subject to forfeiture by the
participant or repurchase by the Company for less than fair market value in the
event of the participant's termination of service prior to vesting in those
shares), then the participant will not recognize any taxable income at the time
of the stock grant but will have to report as ordinary income, generally as and
when the shares vest (e.g., when the risk of forfeiture lapses), an amount equal
to the excess of (a) the fair market value of the shares on the date of vesting
over (b) the amount, if any, paid for the shares. The participant may, however,
elect under Section 83(b) of the Internal Revenue Code to include as ordinary
income in the year of the stock grant an amount equal to the excess of (a) the
fair market value of the shares on the date of grant over (b) the amount, if
any, paid for the shares. In order to make a Section 83(b) election with respect
to shares received upon a stock grant, a notice of election, which meets the
requirements of the Treasury Regulations must be made and filed with the
Internal Revenue Service within 30 days of the stock grant. If the Section 83(b)
election is made, the participant will not recognize any additional income as
and when the stock vests.
Subject to the limitations discussed below, the Company will be entitled
to an income tax deduction equal to the amount of ordinary income recognized by
a participant with respect to the stock grant. The deduction, will in general,
be allowed for the taxable year in which such ordinary income is recognized by
the participant.
Upon the subsequent disposition of shares of stock which were acquired as
a stock grant, provided that such shares are vested at the time of disposition
or, if such shares are unvested, a timely Section 83(b) election was made for
such shares, the participant will generally recognize capital gain or loss in an
amount equal to the difference between the proceeds received upon disposition
and the participant's tax basis in the shares (generally, the sum of the amount
paid, if any, by the participant for such shares and the amount of ordinary
income previously recognized by the participant with respect to such shares, as
described above). However, if shares of its stock are vested at the time of
disposition and no Section 83(b) election was made for such shares, then the
participant will recognize ordinary income in the amount equal to the difference
between the proceeds received from the disposition and the participant's tax
basis in such shares (i.e., the amount paid, if any, by the participant for such
shares).
10
If the gain recognized in connection with such disposition qualifies for
capital gain treatment, the federal capital gains tax rate for such sale will be
determined based on the holding period of the stock. The participant's holding
period of shares received as a stock grant will begin on the day following the
date of the stock grant except where the stock is, at the time of the stock
grant, unvested and no Section 83(b) election is made, in which case the
participant's holding period with respect to such shares will begin on the day
following the day on which the shares vest.
Capital Gains and Ordinary Income Tax. Long term capital gains are
currently (post-May 5, 2003) taxed at a maximum federal rate of 15%. Short term
capital gains and ordinary income are taxed at the same marginal federal rates,
currently up to 35%.
Acceleration of Stock Options Upon a Transfer of Control. Upon a change in
control of the Company or a transfer of a substantial portion of its assets, the
exercisability of stock options held by certain of its employees, generally
officers, stockholders and highly compensated employees, will be accelerated.
The acceleration of exercisability may be determined to be, in whole or in part,
a "parachute payment" for federal income tax purposes. If the present value of
all of a participant's parachute payments equals or exceeds three times the
participant's average compensation for the past five years, the participant will
be subject to a 20% excise tax on the amount of the parachute payment which is
in excess of the greater of:
o the average compensation of the participant for the past five years; or
o the average compensation of the participant for the past five years; or
o an amount which the participant establishes as reasonable compensation.
Section 162(m) Limitation. Section 162(m) of the Code generally disallows a
federal income tax deduction to any publicly held corporation for compensation
paid in excess of $1 million in any taxable year to the chief executive officer
or any of the four other most highly compensated executive officers who are
employed by the corporation on the last day of the taxable year, but does allow
a deduction for "performance-based compensation," including plans providing for
stock options having an exercise price of not less than 100% of the stock's fair
market value (determined at the time the options are granted), which establish
specific performance goals and/or limits on awards, which are administered by a
committee composed exclusively of "outside" directors, and are disclosed to and
approved by its stockholders. The Compensation Committee may administer the Plan
so that compensation resulting from the stock options and SARs can be "qualified
performance based compensation," as defined in the regulations promulgated under
Section 162(m) of the Internal Revenue Code. The Compensation Committee,
however, has the discretion to grant such options and awards with terms that
will result in the options and awards not constituting performance-based
compensation. Stock grants will be subject to this $1 million deduction
limitation.
INCORPORATION OF DOCUMENTS BY REFERENCE
The Company has delivered with this Prospectus, the Company's registration
statement on Form S-8, filed on April 21, 2008, as amended. The Company hereby
incorporates by reference into this Prospectus such registration statement.
The Company has delivered with this Prospectus, the Company's annual
report on Form 10-KSB for the fiscal year ended December 31, 2006, filed on
April 17, 2007. The Company hereby incorporates by reference into this
Prospectus the documents listed below which have been filed with the Commission:
(1) The Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2007, filed on March 31, 2008, as amended on April 1, 2008;
(2) Quarterly Reports on Form 10-QSB for the quarters ended March 31, 2007,
filed on May 21, 2007; June 30, 2007, filed on August 13, 2007; and
September 30, 2007, filed on November 19, 2007;
11
(3) Current Reports on Form 8-K, filed on April 3, 2008; filed on January 17,
2008; and From 8-K/A filed on January 14, 2008, amending an 8-K filed on
November 5, 2007; and
(4) The description of the Company's common stock contained in the Company's
Form 10-SB filed September 27, 1999 (File No. 000-27467; Accession Number
0000890566-99-001311), including any amendment or report filed for the
purpose of updating such description.
In addition, each document or report subsequently filed by the Company
with the Commission pursuant to Sections 13(a), 13(c), 14, and 15(d) of the
Securities Exchange Act of 1934, as amended, after the date of this Prospectus,
but prior to the filing of a post-effective which indicates that all securities
offered hereby have been sold or which deregisters all such securities then
remaining unsold, shall be deemed to be incorporated by reference into this
Prospectus. Each document or report incorporated into this Prospectus by
reference shall be deemed to be a part of this Prospectus from the date of the
filing of such document with the Commission until the information contained
therein is superseded or updated by any subsequently filed document which is
incorporated by reference into this Prospectus or by any subsequently furnished
appendix to this Prospectus.
The Company will provide, without charge upon oral or written request, to
each person to whom this Prospectus is delivered, a copy of any or all of the
documents incorporated by reference (other than exhibits to such documents
unless such exhibits are specifically incorporated by reference into such
documents) and a copy of its most recent annual reports to stockholders and all
other reports, proxy statements and other communications distributed to the
Company's security holders generally. Requests for such documents or for
additional information regarding the Plan or its administrators should by
directed to the Company, 2911 South Shore Boulevard, Suite 100, League City,
Texas 77573, attention: Richard Royall.
No person has been authorized to give any information or to make any
representation not contained in this Prospectus in connection with any offer
made hereby, and, if given or made, such information or representation must not
be relied upon as having been authorized by the Company. Neither the delivery of
this Prospectus nor any transaction effected hereunder shall under any
circumstances create any implication that there has been no change in the
affairs of the Company since the date hereof. This Prospectus does not
constitute an offer or solicitation by anyone in any state in which such offer
or solicitation is not authorized or in which the person making such offer or
solicitation is not qualified to do so or to anyone to whom it is unlawful to
make such offer or solicitation.
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