SCHEDULE 14C
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of
1934 (Amendment No. ____)
Check the appropriate box:
[ ] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14c-5(d)(2))
[X] Definitive Information Statement
Rich Earth, Inc.
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(Name of Registrant As Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14c-5(g) and
0-11.
1) Title of each class of securities to which transaction applies:
Common Stock, par value $.001
-----------------------------------------
2) Aggregate number of securities to which transaction applies:
20,000,000 shares of common stock
-----------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
$0.0003 (One Third of Par Value pursuant to Section 240.0-11(c) and (a)(4).
Company has accumulated capital deficit.)
-----------------------------------------
4) Proposed maximum aggregate value of transaction:
$6,000
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5) Total fee paid:
$75
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
- ---------------------------------------------------
2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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RICH EARTH, INC.
INFORMATION STATEMENT
SHAREHOLDER MAJORITY ACTION AS OF MAY 4, 2000
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
NOTICE IS HEREBY GIVEN TO ALL SHAREHOLDERS THAT A MAJORITY ACTION OF
SHAREHOLDERS (THE "ACTION") OF RICH EARTH, INC. (THE "COMPANY") WAS TAKEN ON N
MAY 4, 2000 BY THE MAJORITY SHAREHOLDERS IN ACCORDANCE WITH SECTIONS 78.315 AND
78.320, RESPECTIVELY OF THE NEVADA REVISED STATUTES. THESE TEN PERSONS
COLLECTIVELY OWN IN EXCESS OF THE REQUIRED MAJORITY OF THE OUTSTANDING VOTING
SECURITIES OF THE COMPANY NECESSARY FOR THE ADOPTION OF THE ACTION.
1. To approve the amendment of the Articles of Incorporation to:
1. change the name of the company from "Rich Earth, Inc." to "GlobalNet,
Inc."; and
2. to increase the number of directors allowable up to 15;
2. To adopt a stock option plan;
3. To approve the Reorganization Agreement between the Company, GlobalNet
International, Inc. and GN Acquisition Corp.;
4. To elect eleven persons to the Company's Board of Directors to serve
until the next annual general meeting of shareholders and until their
respective successors are elected and qualify; and
5. To approve employment agreements with Messrs. Robert J. Donahue and Colum
Donahue.
SHAREHOLDERS OF RECORD AT THE CLOSE OF BUSINESS ON MAY 3, 2000 SHALL BE ENTITLED
TO RECEIPT OF THIS INFORMATION STATEMENT.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ Xenios Xenopoulos
_________________________________
XENIOS XENOPOULOS, PRESIDENT
Approximate date of mailing: May 9, 2000
RICH EARTH, INC.
ALUMINUM TOWER 5TH FLOOR
2 LIMASSOL AVENUE, 2003 NICOSIA, CYPRUS
INFORMATION STATEMENT FOR SHAREHOLDERS
The Board of Directors of Rich Earth, Inc., a Nevada corporation (the "Company")
is furnishing this INFORMATION STATEMENT to shareholders in connection with a
majority action of shareholders (the "Action") of Rich Earth, Inc. (The
"Company") taken on May 4, 2000, in accordance with sections 78.315 and 78.320,
respectively of the Nevada Revised Statutes. These ten persons collectively own
in excess of the required majority of the outstanding voting securities of the
company necessary for the adoption of the action. The following matters were
approved:
- certain amendments to the Articles of Incorporation of the Company,
- a stock option plan,
- the reorganization agreement between the Company, GlobalNet International,
Inc. and GN Acquisition Corp.,
- the entering into employment agreements with Messrs. Robert J. Donahue and
Colum Donahue, and
- electing ten of the eleven persons who are to form the Company's Board of
Directors.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
PLEASE DO NOT SEND IN ANY OF YOUR STOCK CERTIFICATES AT THIS TIME.
This Information Statement is first being mailed on or about May 9, 2000. This
Information Statement constitutes notice to the Company's stockholders of
corporate action by stockholders without a meeting as required by Chapter 78 of
the Nevada Revised Statutes. This Information Statement is accompanied by the
Company's Annual Report for the fiscal year ended December 31, 1999. The Annual
Report includes the Company's most recent Annual Report on Form 10-KSB which has
been previously filed with the Securities and Exchange Commission.
The date of this Information Statement is May 9, 2000.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
QUESTIONS AND ANSWERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Outstanding Shares and Voting Rights. . . . . . . . . . . . . . . . . . . . . . . 2
Approval of the Name Change . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Election of New Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Expenses of Information Statement . . . . . . . . . . . . . . . . . . . . . . . . 3
Interest of Certain Persons in Matters to Be Acted on . . . . . . . . . . . . . . 3
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS . . . . . . . . . . . . . . . . . . 3
AMENDMENT TO ARTICLES OF INCORPORATION. . . . . . . . . . . . . . . . . . . . . . . 4
Name Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Increase Number of Directors Allowed on Board . . . . . . . . . . . . . . . . . . 4
SUMMARY OF TRANSACTIONS CONTEMPLATED BY THE REORGANIZATION AGREEMENT. . . . . . . . 5
Background of the Reorganization. . . . . . . . . . . . . . . . . . . . . . . . . 5
Reasons for Approval by the Majority Shareholders and Board of Directors. . . . . 5
Accounting Treatment of the Reorganization. . . . . . . . . . . . . . . . . . . . 6
Summary of the Reorganization Agreement . . . . . . . . . . . . . . . . . . . . . 6
Related Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Material Terms of the Common Stock. . . . . . . . . . . . . . . . . . . . . . . . 8
Summary of Private Placements . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Summary of Pro Forma Financial Statements . . . . . . . . . . . . . . . . . . . . 10
Risks Related to the Reorganization . . . . . . . . . . . . . . . . . . . . . . . 11
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . 11
INFORMATION CONCERNING GII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
History of GII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
General Description of Business of GII. . . . . . . . . . . . . . . . . . . . . . 12
Industry Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Business Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Description of Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Sales and Marketing and Distribution. . . . . . . . . . . . . . . . . . . . . . . 14
Target Markets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
GII's Network . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Customer Relationship Management. . . . . . . . . . . . . . . . . . . . . . . . . 15
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Government Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Proprietary Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Facilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Management Discussion and Analysis of Financial Condition and Results of Operations 18
Risks Related to the Business of GII. . . . . . . . . . . . . . . . . . . . . . . . 19
Forward-looking Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ELECTION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Information Concerning Nominees . . . . . . . . . . . . . . . . . . . . . . . . . 22
Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Board of Directors Report on Executive Compensation . . . . . . . . . . . . . . . 25
Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Familial Relationships. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2000 STOCK OPTION PLAN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Administration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Eligibility; Limitations of Options . . . . . . . . . . . . . . . . . . . . . . . 26
Terms and Conditions of Options . . . . . . . . . . . . . . . . . . . . . . . . . 26
Adjustments of Options on Changes in Capitalization . . . . . . . . . . . . . . . 27
Amendment and Termination of the Plan . . . . . . . . . . . . . . . . . . . . . . 28
Federal Income Tax Consequences of Options. . . . . . . . . . . . . . . . . . . . 28
INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
WHERE YOU CAN FIND MORE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 29
INCORPORATION OF DOCUMENTS BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . 29
EXHIBIT AAMENDMENT TO ARTICLES OF INCORPORATION . . . . . . . . . . . . . . . . . . 30
CERTIFICATE OF AMENDMENTTOARTICLES OF INCORPORATIONOFRICH EARTH, INC. . . . . . . . 31
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</TABLE>
EXHIBIT A - Amendment to Articles of Incorporation
- Certificate of Amendment to Articles of Incorporation of
Rich Earth, Inc.
EXHIBIT B - Agreement and Plan of Reorganization
EXHIBIT C - Rich Earth, Inc. - Unaudited Proforma Financial Statements
EXHIBIT D - Globalnet International, Inc. - Unaudited Financial Statements
EXHIBIT E - Globalnet, Inc. 2000 Stock Plan
QUESTIONS AND ANSWERS
---------------------
Q: WHAT AM I BEING ASKED TO APPROVE?
A: You are not being asked to approve anything. This Information Statement
is being provided to you solely for your information. Ten shareholders holding
a majority of the outstanding voting common stock of the Company (the
"Majority Shareholders") have already agreed to approve:
- a change in the name of the Company to "GlobalNet, Inc.";
- the reorganization agreement dated March 22, 2000, between the Company,
GlobalNet International, Inc. and GN Acquisition Corp.;
- a stock option plan;
- the election of eleven persons to the Board of Directors of the Company;
and
- entering into employment agreements with Messrs. Robert J. Donahue and
Colum Donahue.
Q: WHY HAVE THE BOARD OF DIRECTORS AND THE MAJORITY SHAREHOLDERS AGREED TO
APPROVE THESE ACTIONS?
A: All of these actions are necessary to accomplish the terms of the
Agreement and Plan of Reorganization (the "Reorganization Agreement") dated as
of March 22, 2000, between the Company, GN Acquisition Corp., a wholly owned
subsidiary of the Company, and GII.
Q: WHAT ARE THE BASIC TERMS OF THE TRANSACTION WITH GII?
A: GII will merge into GN Acquisition Corp., a wholly-owned subsidiary of
the Company. In exchange for all the stock of GII, the shareholders of GII
will receive 20,000,000 shares of in Common Stock of the Company which
represents approximately 67% of the outstanding Common Stock of the Company.
After the transaction is completed, GII will be a wholly owned subsidiary of
the Company and the Company will be controlled by the former shareholders of
GII. You will retain all of your present stockholdings in the Company and are
not required to do anything.
Q: WILL I RECOGNIZE GAIN OR LOSS IN CONNECTION WITH THE TRANSACTION WITH
GII?
A: No. We expect the transaction to qualify as tax-free reorganization for
United States federal income tax purposes.
Q: DO I HAVE APPRAISAL RIGHTS?
A: No. Under Nevada law, which governs the transaction, stockholders of the
Company are not entitled to appraisal rights.
Q: ARE THERE ANY CONDITIONS TO THE TRANSACTION WITH GII?
A: Yes. There are several conditions, including the following:
- the Company must file all reports that it is required to file with the
Securities and Exchange Commission;
- approval of the name change of the Company;
- provision of a bridge loan to GII in the amount of $2,427,198;
- the Company must not have less than $3,572,802 in cash on hand at the time
of Closing;
- adoption of a stock option plan for grant of options for up to 3,000,000
shares;
- employment agreements having been entered into by the Company or it's
proposed subsidiaries with Messrs. Robert J. Donahue and Colum
Donahue;
- resignation of the existing Board of Directors of the Company and the
appointment of eleven nominee directors; and
- a purchase and sale agreement having been entered into by Mr. Robert J.
Donahue and Imperium Capital (USA) Inc.
1
<PAGE>
Q: WHAT BUSINESS IS CONDUCTED BY GII?
A: Established in 1996, GII is a leading provider of high quality Internet
telephony services that enable telecommunications carriers and other
communications service providers to offer international voice, fax and other
value-added applications over the Internet. By outsourcing international
communications services to GII, GII's customers are able to lower costs,
generate new revenue and extend their business into Internet-based services
quickly, while maintaining service quality comparable to that of traditional
voice networks. GII is a development stage company with executive offices at
721 East Madison Avenue, Suite 201, Villa Park, Illinois 60181. GII's main
telephone number is 630-279-1735 and web site address is
www.globalnetinternational.net. (See "GENERAL INFORMATION.")
Q: ARE THERE RISKS INVOLVED IN THE TRANSACTION WITH GII?
A: Yes. After the transaction is completed, the Company's success will be
totally dependent on the success of GII. GII is a development stage company
and has not been profitable since its inception in 1996. There are no
assurances that GII's operations will be profitable after the closing of the
transaction. (See "SUMMARY OF TRANSACTIONS CONTEMPLATED BY THE REORGANIZATION
AGREEMENT - Risks Related to the Reorganization," and "INFORMATION CONCERNING
GLOBALNET INTERNATIONAL, INC. - Risks Related to the Business of GII")
Q: WHEN DO YOU EXPECT TO COMPLETE THE TRANSACTION WITH GII?
A: Within approximately a month after the date of this Information
Statement. As mentioned previously, there are several conditions to the
closing of the transaction.
Q: WHO CAN I CALL WITH QUESTIONS?
A: Please call our legal counsel at 604-659-9188.
GENERAL INFORMATION
-------------------
OUTSTANDING SHARES AND VOTING RIGHTS
At May 3, 2000 (the "Record Date"), the Company had 9,960,000 shares of Common
Stock, par value $0.001 outstanding. These are the securities that would have
been entitled to vote if a meeting was required to be held. Each share of
Common Stock is entitled to one vote. The outstanding shares of Common Stock at
the close of business on the Record Date for determining stockholders who would
have been entitled to notice of and to vote on the amendments to the Company's
Articles of Incorporation, were held by approximately thirty-six (36)
stockholders of record. In connection with the GII transaction (the
"Reorganization"), the Company and the Majority Shareholders have agreed to
amend the Articles of Incorporation of the Company to change the name of the
Company to GlobalNet, Inc. The Majority Shareholders have agreed by written
consent in lieu of a shareholders meeting to the Reorganization, the adoption of
a stock option plan, and election of directors of the Company. The complete
text of the amendment to the Articles (the "Amendment to the Articles") for the
name change is set forth in Exhibit A to this Information Statement.
Following the name change, the Share certificates you now hold will continue to
be valid. In the future, new Share certificates will contain a legend noting the
change in name or will be issued bearing the new name, but this in no way will
affect the validity of your current Share certificates.
APPROVAL OF THE NAME CHANGE
The proposed change of the Company's name to "GlobalNet, Inc." is intended to
convey more clearly a sense of the Company's business after the acquisition of
GII. Approval of the name change requires the affirmative consent of at least a
majority of the outstanding shares of Common Stock of the Company. Majority
Shareholders holding a total of 5,000,000 shares of Common Stock (50.2%), have
already agreed to this action.
ELECTION OF NEW DIRECTORS
2
<PAGE>
The election of new directors is proposed because of the proposed acquisition by
the former GII shareholders of over 67% of the outstanding common stock of the
Company. The agreement with GII requires that new directors approved by the
former shareholders of GII be appointed and elected to the Board of Directors of
the Company. The Bylaws of the Company give the Board of Directors the authority
to determine the number of directors, to increase or decrease the number of
directors and to fill vacancies or eliminate vacancies by resolution of the
Board of Directors. The Board of Directors has set the current number of
directors at two. The directors must receive a plurality of the votes cast for
director. The Articles of Incorporation of the Company do not allow for
cumulative voting. The Majority Shareholders holding a total of 5,000,000
shares of Common Stock or 50.2% of the outstanding shares of Common Stock have
voted to elect the following persons: Robert J. Donahue, Daniel M. Wickersham,
Colum P. Donahue, Barry Toser, Jonathan Greenhill, Paul Fritz, Richard Wilson,
Myron Gushlak, Carm Adimando, and Robert Kohn.
RECORD DATE
The close of business May 3, 2000, has been fixed as the record date for the
determination of shareholders entitled to receive this Shareholders' Information
Statement.
EXPENSES OF INFORMATION STATEMENT
The expenses of mailing this Information Statement will be borne by the Company,
including expenses in connection with the preparation and mailing of this
Information Statement and all documents that now accompany or may hereafter
supplement it. It is contemplated that brokerage houses, custodians, nominees,
and fiduciaries will be requested to forward the Information Statement to the
beneficial owners of the Common Stock held of record by such persons and that
the Company will reimburse them for their reasonable expenses incurred in
connection therewith.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED ON
The Company has loaned GII $2,427,198 in exchange for GII delivering a security
note payable with interest at the rate of 8% per annum. $2,127,198 of the
proceeds of this loan are to be used by GII to fulfill the terms of a transfer
agreement dated March 6, 2000, which was entered into by its predecessor DTA
Communications Network, LLC. with I:Comm Networks, LLC. The remaining $ 300,000
are to be used for working capital purposes of GII and its affiliates.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
-----------------------------------------------
The following table sets forth information concerning the ownership of Common
Stock immediately before and after consummation of the GII transaction, with
respect to shareholders who were known to the Company to be beneficial owners of
more than 5% of the Common Stock as of May 3, 2000, and officers and directors
of the Company before and after the Reorganization individually and as a group.
Unless otherwise indicated, the beneficial owner has sole voting and investment
power with respect to such shares of Common Stock.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1) PERCENT OF VOTING STOCK(1)
------------------------------ -----------------------------
NAME AND ADDRESS OF BENEFICIAL BEFORE AFTER BEFORE AFTER
OWNER REORGANIZATION REORGANIZATION REORGANIZATION REORGANIZATION
---------------------------------------- -------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Sandra Lausen
102 East Third Street
Yuma, AZ 85364 . . . . . . . . . . . . . 600,000 600,000 6.0% 1.93%
---------------------------------------- -------------- -------------- --------------- ---------------
Gary Hancey
8587 Snowville Drive
Sandy, UT 84094. . . . . . . . . . . . . 600,000 600,000 6.0% 1.93%
---------------------------------------- -------------- -------------- --------------- ---------------
Joe Murphy
5821 Emigration Canyon
Salt Lake City, UT 84108 . . . . . . . . 800,000 800,000 8.0% 2.57%
---------------------------------------- -------------- -------------- --------------- ---------------
3
<PAGE>
Molloy Porter
P.O. Box 1306
Payson, AZ . . . . . . . . . . . . . . . 800,000 800,000 8.0% 2.57%
---------------------------------------- -------------- -------------- --------------- ---------------
Keith Patterson
1487 East Thistle Downs Dr.
Sandy, UT 84092. . . . . . . . . . . . . 600,000 600,000 6.0% 1.93%
---------------------------------------- -------------- -------------- --------------- ---------------
Xenios Xenopoulous(2)
Aluminum Tower 5th Floor
2 Limassol Avenue, 2003 Nicosia, Cyprus. 160,000 160,000 1.6% 0.51%
---------------------------------------- -------------- -------------- --------------- ---------------
Robert J. Donahue(3)(4)(5) . . . . . . . 0 9,891,511 0% 32.97%
---------------------------------------- -------------- -------------- --------------- ---------------
Daniel M. Wickersham(3)(4) . . . . . . . 0 250,000 0% 0.83%
---------------------------------------- -------------- -------------- --------------- ---------------
Colum P. Donahue(3)(4) . . . . . . . . . 0 2,226,345 0% 7.42%
---------------------------------------- -------------- -------------- --------------- ---------------
Barry Toser(3)(4). . . . . . . . . . . . 0 250,000 0% 0.83%
---------------------------------------- -------------- -------------- --------------- ---------------
Richard Wilson(3)(4) . . . . . . . . . . 0 0 0% 0%
---------------------------------------- -------------- -------------- --------------- ---------------
Jonathan Greenhill(3)(5)
555 Fifth Avenue, 18th Flr.
New York, NY 10017 . . . . . . . . . . . 0 25,000 0% 0.08%
---------------------------------------- -------------- -------------- --------------- ---------------
Paul Fritz(3)(4) . . . . . . . . . . . . 0 1,296,845 0% 4.32%
---------------------------------------- -------------- -------------- --------------- ---------------
Myron Gushlak(3)(6)
1626 Pinecrest Drive
West Vancouver, BC V7S 3H3 . . . . . . . 0 0 0% 0%
---------------------------------------- -------------- -------------- --------------- ---------------
Carm Adimando(3)
47 Cherry Gate Lane
Turnbull, CT 06611 . . . . . . . . . . . 0 175,000 0% 0.58%
---------------------------------------- -------------- -------------- --------------- ---------------
Robert H. Kohn(3)
1 Arbor Lane, P.O. Box 529
Pebble Beach, CA 93953 . . . . . . . . . 0 0 0% 0%
---------------------------------------- -------------- -------------- --------------- ---------------
Directors and Officers as a Group(7) . . 160,000 14,364,701 1.6% 46.90%
---------------------------------------- -------------- -------------- --------------- ---------------
1. The above table does not include any shares of Common Stock which are or become issuable on the
exercise of stock options or warrants.
2. Mr. Xenopoulos holds his shares in the Company in the name of Deremie Enterprises Limited. a Cyprus
incorporated company. Mr. Xenopolous is the sole director, officer and stockholders of Deremie
Enterprises Limited.
3. Is expected to be an Officer, Director or 5% shareholder of the Company after the Reorganization
4. The address for this party is: 721 East Madison Avenue, Suite 201, Villa Park, Illinois 60181.
5. Jonathan Greenhill, is a member of Greenhill Partners, P.C., the shares reflected on this table
will be held by Greenhill Partners, P.C.
6. Does not take into consideration the Shares of Common Stock in which Mr. Donahue has agreed to sell
to Mr. Gushlak.
7. All future and past directors stockholdings are included here.
</TABLE>
4
<PAGE>
AMENDMENT TO ARTICLES OF INCORPORATION
--------------------------------------
NAME CHANGE.
The proposed amendment to the Company's Articles of Incorporation will cause the
Company to change the name of the Company to "GlobalNet, Inc." On filing of the
Amendment to the Articles of Amendment with the Nevada Secretary of State, the
name change will be effective, and each certificate representing shares of
Common Stock outstanding immediately prior to the name change will be deemed
automatically without any action on the part of the shareholders to represent
the same number of shares of Common Stock after the name change.
INCREASE NUMBER OF DIRECTORS ALLOWED ON BOARD.
Article Five of the current Articles of Incorporation of the Company allows the
Board of Directors to consist of one (1) to nine (9) members, as determined from
time to time by the then existing Board of Directors. The proposed amendment
will increase the number of members allowable to fifteen (15) members. The
actual number of members on the Board of Directors will remain the sole
discretion of the then existing Board of Directors. This amendment will become
effective on filing the Amendment to the Articles of Incorporation with the
Nevada Secretary of State.
The complete text of the Amendments to the Articles of Incorporation is set
forth in Exhibit A to this Information Statement.
SUMMARY OF TRANSACTIONS CONTEMPLATED BY THE REORGANIZATION AGREEMENT
--------------------------------------------------------------------
The Board of Directors of the Company has unanimously approved the Agreement and
Plan of Reorganization ("Reorganization Agreement") dated March 22, 2000, among
the Company, GN Acquisition Corp., a wholly owned subsidiary of the Company, and
GII, which provides for or requires completion of the following series of
transactions as conditions to consummation of the Reorganization:
- the Company becomes current in the filing of reports under the Securities
Exchange Act of 1934;
- change the name of the Company to GlobalNet, Inc.;
- the private placement sale of 600,000 shares in the Common Stock of the
Company raising an aggregate total of $6,000,000 immediately prior to the
Closing of the Reorganization Agreement;
- the issuance of 20,000 shares of Common Stock of the Company for each
share of GII common stock issued and outstanding for a total issuance of
20,000,000 shares of Common Stock of the Company to the shareholders of
GII;
- the resignation of the current directors and officers of the Company; and
- the appointment of eleven new directors of the Company.
A majority of the Company's shareholders have agreed by way of a majority action
of shareholders to approve the above transactions as well as the proposed change
of the Company's name to "GlobalNet, Inc."
In addition, on or after the Closing of the Reorganization, it is expected
(though not a condition to closing the Reorganization) that the Company will
close a second private placement of Common Stock. (See "SUMMARY OF TRANSACTIONS
CONTEMPLATED BY THE REORGANIZATION AGREEMENT - Summary of Private Placements.")
BACKGROUND OF THE REORGANIZATION
The Company was formed originally in October, 1988, to engage in investment and
business development operations related to mineral research and exploration.
The Company's attempts to enter this field were not successful and all attempts
to engage in business ended before January of 1994, and the Company became
dormant. Since that date the Company has had no operating assets or ongoing
business and has been engaged in searching for an appropriate business
opportunity for the shareholders. During 1999 and 2000, management of the
Company reviewed various business plans and chose to pursue the acquisition of
GII due to its growth opportunity.
5
<PAGE>
In January to March, 2000, management of GII was seeking additional equity
funding in order to fully implement their business and marketing plan for the
expansion of their business. Messrs. Bob Donahue, President of GII, and
Jonathan Greenhill, counsel to GII, commenced discussions with Mr. Myron
Gushlak, an associate of Mr. Xenios Xenopoulos who is the sole director of the
Company, in February 2000, by submitting to Messrs. Gushlak and Xenopoulos
information on GII and a proposed plan of reorganization. The same persons
together with Cummings and Lockwood, special legal counsel of GII and Alixe
Cormick of Venture Law Corporation, legal counsel of the Company, negotiated
that plan of reorganization which eventually became the Reorganization Agreement
and was signed by the parties as of March 22, 2000.
REASONS FOR APPROVAL BY THE MAJORITY SHAREHOLDERS AND BOARD OF DIRECTORS
The Board of Directors has given careful consideration to the Reorganization,
the existing business operations of GII, the future business potential and plans
of GII, the current book value of the Company, the interest of shareholders of
the Company, and the risks of the Reorganization to the existing shareholders.
Based on the foregoing considerations, the Board of Directors together with the
Majority Shareholders believe that the transactions contemplated by the
Reorganization Agreement, including the name change, adoption of a stock option
plan and entering into certain employment agreements, are fair and in the best
interests of the Company.
The Majority Shareholders believe that the Company will benefit from the
Reorganization, with an immediate impact being the significant new operations
and revenues, assets, and shareholders' equity, as well as giving the Company
the ability to expand the operations of GII based on the funding through the
private placement(s).
ACCOUNTING TREATMENT OF THE REORGANIZATION
On Closing of the Reorganization, based on management's consultation with the
auditors for the Company, Andersen, Andersen & Strong, of Salt Lake City, Utah
and the auditors of GII, KPMG LLP, whose office is located in Chicago, Illinois,
it appears that the proper accounting treatment is a so-called "reverse
acquisition," whereby GII will account for the transaction as a purchase of the
Company. GII is deemed to be the "acquirer" due to the common shareholders of
GII ultimately controlling the reorganized company.
SUMMARY OF THE REORGANIZATION AGREEMENT
The following contains, among other things, a summary of the material features
of the Reorganization Agreement. This Summary does not purport to be complete
and is subject in all respects to the provisions of, and is qualified in its
entirety by reference to, the executed Agreement and Plan of Reorganization a
copy of which is attached hereto as Exhibit B.
GENERAL TERMS. The Company, GII and certain shareholders of GII have entered
into an Agreement and Plan of Reorganization which provides that subject to the
meeting of certain conditions, the Company will issue twenty-thousand shares of
Common Stock with a restrictive legend for each share of GII common stock to the
former shareholders of GII, for an aggregate total of twenty million shares, in
exchange for all of the outstanding capital stock of GII. After the closing of
the Reorganization, GII will be a wholly-owned subsidiary of the Company and the
ownership of the Company will be controlled by the former shareholders of GII.
Before or after the Closing, the Company intends to issue approximately
1,200,000 shares of Common Stock in connection with the sale of units to
investors in two private placement transactions (the "Private Placements"). The
Company anticipates selling 600,000 Units in the first Private Placement and
600,000 units in the second Private Placement. Each unit in the first Private
Placement consists of one share and one-half share purchase warrant ("
Warrant") at a price of $10.00 per unit. Each whole Warrant is exerciseable for
one additional share of Common Stock of the Company for six months from the date
of purchase at a price of $15.00 per share. In connection with the first
Private Placement the Company has agreed to provide LCP Capital Corp., a
registered securities broker-dealer in the State of New York, a 300,000 share
purchase warrants with each warrant exerciseable for one share of Common Stock
of the Company for a six month period at a price of $15.00 per share. Each unit
in the second Private Placement consists of one share and one share purchase
warrant ("Warrant") at a price of $10.00 per unit. Again, each whole Warrant is
exerciseable for one additional share of Common Stock of the Company for six
months from the date of purchase at a price of $15.00 per share.
The exact number of shares to be issued in the Private Placements will be
determined by the Board of Directors of the Company with written consent of GII.
If 1,200,000 units are sold, there will be aggregate proceeds of $12,000,000,
6
<PAGE>
and maximum net proceeds to the Company of $11,990,000 after payment of
expenses. The Private Placements will be made only to Accredited Investors as
defined in Regulation D of the Securities Act of 1933, as amended (the "1933
Act"). The Company has received all subscription agreements and $4,500,000 in
funds in connection with the first Private Placement. No assurances can be
given that the Company will be successful in completing the Private Placements
or, if completed, they will be completed on the terms described above.
On completion of the Reorganization and the Private Placements, the ownership of
the Common Stock by (i) the current shareholders of GII, as a group, (ii) the
current Rich Earth shareholders, as a group, and (iii) the investors in the
Private Placements, as a group, is estimated to be as follows:
<TABLE>
<CAPTION>
GROUPS OF SHAREHOLDERS COMMON STOCK % OWNED
------------------------------ ------------ --------
<S> <C> <C>
GII Shareholders . . . . . . . 20,000,000 64.2%
------------------------------ ------------ --------
Rich Earth Shareholders. . . . 9,960,000 32.0%
------------------------------ ------------ --------
Private Placement Shareholders 1,200,000 3.8%
------------------------------ ------------ --------
TOTAL OF ALL SHAREHOLDERS. . . 31,160,000 100.0%
------------------------------ ------------ --------
1. Assuming placement of 1,200,000 units and prior to the
exercise of any associated warrants.
</TABLE>
The above table does not include any shares of Common Stock which are or become
issuable on the exercise of stock options or warrants. If all of such
options/warrants are exercised, the ownership of the Common Stock is estimated
to be as follows:
<TABLE>
<CAPTION>
GROUPS OF SHAREHOLDERS COMMON STOCK % OWNED
------------------------------ ------------ --------
<S> <C> <C>
GII Shareholders . . . . . . . 20,000,000 61.8%
------------------------------ ------------ --------
Rich Earth Shareholders. . . . 9,960,000 30.8%
------------------------------ ------------ --------
Private Placement Shareholders 2,400,000 7.4%
------------------------------ ------------ --------
TOTAL OF ALL SHAREHOLDERS. . . 32,360,000 100.0%
------------------------------ ------------ --------
1. Assuming placement of 1,200,000 units and exercise of all warrants.
2. Currently there are no stock options issued and outstanding.
</TABLE>
CLOSING. Closing is scheduled to take place at such time as agreed by the
parties but in any event may not occur earlier than 20 days following notice to
shareholders under this Information Statement as prescribed by Section 14C of
the Securities Exchange Act of 1934 (the "Act").
CONDITIONS FOR CLOSING. The obligation of each of the parties to consummate the
Reorganization is subject to the following conditions, among others:
- the Company is current in all reports required to be filed under the
Securities Exchange Act of 1934, as amended;
- the Reorganization Agreement, name change, stock option plan and
employment agreements have been approved by the holders of common stock of
the Company;
- the issuance of 20,000 shares of Common Stock of the Company for each
share of GII common stock issued and outstanding for a total issuance of
20,000,000 shares of Common Stock of the Company to the shareholders of
GII;
- the resignation of the current directors and officers of the Company; and
- the appointment of eleven new directors of the Company; and
- at least 100% of the holders of common stock of GII have executed the
Reorganization Agreement.
TERMINATION; WAIVERS. The Reorganization may be terminated at any time prior to
the Closing by:
7
<PAGE>
- mutual consent of the parties, or
- by GII or the Company if the other party is in material breach of any
representation, warranty, covenant or agreement contained in the
Reorganization Agreement, or
- by either party if the conditions to the obligations of such party to
consummate the Reorganization have not been satisfied, or waived by
July 1, 2000.
Each party may, by a written instrument, waive or extend the time for Closing or
performance of any of the obligations of the other party pursuant to the
Reorganization.
REGULATORY APPROVALS. No approvals by any governmental authority are required
in order to complete the Reorganization
RELATED TRANSACTIONS
EMPLOYMENT AGREEMENTS. In connection with the Reorganization Agreement, the
Company has agreed to enter into two one-year employment agreements with Messrs.
Bob Donahue and Colum Donahue. Each agreement becomes effective on the closing
of the merger. The terms of the employment agreements are set out in more
detail under "Election of Directors - Executive Compensation" in this
Information Circular.
STOCK PURCHASE AGREEMENT. As a part of the Reorganization, Imperium Capital
(USA), Inc. has entered into an agreement with Mr. Robert Donahue to purchase a
certain number of the Shares of Common Stock of the Company to be received by
Mr. Donahue on Closing of the Reorganization for an aggregate amount of
$1,500,000. Imperium Capital (USA), Inc. is obligated to acquire these shares
from Mr. Donahue within 30 days of the Reorganization being completed.
BRIDGE LOAN. On March 22, 2000, the parties executed a bridge note under which
GII borrowed $2,427,198 from the Company. The principal amount of the note is
due May 31, 2000 and will accrue interest at the rate of 8% per annum. Payment
of the note will be extended to September 22, 2000, if the Reorganization
Agreement is terminated by the Company. GII has used $2,127,198 of the proceeds
of this loan to fulfill the terms of a transfer agreement dated March 6, 2000,
which was entered into by its predecessor DTA Communications Network, LLC. with
I:Comm Networks, LLC. The remaining $ 300,000 are to be used for working
capital purposes of GII and its affiliates.
MATERIAL TERMS OF THE COMMON STOCK
The authorized common stock of the Company consists of 100,000,000 shares of
$0.001 par value stock. As of May 3, 2000, there were 9,960,000 shares issued
and outstanding. At the closing of the Reorganization, 20,000,000 shares will be
issued in exchange for all of the issued and outstanding shares of GII. On
completion of the Reorganization and the Private Placements (assuming 1,200,000
units are sold in the Private Placements), 31,160,000 shares of Common Stock
will be outstanding.
The holders of shares of Common Stock are entitled to one vote for each share
held of record on each matter submitted to shareholders. Shares of Common Stock
do not have cumulative voting rights for the election of directors. The holders
of shares of Common Stock are entitled to receive such dividends as the Board of
Directors may from time to time declare out of funds of the Company legally
available for the payment of dividends. The holders of shares of Common Stock do
not have any preemptive rights to subscribe for or purchase any stock,
obligations or other securities of the Company and have no rights to convert
their Common Stock into any other securities.
On any liquidation, dissolution or winding up of the Company, holders of shares
of Common Stock are entitled to receive pro rata all of the assets of the
Company available for distribution to shareholders.
The foregoing summary of the material terms of the capital stock of the Company
does not purport to be complete and is subject in all respects to the provisions
of, and is qualified in its entirety by reference to, the provisions of the
Articles of Incorporation of the Company, as amended by the Amendment to the
Articles attached hereto as Exhibit A.
8
<PAGE>
SUMMARY OF PRIVATE PLACEMENTS
TERMS OF PRIVATE PLACEMENTS. The Company is conducting a Private Placement of
an estimated 1,200,000 shares of Common Stock in connection with the sale of
units to investors in two private placement transactions (the "Private
Placements"). The Company anticipates selling 600,000 Units in the first
private placement and 600,000 units in the second private placement. Each unit
in the first Private Placement consists of one share and one-half share purchase
warrant (" Warrant") at a price of $10.00 per unit. Each whole Warrant is
exerciseable for one additional share of Common Stock of the Company for six
months from the date of purchase at a price of $15.00 per share. In connection
with the first Private Placement the Company has agreed to provide LCP Capital
Corp., a registered securities broker-dealer in the State of New York, a 300,000
share purchase warrants with each warrant exerciseable for one share of Common
Stock of the Company for a six month period at a price of $15.00 per share.
Each unit in the second private placement consists of one share and one share
purchase warrant ("Warrant") at a price of $10.00 per unit. Again, each whole
Warrant is exerciseable for one additional share of Common Stock of the Company
for six months from the date of purchase at a price of $15.00 per share. The
Company may, in its discretion, close the Private Placement at any time after
600,000 units are sold. The Private Placement will be open until May 31, 2000.
The closing of the Private Placement is conditioned on the closing of the
purchase of GII.
USE OF PROCEEDS. There is a minimum of 600,00 units which must be sold and the
closing of the Reorganization is contingent on closing the 600,000 units of the
Private Placements. The net proceeds available to the Company from the sale of
the Common Stock, assuming expenses of $10,000, will be $5,990,000 if 600,000
units are sold. The estimated use of proceeds will be as follows:
<TABLE>
<CAPTION>
AMOUNT PERCENTAGE
---------- -----------
<S> <C> <C>
Bridge Loan to GII . . . . . . . . . . $2,427,198 40.52%
-------------------------------------- ---------- -----------
Professional Fees. . . . . . . . . . . $ 400,000 6.68%
-------------------------------------- ---------- -----------
Equipment. . . . . . . . . . . . . . . $ 463,000 7.73
-------------------------------------- ---------- -----------
Salaries & Hiring Additional Personnel $1,200,000 20.03%
-------------------------------------- ---------- -----------
Sales & Marketing. . . . . . . . . . . $ 500,000 8.35%
-------------------------------------- ---------- -----------
Working Capital. . . . . . . . . . . . $ 999,802 16.69%
-------------------------------------- ---------- -----------
TOTAL:. . . . . . . . . . . . . . . . $5,990,000 100%
-------------------------------------- ---------- -----------
</TABLE>
Assuming that 1,200,000 of units are sold (assuming the first and second Private
Placement are completed) and that the expenses will remain $10,000, the
estimated use of net proceeds of $11,990,000 from both Private Placements will
be as follows:
<TABLE>
<CAPTION>
AMOUNT PERCENTAGE
----------- -----------
<S> <C> <C>
Bridge Loan to GII. . . . . $ 2,427,198 20.24%
--------------------------- ----------- -----------
Professional Fees . . . . . $ 400,000 3.34%
--------------------------- ----------- -----------
Equipment . . . . . . . . . $ 5,000,000 41.70%
--------------------------- ----------- -----------
Hiring Additional Personnel $ 1,200,000 10.00%
--------------------------- ----------- -----------
Sales & Marketing . . . . . $ 500,000 4.17%
--------------------------- ----------- -----------
Working Capital . . . . . . $ 2,462,802 20.55%
--------------------------- ----------- -----------
TOTAL: . . . . . . . . . . $11,990,000 100%
--------------------------- ----------- -----------
</TABLE>
9
<PAGE>
Although the Company intends to utilize the proceeds of the Private Placements
as disclosed above, the Company's Board of Directors will have complete
discretion as to the final use of proceeds and the appropriateness of:
- key-man life insurance,
- obtaining officer and director liability insurance,
- employment contracts with executive officers,
- indemnification contracts, and
- incentive plans to award executive officers and key employees.
No assurances can be given that the decisions will lead to agreements that are
on terms advantageous to the Company. Pending the above uses, the Company
intends to invest the net proceeds from this Offering in short-term, interest
bearing, investment grade securities.
RESTRICTIONS ON RESALE. All shares and warrants issued in connection with the
Private Placements are considered restricted securities and cannot be sold to
the public for a period of one year from the date of purchase or until the
securities are qualified under a registration statement registering the resale
of the securities.
REGISTRATION RIGHTS
The Company has agreed to register for resale with the Securities and Exchange
Commission the following shares of Common Stock issued in connection with the
Reorganization and the Private Placements:
- shares to be issued in connection with the two Private Placements;
- shares issuable on exercise of certain warrants of the Company to be
granted to investors in connection with the two Private Placements;
and
- shares issued to the stockholders of GII in connection with the Closing of
the Reorganization.
SUMMARY OF PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma financial information for the Company is based
on the historical financial statements of the Company (which appear in the
Annual Report to Stockholders which accompanies this Information Statement) and
of GII (which are attached to this Information Statement as Exhibit D) and has
been prepared on a pro forma basis to give effect to the Reorganization under
the purchase method of accounting, as if the transaction had occurred at May 9,
2000, for each operating period presented. The pro forma information was
prepared based on certain assumptions described below and may not be indicative
of results that actually would have occurred had the Reorganization occurred at
the beginning of the last full fiscal year presented or of results which may
occur in the future. The unaudited pro forma consolidated financial data and
accompanying notes should be read in conjunction with the annual financial
statements and notes thereto of GII appearing at Exhibit D in this Information
Statement.
The unaudited pro forma consolidated balance sheet as of December 31, 1999,
presents the financial position of the Company as if the Reorganization had
occurred had been closed on that date and was prepared utilizing the audited
balance sheets as of December 31, 1999, of the Company and the unaudited balance
sheets of GII's predecessor DTA Communications Network, LLC. The pro forma
consolidated statements of operations data presented assumes the Reorganization
occurred at the beginning of the periods presented. It should not be assumed
that the Company and GII would have achieved the unaudited pro forma
consolidated results if they had actually been combined during the periods
shown.
The Reorganization is expected to be accounted for as a purchase. The common
shareholders of GII will receive 20,000 shares of Common Stock for each share of
GII common stock resulting in the current stockholders of GII acquiring
approximately 67% of the outstanding Common Stock of the Company excluding the
Private Placement shares to be issued.
The unaudited pro forma consolidated results are based on estimates and
assumptions, which are preliminary and have been made solely for the purposes of
developing such pro forma information. The unaudited pro forma consolidated
results are not necessarily an indication of the results that would have been
achieved had such transactions been consummated as of the dates indicated or
that may be achieved in the future.
The unaudited pro forma combined results should be read in conjunction with the
historical consolidated financial statements and notes thereto set forth herein,
and other financial information pertaining to the Company and GII, including
"Management's Discussion and Analysis of Financial Condition and Results of
10
<PAGE>
Operations" for each of the Company and GII. Pro forma financial information is
set forth in greater detail in the Pro Forma Financial Statements beginning on
Exhibit C of this Information Statement.
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED
PRO FORMA INCOME STATEMENT: DECEMBER 31, 1999
(STATED IN THOUSANDS)
-----------------
<S> <C>
Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 27,474
Cost of Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . $ 26,587
Gross Profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 887
Other Income and Expenses . . . . . . . . . . . . . . . . . . . . . ($2,618)
Net Income (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . ($1,731)
Net Income (Loss) Per Share . . . . . . . . . . . . . . . . . . . . ($0.058)
AS OF
PRO FORMA BALANCE SHEET: DECEMBER 31, 1999
-----------------
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,416,475
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,416,475
Stockholders' Equity. . . . . . . . . . . . . . . . . . . . . . . . ($1,778,127)
Book Value Per Share. . . . . . . . . . . . . . . . . . . . . . . . ($0.059)
</TABLE>
RISKS RELATED TO THE REORGANIZATION
YOU WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION OF YOUR PERCENTAGE EQUITY AND
VOTING INTEREST. We will issue 20,000,000 shares of common stock to the
stockholders of GII. The 20,000,000 shares would represent approximately 67% of
the number of shares of common stock outstanding as of May 9, 2000.
Accordingly, the Reorganization will have the effect of substantially reducing
the percentage equity and voting interest held by each of our stockholders.
THE GII STOCKHOLDERS MAY BE ABLE TO SIGNIFICANTLY INFLUENCE US FOLLOWING THE
SHARE ISSUANCE. The substantial ownership of common stock by the GII
stockholders after the Closing of the Reorganization will provide them with the
ability to exercise substantial influence in the election of directors and other
matters submitted for approval by Company's stockholders. Following the closing
of the Reorganization, the ownership of common stock by the GII stockholders,
including those who will become directors and/or executive officers of the
Company, will represent approximately 67% of the outstanding shares of the
Company on May 9, 2000. This concentration of ownership of the Compan's common
stock may make it difficult for other stockholders of the Company to
successfully approve or defeat matters which may be submitted for stockholder
action. It may also have the effect of delaying, deterring or preventing a
change in control of the Company without the consent of the GII stockholders. In
addition, sales of common stock by the GII stockholders to a third party may
result in a change of control of the Company.
THE COMBINED COMPANY MAY BE UNABLE TO OBTAIN REQUIRED ADDITIONAL CAPITAL. As
indicated in the risk factors relating to GII below, the combined company will
need to raise up to $6 million in a combination of debt and equity securities to
have sufficient working capital to run and grow the business through December
31, 2000. Should the combined company be unsuccessful in its efforts to raise
additional capital, it will be required to curtail its plans or it may be
required to cut back or stop operations. There can be no assurance that the
combined company will raise additional capital or generate cash from operations
sufficient to meet its obligations and planned requirements.
WE MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE GII INTO OUR OPERATIONS. The
integration of GII into our operations involves a number of risks, including:
- difficulty integrating GII's operations and personnel;
- diversion of management attention;
- potential disruption of ongoing business;
- inability to retain key personnel; and
- impairment of relationships with employees, customers or vendors.
11
<PAGE>
Failure to overcome these risks or any other problems encountered in connection
with the Reorganization or other similar transactions could reduce the value of
the Reorganization to us. This could reduce the value of the Company common
stock.
WE MAY LOSE RIGHTS UNDER CONTRACTS WITH CUSTOMERS AND OTHER THIRD PARTIES AS A
RESULT OF THE REORGANIZATION. GII has numerous contracts with suppliers,
customers, licensors, licensees and other business partners. The Share Issuance
may trigger requirements under some of these contracts to obtain the consent,
waiver or approval of the other parties. If we cannot do so, we may lose some of
these contracts or have to renegotiate the contracts on terms that may be less
favorable. In addition, many of these contracts have short terms or can be
terminated following a short notice period. Loss of these contracts would reduce
our revenues and may, in the case of some contracts, affect rights that are
important to the operation of our business.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is limited to the material federal income tax
consequences of the proposed reorganization and does not discuss state, local,
or foreign tax consequences or all of the tax consequences that might be
relevant to an individual shareholder of the Company. The Company has not
sought an opinion as to the tax consequences of the Reorganization, however, the
Company believes that the Reorganization will qualify for federal income tax
purposes as a tax free reorganization under Section 368(a)(1)(B) of the Internal
Revenue Code of 1986, as amended (the "Code"). As such, the Company will not
recognize a gain or loss as a result of the Reorganization. Nor will the
stockholders of the Company recognize a gain or loss.
YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISOR AS TO SPECIFIC TAX CONSEQUENCES TO
YOU BY THE REORGANIZATION INCLUDING TAX RETURN REPORTING REQUIREMENTS AND THE
APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER APPLICABLE
TAX LAWS.
INFORMATION CONCERNING GII
--------------------------
HISTORY OF GII
The business of GII was established in 1996 by Robert Donahue under the name DTA
Communications Network, LLC., a private Illinois corporation The DTA
Communications Network, LLC. became GII in March 2000. GII has one wholly owned
subsidiary GlobalNet, LLC, a private Illinois corporation. GII's predecessor
was formed to capitalize on the growth of the Internet as a communications tool
by commercially offering IP telephony network and application services in and
between Mexico and United States in partnership with Protel SA, a licensed
Mexican telecommunications carrier. GII expanded its services to Guatemala
through an interconnect agreement with Protel SA. GII has also recently added
Alestra SA de CV (AT & T) and MarCatel as Mexican partners.
GENERAL DESCRIPTION OF BUSINESS OF GII
GII provides Internet Protocol (IP) telephony services, that enables
telecommunication carriers and other communication service providers to offer
international transmission of voice, data traffic and other value added
applications over the Internet. IP telephony is the real time transmission of
voice communications in the form of digitized "packets" of information over the
public Internet or a private network, similar to the way in which e-mail and
other data is transmitted. By outsourcing international communications services
to GII, customers are able to lower costs, generate new revenue and extend their
business into Internet-based services quickly while maintaining service quality
comparable to that of traditional voice networks. These customers include
traditional, local, international and wholesale long distance companies and
competitive local exchange carriers, as well as new telecommunications service
providers.
INDUSTRY OVERVIEW
CONVERGENCE OF GLOBAL TELECOMMUNICATIONS AND DATA SERVICES. Over the past
decade the telecommunications industry has grown at a rapid rate in all market
segments. Factors contributing to this boom include domestic and international
deregulation, technological development, lower cost network deployment and the
globalization of business. Wholesale telecommunications service revenue was
approximately $37 billion in 1998. According to Phillips Group-Info Tech, an
industry research firm, this market is projected to grow to approximately $100
billion by 2003.
12
<PAGE>
The volume on data networks has grown at an even faster rate. This growth has
been driven by several factors, including technological innovation, high
penetration of personal computers and, in particular, by the rapid expansion of
the Internet as a global medium for communications, information and commerce.
International Data Corporation, a market research firm, estimates that the
number of Internet users worldwide will grow from approximately 142 million in
1998 to approximately 399 million in 2002. This increase in data traffic has
necessitated additional data network capacity and quality. As a result,
businesses have invested billions of dollars in order to meet this need.
We believe that such transformations will spur the creation of new applications
such as email, Internet usage, unified messaging, Web hosting, broadband
broadcasts, e-commerce and IP Telephony. This will drive the need for
application service providers to offer applications to business and customers
who cannot afford to own the necessary applications themselves.
NETWORK INFRASTRUCTURE. The basic technology of traditional telecommunications
is designed for slow mechanical switches. Communications over the traditional
telephone network are routed through circuits which must dedicate resources to
each call until the call ends, regardless of whether anyone is actually talking
on the circuit. This circuit-switching technology incurs a significant cost per
call and does not efficiently support the integration of voice with data
services.
Data networks, however, were designed for electronic switching. They break the
data stream into small, individually addressed packages of data which are routed
independently of each other from the origin to the destination.
Therefore, they do not require a fixed amount of bandwidth to be reserved
between the origin and destination of each call. This allows multiple voice or
voice and data calls to be pooled, resulting in these networks being able to
carry more calls with an equal amount of bandwidth.
THE EMERGENCE OF IP TELEPHONY. Frost & Sullivan, a consulting and research
firm, expects voice over internet protocol (VoIP) technology or IP Telephony to
be the most significant development in the telecommunications industry since
wireless technology. Industry revenues are anticipated to grow from under $2
billion in 1999 to over $10 billion by 2005. IP Telephony consists of both
traditional and enhanced voice and fax services, including the addition of
interactive voice capability to web sites, among others. IP Telephony serves
both the extensive market of existing phone users and the expanding market of
computer users.
IP Telephony based on Internet protocols emerged in 1995, with the invention of
a personal computer program that allowed the transport of voice communications
over the Internet via a microphone connected to a personal computer. Initial
sound quality was poor and the service required that both parties to the
conversation use personal computers instead of telephones. In 1996, the advent
of the gateway for the first time offered anyone with access to a telephone the
ability to complete calls on the Internet. A gateway facilitates Internet
transport of telephone services traditionally carried over the traditional
telephone network.
ADVANTAGES OF IP TELEPHONY. IP Telephony is expected to make networks long
distance telephone calls transported over the Internet less expensive than
similar calls carried over the traditional telephone network primarily because
the cost of using the Internet is not determined by the distance those calls
need to travel. Also, routing calls over the Internet is more cost-effective
than routing calls over the traditional telephone network because the technology
that enables Internet telephony is more efficient than traditional telephone
network technology. The greater efficiency of data networks creates cost savings
that can be passed on to the consumer in the form of lower long distance rates.
BUSINESS STRATEGY
GII's goal is to be the leading provider of Internet-based voice and fax
services. In order to achieve this goal we intend to:
- Establish strategic partnerships with in-country qualified service
providers in target countries;
- Provide bilateral voice, fax, and enhanced services between the partner
network and GII's backbone network;
- Aggressively grow traffic levels to gain market penetration, customer base
and revenue growth;
- Deploy GII's private IP backbone network to strategic partners and with
GII's strategic partners to convert legacy systems to an IP based platform
within the country.
- Work with strategic partners to deploy an application service provider
("ASP") suite of products across the end to end IP network;
- Provide customers and affiliates with direct access to GII's 24/7 high
tech call center;
- Continue to provide leadership in the development of industry standards
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- Deliver additional IP communication services over GII's private IP
backbone and public Internet.
GII has assembled a very experienced telecommunications management team to
implement this strategy.
DESCRIPTION OF SERVICES
GII provides Internal Protocol (IP) based network and application services .
This is achieved by using public Internet and private IP based networks allowing
a low transport to match the small competitors while enabling an enhanced
product set offered by large carriers.
Currently GII provides bilateral voice, fax and enhanced services between the
partner network and GII's backbone network. The backbone network is managed
from a United States based network operations center (NOC) which will be fully
operational in the fourth quarter of 2000. GII also provides customers with an
Application Service Provider (ASP) suite of products including voice, data,
Internet services & the delivery of IP based content applications across the
end-to-end IP network thus giving Internet Service Provider (ISP) the ability to
bring voice and data products to its customers and to buy Internet connectivity
from a single source. GII has built a reliable, private network utilizing voice
over Internet Protocol (VoIP).
Utilizing an IP based technology and platform, GII is able to intermix voice,
data, Internet and multimedia efficiency and transport this mix over a single
delivery system enabling GII to apply Quality of Service (QoS) to each of its
products.
A description of services offered by GII include the following:
- INTERNATIONAL WHOLESALE MINUTES. GII offers international wholesale
network transmission service to the U.S. based on Tier 1, 2, and 3
carriers, including MCI WorldCom, Sprint, Teleglobe, Qwest and Global
Crossing via the GlobalNet International Network. GII's network
partners provide high quality termination facilities in each of GII's
Global POPs.
- BI-DIRECTIONAL SWITCHED VOICE, FAX AND ENHANCED SERVICES. GII will route
traffic from each of its partner countries on a worldwide basis.
- PREPAID CARDS. GII offers prepaid card services at competitive rates.
This service is distributed to the end user via wholesale
agents/distributors and retail distribution points.
- PACKET DATA SERVICE. GII packet data services include frame relay and
ATM, and are offered as an access product to interface with GII's IP based
backbone infrastructure. Network-to-Network and User-to-Network
Interfaces, for sites not directly served by the Company's backbone,
making connecting any location both easy and affordable.
- VIRTUAL PRIVATE NETWORKS (VPNS). GII's VPN data service offers the
benefits of a private network (security, controlled performance) with the
advantages of public networks (flexibility, scalability, redundancy, load
sharing, performance, lower costs).
- MULTIMEDIA TRANSPORT. Stable video transport can be delivered using GII's
packet data products.
- IP SERVICES. Voice, fax, and video over IP, international extranet and
intranet virtual private networks (VPNs) are offered.
- DEDICATED INTERNET ACCESS. Dedicated Internet connectivity through GII's
in-country partners for resale to ISPs as their primary or secondary feed
and to telecom carriers within the country who wish to provide Internet
services to their customers. Customers of the ISP or telecom carrier will
purchase either dedicated or dial-up access, which will be supported at
the ISP/carrier level.
- WEB HOSTING. Provided space on GII's severs to support hosting for
customers who either do not have their own capability or who would prefer
to have their site hosted in the United States. GII will also provide
mirrored Web hosting to the partner's customers. Mirrored hosting is a
service enabling an Internet Web site to be hosted at multiple locations,
providing redundancy and backup if the customer's primary site is
unavailable.
- ELECTRONIC COMMERCE. Business to business products. GII will acquire the
licenses and rights to provide these products from their authors and
publishers, on a private label or re-branded basis. Examples include
Enterprise Resource Planning (ERP), Billing Systems, Secure Document
Transport, Purchasing and Provisioning and Call Center Support.
- ON-NETWORK APPLICATIONS. GII will offer business support and ERP
application software, hosted on either a GII or in-country partner's
server. Depending on customer need, these products may also include data
warehousing.
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- CULTURE BASED PORTALS. GII will provide culture based or ethnic Internet
portals to United States communities made up of expatriates from the
countries where the GII's network services are offered. Within the
different portals envisioned, these communities will be offered
information in their native language along with various products such as
the GII calling card and Internet telephony.
SALES AND MARKETING AND DISTRIBUTION
SALES STRATEGY. GII's sales efforts target strategic partners in Latin America,
Asia and the Pacific Rim where the economies are booming and where there are
large influxes of immigration to the United States. The country market
penetration strategy used successfully in Mexico and Guatemala will be used in
other countries. GII uses the following criteria to establish joint ventures
with qualified partners in other countries:
- sustained growth;
- deregulating telecom market;
- burgeoning expatriate population in the United States;
- established and experienced Internet Service Provider (ISP) or a
traditional telecom carrier (with the proper in-country licenses and
access to distribution facilities);
- sales and support organization; and
- an existing customer base.
GII's sales force is frequently supplemented by senior members of management.
Senior management will attract partners to GII through their reputations in the
industry and through their industry relationships. Sales representatives are
assigned specific accounts based on their level of experience, location and the
quality of the relationship between the representative and the customer. Staff
is compensated based in large part on incentive-based goals and measurements. In
addition to GII's marketing and sales staff, GII relies on it's executive and
operations personnel, including the staff of GII's 24-hour- a- day, 7-day-a-week
network operations center, to identify sales opportunities within existing
customer accounts and to provide quality customer service.
MARKETING STRATEGY. GII's primary marketing and sales support is centralized
and directed from GII's headquarters in Villa Park, Illinois. GII has a
full-time staff dedicated to it's marketing efforts. The marketing and sales
support staff are charged with implementing our marketing strategies,
prospecting and producing sales presentation materials and proposals.
GII typically meets potential affiliates at Internet voice trade shows and
seminars we conduct on Internet telephony. Potential customers are located
through directed sales calls by it's sales personnel and at telephony trade
shows. GII also maintain an Internet web site which, among other things,
provides information to prospective customers and partners concerning the
technical and other requirements for becoming a part of GII.
GII also maintain an Internet web site which, among other things, provides
information to prospective customers and partners concerning the technical and
other requirements for becoming a part of GII.
TARGET MARKETS
Based on factors such as political climate, bureaucracy, language, customs,
monetary units, bandwidth availability, service offerings, economic climate and
countries contributing to United States immigration, GII has identified the
following primary markets for its products:
LATIN AMERICA. The fastest growing Latin American Internet markets are
expected to be Brazil and Mexico, followed by Columbia, Argentina and
Venezuela. GII's strategic partnership with Protel has already allowed for
rapid entrance into this market.
ASIA-PACIFIC. The Yankee Group, a research firm, estimates that Internet
use in Asia is expected to reach 12% of the population, or nearly 374
million people by the end of 2005. Japan, Singapore, Hong Kong, Malaysia,
China, India and Pakistan are all target markets for GII.
China, Pakistan, Mexico, Brazil, Argentina and Guatemala have all signed
contracts with GII to send voice, data, and fax traffic to and from these
countries.
GII'S NETWORK
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GII has established facilities in the U.S., Mexico and Guatemala and has
arrangements with affiliates outside of these countries to place and complete
telephone calls on its network in over 200 countries worldwide.
GII's network allows its customers to capitalize on the convergence of voice and
data networks. The network interfaces with the public Internet using dedicated
lines and alternative channels of transport. It is actively managed around the
clock by a Network Operations Center.
GII provides its customers with the cost efficiencies of private data networks
and the global reach of the Internet. It offers an intelligent platform from
which to offer fast delivery of additional value-added services and
applications. GII intends to continue rapid deployment of its network on a
global basis by taking advantage of the economies of IP based networks and the
opportunities presented in the chosen markets
Since it was first introduced in 1998, network usage grew over 500%. Growth
projects for end of year 2000 show continued impressive growth of more than 250%
over year-end 1999.
CUSTOMER RELATIONSHIP MANAGEMENT
GII recognizes that effective customer care is critical in today's competitive
environment. Excellence in customer care directly translates into vendor
loyalty and customer longevity. GII is committed to building a foundation of
systems and technology that provides ease of access for customers. GII also
carefully selects business partners with an established history and strong
infrastructure of operational support tools required to meet customer needs.
These partners share GII's sales and marketing expertise, and its commitment to
customer care. GII will support its in-country partners with industry
specialists, each experienced in supporting and directing channel sales
activities in Latin America, Asia and Pacific Rim. GII will insure that all
in-country personnel have the training needed to effectively market to the
target customer.
GII offers customers a 24/7 help desk service through personal and electronic
contact options. A high-tech call center with integrated Web connectivity will
be co-located with the Network Operations Center. GII's intent is to show
customers that GII is listening to their issues and is committed to resolving
their problems.
COMPETITION
The long distance telephony market and the Internet telephony market are highly
competitive. There are several large and numerous small competitors. The
principal competitive factors in the Internet Telephony market include price,
quality of service, breadth of geographic presence, customer service,
reliability, network size and capacity and the availability of enhanced
communications services.
INTERNET PROTOCOL AND INTERNET TELEPHONY SERVICE PROVIDERS. During the past
several years, a number of companies have introduced services that make Internet
telephony or voice services over the Internet available to businesses and
consumers. In addition to GII, AT&T Jens (a Japanese affiliate of AT&T),
deltathree.com (a subsidiary of RSL Communications), I-Link, iBasis, Inc.
(formerly known as VIP Calling), ICG Communications, IPVoice.com, ITXC Corp.
Net2Phone, Inc., and OzEmail (which was acquired by MCI WorldCom), provide a
range of voice over the Internet services. These companies offer PC-to-phone or
phone-to-phone services that are similar to what GII offers.
TELECOMMUNICATIONS COMPANIES AND LONG DISTANCE PROVIDERS. A number of
telecommunications companies, including AT&T, Deutsche Telekom, Level Three, MCI
WorldCom and Qwest Communications, currently maintain, or plan to maintain, data
networks to route the voice traffic of other telecommunications companies. These
companies, which tend to be large entities with substantial resources, generally
have large budgets available for research and development, and therefore may
further enhance the quality and acceptance of the transmission of voice over the
Internet.
SOFTWARE/HARDWARE PROVIDERS. GII also competes with companies which produce
software and other computer equipment that may be installed on a user's computer
to permit voice communications over the Internet. The quality of communications
with these products tend to be poor as they tend to use public Internet for the
transmission of communication traffic. They also tend to require each user to
have compatible software and hardware equipment. These companies include
VocalTec, Netspeak and e-Net.
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Many of GII's competitors have substantially greater financial, technical and
marketing resources, larger customer bases, longer operating histories, greater
name recognition and more established relationships in the industry than we
have. As a result, certain of these competitors may be able to adopt more
aggressive pricing policies which could hinder GII's ability to market GII's
Internet-based voice services. We believe that GII's key competitive advantages
are GII's ability to deliver reliable, high quality voice service over the
Internet in a cost-effective manner and the size and rapid growth of GII's
network. We cannot provide assurances, however, that this advantage will enable
us to succeed against comparable service offerings from GII's competitors.
GOVERNMENT REGULATION
GOVERNMENT REGULATION
REGULATION OF IP TELEPHONY - GENERAL. GII is a multinational telecommunications
company subject to applicable laws and regulations in each of the jurisdictions
in which it provides services. GII may also be affected indirectly by the laws
of other jurisdictions that affect foreign carriers with which GII does
business. Telephone service provided through the use of the Internet and
private IP networks is a recent market development which we believe is currently
permitted under United States law, however, some foreign countries have laws or
regulations that may prohibit voice communications over the Internet.
REGULATION OF IP TELEPHONY - UNITED STATES. The Federal Communications
Commission (FCC) regulates communications, including information services and
telecommunication services. Currently, Internet and IP Telephony services are
not regulated by the FCC or any state agencies. We believe that the IP
communications services that we provide constitute information services as
opposed to the more highly regulated telecommunication services.
If the FCC were to determine that providers of Internet and IP telephony
services are subject to FCC regulations as telecommunications services, the FCC
may require these providers to be subject to traditional common carrier
regulation, make universal service contributions, and/or pay excess charges. It
is also possible that the FCC may adopt a regulatory framework other than
traditional common carrier regulations which would apply to Internet and IP
telephony providers. If any such regulations are adopted by the FCC, these
regulations could materially adversely affect our business, financial condition,
operating results and future prospects. We cannot guarantee that GII's services
will not be regulated in the future.
State regulatory authorities may also retain jurisdiction to regulate the
provision of intrastate Internet and IP telephony services. Several state
regulatory authorities have initiated proceedings to examine the regulation of
such services. As well, in September 1998, two regional Bell operating
companies advised Internet and IP telephony providers that they will impose
excess charges on Internet and IP telephony traffic at some point in the future.
Increased United States regulation of the Internet may slow its growth,
particularly if other governments follow suit, which may negatively impact the
cost of doing business over the Internet and materially adversely affect our
business, financial condition, results of operations and future prospects.
Portions of our operations may still be subject to state or federal regulation,
including regulation governing universal service funding, disclosure of
confidential communications, copyright and excise tax issues.
REGULATION OF TELEPHONY SERVICES - INTERNATIONAL. The regulatory treatment of
Internet and IP telephony outside of the United States varies widely from
country to country. A number of countries that currently prohibit competition in
the provision of voice telephony may also prohibit Internet and IP telephony.
Other countries permit but regulate Internet and IP telephony. Some countries
will evaluate proposed Internet and IP telephony service on a case-by-case basis
and determine whether it should be regulated as a voice service or as another
telecommunications service. Finally, in many countries, Internet and IP
telephony has not yet been addressed by legislation or regulatory action.
We may be subject to regulations in some foreign jurisdictions, or we may be
prohibited from providing our services or conducting our business in these
foreign jurisdictions. Our failure to qualify as a foreign corporation in a
jurisdiction in which we are required to do so or to comply with foreign laws
and regulations could materially adversely affect our business, financial
condition, operating results and future prospects, including the possibility of
subjecting us to taxes and penalties and/or by precluding us from, or limiting
us in enforcing contracts in such jurisdictions. This holds true of our
partners as well. We cannot be certain that our partners either are currently
in compliance with any such requirements, will be able to comply with any such
requirements, and/or will continue to be in compliance with any such
requirements. The failure of our partners to comply with such requirements could
materially adversely affect our business, financial condition, operating results
and future prospects.
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Recently, IP Telephony service of one of our competitors was blocked in certain
countries in Asia and the Middle East by government-controlled
telecommunications companies. The Israel Minister of Communications has
recently sent another competitor a letter requesting that it cease and desist
terminating calls over the Internet in Israel. Although we have not received
any similar notices from these regulators and we do not know specifically how
these competitors operate in such countries or why they received such notices,
there can be no assurance that such regulators or any other regulator may not
block our service or send us similar cease and desist orders in the future.
PROPRIETARY RIGHTS
The Company and GII regards their intellectual property rights, such as
copyrights, trademarks, trade secrets, practices and tools, as important to the
success of the combined company. To protect their intellectual property rights,
the Company intends to rely on a combination of trademark and copyright law,
trade secret protection and confidentiality agreements and other contractual
arrangements with their employees, affiliates, clients, strategic partners,
acquisition targets and others. Effective trademark, copyright and trade secret
protection may not be available in every country in which the combined company
intends to offer its services. The steps taken by the Company or GII to protect
their intellectual property rights may not be adequate, third parties may
infringe or misappropriate the combined company's intellectual property rights
or the combined company may not be able to detect unauthorized use and take
appropriate steps to enforce its rights. In addition, other parties may assert
infringement claims against the combined company. Such claims, regardless of
merit, could result in the expenditure of significant financial and managerial
resources. Further, an increasing number of patents are being issued to third
parties regarding Internet telephony processes. Future patents may limit the
combined company's ability to use processes covered by such patents or expose
the combined company to claims of patent infringement or otherwise require the
combined company to seek to obtain related licenses. Such licenses may not be
available on acceptable terms. The failure to obtain such licenses on acceptable
terms could have a negative effect on the combined company's business.
The Company believes that GII's products, trademark, and other proprietary
rights do not infringe on the proprietary rights of third parties.
EMPLOYEES
As of May 9, 2000, GII had sixteen (16) full time employees and one (1)
part-time employee. The Company anticipates that the development of its
business will require the hiring of additional employees. None of the Company's
current employees are covered by any collective bargaining agreement and the
Company has never experienced a work stoppage. The Company considers its
employee relations to be good. The Company believes its future success will
depend in large part on its continuing ability to attract, train and retain
highly skilled technical, sales, marketing and customer support personnel.
FACILITIES
The Company corporate headquarters is located in a 3,500 square foot ("sf")
facility at 721 East Madison Avenue, Suite 201, Villa Park, Illinois 60181. This
facility's lease, has expired and is currently rented on a month to month basis
with a base monthly rent of $4,000. The Company also rents 800 sf of office
space in Marietta, Georgia on a month to month basis with a base monthly rent of
$570 and houses Gateway equipment in the following locations:
- San Antonio, Texas - three year lease expiring May 1, 2001 for 6,000 sf at
$4,500 per month;
- Nuevo Laredo, Mexico - one year lease expiring July 15, 2000 for 500 sf at
$1,950 per month;
- Monterrey, Mexico - one year lease expiring July 15, 2000 for 500 sf at
$2,100 per month;
- Mexico City, Mexico - one year lease expiring August 14, 2001 for 1,000 sf
at $ 2,500 per month.
All leases noted above are automatically renewed for additional term unless
cancelled by GII in writing.
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SELECTED FINANCIAL DATA
The following selected financial data is obtained from the unaudited financial
statements of GII's predecessor DTA Communications Network, LLC., as of December
31, 1999, 1998 and 1997, which are included elsewhere in Exhibit D to this
Information Statement. The selected financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and attached financial notes. Audited
financial statements for GII are expected to be ready for filing at the time of
Closing the Reorganization Agreement.
<TABLE>
<CAPTION>
GII FOR YEAR ENDED
12/31/99 12/31/98 12/31/97
----------- ---------- ----------
<S> <C> <C> <C>
Revenue. . . . . . . . . . 25,618,203 4,046,246 792,654
----------- ---------- ----------
Operating Expenses . . . . 27,462,532 4,157,736 1,048,736
----------- ---------- ----------
Gross Profit (Loss). . . . (1,844,329) (111,490) (256,736)
Other Expenses . . . . . . 62,059 182,850 0
Net Income (Loss). . . . . (1,906,388) (294,340) (256,082)
Total Assets . . . . . . . 6,605,400 210,692 211,517
Total Current Liabilities. 5,819,641 761,114 0
</TABLE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS. Planned principal operations of GII commenced in 1996,
however, to this date GII has received limited revenues. In June 1975, the
Financial Accounting Standards Board, in its Statement No. 7, set forth
guidelines for identifying an enterprise in the development stage and the
standards of financial accounting and reporting applicable to such an
enterprise. In the opinion of the Company, GII and its activities from its
inception through December 31, 1999 fall within the referenced guidelines.
Accordingly, the Company has reported GII's activities in accordance with the
aforesaid Statement of Financial Accounting Standards No. 7.
During the years ended December 31, 1999 and 1998 and 1997, GII sustained a net
loss of approximately $1,906,388, $ 294,340, and $ 256,082, respectively. These
losses are expected to continue for a presently undetermined time. The Company's
losses in 1999, independent of GII, were minimal due to lack of business
operations.
SALES AND REVENUES. GII has derived (or intends to derive) revenues generally
from sale of the products described herein. In order to increase revenue, GII
has entered into distribution agreements with Protel and other
telecommunications companies who have established distribution into target
markets. GII intends to establish a sales and marketing organization and attempt
to develop strategic partner relationships with national companies and expand
advertising and promotion. No assurances can be given that GII will be
successful in these efforts.
LIQUIDITY AND CAPITAL RESOURCES. As of December 31, 1999, GII had net
stockholders' deficit of $ 2,987,684, accumulated losses during the development
stage of $1,906,388 and a working capital deficit of $3,663,967. There can be
no assurance that GII will be able to continue as a going concern or achieve
material revenues or profitable operations. GII is dependent on the proceeds of
the Private Placement(s) and sufficient cash flow from operations to meet its
short-term and long-term liquidity needs. GII may require additional financing
beyond the proceeds received in the Private Placements depending on the number
of securities sold in the Private Placements and the amount of revenue derived
from operations. In this event, no assurances can be given that such financing
will be available in the amount required or, if available, that it can be on
terms satisfactory to GII.
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The maximum proceeds of the Private Placements are intended to be used to
provide GII with the necessary capital to maintain and expand its operations for
a period of 12 months when GII expects to achieve significant cash flow from
operations, although no assurances can be given in this regard.
YEAR 2000 UPDATE. Even though the date is now past January 1, 2000 and GII has
not experienced any immediate adverse impact on GII's operations from the
transition to the Year 2000, GII cannot provide complete assurance that GII's
operations have not been affected in a manner that is not yet apparent or that
will arise in the future. In addition, computer programs that were date
sensitive to the Year 2000 may not have been programmed to process the Year 2000
as a leap year, and any negative consequential effects remain unknown. As a
result, GII will continue to monitor GII's Year 2000 compliance and the Year
2000 compliance of GII's agents. However, GII anticipates no Year 2000 problems
that are reasonably likely to have a material adverse effect on GII's
operations.
RISKS RELATED TO THE BUSINESS OF GII
The following is a summary of some of the risk factors which may have an impact
on the GII's business efforts:
GII HAS A LIMITED OPERATING HISTORY IN A NEW AND RAPIDLY CHANGING INDUSTRY.
GII's predecessor DTA Communications Network, LLC commenced offering IP based
network and application services in 1996. Accordingly, GII has only a limited
operating history on which an evaluation of its prospects can be made. Such
prospects must be considered in light of the substantial risks, expenses and
difficulties encountered by new entrants into the Internet based voice service
industry. Significant on-going risks include GII's ability to:
- expand its subscriber base and increase subscriber revenues,
- compete favorably in a highly competitive market,
- access sufficient capital to support its growth,
- recruit, train and retain qualified employees,
- introduce new products and services, and
- upgrade network systems and infrastructure.
GII cannot be certain that it will successfully address any of these risks. In
addition, its business is subject to general economic conditions, which may not
be favorable for GII's business in the future.
GII HAS NOT BEEN PROFITABLE AND EXPECT FUTURE LOSSES. GII incurred net losses
of approximately $1,906,388 for its fiscal year ended December 31, 1999. GII
has not achieved profitability in any quarterly or annual period since inception
and expects to continue to incur net losses for the foreseeable future.
Although revenues have grown in recent quarters, GII cannot be certain that it
will be able to sustain these growth rates or that it will obtain sufficient
revenues to achieve profitability. Even if GII does achieve profitability, it
cannot be certain that it can sustain or increase profitability on a quarterly
or annual basis in the future. GII expects that costs and expenses will
continue to increase in future periods, which could negatively affect future
operating results.
GII COULD BE REQUIRED TO CUT BACK OR STOP ITS OPERATIONS IF IT IS UNABLE TO
OBTAIN NEEDED FUNDING. GII will need to raise additional capital to run its
business, repay indebtedness incurred in connection with upgrading its
facilities, fund anticipated expansions and meet pre-existing cash obligations
through the end of the third quarter of 2000. Should GII be unsuccessful in its
efforts to raise capital, it will be required to curtail its expansion plans or
it may be required to cut back or stop operations. There can be no assurance
that GII will raise additional capital or generate funds from operations
sufficient to meet its obligations and planned requirements.
A MARKET FOR GII'S SERVICES MAY NOT DEVELOP. It is uncertain whether a market
will develop for GII's IP communications services. The IP communications market
is new and rapidly evolving. GII's ability to sell it's services to end users
may be inhibited by, among other factors, the reluctance of some end users to
switch from traditional communications carriers to IP communications carriers
and by concerns with the quality of Internet and IP telephony and adequacy of
security in the exchange of information over the Internet. End users in markets
serviced by recently deregulated telecommunications providers are not familiar
with obtaining services from competitors of these providers and may be reluctant
to use new providers, such as GII's. GII's ability to increase revenues from
enhanced IP communications services depends on the migration of traditional
telephone network traffic to GII's IP network. GII will need to devote
substantial resources to educate end users about the benefits of IP
communications solutions in general and GII's services in particular. If end
users do not accept GII"s enhanced IP communications services as a means of
sending and receiving communications GII will not be able to increase the number
of paid users or successfully generate revenues in the future.
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A SIGNIFICANT PORTION OF GII'S REVENUES ARE BASED ON SALES TO ITS LARGEST
CUSTOMERS AND ITS REVENUES COULD DECLINE AS A RESULT OF THE LOSS OF THESE
CUSTOMERS. GII's three largest customers as a group accounted for approximately
96% and 91% of GII's net revenues for fiscal 1998 and 1999, respectively.
Although GII cannot assure you that its principal customers will continue to
purchase products from it at past levels, GII expects a significant portion of
its revenue will continue to be concentrated within a small number of customers.
The loss of, or significant reduction of, purchases by one or more of these
customers could have a material adverse effect on GII.
IF GII FAILS TO CREATE AND MAINTAIN STRATEGIC RELATIONSHIPS WITH INTERNATIONAL
CARRIERS ITS REVENUES WILL DECLINE. GII's success depends in part on its ability
to maintain and develop relationships with international carriers. The quality
of these relationships and the ability of these carriers to market services
effectively directly affects GII's revenue. GII has been pursuing joint ventures
and business opportunities with new and emerging carriers in foreign markets.
These transactions commonly involve certain risks, including, among others, that
a strategy or business direction change from a major carrier could have a
significant short term impact on GII's revenue. The new and emerging carriers
may not acquire as much business as projected due to market competition or other
factors, which could lead them to reduce their business with GII. If GII is not
able to find suitable carriers operating in attractive markets, it may not be
able to enter those markets on a cost-effective basis.
DECREASING TELECOMMUNICATIONS RATES MAY DIMINISH OR ELIMINATE THE COMPETITIVE
PRICING ADVANTAGE OF IP TELEPHONY COMMUNICATION SERVICES. Decreasing
telecommunications rates may diminish or eliminate the competitive pricing
advantage of our enhanced IP communications services and carrier transmission
services. International and domestic telecommunications rates have decreased
significantly over the last few years in most of the markets in which GII
operates, and GII anticipates that rates will continue to be reduced in all of
the markets in which GII does business or expect to do business. Users who
select IP communications services to take advantage of the current pricing
differential between traditional telecommunications rates and IP telephony rates
may switch to traditional telecommunications carriers as such pricing
differentials diminish or disappear, and GII will be unable to use such pricing
differentials to attract new customers in the future. In addition, GII's ability
to market it's carrier transmission services to telecommunications carriers
depends on the existence of spreads between the rates offered by GII and the
rates offered by traditional telecommunications carriers, as well as a spread
between the retail and wholesale rates charged by the carriers from which GII
obtains wholesale service. Continued rate decreases will require GII to lower
it's rates to remain competitive and will reduce or possibly eliminate GII's
gross profit from it's carrier transmission services. If telecommunications
rates continue to decline, GII may lose users for it's enhanced IP
communications services and carrier transmission services.
RAPID TECHNOLOGICAL CHANGE IN TELECOMMUNICATIONS INDUSTRY COULD REDUCE THE
DEMAND FOR GII'S SERVICES. The telecommunications industry is subject to rapid
and significant changes in technology that may adversely affect the continued
use of IP telephony services. In addition, widely accepted standards have not
yet developed for the technologies GII uses. GII expects that new services and
technologies will emerge in the market in which GII competes. These new
services and technologies may be superior to the services and technologies that
GII uses, or these new services may render GII's services and technologies
obsolete. To be successful, GII must adapt to rapidly changing market by
continually improving and expanding the scope of services it offers and by
developing new services and technologies to meet customer needs. GII's success
will depend, in part, on GII's ability to license leading technologies and
respond to technological advances and emerging industry standards on a
cost-effective and timely basis. GII will need to spend significant amounts of
capital to enhance and expand it's services to keep pace with changing
technologies. GII cannot predict the likelihood of these changes and cannot
assure you that any technological changes will not materially and adversely
affect GII's business and operating results.
GII'S BUSINESS IS EXPOSED TO REGULATORY, POLITICAL AND OTHER RISKS ASSOCIATED
WITH INTERNATIONAL BUSINESS. GII conducts a significant portion of its business
outside the U.S. and accordingly derives a portion of its revenues and accrues
expenses in foreign currencies. Fluctuations in foreign currency exchange rates
may affect GII's results of operations and the value of GII's foreign assets,
which in turn may adversely affect reported earnings and the comparability of
period-to-period results of operations. Changes in currency exchange rates may
affect the relative prices at which GII and foreign competitors sell products in
the same market. In addition, changes in the value of the relevant currencies
may affect the cost of items required in GII's operations. Accordingly, GII's
results of operations may be materially affected by international events and
fluctuations in foreign currencies. GII does not employ foreign currency
controls or other financial hedging instruments.
GII's international operations and business expansion plans are also subject to
a variety of government regulations, currency fluctuations, political
uncertainties and differences in business practices, staffing and managing
foreign operations, longer collection cycles in certain areas and potential
21
<PAGE>
changes in tax laws. Governments may adopt regulations or take other actions,
including raising tariffs, that would have a direct or indirect adverse impact
on GII's business opportunities within such governments' countries. Furthermore,
from time to time, the political, cultural, and economic climate in various
national markets and regions of the world may not be favorable to its operations
and growth strategy.
EXTENSIVE REGULATION-REGULATORY MATTERS COULD IMPACT ON GII'S ABILITY TO CONDUCT
BUSINESS. Existing and future governmental regulation may substantially affect
the way in which GII conducts business and the procedural and substantive
regulatory requirements with which it must comply. These regulations may
increase the cost of doing business or may restrict the way in which GII offers
products and services. There is no way to predict the future regulatory
framework of the IP telephony business. These regulations are summarized in more
detail in the section entitled "Regulation."
THE LOSS OF KEY PERSONNEL COULD WEAKEN GII'S TECHNICAL AND OPERATIONAL
EXPERTISE, DELAY ENTRY INTO NEW MARKETS AND LOWER THE QUALITY OF ITS SERVICE.
GII's success depends on the continued efforts of its senior management team and
its technical, marketing and sales personnel. GII also believes that to be
successful it must hire and retain highly qualified engineering personnel.
Competition in the recruitment of highly qualified personnel in the
telecommunications industry is intense. Hiring employees with the skills and
attributes required to carry out its strategy can be time consuming. GII may not
be able to retain or successfully integrate existing personnel or identify and
hire additional qualified personnel. If GII loses the services of key personnel
or is unable to attract additional qualified personnel, its business could be
materially and adversely affected. GII does not have key-man life insurance. GII
initiates and maintains its relationships with foreign carriers in its targeted
markets through the combined efforts of its senior management team. GII believes
that its success in entering into operating agreements with its foreign partners
is due largely to its reputation along with personal relationships which its
senior management team have developed with the appropriate officials at foreign
carriers.
FORWARD-LOOKING STATEMENTS
Certain statements included in this Information Statement regarding the Company
and GII which are not historical facts are forward-looking statements, including
the information provided with respect to the future business operations and
anticipated agreements and projects of the Company and GII after the
Reorganization. These forward-looking statements are based on current
expectations, estimates, assumptions and beliefs of management; and words such
as "expects," "anticipates," "intends," "plans," "believes," "estimates" and
similar expressions are intended to identify such forward-looking statements.
These forward-looking statements involve risks and uncertainties, including, but
not limited to, the success of GII's sales strategies, market acceptance of
GII's products and services, GII's ability to obtain a larger number and size of
contracts, the timing of contract awards, work performance and customer
response, the impact of competitive products and pricing, and technological
developments by GII's competitors. Accordingly, actual results may differ
materially from those expressed in the forward-looking statements.
ELECTION OF DIRECTORS
---------------------
Because the current officers of the Company will resign their positions with the
Company at the closing of the Reorganization and the eleven new directors will
be elected by the stockholders pursuant to this Information Statement, all of
the information set forth in this Section regarding the "Election of Directors"
pertains to those executives of GII who will become directors and officers of
the Company on the closing of the Reorganization. Information regarding the
current officers and directors of the Company is set forth in the Company's
Annual Report for 1999, which accompanies this Information Statement.
INFORMATION CONCERNING NOMINEES
The following nominees of GII and Mr. Gushlak are expected to become executive
officers and directors of the Company at the closing of the Reorganization.
22
<PAGE>
<TABLE>
<CAPTION>
NAME AGE EXPECTED POSITION WITH COMPANY
-------------------- --- --------------------------------------------------------------
<S> <C> <C>
Robert J. Donahue. . 60 President, Chief Executive Officer and Director
-------------------- --- --------------------------------------------------------------
Daniel M. Wickersham 54 Executive Vice President, Chief Operating Officer and Director
-------------------- --- --------------------------------------------------------------
Colum P. Donahue . . 26 Vice President of Network Operations and Director
-------------------- --- --------------------------------------------------------------
Barry Toser. . . . . 42 Senior Vice President of Sales and Marketing, and Director
-------------------- --- --------------------------------------------------------------
Jonathan Greenhill . 46 Director and General Counsel
-------------------- --- --------------------------------------------------------------
Paul Fritz . . . . . 58 Director
-------------------- --- --------------------------------------------------------------
Richard Wilson . . . 57 Director
-------------------- --- --------------------------------------------------------------
Myron Gushlak. . . . 30 Director
-------------------- --- --------------------------------------------------------------
Carm Adimando. . . . 55 Director
-------------------- --- --------------------------------------------------------------
Robert H. Kohn . . . 42 Director
-------------------- --- --------------------------------------------------------------
</TABLE>
The following describes the principal occupation of each officer and director of
the Company for the previous five years:
ROBERT J. DONAHUE - PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR. Mr.
Donahue founded GlobalNet in 1996, and has been serving as CEO and President
since that time. His career began in 1961 in the defense unit of GTE Automatic
Electric, where he was introduced to various aspects of telecommunications. In
1977, Mr Donahue became Vice President of United Telephone. That same year, he
founded Donahue Telecom Associates Inc. and his experience in the international
telecommunications arena began. That enterprise provided customized telecom
consulting services to major multinational corporations. In 1986, Mr. Donahue
founded Standard Telecom, Inc., which served as a major rebiller for
telecommunications giants including Sprint and AT&T, and was one of the original
fifteen charter members of the TRA. In 1995, Mr. Donahue founded DTA
Communications Networks, LLC ("DTA"), now merged with GlobalNet, which provided
international transport and billing services. Mr. Donahue graduated from Loras
College in 1961, has been married for 34 years and has 5 children.
DANIEL M. WICKERSHAM - EXECUTIVE VICE PRESIDENT AND CHIEF OPERATING OFFICER.
Mr. Wickersham joined the Company in January 2000 with more than 30 years of
telecommunications industry experience. He brings international and domestic
hands-on expertise in telecommunication and information technology, ranging from
engineering, operating and business management to sales/marketing. Previously,
Mr. Wickersham was President and COO of WorldPort Communications, Inc. He is
known for his business development and revenue generating skills, which are a
product of his strong global industry relationships. Telecommunication network
accomplishments include Tenneco, U.S. Army, several Bell Operating Companies and
a number of local cable organizations. Mr. Wickersham holds a BS in Engineering
and a MBA in Engineering Management and has successfully completed the Executive
Management Program at Rice University. In parallel with his civilian
accomplishments, Mr. Wickersham recently retired from the U.S. Army Active
Reserve as a Lieutenant Colonel with over 30 years of continuous combined Active
and Active Reserve service. His career was mostly comprised of service as a
Signal Corp Officer with a specialty in Telecommunications and Information
Management.
COLUM P. DONAHUE - VICE PRESIDENT OF NETWORK OPERATIONS. Mr. Donahue began his
career in telecommunications with DTA Communications Network, LLC, now merged
with GlobalNet. Starting in technical support, Mr. Donahue gained hands-on
experience in every aspect of telecom business. He was responsible for the
start-up activities and service coordination of new and existing international
networks. Mr. Donahue was also responsible for establishing new customers,
arranging for network interconnection and negotiating international carrier
rates. In his position at GlobalNet as Vice President of Network Operations,
Mr. Donahue supervises and directs all network support activities in the U.S.
and abroad, including the design and implementation of the GlobalNet Networks
Operations Center. Mr. Donahue holds a BA in Business Management from the
University of Wisconsin.
BARRY TOSER - SENIOR VICE PRESIDENT OF SALES AND MARKETING. Mr. Toser joined
the Company in March 2000 with more than twenty years experience in the
telecommunications arena. Previously, Mr. Toser was Vice President of Global
Carrier Services for Destia Communications where he successfully expanded the
Company's operations in North America and Europe. In that capacity, he was
responsible for the sales and support efforts of more than twenty people in the
U.S. and Europe. Prior to this, Mr. Toser was Vice President and General
Manager for AlphaNet Telecom, a carrier-to-carrier VoIP organization based in
Toronto, Canada. Mr Toser also serviced as Vice President of U.S. Sales for
23
<PAGE>
Teleglobe International in 1996-1997. While at Teleglobe, Mr. Toser directed
the sales and service responsibilities for all wholesale, commercial, and
Regional Bell Operating Company accounts. Before joining Teleglobe, Mr. Toser
directed sales, marketing and customer retention activities for Cable and
Wireless, Inc. from 1987 through 1995. Mr. Toser holds a BA from the University
of Maryland.
JONATHAN GREENHILL - BOARD OF DIRECTORS AND GENERAL COUNSEL. Mr. Greenhill is a
partner and principal in the New York firm of Greenhill Partners, P.C.,
specializing in commercial transactions, litigation, and insurance defense. Mr.
Greenhill was admitted to practice in New York and in U.S. District court for
the southern and Eastern Districts of New York (1981) and the U.S. Court of
Appeals, 4th Circuit (1996). Prior to entering private practice, Mr. Greenhill
served for a decade in the U.S. Foreign Service, as a Political and Economic
officer, in Latin America and Europe, and was Assistant Director of the Public
Affairs Program at the University of Denver. Mr. Greenhill graduated from the
Johns Hopkins University (B.A., 1976), New York University (M.P.A. with
Distinction, 1978) and the University of Denver College of Law (J.D., 1980). He
is a member of the Association of the Bar of the City of New York, the American
Bar Association, the Loss Executives Association and the Johns Hopkins Alumni,
New York Board of Directors. He is fluent in Spanish and French.
PAUL FRITZ - BOAR OF DIRECTORS. Mr. Fritz is the founder, Chairman and
President of Chicago Consolidated Communications, Chicago, Illinois. His
company is one of the leading distributors of voice and data equipment for
Lucent Technologies. Chicago Consolidated Communications, markets, installs and
maintains systems throughout the country. Mr. Fritz has held positions with
Rolm/IBM Corporation as Vice President of Marketing, Nortel as Director of Sales
and marketing positions with Ameritech.
RICHARD WILSON - BOARD OF DIRECTOR. Mr. Wilson is Persident of REW &
Associates, a consulting firm that specializes in international carriers, both
foreign and domestic. From 1993 to 1996, he was Vice President of Acquisitions
for Midcom, a $200,000,000 provider of long distance services. Mr. Wilson was
founder of Feek's Telcom and sold this company to McCaw Communications. He has
also held management positions for Communications Network, Inc. and Motorola.
Mr. Wilson was one of the founders and has been Chairman/Board of Directors of
the Telecommunications Resellers Association (TRA) and a past President of TRA.
He attended Central Missouri State University.
MYRON GUSHLAK - BOARD OF DIRECTORS. Mr. Gushlak currently serves as Managing
Director of Imperium Capital. A San Francisco based private venture capital
Company that provides financing and ongoing management to technology companies,
with a specific focus on the media/entertainment and telephony. Accomplishments
include the initial funding and public listing of Emusic.com, the leading
provider of downloadable music; the initial funding and public listing of
netValue Holdings, Inc., a leading public internet incubator, and the initial
funding and public listing of GlobalNet, one of the largest North American based
VoIP providers. He also is a co-founder and on the board of directors of
Laugh.com, Sticky Networks, a multilayer search tool company founded by the
former CEO of Infoseek; and, is on the board of advisors of netValue Holdings,
Inc. Also, Mr. Gushlak sits on the board of directors of Netmaster, Inc. a
Canadian based Linux software company. Prior to this, he was a Broker at one of
Canada's largest Independent brokerage firms.
CARM ADIMANDO - BOARD OF DIRECTORS. Carm Adimando is Chairman and President of
CARMCO Investements, LLC. Mr. Adimando is also Chairman of Cordillers Asset
Management, a money management firm in Denver, Co. Mr. Adimando retired from
Pitney Bowes in 1996 where he had been Vice President. Treasurer and Chief
Financial Officer. Prior to joining Pitney Bowes, Mr. Adimando held positions
with American Airlines, Burndy Corporation, Deloitte, Haskins & Sells and Morgan
Guaranty Trust. He is a member of the Board of Directors of Sensory Science,
Inc. and Counsel Press, LLC. He is on the Board of Oversees of the University
of Connecticut of Business and the Board of Regents of Sacred Heart University.
He is also on the Advisory Board for the Franciscan Friars of the Atonement and
Board of Directors of St. Vincent's Hospital Foundation, Fairfield, CT.
ROBERT H. KOHN - BOARD OF DIRECTORS. Mr. Kohn is a co-founder and Chairman of
the Board of Emusic. Prior to 1998, he was Vice President, Business Development
and General Counsel of Pretty Good Privacy, Inc., a developer and marketer of
Internet encryption and security software. From 1987 until 1996, he was Senior
Vice President of Corporate Affairs of Borland International, a software
company. Mr. Kohn served as chief legal counsel for Ashton-Tate Corporation and
as an attorney for Ruden & Richman, and entertainment law firm whose clients
included Frank Sinatra, Liza Minelli, Cher and Warner Brothers Music. He was
also an Associate Editor of the Entertainment Law Reporter, for which he
continues to serve as a member of the Advisor Board. A Member of the California
Bar Association, Mr. Kohn co-authored Kohn on Music Licensing, a treatise on
music industry laws for lawyers, music publishers and songwriters. Mr. Kohn is
also and adjunct Professor of Law at the Monterey College of Law, where he
teaches Corporate Law.
24
<PAGE>
EXECUTIVE COMPENSATION
Directors are permitted to receive fixed fees and other compensation for their
services as directors, as determined by the Board of Directors. No amounts have
been paid to directors of the Company in such capacity since inception.
GII paid Mr. Robert J. Donahue received a salary of $ 207,000 and $ 189,000 for
1999 and 1998, respectively in his capacity as President and Chief Executive
Officer. Mr. Colum Donahue received a salary of $ 38,000 and $ 13,319 for 1999
and 1998, respectively for acting as Vice President of Network Operations. All
other directors received no salary. From time-to-time over the past few years,
GII has accrued salaries of its executive officers. At January 31, 2000, such
arrears total approximately $ 175,000.
During the period from inception to December 31, 1999, no cash compensation was
paid to any of the directors of GII for serving in such capacity. GII's Board of
Directors has complete discretion as to the appropriateness of:
- key-man life insurance,
- obtaining officer and director liability insurance,
- employment contracts with and compensation of executive officers and
directors,
- indemnification contracts, and
- bonuses and incentive plans to award executive officers and key employees.
The following table sets forth the annual salary for each executive officer of
the Company which will be in effect as of the Closing of the Reorganization:
<TABLE>
<CAPTION>
ANNUAL SALARY
NAME OFFICE 2000 (PROJECTED)(1)
--------------------- ------------------------------------------------- --------------------
<S> <C> <C>
Robert J. Donahue . . President, Chief Executive Officer $ 230,000(2)
--------------------- ------------------------------------------------- --------------------
Daniel M. Wickersham. Executive Vice President, Chief Operating Officer $ 200,000
--------------------- ------------------------------------------------- --------------------
Colum P. Donahue. . . Vice President of Network Operations $ 150,000(2)
--------------------- ------------------------------------------------- --------------------
Barry Toser . . . . . Senior Vice President of Sales and Marketing $ 150,000
--------------------- ------------------------------------------------- --------------------
Vacancy to be filled. Senior V.P. and Chief Financial Officer $ 225,000
--------------------- ------------------------------------------------- --------------------
(1) The definitive compensation of the Company's officers will be determined by the Board
of Directors of the Company.
(2) As a term of the Reorganization Agreement the Company will enter into employment
agreements with Messrs. Robert J. Donahue and Colum P. Donahue who are considered key
persons to the success of the business.
</TABLE>
As a term of the Reorganization Agreement the Company intends to enter into
employment agreements with Mr. Robert J. Donahue as Chief Executive Officer and
President, and Colum P. Donahue as Vice President of Network Operations for a
term commencing on Closing of the Reorganization and continuing until January 1,
2001, unless otherwise terminated pursuant to the terms of their individual
employment agreements. The Company expects it will also enter into an employment
contract with Mr. Dan Wickersham as Executive Vice President, Chief Operating
Officer. Pursuant to these Agreements, Mr. R.J. Donahue is to be paid a base
salary of $230,000 per annum, Mr. Donahue a base salary of $150,000 per annum
and Mr. Wickersham a base salary of $200,000 per annum. Each will also be
entitled to the following: major medical health benefits equivalent to that
provided to the officers in GII; indemnification from any claim or law suit
which may be asserted against him when acting in their official capacity for GII
provided that said indemnification is not in violation of any federal or state
law or rule or regulation of the Securities and Exchange Commission; and options
to purchase up to purchase shares of the Common Stock of the Company. Each
employment agreement also contains certain provisions with respect to
disability, termination, confidentiality and non-competition.
BOARD OF DIRECTORS REPORT ON EXECUTIVE COMPENSATION
25
<PAGE>
The Board of Directors of GII has been composed of Robert J. Donahue, Chairman
of the Board, Chief Financial Officer, Treasurer, Jonathan Greenhill,
Secretary, Colum Donahue, Barry Toser, Richard Wilson, and Paul Fritz.
The Company's Board of Directors, which will include Robert J. Donahue, Daniel
M. Wickersham, Colum P. Donahue, Barry Toser, Michael Karnes, Jonathan
Greenhill, Paul Fritz, Richard Wilson, Myron Gushlak, Carm Adimando, and Robert
Kohn, will be responsible for reviewing and determining the annual salary and
other compensation of the executive officers and key employees of the Company.
The goals of the Company are to align compensation with business objectives and
performance and to enable the Company to attract, retain and reward executive
officers and other key employees who contribute to the long-term success of the
Company. The Company provides base salaries to its executive officers and key
employees sufficient to provide motivation to achieve certain operating goals.
Although salaries are not specifically tied to performance, incentive bonuses
are available to certain executive officers and key employees. In the future,
executive compensation may include without limitation cash bonuses, stock option
grants and stock reward grants. In addition, the Company may set up a pension
plan or similar retirement plans.
STOCK OPTIONS
There are currently no stock options outstanding. The Board of Direction and
Majority Shareholders have adopted and approved an incentive stock option plan
(the "Plan") providing for the granting of stock options to officers, directors,
employees and key consultants of the Company and its subsidiaries or affiliates.
It is expected that this stock option plan will be registered on Form S-8 with
the Securities and Exchange Commission. (See "2000 STOCK OPTION PLAN" for
further details.)
FAMILIAL RELATIONSHIPS
Messrs. Bob Donahue and Colum Donahue are father and son respectively.
INDEMNIFICATION
Article Fifteen of the Company's Certificate of Incorporation provides for it to
indemnify any and all directors and officers whom it shall have power to
indemnify under Section 78.751 of the Nevada Revised Statutes from and against
any and all of the expenses, liabilities or other matter referred to in or
covered by such section, and the indemnification provided for herein shall not
be deemed exclusive of any other rights to which the persons so indemnified may
be entitled under any By-Law, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity by holding such office, and shall continue as to a
person who has ceased to be a director of officer and shall inure to the
benefits of the heirs, executors and administrators of such a person. The
Company has been advised that it is the position of the SEC that insofar as the
foregoing provisions may be invoked to disclaim liability for damages arising
under the Securities Act, that such provisions are against public policy as
expressed in the Securities Act and are therefore unenforceable.
2000 STOCK OPTION PLAN
----------------------
GENERAL.
The Board of Directors and Majority Shareholders have adopted and approved a
stock option plan (the "Plan"). The purpose of the Plan is to enable the Company
to offer it's officers, directors, employees and consultants and advisors
performance-based incentives and other equity interests in the Company, thereby
attracting, retaining, and rewarding such personnel. The Company believes that
increased share ownership by such persons more closely aligns stockholder and
employee interests by encouraging a greater focus on the profitability of the
Company. There is reserved for issuance under the Plan an aggregate of 3,000,000
shares of Common Stock. All of such shares may, but need not, be issued pursuant
to the exercise of incentive stock options. Options granted under the Plan may
be either "incentive stock options," as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or non-statutory stock options.
In addition, awards of or rights to purchase shares of the Company's Common
Stock ("Stock Rights") may be granted under the Plan. A copy of the Plan is
attached as Exhibit E.
ADMINISTRATION.
The Plan will be administered by the Board of Directors or a committee appointed
by the Board of Directors (the "Administrator"). The Administrator, subject to
the terms and conditions of the plan, has authority to:
26
<PAGE>
- select the persons to whom options and Stock Rights are to be granted;
- determine the number of shares of Common Stock to be covered by each
option and Stock Right granted;
- approve forms of option agreement for use under the Plan;
- determine the terms and conditions of any option or Stock Right;
- reduce the exercise price of any option or Stock Right if the fair market
value of the Common Stock covered by such Option or Stock Right has
declined since the date the option or Stock Right was granted;
- institute an option exchange program;
- interpret the Plan and awards granted under the Plan;
- prescribe, amend and rescind rules and regulations relating to the Plan or
sub-plans established for the purpose of qualifying for preferred tax
treatment under foreign tax laws;
- modify or amend each option or Stock Right issued;
- allow Optionees to satisfy withholding tax obligations by electing to have
the Company withhold from the shares to be issued on exercise of an
option or Stock Right that number of shares having a fair market value
equal to the amount required to be withheld;
- authorize any person to execute on behalf of the Company any instrument
required to effect the grant of an option or Stock Right previously
granted by the Administrator; and
- make all other determinations and take all other actions necessary or
advisable for the administration of the Plan.
All decisions, interpretations and other actions of the Administrator are final
and binding on all holders of options and Stock Rights.
ELIGIBILITY; LIMITATIONS OF OPTIONS.
Non-statutory stock options and Stock Rights may be granted under the Plan to
employees, directors and consultants of the Company or any parent or subsidiary
of the Company. Incentive stock options may be granted only to employees. As
discussed above, Section 162(m) of the Code places limits on the deductibility
for federal income tax purposes of compensation paid to certain executive
officers of the Company. In order to preserve the Company's ability to deduct
the compensation income associated with options granted to such persons, the
Plan provides that no employee may be granted, in any fiscal year of the
Company, options to purchase more than 1,000,000 shares of Common Stock plus
options to purchase up to an additional 1,000,000 shares of Common Stock in
connection with such employee's initial commencement of service to the Company.
TERMS AND CONDITIONS OF OPTIONS.
Options granted under the Plan are subject to additional terms and conditions
under the individual option agreement. These terms and conditions include:
- EXERCISE PRICE. The Administrator will determine the exercise price of
options granted at the time of grant. The exercise of an incentive stock option
may not be less than 100% of the fair market value of the Common Stock on the
date such option is granted; provided, however, the exercise of an incentive
stock option granted to a 10% stockholder may not be less than 110% of the fair
market value of the Common Stock on the date such option is granted. The fair
market value of the Common Stock is generally determined with reference to the
closing sale price for the Common Stock (or the closing bid if no sales were
reported) on the last market trading day prior to the date the option is
granted. The exercise price of a non-statutory stock option may be determined by
the Administrator, provided however, the exercise price of a nonstatutory stock
option intended to qualify as "performance-based compensation" within the
meaning of Section 162(m) of the Code may not be less than 100% of the fair
market value of the Common Stock on the date of grant.
- EXERCISE OF OPTION. The Administrator determines when options become
exercisable, and may in its discretion, accelerate the vesting of any
outstanding option.
- FORM OF CONSIDERATION. The means of payment for shares issued on exercise
of an option is specified in each option agreement. The Plan permits payment to
be made by cash, check, promissory note, other shares of Common Stock of the
Company (with some restrictions), cashless exercise, a reduction in the amount
of any Company liability to the optionee, any other form of consideration
permitted by applicable law, or any combination thereof.
27
<PAGE>
- TERM OF OPTION. The term of an incentive stock option may be no more than
ten years from the date of grant; provided that in the case of an incentive
stock option granted to a 10% stockholder, the term of the option may be no more
than five years from the date of grant. No option may be exercised after the
expiration of its term.
- TERMINATION OF EMPLOYMENT. If an optionee's employment, directorship or
consulting relationship terminates for any reason (other than death or
disability), then all options held by the optionee under the Plan expire on the
earlier of (i) the date set forth in his or her notice of grant or stock option
agreement or (ii) the expiration date of such option. To the extent the option
is exercisable at the time of such termination, the optionee may exercise all or
part of his or her option at any time before termination.
- PERMANENT DISABILITY; DEATH. If an optionee's employment, directorship or
consulting relationship terminates as a result of permanent and total disability
(as defined in the Code) or death, then all options held by such optionee under
the Plan will generally expire on the earlier of (i) twelve months from the date
of termination of optionee's employment or (ii) the expiration date of the
option. The optionee or, if applicable, the executor or other legal
representative of the optionee's estate may exercise all or part of the
optionee's option at any time before such expiration to the extent that the
option was exercisable at the time of termination of employment.
- NON-TRANSFERABILITY OF OPTIONS. Options granted under the Plan generally
are not transferable other than by will or the laws of descent and distribution,
and may be exercised during the optionee's lifetime only by the optionee.
- VALUE LIMITATION. If the aggregate fair market value of all shares of
Common Stock subject to an optionee's incentive stock option which are
exercisable for the first time during any calendar year exceeds $100,000, the
excess portion of such option will be treated as a non-statutory stock option.
- OTHER PROVISIONS. The stock option agreement may contain other terms,
provisions and conditions not inconsistent with the Plan as may be determined by
the Administrator.
STOCK RIGHTS. A Stock Right may award the recipient Common Stock or may give the
recipient the right to purchase Common Stock. Shares received or purchased
pursuant to a Stock Right are subject to a restricted stock agreement between
the Company and the recipient. Unless the Administrator determines otherwise,
the restricted stock agreement will give the Company a reacquisition option
exercisable on the voluntary or involuntary termination of the recipient's
employment or consulting relationship with the Company for any reason (including
death and disability). The acquisition price for any shares reacquired by the
Company will be the original price paid by the recipient, if any. The
reacquisition option lapses at a rate determined by the Administrator. A Stock
Right and the stock acquired (while restricted) is generally nontransferable
other than by will or the laws of descent and distribution.
ADJUSTMENTS OF OPTIONS ON CHANGES IN CAPITALIZATION.
In the event that the stock of the Company changes by reason of any stock split,
reverse stock split, stock dividend, combination, reclassification or other
similar changes in the capital structure of the Company effected without the
receipt of consideration, appropriate adjustments will be made in the number and
class of shares of stock subject to the Plan, the number and class of shares of
stock subject to any option or Stock Right outstanding under the Plan, and the
exercise price of any such award. In the event of a liquidation or dissolution,
any unexercised options will terminate. The Administrator may, in its
discretion, provide that each optionee will fully vest in and have the right to
exercise the optionee's option or Stock Right as to all of the optioned stock,
and shall release all restrictions on any restricted stock prior to the
consummation of the liquidation or dissolution. In the event of a merger, sale
or reorganization of the Company into another corporation that results in a
change of control of the Company, options that would have become vested within
18 months after the closing date of the merger transaction will accelerate and
become fully vested on the closing of the transaction. In the event of a change
of control transaction, any other outstanding options that are not accelerated
would be assumed by the successor company or an equivalent option would be
substituted by the successor company. If any of these options are not assumed or
substituted, they would terminate.
AMENDMENT AND TERMINATION OF THE PLAN.
The Administrator may amend, alter, suspend or terminate the Plan, or any part
of the Plan, at any time and for any reason. No such action by the Board or
stockholders may alter or impair any option or Stock Right previously granted
under the Plan without the written consent of the optionee/recipient. Unless
terminated earlier, the Plan will terminate ten years from the date of its
approval by the stockholders or the Board, whichever is earlier.
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FEDERAL INCOME TAX CONSEQUENCES OF OPTIONS
INCENTIVE STOCK OPTIONS. An optionee who is granted an incentive stock option
does not generally recognize taxable income at the time the option is granted or
on its exercise, although the exercise may subject the optionee to the
alternative minimum tax. On a disposition of the shares more than two years
after grant of the option and one year after exercise of the option, any gain or
loss is treated as long-term capital gain or loss. If these holding periods are
not satisfied, the optionee recognizes ordinary income at the time of
disposition equal to the difference between the exercise price and the lower of:
- the fair market value of the shares at the date of the option exercise; or
- the sale price of the shares.
Any gain or loss recognized on such a premature disposition of the shares in
excess of the amount treated as ordinary income is treated as long-term or
short-term capital gain or loss, depending on the holding period. A different
rule for measuring ordinary income on such a premature disposition may apply if
the optionee is an officer, director, or 10% stockholder of the Company. The
Company is entitled to a deduction in the same amount as the ordinary income
recognized by the optionee.
NON-STATUTORY STOCK OPTIONS. An optionee does not recognize any taxable income
at the time he or she is granted a non-statutory stock option. On exercise, the
optionee recognizes taxable income generally by the excess of the then fair
market value of the shares over the exercise price. Any taxable income
recognized in connection with an option exercise by an employee of the Company
is subject to tax withholding by the Company. The Company is entitled to a
deduction in the same amount as the ordinary income recognized by the optionee.
On a disposition of such shares by the optionee, any difference between the sale
price and the optionee's exercise price, to the extent not recognized as taxable
income as provided above, is treated as long-term or short-term capital gain or
loss, depending on the holding period.
STOCK RIGHTS. Restricted stock is generally acquired pursuant to Stock Rights.
At the time of acquisition, restricted stock is subject to a "substantial risk
of forfeiture" within the meaning of Section 83 of the Code. As a result, the
recipient will not generally recognize ordinary income at the time of
acquisition. Instead, the recipient will recognize ordinary income on the dates
when the stock ceases to be subject to a substantial risk of forfeiture. The
stock will generally cease to be subject to a substantial risk of forfeiture
when it is no longer subject to the Company's right to reacquire the stock on
the recipient's termination of employment with the Company. At such times, the
recipient will recognize ordinary income measured as the difference between the
purchase price (if any) and the fair market value of the stock on the date the
stock is no longer subject to a substantial risk of forfeiture. The purchaser
may accelerate to the date of acquisition his or her recognition of ordinary
income, if any, and the beginning of any capital gain holding period, by timely
filing an election pursuant to Section 83(b) of the Code. In such event, the
ordinary income recognized, if any, is measured as the difference between the
purchase price and the fair market value of the stock on the date of purchase
and the capital gain holding period commences on such date. The ordinary income
recognized by a purchaser who is an employee will be subject to tax withholding
by the Company. Different rules may apply if the purchaser is also an officer,
director, or 10% stockholder of the Company.
The foregoing is only a summary of the effect of federal income taxation on
optionees and the Company with respect to the grant and exercise of options, and
on recipients of Stock Rights, under the Plan. It does not purport to be
complete, and does not discuss the tax consequences of the employee's,
director's or consultant's death or the provisions of the income tax laws of any
municipality, state or foreign country in which the employee, director or
consultant may reside.
INDEPENDENT ACCOUNTANTS
-----------------------
The Company's current auditor is the Salt Lake City firm of Andersen Andersen &
Strong. During the past two years there have been no changes in, or
disagreements with, accountants on accounting and/or financial disclosure.
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WHERE YOU CAN FIND MORE INFORMATION
-----------------------------------
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You can read and copy any materials that we file with
the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549; the SEC's regional offices located at Seven World Trade
Center, New York, New York 10048, and at 500 West Madison Street, Chicago,
Illinois 60661. You can obtain information about the operation of the SEC's
Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also
maintains a Web site that contains information we file electronically with the
SEC, which you can access over the Internet at http://www.sec.gov. Copies of
these materials may also be obtained by mail from the Public Reference Section
of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
INCORPORATION OF DOCUMENTS BY REFERENCE
---------------------------------------
The SEC allows us to "incorporate by reference" the information we file with
them, which means that we can disclose important information to you without
re-printing the information in this Information Statement by referring you to
prior and future filings with the SEC. The information we incorporate by
reference is an important part of this Information Statement, and later
information that we file with the SEC will automatically update and supersede
this information.
We incorporate by reference the following documents filed by the Company
pursuant to the Securities Exchange Act of 1934: (i) the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1999; and (ii) any future
filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act. You may request a copy of these filings (other than an exhibit to
any of these filings unless we have specifically incorporated that exhibit by
reference into the filing), at no cost, by writing or telephoning us at the
following address:
Rich Earth, Inc.
c/o Venture Law Corporation
618 - 688 West Hastings Street
Vancouver, British Columbia V6B 1P1
Telephone No.: (604) 659-9188
You should rely only on the information we have provided or incorporated by
reference in this Information Statement or any supplement. We have not
authorized any person to provide information other than that provided here. We
have not authorized anyone to provide you with different information. You should
not assume that the information in this Information Statement or any supplement
is accurate as of any date other than the date on the front of the document.
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