SCHEDULE 14C
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of 1934
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
OLD NIGHT, 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
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2) Aggregate number of securities to which transaction applies:
5,500,000 shares of common stock
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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.)
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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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:
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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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OLD NIGHT, INC.
INFORMATION STATEMENT
SHAREHOLDER MAJORITY ACTION AS OF JUNE 30, 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 STOCKHOLDERS THAT A MAJORITY ACTION OF
STOCKHOLDERS (THE "ACTION") OF OLD NIGHT, INC. (THE "COMPANY") WAS TAKEN AS OF
JUNE 30, 2000 BY THE MAJORITY STOCKHOLDERS 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 change the
name of the Company from "Old Night, Inc." to "NxGen Networks, Inc."
2. To adopt a stock option plan;
3. To approve the Share Exchange Agreement between the Company, International
Long Distance Corporation, and certain stockholders of International Long
Distance Corporation; and
4. To elect three persons to the Company's Board of Directors to serve until
the next annual general meeting of stockholders and until their respective
successors are elected and qualify.
STOCKHOLDERS OF RECORD AT THE CLOSE OF BUSINESS ON JUNE 30, 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: July 28, 2000
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OLD NIGHT, INC.
Aluminum Tower 5th Floor
2 Limassol Avenue, 2003 Nicosia, Cyprus
INFORMATION STATEMENT FOR STOCKHOLDERS
The Board of Directors of Old Night, Inc., a Nevada corporation (the "Company")
is furnishing this INFORMATION STATEMENT to stockholders in connection with a
majority action of stockholders (the "Action") of Old Night, Inc. (the
"Company") taken on June 30, 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:
o certain amendments to the Articles of Incorporation of the Company,
o a stock option plan,
o a share exchange agreement dated as of June 30, 2000 among the Company,
International Long Distance Corporation ("ILDC") and the ILDC Stockholders
(as defined in the attached share exchange agreement) which provides for,
among other things, the issuance by the Company of 4,529,054 shares of its
Common Stock in exchange for 4,529,054 or 82.35% of the issued and
outstanding shares of common stock of ILDC, and
o electing three persons to serve on 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 July 28, 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 July 28, 2000.
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TABLE OF CONTENTS
Page
<S> <C>
QUESTIONS AND ANSWERS.............................................................................................1
GENERAL INFORMATION...............................................................................................3
Outstanding Shares and Voting Rights.....................................................................3
Approval of the Name Change..............................................................................3
Election of New Directors................................................................................3
Record Date..............................................................................................3
Expenses of Information Statement........................................................................3
Interest of Certain Persons in Matters to Be Acted on....................................................4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS...................................................................4
AMENDMENT TO ARTICLES OF INCORPORATION............................................................................4
Name Change..............................................................................................4
SUMMARY OF TRANSACTIONS CONTEMPLATED BY THE SHARE EXCHANGE AGREEMENT..............................................5
Background of the Share Exchange.........................................................................5
Reasons for Approval by the Majority Stockholders and Board of Directors.................................5
Accounting Treatment of the Share Exchange...............................................................5
Summary of the Share Exchange Agreement..................................................................6
Material Terms of the Common Stock of Old Night..........................................................7
Voting Trust Agreement...................................................................................7
Summary of Private Placements............................................................................8
Registration Rights......................................................................................9
Summary of Pro Forma Financial Statements................................................................9
Risks Related to the Share Exchange.....................................................................10
Certain Federal Income Tax Consequences.................................................................11
INFORMATION CONCERNING ILDC......................................................................................12
History of ILDC.........................................................................................12
General Description of Business of ILDC.................................................................12
Industry Overview.......................................................................................12
Business Strategy.......................................................................................13
Description of Services - ILDC VoIP System..............................................................13
Sales and Marketing and Distribution....................................................................14
Target Markets..........................................................................................14
ILDC's Network..........................................................................................14
Customer Relationship Management........................................................................14
Competition.............................................................................................14
Proprietary Rights......................................................................................16
Board of Directors of ILDC..............................................................................16
Employees...............................................................................................16
Facilities..............................................................................................17
Legal Proceedings.......................................................................................17
Selected Financial Data.................................................................................17
Management Discussion and Analysis of Financial Condition and Results of Operations.....................18
Risks Related to ILDC...................................................................................19
Material Terms of the Common Stock of ILDC..............................................................22
Forward-looking Statements..............................................................................22
ELECTION OF DIRECTORS............................................................................................22
Information Concerning Nominees.........................................................................22
Executive Compensation..................................................................................23
Board of Directors Report on Executive Compensation.....................................................24
Stock Options...........................................................................................24
Familial Relationships..................................................................................24
Indemnification.........................................................................................24
2000 STOCK OPTION PLAN...........................................................................................25
General.................................................................................................25
Administration..........................................................................................25
Eligibility; Limitations of Options.....................................................................25
Terms and Conditions of Options.........................................................................26
Adjustments of Options on Changes in Capitalization.....................................................27
Amendment and Termination of the Plan...................................................................27
Federal Income Tax Consequences of Options..............................................................27
INDEPENDENT ACCOUNTANTS..........................................................................................28
WHERE YOU CAN FIND MORE INFORMATION..............................................................................28
INCORPORATION OF DOCUMENTS BY REFERENCE..........................................................................28
EXHIBIT A - AMENDMENT TO ARTICLES OF INCORPORATION...............................................................29
CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION OF OLD NIGHT, INC.................................30
EXHIBIT B - SHARE EXCHANGE AGREEMENT.............................................................................31
EXHIBIT C - PRO FORMA - OLD NIGHT, INC. CONSOLIDATED BALANCE SHEETS.............................................103
EXHIBIT D - AUDITED FINANCIAL STATEMENTS OF
INTERNATIONAL LONG DISTANCE CORPORATION................................................................107
EXHIBIT E - NXGEN NETWORKS, INC. 2000 STOCK PLAN................................................................122
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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 stockholders
holding a majority of the outstanding voting common stock of the
Company (the "Majority Stockholders") have already agreed to approve:
o a change in the name of the Company to "NxGen Networks, Inc.";
o a share exchange agreement dated as of June 30, 2000 between the
Company, International Long Distance Corporation ("ILDC") and
certain stockholders of ILDC who are signatories to the share
exchange agreement ("ILDC Stockholders"), which provides for,
among other things, the issuance by the Company of 4,529,054
shares of its Common Stock in exchange for 4,529,054 or 82.35% of
the issued and outstanding shares of common stock of ILDC (the
"Share Exchange");
o a stock option plan; and
o the election of three persons to the Board of Directors of the
Company.
Q: Why have the Board of Directors and the Majority Stockholders agreed to
approve these actions?
A: All of these actions are necessary to accomplish the terms of the share
exchange agreement between the Company, ILDC and the ILDC Stockholders
dated as of June 30, 2000 (the "Share Exchange Agreement") in which we
have agreed to offer to exchange one share of Common Stock of the
Company for each share of ILDC exchanged.
Following the completion of the Share Exchange Agreement, we will use
our reasonable best efforts, subject to applicable law, to acquire all
remaining shares of ILDC held by ILDC's minority stockholders that are
not parties to the Share Exchange Agreement by issuing one share of the
Company's common stock for each outstanding share of ILDC common stock
held by such minority stockholders. How we will conduct this buyout of
minority stockholders (which we refer to as the "Minority Buy-Out")
will be at our discretion and may include redemption, merger or other
corporate actions, as permitted under Nevada and North Carolina or
other applicable law. We cannot assure you that there will be a
Minority Buy-Out of any remaining shares after the completion of the
Share Exchange Agreement or that it will be successful.
The purpose of the Share Exchange Agreement is to acquire approximately
82.35% of the issued and outstanding shares of capital stock of ILDC or
approximately 80.16% of ILDC shares on a fully diluted basis. The Share
Exchange Agreement will permit us to acquire control of, and will
facilitate our intended acquisition of the entire equity interest in,
ILDC. If we successfully acquire all of the outstanding ILDC shares in
the Share Exchange Agreement and any subsequent Minority Buy-Out, ILDC
would become a wholly-owned subsidiary of Old Night.
Q: When Will the Minority Buy-Out Occur?
A: We will attempt to acquire the remaining ILDC shares that are not part
of the Share Exchange Agreement within six months after closing the
Share Exchange Agreement. We will use our reasonable best efforts,
subject to applicable law, to acquire any remaining shares of ILDC held
by minority stockholders. The timing of a Minority Buy-Out will depend
in part on the form of buy-out we select, such as a redemption, merger
or other corporate action.
Q: What Percentage of the Equity Interest in Old Night Will ILDC
Stockholders Own after the Share Exchange Agreement is Closed
and the Minority Buy-Out?
A: If we were to acquire all of the outstanding ILDC shares through the
Share Exchange Agreement and the Minority Buy-Out, the former
stockholders of ILDC would own approximately 45.34% of the total equity
interest in Old Night, based upon the exchange ratio of one for one and
the number of shares of Common Stock of Old Night and the number of
ILDC shares outstanding on June 30, 2000. This percentage does not take
into consideration the shares of the Company's common stock to be
issued under certain private placements by the Company which are
further discussed in this Information Statement.
<PAGE>
Q: Will I recognize gain or loss for U.S. federal income tax purposes in
connection with the Share Exchange?
A: No. We expect the transaction to qualify as tax-free transaction 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: How Will I Be Affected by the Share Exchange Agreement?
A: You will continue to own the same number of shares of the Company's
common stock that you owned immediately prior to the share issuances to
ILDC Stockholders. Each share of the Company's common stock you own
will, however, represent a smaller ownership percentage of a
significantly larger company after the consummation of the Share
Exchange.
Q: Are there any conditions to the transaction with ILDC?
A: Yes. There are several conditions, including the following:
o the representations and warranties of the Company, ILDC and the
ILDC Stockholders set forth in the Share Exchange Agreement are
true at the time of Closing;
o no law, regulation, judgement, injunction, order or decree
prohibits the transaction from Closing; o no event has occurred
that has resulted or could reasonably be expected to result in a
material adverse change in the anticipated benefits of the
transaction to the parties;
o the Company must not have less than $1,500,000 in cash on hand ,
reduced by advances made to ILDC, at the time of Closing; and
o resignation of the existing Board of Directors of the Company and
the appointment of three nominee directors of ILDC.
Q: What business is conducted by ILDC?
A: Established in 1998, ILDC is a development stage company which provides
Internet Protocol telephony network and application services. The executive
offices of ILDC are in Hertford, North Carolina. (See "INFORMATION
CONCERNING ILDC")
Q: Are there risks involved in the transaction with ILDC?
A: Yes. After the transaction is completed, the Company's success will be
totally dependent on the success of the business conducted by ILDC. ILDC is
a development stage company and has not been profitable since its inception
in 1998. There are no assurances that ILDC's business operations will be
profitable after the Share Exchange.. (See "SUMMARY OF TRANSACTIONS
CONTEMPLATED BY THE SHARE EXCHANGE AGREEMENT - Risks Related to the Share
Exchange," and "INFORMATION CONCERNING ILDC. - Risks Related to the
Business of ILDC")
Q: When do you expect to complete the transaction with ILDC?
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.
<PAGE>
GENERAL INFORMATION
Outstanding Shares and Voting Rights
At June 30, 2000 (the "Record Date"), the Company had 5,460,400 shares of common
stock, par value $0.001 outstanding ("Common Stock"). 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 any matter submitted to
stockholders at a meeting of stockholders, were held by approximately thirty-two
(32) stockholders of record. In connection with the Share Exchange, the Company
and the Majority Stockholders have agreed to amend the Articles of Incorporation
of the Company to change the name of the Company to NxGen Networks, Inc. The
Majority Stockholders have agreed by written consent in lieu of a stockholders
meeting to the Share Exchange Agreement, the amendment to the Company's Articles
of Incorporation, the adoption of a stock option plan, and the election of three
new 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 "NxGen Networks, Inc." is intended
to convey more clearly a sense of the Company's business after the acquisition
of ILDC. 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 Stockholders holding a total of 2,934,800 shares of Common Stock
(53.74%), have already agreed to this action.
Election of New Directors
The election of new directors is proposed because the former ILDC Stockholders
will hold approximately 45.34% of the outstanding common stock of the Company
following the closing of the Share Exchange (excluding the shares to be issued
under the private placements being conducted by the Company and discussed later
in this Information Statement). The Share Exchange Agreement with ILDC requires
that new directors, approved by the former ILDC Stockholders, 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 from
one to nine members, 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 three. 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
Stockholders holding a total of 2,934,800 shares of Common Stock or 53.75% of
the outstanding shares of Common Stock have voted to elect the following
persons: Anthony Overman, Mark Sampson, and Don Spears. These three persons will
be the only directors of the Company following the closing of the Share
Exchange.
Record Date
The close of business on June 30, 2000, has been fixed as the record date for
the determination of stockholders entitled to receive this Stockholders'
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.
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Interest of Certain Persons in Matters to Be Acted on
The Company in total has loaned ILDC $2,149,000 in exchange for ILDC delivering
promissory notes evidencing each of the eight bridge loans (May 2, 3, 5, 9, 10,
15, and June 19 and 27) made by the Company to ILDC. The principal amount of
each note is due August 15, 2000 and will accrue interest at the rate of 8% per
annum. The Company obtained these funds from subscribers to the Private
Placements being conducted by the Company. Each subscriber approved and
acknowledged in writing that the funds advanced would be used by the Company to
provide a bridge loan to ILDC, the terms of this loan, and the risks involved.
ILDC intends to use the funds advanced for equipment acquisition and working
capital purposes.
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 ILDC transaction, with
respect to stockholders who were known to the Company to be beneficial owners of
more than 5% of the Common Stock as of June 30, 2000, and officers and directors
of the Company 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.
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----------------------------------------- ------------------------------------ -------------------------------------
Shares Beneficially Owned(1) Percent of Voting Stock(1)
----------------------------------------- ------------------ ----------------- ------------------ ------------------
Name and Address of Beneficial Owner Before Share After Share Before Share After Share
Exchange Exchange Exchange Exchange
----------------------------------------- ------------------ ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Xenios Xenopoulous(2) 99,000 99,000 1.8% 0.99%
Aluminum Tower 5th Floor
2 Limassol Avenue, 2003 Nicosia, Cyprus
----------------------------------------- ------------------ ----------------- ------------------ ------------------
Anthony Overman(3)(4)(5) 0 3,111,044 0% 31.14%
----------------------------------------- ------------------ ----------------- ------------------ ------------------
Don Spears(3)(4)(6) 0 605,000 0% 6.06%
----------------------------------------- ------------------ ----------------- ------------------ ------------------
Mark Sampson(3)(4) 0 0 0% 0%
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Directors and Officers as a Group 99,000 3,815,044 .02% 38.19%
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1. The above table does not include any shares of Common Stock which are or
become issuable on the close of the Company's proposed private placements
or exercise of stock options which may be issued.
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 Share Exchange
4. The address for this party is: P.O. Box 218 Hertford, North Carolina,
27944.
5. Following the Share Exchange, Mr. Overman will be the beneficial owner of
1,516,083 shares of the Company to be held in the Anthony C. Overman
Revocable Trust. Mr. Overman will also maintain voting control over an
additional 1,594,961 shares of the Company pursuant to a voting trust
agreement dated January 15, 2000 between himself and certain stockholders
of ILDC. Under the terms of this agreement, the terms of the voting trust
continue to apply for a period of 10 years.
6. Mr. Spears will beneficially own 250,000 shares of the Company following
the Share Exchange. An additional 200,000 shares of the Company will be
owned by Mr. Spears wife, Gerry N. Spears. Mr. Spears will also maintain
voting control over an additional 100,000 shares of the Company to be held
by the Molly Spears Irrevocable Trust and 55,000 shares to be held by
Lantag Communications.
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AMENDMENT TO ARTICLES OF INCORPORATION
Name Change.
The proposed amendment to the Company's Articles of Incorporation would change
the name of the Company to "NxGen Networks, Inc." On filing of the Amendment to
the Articles 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 stockholders to represent the same number of shares of
Common Stock after the name change. Majority Stockholders holding a total of
2,934,800 shares of Common Stock (53.74%), have already agreed to this action.
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 SHARE EXCHANGE AGREEMENT
The Board of Directors of the Company has unanimously approved the Share
Exchange Agreement ("Share Exchange Agreement") dated as of June 30, 2000, among
the Company, International Long Distance Corporation (ILDC"), and certain
stockholders of ILDC which provides for or requires completion of the following
series of transactions as conditions to consummation of the Share Exchange:
o the Company change its name to NxGen Networks, Inc.;
o the issuance of 4,529,054 shares of Common Stock of the Company to the
stockholders of ILDC who have signed the Share Exchange Agreement;
o the resignation of the current directors and officers of the Company; and
o the appointment of three new directors of the Company.
A majority of the Company's stockholders have agreed by way of a majority action
of stockholders to approve the above transactions as well as to adopt a stock
option plan.
Background of the Share Exchange
The Company was formed originally on November 26, 1980, 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. During 1999 and 2000, management of the Company reviewed various
business plans and chose to pursue the acquisition of ILDC due to its growth
opportunity.
In the spring of 2000, management of ILDC was seeking additional equity funding
in order to fully implement its business and marketing plan for the expansion of
its business. On May 18, 2000, the Company, and ILDC signed an agreement and
plan of merger and reorganization ("Reorganization Agreement"). The parties
subsequently terminated the Reorganization Agreement and decided to conduct a
two step transaction instead for timing purposes. The first step of the proposed
two step transaction consists of the acquisition of over 80% of the issued and
outstanding shares of capital stock of ILDC through the Share Exchange
Agreement. The second step consists of acquiring the remaining outstanding
shares of ILDC through a merger, redemption or other transaction. The definitive
Share Exchange Agreement was entered into by the parties as of June 30, 2000 and
is attached as Exhibit "B".
Reasons for Approval by the Majority Stockholders and Board of Directors
The Board of Directors has given careful consideration to the Share Exchange,
the existing business operations of ILDC, the future business potential and
plans of ILDC, the current book value of the Company, the interest of
stockholders of the Company, and the risks of the Share Exchange to the existing
stockholders. Based on the foregoing considerations, the Board of Directors
together with the Majority Stockholders believe that the transactions
contemplated by the Share Exchange Agreement, including the name change, and the
adoption of a stock option plan, are fair and in the best interests of the
Company.
The Majority Stockholders believe that the Company will benefit from the Share
Exchange, with an immediate impact being the significant new operations and
revenues, assets, and stockholders' equity, as well as giving the Company the
ability to expand the operations of ILDC based on funding through the Company's
private placements.
Accounting Treatment of the Share Exchange
The Company will account for the acquisition of the shares of ILDC under the
purchase method of accounting for purposes of United States generally accepted
accounting principles.
<PAGE>
Summary of the Share Exchange Agreement
The following contains, among other things, a summary of the material features
of the Share Exchange 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 Share Exchange Agreement, a copy of which
is attached hereto as Exhibit B.
General Terms. The Company, ILDC and the ILDC Stockholders have entered into a
Share Exchange Agreement which provides that subject to the meeting of certain
conditions, the Company will issue one share of its common stock for each share
of ILDC common stock held by the ILDC Stockholders that are parties to the Share
Exchange Agreement. In the Share Exchange, the Company will issue 4,529,054
shares of Common Stock in exchange for 4,529,054 or 82.35%, of the outstanding
capital stock of ILDC.
Before or after the closing of the Share Exchange Agreement, the Company intends
to complete two private placement transactions (the "Private Placements"). Up to
1,600,000 shares of common stock of the Company will be issued if these
offerings are fully sold (not including the issuance of any warrants in the
Private Placements).
On completion of the Share Exchange and the Private Placements, the ownership of
the Common Stock by (i) the ILDC Stockholders, as a group, (ii) the current Old
Night stockholders, as a group, and (iii) the investors in the Private
Placements as a group, is estimated to be as follows:
----------------------------------- --------------------- -----------------
Groups of Stockholders Common Stock % Owned
----------------------------------- --------------------- -----------------
ILDC Stockholders 4,529,054 39%
----------------------------------- --------------------- -----------------
Old Night Stockholders 5,460,400 47%
----------------------------------- --------------------- -----------------
Private Placement Stockholders 1,600,000 14%
----------------------------------- --------------------- -----------------
TOTAL OF ALL Stockholders 11,589,454 100%
----------------------------------- --------------------- -----------------
o Assuming placement of all 1,200,000 Units and 400,000 shares of Common
Stock of the Company.
o The above table does not include any shares of Common Stock which are or
become issuable on the exercise of stock options or warrants. Currently
there are no stock options issued and outstanding.
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
stockholders under this Information Statement as prescribed by Section 14C of
the Securities Exchange Act of 1934 ("Closing").
Conditions for Closing. The respective obligations of the Company, ILDC and the
ILDC Stockholders to consummate the Closing are subject to the satisfaction or
waiver at or prior to the Closing Date of the following conditions: (i) no
provision of any applicable law or regulation and no judgment, injunction, order
or decree shall prohibit the consummation of the transactions contemplated by
the Share Exchange Agreement; (ii) no event shall have occurred that has
resulted or could reasonably be expected to result in a material adverse change
to the anticipated benefits of the transactions contemplated by the Share
Exchange Agreement to the Company, ILDC or the ILDC Stockholders; and (iii) ILDC
Stockholders owning not less than 80% of the issued and outstanding share
capital of ILDC will have executed the Share Exchange Agreement.
In addition, the obligation of ILDC and the ILDC Stockholders to consummate the
Closing is subject to the satisfaction or waiver at or prior to the Closing Date
of the following conditions: (i) the Company shall have performed in all
material respects all of its obligations under the Share Exchange Agreement
required to be performed by it on or prior to the Closing Date; (ii) the
representations and warranties of the Company contained in the Share Exchange
Agreement shall be true and correct in all material respects at and as of the
Closing Date as if made at and as of such date and ILDC shall have received a
certificate signed by the President of the Company to the foregoing effect;
(iii) ILDC shall have received a legal opinion as to certain matters including
the tax consequences of the Share Exchange; and (iv) ILDC shall have received
all documents it may reasonably request relating to the existence of the Company
and the authority of the Company to enter into the Share Exchange Agreement, all
in form and substance reasonably satisfactory to ILDC.
<PAGE>
In addition, the obligation of the Company to consummate the transactions
contemplated by the Share Exchange Agreement is subject to the satisfaction or
waiver at or prior to the Closing Date of the following conditions: (i) ILDC and
the ILDC Stockholders shall have performed in all material respects all of their
obligations under the Share Exchange Agreement required to be performed by them
on or prior to the Closing Date, the representations and warranties of ILDC and
the ILDC Stockholders contained therein shall be true and correct at and as of
the Closing Date, as if made at and as of such date, except for such breaches as
would not have a Material Adverse Effect (as defined in the Share Exchange
Agreement) and the Company shall have received a certificate signed by the
President of ILDC and a representative of each ILDC Stockholder to the foregoing
effect; (ii) unless the ILDC Stockholders shall have waived the condition set
forth in clause (i) of the previous paragraph, the Share Exchange Agreement and
Name Change shall have been approved by the shareholders of the Company, and the
Company shall have filed the Articles of Amendment in Nevada; (iii) the Company
shall have received a legal opinion as to certain matters; (iv) each ILDC
Stockholder shall have completed a securities law representation letter; (v) the
Company shall have received all documents it may reasonably request relating to
the existence of ILDC and each of its subsidiaries, and the authority of ILDC
and each ILDC Stockholder to enter into the Share Exchange Agreement, all in
form and substance reasonably satisfactory to the Company; and (vi) all
licenses, permits, consents, approvals and authorizations of third parties and
governmental bodies and agencies shall have been obtained that are necessary to
complete the Share Exchange Agreement and the transactions contemplated
thereunder.
Termination; Waivers. The Share Exchange may be terminated at any time prior to
the Closing by:
o mutual consent of the parties, or
o by ILDC or the Company if the other party is in material breach of any
representation, warranty, covenant or agreement contained in the Share
Exchange Agreement, or
o by either party if the conditions to the obligations of such party to
consummate the Share Exchange have not been satisfied, or waived by August
31, 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 Share
Exchange.
Regulatory Approvals. No approvals by any governmental authority are required in
order to complete the Share Exchange.
Material Terms of the Common Stock of Old Night
The authorized common stock of the Company consists of 100,000,000 shares of
$0.001 par value stock. As of June 30, 2000, there were 5,460,400 shares issued
and outstanding. At the closing of the Share Exchange, 4,529,054 shares will be
issued in exchange for the 4,529,054 shares of ILDC held by the ILDC
Stockholders who signed the Share Exchange Agreement. On completion of the Share
Exchange and the Private Placements (assuming 1,200,000 shares and 400,000
shares of Common Stock of the Company are sold in the Private Placements
respectively), 11,589,454 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 stockholders. 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 stockholders.
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.
Voting Trust Agreement
<PAGE>
1,594,961 of the shares of ILDC common stock are deposited in a voting trust, a
legal device that transfers the voting power of the shares to a trustee or group
of trustees. The "Trustee" of the ILDC voting trust is Anthony Overman. As
Trustee, Antony Overman, has the exclusive ability to vote shares of ILDC common
stock subject to the voting trust. The voting trust is for a ten year period and
will last until January 2011, unless the Trustee decides to terminate it
earlier. The Trustee cannot be removed by the stockholders subject to the voting
trust. If Anthony Overman ceases to be a trustee for any reason, then the
stockholders subject to the voting trust may select his replacement.
If a stockholder subject to the voting trust acquires additional shares in ILDC,
those shares automatically become subject to the voting trust. Any shares of
another corporation issued to ILDC stockholders subject to the voting trust,
whether in connection with a merger, consolidation, sale of substantially all of
ILDC's assets or otherwise, automatically are subject to the voting trust
including the shares of the Company issued in connection with the Share Exchange
Agreement. Only transfers with the written consent of the Trustee may be
released from the voting trust. A copy of the voting trust agreement is attached
as Schedule 4.2 to the Share Exchange Agreement which is Exhibit "B" to this
Information Statement.
Summary of Private Placements
Terms of Private Placements. The Company is conducting two private placements
(the "Private Placements") which it believes will close on or shortly after the
closing of the Share Exchange Agreement. The first Private Placement is a unit
offering of 1,200,000 units at a purchase price of $5.00 per unit. Each unit
consists of one share and one share purchase warrant ("Warrant"). Each whole
Warrant is exerciseable for one additional share of Common Stock of the Company
for $5.00 per share for three years from the date of purchase. If all 1,200,000
Units are sold, there will be aggregate proceeds of $6,000,000, and maximum net
proceeds to the Company of $5,495,000 after payment of expenses and commissions.
There is no minimum sale requirement under this offering.
The second private placement consists of 400,000 shares at a purchase price of
$5.00 per share. If 400,000 are sold, there will be aggregate proceeds of
$2,000,000, and maximum net proceeds to the Company of $1,835,000 after payment
of expenses and commissions. Again, there is no minimum sale requirement under
this offering.
In connection with each Private Placement the Company has agreed to provide a
commission of 8% to selling broker/dealers. Each broker/dealer may elect to
receive up to 50% of its sales commission in the form of shares of the Company
priced at $5.00 per share.
The Private Placements will be made only to Accredited Investors as defined in
Regulation D of the Securities Act of 1933, as amended (the "Securities Act").
The Company has a number of subscription agreements and $2,515,000 in funds in
connection with the Private Placements. No assurances can be given that the
Company will be successful in completing the Private Placements or, if
completed, it will be completed on the terms described above.
Use of Proceeds. There is no minimum of Units or shares which must be sold. The
Share Exchange is not contingent on closing either of the Private Placements.
The net proceeds available to the Company from the first private placement,
assuming expenses of $ 25,000 and minus commission fees of $ 480,000 will be $
5,495,000 if all 1,200,000 Units are sold. The estimated use of these proceeds
will be as follows:
<TABLE>
<CAPTION>
AMOUNT PERCENTAGE
------------------------------------------------ ------------------------------ ---------------------------
<S> <C> <C>
Switches & Equipment Capital Expenditures by 1,195,000 21.75%
ILDC
------------------------------------------------ ------------------------------ ---------------------------
Working Capital of the Company and ILDC 2,170,000 39.49%
------------------------------------------------ ------------------------------ ---------------------------
Repayment of Existing Debt of ILDC 2,130,000 38.76%
------------------------------------------------ ------------------------------ ---------------------------
TOTAL: $ 5,495,000 100.00%
------------------------------------------------ ------------------------------ ---------------------------
</TABLE>
<PAGE>
If the first and second Private Placements are completed, the net proceeds
available to the Company, minus expenses of $ 30,000 and minus commission fees
of $ 640,000, will be $ 7,330,000. The estimated use of these proceeds will be
as follows:
<TABLE>
<CAPTION>
AMOUNT PERCENTAGE
------------------------------------------------ ------------------------------ ---------------------------
<S> <C> <C>
Switches & Equipment Capital Expenditures by 1,195,000 16.30%
ILDC
------------------------------------------------ ------------------------------ ---------------------------
Working Capital of the Company and ILDC 2,170,000 29.60%
------------------------------------------------ ------------------------------ ---------------------------
Repayment of Existing Debt of ILDC 3,965,000 54.10%
------------------------------------------------ ------------------------------ ---------------------------
TOTAL: $ 7,330,000 100.00%
------------------------------------------------ ------------------------------ ---------------------------
</TABLE>
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:
o key-man life insurance,
o obtaining officer and director liability insurance,
o employment contracts with executive officers,
o indemnification contracts, and o 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 the Private Placements 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 verbally agreed to register for resale with the Securities and
Exchange Commission the following shares of Common Stock issued in connection
with the Share Exchange and the Private Placements, but no definitive agreements
have been entered into in this regard.:
o shares to be issued in connection with the two Private Placements;
o shares issuable on exercise of certain warrants of the Company to be
granted to investors in connection with the two Private Placements; and
o shares issued to the stockholders of ILDC in connection with the Closing of
the Share Exchange.
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 ILDC (which are attached to this Information Statement as Exhibit D) and has
been prepared on a pro forma basis to give effect to the Share Exchange under
the purchase method of accounting, as if the transaction had occurred at
December 31, 1999, 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 Share
Exchange 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 ILDC appearing at Exhibit D in
this Information Statement.
<PAGE>
The unaudited pro forma consolidated balance sheet as of December 31, 1999,
presents the financial position of the Company as if the Share Exchange had
occurred on that date and was prepared utilizing the audited balance sheet as of
December 31, 1999, of the Company and the audited balance sheet of ILDC. The pro
forma consolidated statements of operations data presented assumes the Share
Exchange occurred at the beginning of the periods presented. It should not be
assumed that the Company and ILDC would have achieved the unaudited pro forma
consolidated results if they had actually been combined during the periods
shown.
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 ILDC, including
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for each of the Company and ILDC. Pro forma financial information is
set forth in greater detail in the Pro Forma Financial Statements beginning on
Exhibit C of this Information Statement.
For the Period Ended
PRO FORMA INCOME STATEMENT: December 31, 1999
-----------------
Revenues $ 173,464
Cost of Revenues $ 2,978,403
Gross Profit (Operating Loss) ($ 2,803,909)
Other Income and Expenses ($ 4,922,790)
Net Income (Loss) ($ 7,726,699)
Net Income (Loss) Per Share ($ 0.70)
As of
PRO FORMA BALANCE SHEET: December 31, 1999
-----------------
Total Assets $ 3,331,243
Total Current Liabilities $ 4,737,968
Deficit Accumulated During Dev. Stage $ 7,726,699
Stockholders' Equity (Deficit) ($ 1,662,215)
Risks Related to the Share Exchange
You Will Suffer Immediate and Substantial Dilution of Your Percentage Equity and
Voting Interest. We will issue 4,529,054 shares of common stock to the
stockholders of ILDC in the Share Exchange. The 4,529,054 shares represent
approximately 45.34% of the number of shares of common stock outstanding as of
June 30, 2000 (excluding the securities to be issued under the private
placements being conducted by the Company). Accordingly, the Share Exchange will
have the effect of substantially reducing the percentage equity and voting
interest held by each of our stockholders.
The ILDC Stockholders May Be Able to Significantly Influence Us Following the
Share Issuance. On Closing the Share Exchange the ILDC Stockholders will control
approximately 45.34% of the issued and outstanding shares of the capital stock
of the Company. Anthony Overman, either directly or as voting trustee, will
control approximately 31.14% of the Company's common stock following the closing
of the Share Exchange. (These percentages do not take into consideration the
securities to be issued under the private placements being conducted by the
Company as discussed in this Information Statement.) This concentration of
ownership of the Company's common stock and existence of a voting trust 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 ILDC Stockholders or Anthony Overman.
The Company and ILDC May Be Unable to Obtain Required Additional Capital. As
indicated in the risk factors relating to ILDC below, following the Share
Exchange, the Company will need to raise up to $8 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 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 Company will raise additional capital or generate cash from
operations sufficient to meet its obligations and planned requirements.
<PAGE>
We May Not Be Able to Successfully Integrate ILDC into Our Operations. The
integration of ILDC into our operations involves a number of risks, including:
o difficulty integrating ILDC's operations and personnel;
o diversion of management attention; o potential disruption of ongoing
business;
o inability to retain key personnel; and
o impairment of relationships with employees, customers or vendors.
Failure to overcome these risks or any other problems encountered in connection
with the Share Exchange or other similar transactions could reduce the value of
the Share Exchange to us and could reduce the value of the Company's Common
Stock.
We May Lose Rights under Contracts with Customers and Other Third Parties as a
Result of the Share Exchange. ILDC has numerous contracts with suppliers,
customers, licensors, licensees and other business partners. The Share Exchange
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.
Uncertainty as to Proper Stock Issuances of ILDC. ILDC previously entered into
joint venture and profit sharing agreements with various investors. Most of
these investors agreed to cancel their joint venture and profit sharing
agreements in exchange for common stock of ILDC. Each investor received one
share of ILDC's common stock for every $5.00 invested through joint venture or
profit sharing agreements. ILDC issued approximately 1,249,350 shares of stock
on April 30, 2000 in connection with this conversion. Due to potential
violations of federal and state securities laws requiring registration of
securities in certain circumstances, as a result of these conversions ILDC may
offer rescission rights to all such investors and re-offer shares of ILDC under
a separate offering to these investors. To the extent any investors exercise
their rescission rights and elect not to continue their investment in ILDC, ILDC
will be required to return subscription funds to such investors with interest.
$6,065,584 represents the amounts invested in ILDC through the joint venture and
profit sharing agreements and therefore represents the potential rescission
obligations of ILDC to the joint venture investors (exclusive of interest).
There can be no assurances that the Company or ILDC will have sufficient capital
to pay amounts owed to joint venture investors who elect to exercise rescission
rights. In addition, any funds used by ILDC or the Company to satisfy rescission
claims would not be available to further the business plans of ILDC and the
Company . This discussion is not an assertion by the Company or an admission by
ILDC that ILDC did not comply with the registration or disclosure requirements
of applicable federal and state securities laws. See also "INFORMATION
CONCERNING ILDC - Risks Related to ILDC"
Certain Federal Income Tax Consequences
The following discussion is limited to the material federal income tax
consequences of the proposed Share Exchange 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
For financial accounting purposes, this Transaction will be accounted for as a
purchase of ILDC by the Company. The Company intends the Share Exchange to be a
tax-free reorganization under Section 368(a)(1)(B) of the Internal Revenue Code
of 1986, as amended (the "Code") and the ILDC Stockholders and ILDC Board of
Directors are receiving a legal opinion to that effect. However, an opinion of
counsel is not binding on the Internal Revenue Service or the courts. The
federal income tax law is uncertain as to many of the tax issues relevant to
"tax-free" transactions, and it is not possible to predict with certainty how
the law will develop or how the courts will decide various issues if they are
litigated. Accordingly, there can be no assurances that the Share Exchange will
be treated as a tax-free reorganization or that the Share Exchange will not be
challenged by the Internal Revenue Service and that such challenge will not be
sustained by the courts. The only parties to the Share Exchange, however, which
would suffer any adverse tax consequences would be ILDC Stockholders.
You Are Urged to Consult Your Own Tax Advisor as to Specific Tax Consequences to
You by the Share Exchange Including Tax Return Reporting Requirements and the
Applicability and Effect of Federal, State, Local, Foreign, and Other Applicable
Tax Laws.
<PAGE>
INFORMATION CONCERNING ILDC
History of ILDC
ILDC was incorporated in North Carolina in 1998 under the name International
Long Distance Corporation. The business focus of ILDC since its inception has
been Internet Protocol Telephony network and application services. ILDC is a
development stage company with offices in Hertford, North Carolina and Atlanta,
Georgia.
General Description of Business of ILDC
ILDC provides third generation telecommunications services using Internet
Protocol and a high speed data network that creates a suite of advanced
networking solutions, including Voice over Internet Protocols (VoIP) and Virtual
Private Networks (VPN). ILDC is rapidly deploying both network and corporate
infrastructure. 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 ILDC,
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.
ILDC currently holds an FCC License 214 issued by the Federal Communications
Commission , which effectively categorizes ILDC as an interexchange carrier for
telecommunication services (an ("IXC"). IXC's include the largest communications
companies, such as MCI WorldCom and Sprint. ILDC is licensed to carry both
domestic and international traffic on its network. ILDC believes that it is in
compliance with all regulatory and governmental authorities as they relate to
the operation of the network.
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 growth 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.
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.
ILDC anticipates 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.
<PAGE>
The Emergence of IP Telephony. According to Frost & Sullivan, a consulting and
research firm, Voice over Internet Protocol (VoIP) technology or IP Telephony is
anticipated 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 network 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
ILDC's objective is to become a leader in the quickly evolving area of "Next
Generation of Networks". The Next Generation of Networks is defined loosely as a
group of enhanced services that are deliverable to users via an "access
network".
ILDC has developed a state of the art VoIP and an international data network
thought by ILDC and the Company to be unique in the industry. Through
integration of existing, leading edge technologies and ILDC's proprietary
application software, ILDC is able to offer advanced telecommunication services
(both voice and data) to potential carriers and service providers including;
CLEC's; ILEC's; ASP's; and ISP's. ILDC developed and tested its network platform
over the last two and one half years. With ILDC's network, end-users will be
connected via copper, coaxial, fiber and wireless platforms (unlike Net2Phone,
whose capabilities are mainly from PC's over the Internet). End-users will enjoy
carrier grade quality of service (QOS) and, effectively, not be aware that they
are communicating over Internet protocol rather than voice grade circuit
switching.
ILDC anticipates rapidly deploying its network and targeting providers and other
margin-sensitive concerns worldwide to attract traffic to its system.
Description of Services - ILDC VoIP System
ILDC has developed a system for bundling voice and data virtually eliminating
latency that bypasses traditional circuit switching.
The network architecture employed leverages the existing public network,
integrates new technologies and adds software control features that enables
services to be layered on public or private Internet Protocol (IP) networks.
ILDC's state of the art media gateways and software applications have reduced
the space necessary for such equipment to one seven foot tall rack which can be
easily co-located with other communications providers. This major gateway hub,
of which 12 will be deployed initially, has a capacity equal to existing switch
architecture requiring 2400-3600 square feet of space, allowing ILDC to
co-locate cost effectively with many partners. Once built, each ILDC gateway
will support up to 14,784 T-1 lines (each handling 354,816 lines),
simultaneously.
ILDC's IP based applications will run over an ATM backbone. The quality of
service (QOS) guarantees will be provided as part of each customer's service
level agreement (SLA).
The network will provide IP Centrex Services, enhanced data services (the
capability to provide dynamic bandwidth (capacity) on demand) for data, video
imaging and VPN's with encryption. ILDC will provide compressed voice transport
for long distance and wholesale transport for competitive local exchange
carriers and long distance carriers. This network architecture will offer client
concentration and switch bypass for Internet service providers, provide remote
access services and many other new capabilities, including the ability to
dynamically allocate bandwidth. The VPN's that ILDC will service has the ability
to offer secure, encrypted data transport from the point of creation, as opposed
to from a company's ISP. This represents a new service that will be extremely
desirable for large corporations.
<PAGE>
ILDC's proprietary billing system will provide usage sensitive billing, as well
as bulk billing for any or all services offered. All of the billing will be
presented on a single bill.
This Third Generation network architecture, once the proprietary software and
applications are deployed, will represent a major breakthrough in the fledgling
VoIP industry.
Sales and Marketing and Distribution
ILDC's initial marketing plan calls for entering the market for pre-paid
providers including ISP's, ASP's and CLEC's. ILDC anticipates these targets will
understand and embrace the system very quickly, providing an immense "virtual"
sales and distribution network. Most provider sectors are potential customers,
not competition. Targeting these providers for VoIP and VPN's, ILDC anticipates
being in a position to place a tremendous amount of traffic on the network
immediately. Additionally, partnering with these margin-sensitive entities,
should allow ILDC to take advantage of their marketing and distribution efforts
and utilize their infrastructure. Marketing/Sales personnel are currently being
added and will be stationed in strategic areas based upon the network deployment
plan.
ILDC anticipates that, initially, the bulk of traffic will be voice. However, as
the capabilities of the system and the many layered services become known, ILDC
anticipates that there will be a major conversion to data.
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, ILDC has identified the
following primary markets for its products: Europe; India; Pakistan;
Philippines; Japan; the Middle East; Mexico; and China. Negotiations are in the
final stages to draw traffic from the foregoing list of markets.
ILDC's Network
ILDC has deployed three of the first twelve gateways. The plan is to deploy the
gateways in stages so that any stage once complete and operational can begin to
run traffic (and produce revenue) immediately while the expansion stages are
undertaken. The first stage of deployment included switches strategically
located in New York, Miami and Los Angeles. This stage had been completed ahead
of schedule. Final configuration and testing is underway and the first stage is
anticipated to be operational by the end of the third week in August.
Before stage one is operational, stage two will begin, with switches being
deployed in London, Frankfurt and Amsterdam, to provide service to Europe. This
stage will also include Dubai, UAE. ILDC is currently negotiating the first free
VoIP license in the United Arab Emirate and is working with the Royal Family to
provide service for an "Internet City" there.
Stage three currently calls for switches in Dallas, Toronto and Denver, as well
as Singapore and Hong Kong. This final deployment will represent the major
portion of the network backbone and will allow the back hauling of traffic from,
substantially, anywhere in the world.
The system is expected to be fully in place and operational during the third
quarter of 2000. The anticipated system deployment cost is approximately $9.3
million dollars which will be financed using proceeds from the Private
Placements, operational revenues and vendor and other third party financing.
Customer Relationship Management
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.
<PAGE>
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 ILDC, 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 ILDC 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. ILDC 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.
Many of ILDC'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 ILDC
has. As a result, certain of these competitors may be able to adopt more
aggressive pricing policies which could hinder ILDC's ability to market ILDC's
Internet-based voice services. ILDC believes that ILDC's key competitive
advantages are ILDC's ability to deliver reliable, high quality voice service
over the Internet in a cost-effective manner and the size and rapid growth of
ILDC's network. ILDC cannot provide assurances, however, that this advantage
will enable us or ILDC to succeed against comparable service offerings from
ILDC's competitors.
Government Regulation
Regulation of IP Telephony - General. ILDC is a multinational telecommunications
company subject to applicable laws and regulations in each of the jurisdictions
in which it provides services. ILDC may also be affected indirectly by the laws
of other jurisdictions that affect foreign carriers with which ILDC does
business. Telephone service provided through the use of the Internet and private
IP networks is a recent market development which ILDC believes 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. ILDC believes that the IP
communications services that ILDC provides 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 ILDC's business, financial
condition, operating results and future prospects. ILDC cannot guarantee that
ILDC'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 ILDC's business,
financial condition, results of operations and future prospects.
Portions of ILDC's 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.
<PAGE>
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.
ILDC may be subject to regulations in some foreign jurisdictions, or ILDC may be
prohibited from providing its services or conducting its business in these
foreign jurisdictions. ILDC's failure to qualify as a foreign corporation in a
jurisdiction in which ILDC is required to do so or to comply with foreign laws
and regulations could materially adversely affect ILDC's business, financial
condition, operating results and future prospects, including the possibility of
subjecting ILDC to taxes and penalties and/or by precluding ILDC from, or
limiting ILDC in enforcing contracts in such jurisdictions. This holds true of
ILDC's partners as well. ILDC cannot be certain that ILDC's 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 ILDC's partners to comply with such requirements
could materially adversely affect ILDC's business, financial condition,
operating results and future prospects.
Recently, IP Telephony service of one of ILDC's 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 ILDC has not received any similar
notices from these regulators and ILDC does 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
ILDC's service or send ILDC similar cease and desist orders in the future.
Proprietary Rights
The Company and ILDC regard their intellectual property rights, such as
copyrights, trademarks, trade secrets, practices and tools, as important to the
success of the 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 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 Company intends to
offer its services. The steps taken by the Company or ILDC to protect their
intellectual property rights may not be adequate, third parties may infringe or
misappropriate intellectual property rights or the 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 Company or
ILDC. 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 Company's ability to use processes
covered by such patents or expose the Company to claims of patent infringement
or otherwise require the 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 Company's
business.
The Company believes that ILDC's products, trademark, and other proprietary
rights do not infringe on the proprietary rights of third parties.
Board of Directors of ILDC
ILDC is currently governed by its Board of Directors, which presently consists
of the four (4) directors named below. The directors are elected annually by the
stockholders and serve until their successors are duly elected. The following
table sets forth as of December 31, 1999, the name, age, and position of each
director of ILDC:
Name Age Position Director since:
Anthony Overman 41 Director March 20, 1998
Leonard Overman, Sr. 70 Director March 20, 1998
Leonard Overman, Jr. 46 Director March 20, 1998
Viola Overman 69 Director March 20, 1998
Employees
<PAGE>
As of July 28, 2000, ILDC had 33 employees from offices in Atlanta, Georgia and
Hertford, North Carolina. Additional sales and technical personnel are being
added to meet the anticipated demand for ILDC's networking services. None of
ILDC's current employees are covered by any collective bargaining agreement and
ILDC has never experienced a work stoppage. ILDC 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
ILDC's corporate headquarters are located in a 10,000 square foot ("sf")
facility in Hertford, North Carolina. This facility's lease expires on October
1, 2001 with a base monthly rent of $ 5,000 per month. ILDC also rents a 2009 sf
office space Atlanta, Georgia at $2,796 per month and rents an apartment on a
month to month basis in Atlanta, Georgia at $ 1,330 per month. The lease in
Hertford, North Carolina is leased by ACO Enterprises, Inc. an entity controlled
by Anthony Overman.
The Company plans to open offices in Vancouver, British Columbia and in Denver,
Colorado in the near future.
In January of 1999, ILDC purchased two vacant lots in Hertford, North Carolina
to build an office building. ILDC continues to own the property but does not
intend to develop the lots at this time.
Legal Proceedings
StarTouch International Ltd. has instituted an action against ILDC seeking
repayment of a $2,067,407 promissory note ILDC issued to StarTouch International
Ltd. in February 5, 2000 which was due on June 5, 2000 and remains unpaid,
together with accrued interest of $67,959.57 (plus per diem interest from June
5, 2000), costs and post judgment interest. ILDC was served on July 6, 2000 and
has not filed an answer to the complaint. An answer is due within 30 days from
the date of service. To date ILDC has not raised, and may not have, any defenses
to this lawsuit. ILDC is a party to another lawsuit alleging breach of contract
and seeking damages in the principal amount of $679,071.39, together with
accrued interest of $141,321.26 (with interest accruing at 1 1/2% per month from
the date of filing (12/8/99)), costs and post judgment interest. ILDC has filed
an Answer to the complaint denying any liability or obligation. ILDC has notice
of one other potential claim which concerns a party who refused to convert its
joint venture with ILDC into equity. Liability associated with this potential
claim is not determinable at this time.
Selected Financial Data
The following selected financial data is obtained from the audited financial
statements of ILDC, as of December 31, 1999, 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.
In addition, the audited financials of ILDC as of and for the year ended
December 31, 1999 ("Audited Financials") were issued when ILDC and the Company
still contemplated a one step merger pursuant to the Reorganization Agreement.
As discussed elsewhere in this Information Statement, the parties have
terminated the Reorganization Agreement and re-structured the transaction as a
two step transaction, the first step of which is the Share Exchange. To the
extent the notes in the Audited Financials discuss the Reorganization Agreement
or are otherwise inconsistent with the discussion of the Share Exchange in this
Information Statement, readers should rely on disclosure in the Information
Statement. In addition, Note 11 of the Audited Financials discusses an agreement
between ILDC and BDR Consulting, Inc. ("BDR"). Since the date the Audited
Financials were issued, the terms of the agreement between ILDC and BDR have
changed significantly and Note 11 to the Audited Financials is no longer
accurate. For a discussion of the current
<PAGE>
agreement between ILDC and BDR, readers should review Schedule 3.7 to the Share
Exchange Agreement, which is included in this Information Statement as part of
Exhibit B.
ILDC for Year Ended
12/31/99
-------------------------
Revenue $ 174,494
Operating Expenses $ 2,978,403
Gross Profit (Loss) ($ 2,803,909)
Other Expenses $ 4,922,790
Net Income (Loss) ($ 7,726,699)
Total Assets $ 3,331,243
Total Current Liabilities $ 4,736,368
Management Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations. Planned principal operations of ILDC commenced in March
1998, however, to this date ILDC 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, ILDC and its activities from its
inception through December 31, 1999 fall within the referenced guidelines.
Accordingly, the Company has reported ILDC's activities in accordance with the
aforesaid Statement of Financial Accounting Standards No. 7.
From its inception in March 1998 through December 31, 1999, ILDC sustained a net
loss of approximately $7,685,699. These losses are expected to continue for a
presently undetermined time. The Company's losses in 1999, independent of ILDC,
were minimal due to lack of business operations.
Sales and Revenues. ILDC has derived (or intends to derive) revenues generally
from sale of the products described above in this Information Statement. From
inception through December 31, 1999, the Company's total revenue was $174,494.
In order to increase revenue, ILDC has entered into distribution agreements with
telecommunications companies who have established distribution into target
markets. ILDC 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 ILDC will be
successful in these efforts. During the fiscal year ended December 31, 1999,
100% of the revenues of ILDC were generated through distribution arrangements
with Airtime Technologies and Rubicon Technologies. There is no certainty that
the distribution arrangements with these entities will continue.
Liquidity and Capital Resources. As of December 31, 1999, ILDC had net
stockholders' deficit of $ 1,619,615, and accumulated losses during the
development stage of $7,685,699. There can be no assurance that ILDC will be
able to continue as a going concern or achieve material revenues or profitable
operations. ILDC 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. ILDC 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
ILDC.
The maximum proceeds of the Private Placements are intended to be used to
provide ILDC with the necessary capital to maintain and expand its operations
for a period of 12 months when ILDC expects to achieve cash flow from
operations, although no assurances can be given in this regard.
<PAGE>
Year 2000 Update. Even though the date is now past January 1, 2000 and ILDC has
not experienced any immediate adverse impact on ILDC's operations from the
transition to the Year 2000, ILDC cannot provide complete assurance that ILDC'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, ILDC will continue to monitor ILDC's Year 2000 compliance and the Year
2000 compliance of ILDC's agents. However, ILDC anticipates no Year 2000
problems that are reasonably likely to have a material adverse effect on ILDC's
operations.
Risks Related to ILDC
The following is a summary of some of the risk factors which may have an impact
on ILDC's business efforts:
ILDC has a limited operating history in a new and rapidly changing industry.
ILDC commenced operations in March 1998. Accordingly, ILDC 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 ILDC's ability to:
o expand its subscriber base and increase subscriber revenues,
o compete favorably in a highly competitive market,
o access sufficient capital to support its growth,
o recruit, train and retain qualified employees,
o introduce new products and services, and
o upgrade network systems and infrastructure.
ILDC 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 ILDC's business in the future.
ILDC has significant liability associated with a lawsuit. As discussed in "Legal
Proceedings" elsewhere in this Information Statement, ILDC has been sued by
StarTouch International, Ltd. ("StarTouch") for over $2 million. If the court
determines that ILDC is liable to StarTouch as asserted in the lawsuit, ILDC
will have to use significant amounts of capital to pay its obligations to
StarTouch. ILDC may also incur significant legal fees and expenses in defending
the lawsuit, if legal defenses are available. It is possible that ILDC will
never have sufficient capital to pay amounts owed to StarTouch. It is also
possible, that after paying amounts owed to StarTouch, ILDC will not have
sufficient funds to pursue its business plan. Accordingly, the StarTouch
litigation may have a material adverse effect on ILDC's financial condition,
results of operations and prospects.
ILDC has not been profitable and expect future losses. ILDC has incurred net
losses of $ 7,685,699 from inception through December 31, 1999. ILDC 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, ILDC 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 ILDC does achieve profitability, it cannot be
certain that it can sustain or increase profitability on a quarterly or annual
basis in the future. ILDC expects that costs and expenses will continue to
increase in future periods, which could negatively affect future operating
results.
ILDC Could Be Required to Cut Back or Stop its Operations If it Is Unable to
Obtain Needed Funding. ILDC 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 ILDC 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 ILDC will raise additional capital or generate funds from operations
sufficient to meet its obligations and planned requirements.
Ability of ILDC to Implement its Business Strategy. Although ILDC intends to
pursue a strategy of aggressive marketing of its network, implementation of this
strategy will depend in large part on its ability to: (i) establish a
significant customer base and maintain favorable relationships with those
customers; (ii) effectively introduce acceptable products to its customers;
(iii) obtain adequate financing on favorable terms to fund its business
strategies; (iv) maintain appropriate procedures, policies, and systems; and (v)
continue to operate with increasing competition. The inability of ILDC to obtain
or maintain any or all of these factors could impair its ability to successfully
implement its business strategy, which could have a material adverse effect on
the results of operations and financial condition of ILDC.
<PAGE>
Dependence on Key Personnel. The future success of ILDC will depend on the
service of key personnel and, additionally, its ability to identify, hire and
retain additional qualified personnel. There is intense competition for
qualified personnel in the areas of the activities of ILDC, and there can be no
assurance that ILDC will be able to attract and retain personnel necessary for
the development of the business of ILDC. Because of the intense competition,
there can be no assurance that ILDC will be successful in adding personnel if
needed to satisfy its staffing requirements. Failure to attract and retain key
personnel could have a material adverse effect on ILDC. ILDC is dependent on the
efforts and abilities of its management. The loss of various members from
management could have a material adverse effect on the business and prospects of
ILDC. There can be no assurance that upon the departure of key personnel from
the service of ILDC that suitable replacement personnel will be available.
A Market for ILDC's Services May Not Develop. There can be no assurance that the
VoIP or other high speed data transmission services developed by ILDC, or any
other product subsequently developed by ILDC, will achieve a significant degree
of market acceptance, and that acceptance, if achieved, will be sustained for
any significant period or that product life cycles will be sufficient (or
substitute products developed) to permit ILDC to recover start-up and other
associated costs. Failure of the VoIP protocol or other proprietary software
products developed by ILDC or any other products of ILDC to achieve or sustain
market acceptance could have a material adverse effect on the business,
financial condition, and results of operations of ILDC.
If ILDC Fails to Create and Maintain Strategic Relationships with International
Carriers its Revenues Will Decline. ILDC'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 ILDC's revenue. ILDC 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 ILDC'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 its business with
ILDC. If ILDC 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 ILDC's 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 ILDC
operates, and ILDC anticipates that rates will continue to be reduced in all of
the markets in which ILDC 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 ILDC will be unable to use such pricing
differentials to attract new customers in the future. In addition, ILDC's
ability to market its carrier transmission services to telecommunications
carriers depends on the existence of spreads between the rates offered by ILDC
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
ILDC obtains wholesale service. Continued rate decreases will require ILDC to
lower its rates to remain competitive and will reduce or possibly eliminate
ILDC's gross profit from its carrier transmission services. If
telecommunications rates continue to decline, ILDC may lose users for its
enhanced IP communications services and carrier transmission services.
Rapid Technological Change in Telecommunications Industry Could Reduce the
Demand for ILDC'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 ILDC uses. ILDC expects that new services and
technologies will emerge in the market in which ILDC competes. These new
services and technologies may be superior to the services and technologies that
ILDC uses, or these new services may render ILDC's services and technologies
obsolete. To be successful, ILDC must adapt to a 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. ILDC's success
will depend, in part, on ILDC's ability to license leading technologies and
respond to technological advances and emerging industry standards on a
cost-effective and timely basis. ILDC will need to spend significant amounts of
capital to enhance and expand its services to keep pace with changing
technologies. ILDC cannot predict the likelihood of these changes and cannot
assure you that any technological changes will not materially and adversely
affect ILDC's business and operating results.
Licenses and Consents. Although management believes that ILDC has all rights
necessary to use its intellectual property, the utilization or other
exploitation of the products and services developed by ILDC might require ILDC
to obtain licenses or consents from the producers or other holders of copyrights
or other similar rights relating to the products and technologies of ILDC. In
the event ILDC is unable, if so required, to obtain any necessary license or
consent on terms which management of ILDC considers to be reasonable, ILDC may
be required to cease developing, utilizing, or exploiting products or
technologies affected by those copyrights or similar rights. In the event ILDC
is challenged by the holders of such copyrights or other similar rights, there
can be no assurance that ILDC will have the financial or other resources to
defend any resulting legal action, which could be significant.
<PAGE>
Uncertainties Associated with Patents and Proprietary Rights. The success of
ILDC may depend in large part on its ability to obtain patents for its
technologies and products, if any, resulting from the application of such
technologies, to defend patents once obtained and to maintain trade secrets,
both in the United States and in foreign countries. The success of ILDC will
also depend upon avoiding the infringement of patents issued to competitors.
There can be no assurance that ILDC will be able to obtain patent protection for
products based upon the technology of ILDC. Moreover, there can be no assurance
that any patents issued to ILDC will not be challenged, invalidated or
circumvented or that the rights granted thereunder will provide competitive
advantages to ILDC. Litigation, which could result in substantial cost to ILDC,
may be necessary to enforce the patent and license rights of ILDC or to
determine the scope and validity of its and others' proprietary rights.
Lack of Marketing Experience. ILDC has no significant experience in the sales or
marketing of the ILDC network. There can be no assurance that ILDC will be able
to establish sales, marketing and distribution capabilities or make arrangements
with collaborators, licensees or others to perform such activities or that such
efforts will be successful.
Marketing Efforts; Limited Sales Force. ILDC may sell the ILDC network
principally through salespersons and agents, and may use only a very limited
number of salespeople in certain of its markets. There can be no assurance that
ILDC would be able to successfully establish other methods of marketing and
sales of its products should it become necessary or desirable in the future.
ILDC may market its product through independent distributors over which ILDC has
no control, who may also represent products of other companies.
ILDC's Business Is Exposed to Regulatory, Political and Other Risks Associated
with International Business. ILDC 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 ILDC's results of operations and the value of ILDC'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 ILDC 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 ILDC's operations. Accordingly, ILDC's
results of operations may be materially affected by international events and
fluctuations in foreign currencies. ILDC does not employ foreign currency
controls or other financial hedging instruments.
ILDC may be subject to foreign regulatory authorities governing communications
and Internet services as it seeks to market the ILDC network outside the United
States. Whether or not the ILDC network is subject to FCC regulation or other
regulation in the United States, approval of the ILDC network by regulatory
authorities of foreign countries may need to be obtained prior to the
commencement of marketing ILDC's services in those countries. The approval
process varies from country to country and the time required may be significant.
There can be no assurance that any foreign regulatory agency will approve ILDC
or any product or services submitted for review by ILDC.
The Loss of Key Personnel Could Weaken ILDC's Technical and Operational
Expertise, Delay Entry into New Markets and Lower the Quality of its Service.
ILDC's success depends on the continued efforts of its senior management team
and its technical, marketing and sales personnel. ILDC 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. ILDC may
not be able to retain or successfully integrate existing personnel or identify
and hire additional qualified personnel. If ILDC loses the services of key
personnel or is unable to attract additional qualified personnel, its business
could be materially and adversely affected. ILDC does not have key-man life
insurance. ILDC initiates and maintains its relationships with foreign carriers
in its targeted markets through the combined efforts of its senior management
team. ILDC 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.
<PAGE>
ILDC May Be Liable for Violations of Federal and State Securities Laws. ILDC
previously entered into joint venture and profit sharing agreements with various
investors. These investors agreed to cancel their joint venture and profit
sharing agreements in exchange for common stock of ILDC. Each investor received
one share of the common stock for every $5.00 invested through these joint
venture or profit sharing agreements. ILDC issued approximately 1,249,350 shares
of stock on April 30, 2000 in connection with this conversion. Due to potential
violations of federal and state securities laws requiring registration of
securities in certain circumstances, ILDC may offer rescission rights to all
such investors and re-offer shares of ILDC under a separate offering to these
investors. To the extent any investors exercise rescission rights and elect not
to continue their investment in ILDC, ILDC will be required to return
subscription funds to such investors, with interest. Investors of ILDC who did
not accept the rescission offer, either because they affirmatively reject it or
because they fail to respond to it, may still attempt to assert claims against
ILDC relating to non-compliance with the securities laws. ILDC cannot predict
with certainty that those claims will be barred by any rescission offer
conducted by ILDC because the legal effect of the rescission offer is uncertain.
To the extent those claims are brought and result in judgments for damages,
ILDC's business, financial condition and results of operation could all be
adversely affected. Even if ILDC is successful in defending those claims under
applicable securities laws, their mere assertion could result in costly
litigation and significant diversions of effort by management. At this point,
ILDC cannot quantify the dollar amount of the ILDC shares held by persons who
will accept or reject any such rescission offer. Therefore, ILDC cannot quantify
the potential continuing liability until completion of any such rescission
offer. $6,065,584 represents the amounts invested in ILDC through the joint
venture and profit sharing agreements. There can be no assurance that the
Company or ILDC will have sufficient capital to pay any amounts owed to
investors or otherwise expended in defending claims, in each case related to the
matters discussed above. This discussion is not an assertion by the Company or
an admission by ILDC that ILDC did not comply with the registration or
disclosure requirements of applicable federal and state securities laws.
Because ILDC Does Not Have Sufficient Liquid Assets to Fund the Rescission Offer
If it Is Accepted by All Holders of ILDC Shares Who May Be Entitled to
Recission, ILDC May Be Required to Incur Additional Debt or Sell Assets to Fund
the Rescission Offer. If all or a material number of ILDC investors who may have
a right to rescission accept any subsequent rescission offer, ILDC will have to
borrow funds or liquidate assets to pay off those investors. ILDC has
approximately $200,000 in current assets that could be used to fund the
rescission offer without materially and adversely affecting ILDC' operations or
financial condition. This discussion is not an assertion by the Company or an
admission by ILDC that ILDC did not comply with the registration or disclosure
requirements of applicable federal and state securities laws.
Material Terms of the Common Stock of ILDC
The authorized capital stock of ILDC consists of 11,000,000 shares of Common
Stock with a par value of $1.00 per share. ILDC has no other authorized classes
of stock. On June 30, 2000, ILDC had 5,500,000 shares issued and outstanding
held by 389 stockholders of record. There is no trading market for the shares of
common stock of ILDC. All shares of the common stock of ILDC are equal to each
other with respect to voting, and dividend rights, and are equal to each other
with respect to liquidation rights.
Forward-looking Statements
Certain statements included in this Information Statement regarding the Company
and ILDC 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 ILDC after
the Share Exchange. 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 ILDC's sales strategies, market acceptance of
ILDC's products and services, ILDC'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 ILDC's competitors. Accordingly, actual results may differ
materially from those expressed in the forward-looking statements.
ELECTION OF DIRECTORS
The current director and officer of the Company will resign his positions with
the Company at the closing of the Share Exchange and three 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 ILDC who will become directors and officers of
the Company on the closing of the Share Exchange. Information regarding the
current officer and director of the Company is set forth in the Form 8-K dated
May 18, 2000 on file with the Securities and Exchange Commission on Edgar.
Information Concerning Nominees
The following nominees of ILDC are expected to become executive officers and
directors of the Company at the closing of the Share Exchange.
-------------------- -------- -------------------------------------------------
Name Age Expected Position with Company
-------------------- -------- -------------------------------------------------
Mark Sampson 45 Chairman and Chief Executive Officer and Director
-------------------- -------- -------------------------------------------------
Anthony Overman 41 President and Director
-------------------- -------- -------------------------------------------------
Don Spears 51 Director
-------------------- -------- -------------------------------------------------
<PAGE>
The following describes the principal occupation of each officer and director of
the Company for the previous five years:
Mr. Mark Sampson - Chairman and Chief Executive Officer. Mr. Sampson brings
twelve years of executive experience in telecommunications and information
technology to ILDC. Prior to joining ILDC, he was Senior Vice President and
General Manager of Data Services for AT&T Canada (formerly MetroNet
Communications), where he was responsible for building its data and Internet
businesses from inception to $80 million in annual revenue. From 1994 to 1998,
Mr. Sampson served as Vice President and General Manager for Telus (formerly BC
Tel Advanced Communications), where he developed the unregulated ATM based data
and Internet business from start-up to $75 million in annual revenue. From 1992
to 1994, he served as Chief Operating Officer of Cue Data West, providing
banking applications and high speed managed networks to the financial community.
Mr. Sampson is a director of the Colorado Internet and Telecom Alliance (CITA).
He studied business at Dalhousie University and is a graduate of the University
of British Columbia's sales and marketing executive program (SME)
Mr. Anthony Overman - President. Mr. Overman is the founder of ILDC. From March
1998 to the present, he has been responsible for the development of ILDC's
business from inception. Mr. Overman has been responsible for supervising the
VoIP network design and construction, negotiating business transactions,
building the executive management team and all other aspects of ILDC to date.
Prior to undertaking the development of ILDC, Mr. Overman was involved in
several entrepreneurial enterprises, including security systems, energy
management systems and smarthouse designs. Mr. Overman is active in World
Missions and charitable organizations. As President of ILDC, Mr. Overman will be
involved with overall management, oversight and business development activities.
Mr. Donald M. Spears - Director. Mr. Spears graduated from the University of
Arkansas School of Law in 1975 after obtaining his B.A from Ouachita Baptist
University. He specializes in Commercial Transactions, Banking and Business
Litigation as well as Real Estate Law. He served as a Director of the Arkansas
Development Finance Authority and as Juvenile Judge for Hot Springs County,
Arkansas. Mr. Spears has served on the board of several private entities,
including Chairman of PC Interface, Inc., a banking technology company,
President of Westridge Development Company and as Chairman of Worldlynx, Inc.,
an Internet Service Provider. He is a member of the Arkansas Bar Association,
the American Bar Association and the American Trial Lawyers Association.
Residing in Little Rock, Mr. Spears married in 1970, and has two children.
The term of office of each director is one year or until his successor is
elected at the annual meeting of the Company and qualified. The term of office
for each officer of the Company is at the pleasure of the Board of Directors.
The Board of Directors has no nominating, audit or compensation committee.
Except for the terms of the Share Exchange Agreement, there are no arrangements
or understandings between any of the officers or directors and any other persons
pursuant to which such officer or director was selected as an officer or
director.
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 executive
officer received cash compensation from the Company in excess of $50,000 in the
prior three years ended December 31, 1999. There are no bonus or deferred
compensation plans, pension, stock option or other compensatory plans currently
maintained by the Company. Additionally, the Company is not a party to any other
compensatory plans or arrangements, including payments to be received from the
Company, with respect to any person named above which would in any way result in
payments to any such person because of his or her resignation, retirement, or
other termination of such person's employment, or any change in control of the
Company, or a change in the person's responsibilities following a change in
control of the Company.
The Company's Board of Directors has complete discretion as to the
appropriateness of:
o key-man life insurance,
o obtaining officer and director liability insurance,
o employment contracts with and compensation of executive officers and
directors,
o indemnification contracts, and o bonuses and incentive plans to award
executive officers and key employees.
<PAGE>
The following table sets forth the annual salary for each executive officer of
the Company, through its subsidiary ILDC, which will be in effect as of the
Closing of the Share Exchange:
<TABLE>
<CAPTION>
------------------------------ ------------------------------------------------------ ---------------------
Annual Salary
Name Office 2000 (projected)(1)
------------------------------ ------------------------------------------------------ ---------------------
<S> <C> <C>
Mark Sampson Chief Executive Officer $ 250,000
------------------------------ ------------------------------------------------------ ---------------------
Anthony Overman President $ 150,000
------------------------------ ------------------------------------------------------ ---------------------
Leonard Overman, Jr. Vice President $ 104,000
------------------------------ ------------------------------------------------------ ---------------------
Emerson Overman Chief of Operations $ 104,000
------------------------------ ------------------------------------------------------ ---------------------
Reginald Ibison Chief Technical Officer $ 140,000
------------------------------ ------------------------------------------------------ ---------------------
William R. Neale Vice President Marketing $ 144,000
------------------------------ ------------------------------------------------------ ---------------------
Ralph Proceviat Chief Financial Officer $ 144,000
------------------------------ ------------------------------------------------------ ---------------------
Darren Dumba Vice President Sales and Operations $ 144,000
------------------------------ ------------------------------------------------------ ---------------------
(1) The definitive compensation of the Company's officers will be determined by
the Board of Directors of the Company.
</TABLE>
The Company, through ILDC, intends to enter into employment agreements with the
individuals set out in the above table. It is anticipated that each will also be
entitled to the following: major medical health benefits; indemnification from
any claim or law suit which may be asserted against him when acting in his
official capacity for ILDC or the Company 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 shares of the Common
Stock of the Company pursuant to the stock option plan described below.
Board of Directors Report on Executive Compensation
The Company's Board of Directors will appoint an executive compensation
committee which will be responsible for reviewing and determining the annual
salary and other compensation of the executive officers and key employees of the
Company and ILDC following the closing of the Share Exchange. 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 intends to provide base salaries to its executive officers and key
employees sufficient to provide motivation to achieve certain operating goals.
In the future, executive compensation may include without limitation cash
bonuses, stock option grants pursuant to the stock option plan described below
and stock award grants. In addition, the Company may set up a pension plan or
similar retirement plans.
Stock Options
There are currently no stock options outstanding. However, the Board of
Directors and Majority Stockholders 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 the shares available for
issuance under the stock option plan will be registered on Form S-8 with the
Securities and Exchange Commission following the closing of the Share Exchange.
(See "2000 STOCK OPTION PLAN" below for further details.)
Familial Relationships
Anthony Overman, Emerson Overman and Leonard Overman, Jr., are sons of Leonard
Overman, Sr. and Viola Overman. Leonard Overman, Sr. and Viola Overman are
husband and wife.
Indemnification
<PAGE>
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 matters referred to in or
covered by such section. The indemnification provided for is not exclusive of
any other rights to which the persons so indemnified may be entitled under any
By-Law, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his official capacity and as to action in another capacity
by holding such office. Indemnification available to the Company's directors and
officers under the Certificate of Incorporation continues as to a person who has
ceased to be a director of officer and inures 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 Stockholders have adopted and approved a
stock option plan (the "Plan"). The purpose of the Plan is to enable the Company
to offer its officers, directors, employees, 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:
o select the persons to whom options and Stock Rights are to be granted;
o determine the number of shares of Common Stock to be covered by each option
and Stock Right granted;
o approve forms of option agreements for use under the Plan;
o determine the terms and conditions of any option or Stock Right;
o 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;
o institute an option exchange program;
o interpret the Plan and awards granted under the Plan;
o 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;
o modify or amend each option or Stock Right issued;
o 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;
o 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
o 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.
<PAGE>
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.
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:
o 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.
o Exercise of Option. The Administrator determines when options become
exercisable, and may in its discretion, accelerate the vesting of any
outstanding option.
o 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.
o 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.
o 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.
o 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.
o 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.
o 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.
o 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.
<PAGE>
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 will be 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 affected 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 share exchange 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.
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:
o the fair market value of the shares at the date of the option exercise; or
o 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.
<PAGE>
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.
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-KSB for the fiscal year ended December 31, 1999; (ii) the Company's
Quarterly Report on Form 10-QSB for the quarter ended March 31, 2000; and (iii)
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:
Old Night, 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.
