As filed with the Securities and Exchange Commission on May 6, 1999.
Registration No. 333-70645
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
______________________________
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
______________________________
I-LINK INCORPORATED
(Exact name of registrant as specified in its charter)
(formerly Medcross, Inc.)
Florida 59-2291344
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
13751 S. Wadsworth Park Drive, Suite 200, Draper, UT 84020
Telephone (801) 576-5000, Facsimile (801) 576-4295
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
______________________________
John W. Edwards, Chairman, President and Chief Executive Officer
I-Link Incorporated
13751 S. Wadsworth Park Drive, Suite 200, Draper, UT 84020 (801) 576-5000,
Facsimile (801) 576-4295
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
Copies to:
Ralph V. De Martino, Esquire David Hardy, Esquire
De Martino Finkelstein Rosen & Virga Hardy & Allen
1818 N Street, N.W., Suite 400 818 East South Temple
Washington, DC 20036-2492 Salt Lake City, UT 84102
Phone (202) 659-0494, Phone (801) 364-6660
Facsimile (202) 659-1290 Facsimile (801) 364-6664
______________________________
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement.
<PAGE>
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act, check the following box. [X]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legal facsimile thereof, pursuant to item 11(a)(1)
of this Form, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to
said Section 8(a), may determine.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed
Proposed Maximum
Title of Each Class of Maximum Aggregate Amount of
Securities to be Amount to be Price Offering Registration
Registered Registered Per Unit Price Fee
------------------------ ------------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Rights to purchase
Series N Preferred Stock 15,669(1) --- --- ---
Series N Preferred Stock 20,000(2) $1,000.00 $20,000,000 $5,560.00
Common Stock 16,000,000(3) --- --- ---
Total (previously paid) $5,560.00
</TABLE>
(1) Includes rights to be offered to shareholders of the registrant
(the "Basic Public Rights") but excludes 4,331 rights previously
offered to Winter Harbor, L.L.C. (the "Basic Winter Harbor
Rights").
(2) Includes 15,669 shares of Series N preferred stock issuable
pursuant to the Basic Public Rights and 4,331 shares issuable
pursuant to the Basic Winter Harbor Rights. The registration
statement and the included prospectus covers the issuance, offer,
sale, reoffer or resale (as the case may be) of shares of Series N
preferred stock issuable under both the Basic Public Rights and the
Basic Winter Harbor Rights.
<PAGE>
(3) Issuable for no additional consideration upon conversion of Series
N preferred stock. Assumes a conversion factor of $1.25, the
minimum provided by the terms of the Series N preferred stock, as
they may be amended. (See "Related Party Transactions.") The
registration statement and the included prospectus covers the
issuance, offer, sale, reoffer or resale (as the case may be) of
shares of common stock issuable upon conversion of Series N
preferred stock issued under both the Basic Public Rights and the
Basic Winter Harbor Rights. Pursuant to Rule 416, this registration
statement also covers such additional number of shares of common
stock as may be issuable pursuant to anti-dilution provisions of
the Series N preferred stock relating to stock splits, stock
dividends or similar transactions.
<PAGE>
PROSPECTUS
20,000 Subscription Rights
20,000 Shares of Series N Preferred Stock
16,000,000 Shares of Common Stock
[I-LINK INCORPORATED LOGO]
Basic information regarding the subscription rights offering
* I-Link is distributing non-transferable rights to purchase Series N
convertible preferred stock to common and preferred stockholders as of
the record date, May 11, 1999.
* Each shareholder will receive a right to purchase one share of Series N
preferred stock for each 1,589 shares of common stock owned on the
record date or each 1,589 shares of common stock that preferred stock is
convertible into as of the record date. No fractional rights will be
issued.
* The purchase price for a share of Series N preferred stock is $1,000 per
share.
* The subscription rights expire on June 30, 1999.
Basic terms of the Series N preferred stock
* Convertible into I-Link common stock at any time.
* Conversion price of $2.78.
* Senior to all other preferred common stock of I-Link, except that the
Series N preferred stock will in all rights be equal in seniority to the
already outstanding Series F preferred stock.
* Votes with the common stock on an as-converted basis.
* Will be paid dividends on an as-converted basis equal to common stock
dividends.
This prospectus relates to 4,331 rights previously offered to Winter
Harbor, L.L.C. and 15,669 rights being offered to all other stockholders of
I-Link. This prospectus may be used in connection with the reoffer or
resale of securities under Winter Harbor's rights, as well as the offer,
sale or resale of securities under the other stockholders' rights.
Our common stock is listed on the Nasdaq SmallCap Market under the
symbol "ILNK." On April 30, 1999 the closing sale price of the common
stock as reported by Nasdaq was $4.375.
An investment in these securities involves a high degree of risk and
dilution. See "Risk Factors" beginning on page 7.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon
the accuracy or adequacy of this prospectus. Any representation to the
contrary is a criminal offense.
The date of this prospectus is [_____________], 1999
<PAGE>
Where You Can Find More Information
We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission (SEC). Our
SEC filings are available to the public over the Internet at the SEC's web
site at http://www.sec.gov. You may also read and copy any document we
file at the SEC's public reference rooms located in Washington, DC, New
York, NY and Chicago, IL. Please call the SEC at (800) SEC-0330 for
further information on the public reference rooms.
The SEC allows us to "incorporate by reference" the information we
file with them, which means that we can disclose important information
about us by referring you to those documents. The information incorporated
by reference is an important part of this prospectus. We incorporate by
reference the following document, filed with the SEC under the Exchange Act
of 1934: (1) Annual Report on Form 10-K for the fiscal year ended December
31, 1998; and (2) Current Report on Form 8-K, filed on May 3, 1999.
A copy of the Form 10-K is included with this prospectus. If you need
another copy of the Form 10-K you may request one at no cost, by writing or
telephoning us at the following address:
Corporate Secretary
I-Link Incorporated
13751 S. Wadsworth Park Drive, Suite 200
Draper, UT 84020
(801) 576-5000
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not
authorized anyone else to provide you with different information. We are
not making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information in this prospectus
or any prospectus supplement is accurate as of any date other than the date
on the front of those documents.
Prospectus Summary
This summary highlights information contained elsewhere in this
prospectus. It does not contain all of the information that you should
consider before investing in the Series N preferred stock. It should be
read in conjunction with the more detailed information elsewhere in this
prospectus and the financial statements and notes thereto incorporated by
reference. Each prospective investor is urged to read this prospectus
carefully, and in its entirety.
General
I-Link I-Link Incorporated was incorporated in the State of
Florida in 1983, and acquired its subsidiary I-Link
Communications, an FCC-licensed long distance
carrier, in January 1997. As a result of this
merger we initiated telecommunications services
activities to develop, sell and deliver enhanced
communications products and services.
In 1997, we launched a network marketing program for
our products and services through a subsidiary
company, I-Link Worldwide, L.L.C. We acquired I-
Link Worldwide, Inc. in 1996. In August 1997 we
1
<PAGE>
acquired MiBridge, Inc. and in the first quarter of
1998 formed the subsidiary ViaNet Technologies,
Ltd., which has its headquarters in Ramat Hasharon,
Israel, to advance our research and development
capabilities. We employ proprietary technology
acquired and developed by our subsidiaries I-Link
Systems, Inc. (formerly I-Link Worldwide, Inc.),
ViaNet and MiBridge to provide unique communications
solutions.
We market our telecommunications services primarily
through independent representatives to residential
and small business subscribers throughout the United
States. Our telecommunication services operations
began primarily with the acquisition of I-Link
Communications.
Our corporate offices are located at 13751 S.
Wadsworth Park Drive, Suite 200, Draper, Utah 84020;
telephone (801) 576-5000.
The Rights Offering
Rights You will receive one subscription right for each
1,589 shares of common stock you hold of record and
one right for each 1,589 shares of common stock that
your preferred stock is convertible into, on an as-
converted basis, including accrued and unpaid
dividends, as of the record date. If you have fewer
than 1,589 shares of common stock you will receive
no rights. No fractional rights will be offered or
issued; the number of rights distributed by I-Link
to each holder of common and preferred stock will be
rounded down to the nearest whole number. The
distribution of the rights and the issuance of
Series N preferred stock upon the exercise of the
rights or under the oversubscription privilege are
referred to as the "rights offering." See "The
Rights Offering - The Rights and Subscription
Privileges."
Securities Assuming that all 20,000 shares of Series N
Outstanding After preferred stock are issued in the rights offering,
Rights Offering and assuming they were all converted into shares of
common stock, there would then be 27,776,459 shares
of common stock outstanding. This compares to
20,582,214 shares of common stock outstanding before
the rights offering.
Record Date May 11, 1999.
Expiration Date June 30, 1999, 5:00 p.m., New York City local time.
Nontransferability
of Rights The rights are not transferable.
2
<PAGE>
Basic Subscription The basic subscription privilege entitles you to
Privilege. purchase one share of Series N preferred stock for
each of your rights.
Oversubscription Winter Harbor is the only party which has an
Privilege. oversubscription privilege. If you do not purchase
any or all of the Series N preferred stock that you
are entitled to under your basic subscription
privilege, Winter Harbor may choose to exercise its
oversubscription privilege to subscribe, at the
subscription price, for any shares of Series N
preferred stock you or others hold rights to, but do
not purchase. See "The Rights Offering -
Subscription Privileges - Oversubscription
Privilege."
Subscription Price $1,000 per share of Series N preferred stock under
the basic subscription privilege or the
oversubscription privilege. See "The Rights
Offering - Determination of Subscription Price."
Procedure for To exercise your rights, you should complete the
Exercising Rights subscription certificate and forward it, along with
payment of the subscription price for the number of
Series N preferred shares you would like to
purchase, to the rights agent for receipt on or
prior to the expiration date. If you plan to mail
the subscription certificate, we recommend that you
use insured, registered mail. See "The Rights
Offering - Exercise of Rights."
No Revocation. You may not revoke your subscription after the
rights agent receives your subscription certificate.
See "The Rights Offering - No Revocation."
Amendments and We reserve the right to amend the terms and
Termination conditions of the rights offering.
We may terminate the rights offering at any time
prior to delivery of the Series N preferred shares.
See "The Rights Offering - Amendments and
Termination."
Persons Holding If you hold shares of common or preferred stock
Shares, or Wishing through a broker, dealer, commercial bank, trust
to Exercise Rights company or other nominee and would prefer to have
Through Others those institutions act on your behalf with respect
to the rights, you should contact the appropriate
institution or nominee and inform them of your
wishes. See "The Rights Offering - Exercise of
Rights."
Rights Agent American Stock Transfer & Trust Company. See "The
Rights Offering - Rights Agent."
Terms of the Series N Preferred Stock
Conversion The Series N preferred stock may be converted into
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<PAGE>
common stock at the option of the holder. The rate
of conversion is determined by dividing $1,000 by
the Series N conversion price. The Series N
conversion price is set at $2.78.
Dividends. The Series N preferred stock will be entitled to
receive dividends on an as-converted basis equal to
the common stock, if dividends are paid on common
stock.
Subordination. If I-Link were to be liquidated, the Series N
preferred stock would be senior to all other series
of preferred stock or common stock, except that it
will be equal in seniority to the already
outstanding Series F preferred stock.
Voting The Series N preferred stock will vote along with
the common stock, on an as-converted basis, on all
matters which are submitted to a vote of the
stockholders. There could be exceptions to this
rule, as provided by law or by I-Link's articles of
incorporation or by-laws.
Other Information
Agreement Between At I-Link's option, Winter Harbor may be required to
I-Link and Winter reduce all balances due under the $8,000,000 bridge
Harbor as to loan and the $4,000,000 new loan (plus approximately
Subscription $500,000 in accrued interest) in exchange for Series
Privileges N preferred stock. I-Link expects to require that
Winter Harbor exercise its basic subscription
privilege for 4,331 Series N preferred shares and,
to the extent that other rights are available, I-
Link intends to require that Winter Harbor subscribe
for at least 8,169 additional shares of Series N
preferred stock. In that case, the amounts due and
accrued to Winter Harbor under the bridge loan and
new loan will be reduced to $0. In addition, Winter
Harbor may, if it chooses, purchase any Series N
preferred shares which are not subscribed for by
others, by exercising its exclusive oversubscription
privilege. Additional Series N preferred shares
purchased by Winter Harbor under the
oversubscription privilege will be paid for in cash.
See "Related Party Transactions."
Use of Proceeds. If all shares of Series N are sold in the rights
offering, net proceeds will be approximately
$19,900,000. Since Series N preferred shares
purchased by Winter Harbor under its basic
subscription privilege may be paid for, at I-Link's
option, by the exchange of debt, at least $4,331,000
of the proceeds is expected to be used to repay debt
which I-Link owes to Winter Harbor. We have the
option to require Winter Harbor to exchange up to an
additional $8,169,000 of debt, an amount which
represents the balance due under the $8,000,000
4
<PAGE>
bridge loan and $4,000,000 new loan (including
estimated accrued interest). To the extent that
Winter Harbor chooses to exercise its
oversubscription privilege for Series N preferred
stock in excess of the above amounts, or other
stockholders choose to exercise their basic
subscription privileges, I-Link will receive cash.
Thus, the maximum cash proceeds to I-Link are
estimated to be approximately $7,400,000. We intend
to use any cash proceeds from the offering for
working capital purposes. For more information see
"Related Party Transactions," and "Use of Proceeds."
Risk Factors For a discussion of the high degree of risk involved
in investing in the Series N preferred shares, see
"Risk Factors."
5
<PAGE>
Selected Financial Information
The following selected consolidated financial information for each of
the past five years including the year ended December 31, 1998, is derived
from the audited financial statements and related financial statement
notes, which are incorporated in this prospectus by reference. The
selected consolidated financial information should be read together with the
detailed information and financial statements incorporated herein
by reference.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
--------------- --------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Telecommunications services $ 19,634,681 $ 11,081,007 $ - $ - $
-
Marketing services 4,548,421 2,637,331 - - -
Technology licensing and
development 1,466,315 346,875 - - -
Other - - 170,532 - -
----------- ----------- ----------- ----------- -----------
Total revenues 25,649,417 14,065,213 170,532 - -
----------- ----------- ----------- ----------- -----------
Operating expenses:
Telecommunications
network expenses 19,099,194 14,634,999 1,120,779 -
- -
Marketing services costs 5,850,873 4,294,014 - - -
Selling, general,
administrative and other 20,345,293 20,997,262 18,536,090 -
-
----------- ----------- ----------- ----------- -----------
Total operating expenses 45,295,360 39,926,275 19,656,869 -
-
----------- ----------- ----------- ----------- -----------
Operating loss ( 19,645,943) ( 25,861,062) ( 19,486,337) -
- -
Other income (expense) ( 8,134,130) ( 2,806,630) ( 2,677,640) -
-
----------- ----------- ----------- ----------- -----------
Loss from continuing operations ( 27,780,073) ( 28,667,692) ( 22,163,977) -
-
Loss from discontinued operations ( 178,006) ( 1,191,009) ( 900,263) ( 551,909)
( 715,434)
----------- ----------- ----------- ----------- -----------
Net loss $( 27,958,079) $( 29,858,701) $( 23,064,240) $( 551,909) $(
715,434)
=========== =========== ===========
=========== ===========
Loss from continuing operations
applicable to Common Stock $( 37,621,215) $(118,360,731) $( 43,387,606) $(
128,669) $( 121,094)
=========== =========== ===========
=========== ===========
Net loss per common share -
basic and diluted:
Loss from continuing operations $ (2.13) $ (10.07) $ (6.40) $ (0.07) $
(0.08)
Loss from discontinued operations (0.01) (0.10) (0.13) (0.32)
(0.47)
----------- ----------- ----------- ----------- -----------
Net loss per common share $ (2.14) $ (10.17) $ (6.53) $ (0.39) $
(0.55)
=========== =========== ===========
=========== ===========
Balance Sheet Data:
Working capital $( 4,487,914) $( 2,955,180) $ 1,305,814 $ - $
- -
Property and equipment, net 7,262,781 3,551,917 1,575,769 -
-
Net assets of discontinued
operations 417,371 595,377 1,668,223 2,124,965
2,461,170
Total assets 23,855,363 24,252,876 9,864,696 2,124,965
2,461,170
Long-term obligations 8,371,933 1,921,500 236,705 669,799
525,380
Stockholders' equity (deficit) ( 16,953,363) 814,376 6,298,617 1,455,166
1,935,790
</TABLE>
In January 1997, our company acquired I-Link Communications, an FCC-
licensed long distance carrier. With that acquisition, we began our
telecommunications services operations. Effective December 31, 1997 we made
the decision to discontinue the operations of our Medical Imaging Division.
The Board of Directors approved the plan of disposal on March 23, 1998. The
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<PAGE>
net operating activities and net assets from the Medical Imaging Division
are presented separately as discontinued operations in the above table. In
1997, we launched operations of a network marketing program through I-Link
Worldwide, L.L.C., to market our products. Through our wholly-owned
subsidiaries, MiBridge, Inc., and ViaNet Technologies Ltd., we undertake
the research and development of new telecommunications products and
technologies, and the licensing of certain of these products and
technologies to other telecommunications companies. MiBridge was acquired
during the third quarter of 1997 and ViaNet was formed in the first quarter
of 1998.
Risk Factors
The securities described in this prospectus are speculative in nature
and involve a high degree of risk. You should only purchase these
securities if you can afford to lose your entire investment. Therefore,
prior to purchase, you should consider very carefully the following risk
factors, as well as all of the other information set forth elsewhere in
this prospectus.
Market-Related Risks
Current shareholdings may be adversely affected by the issuance of new
stock and the conversion of debt.
I-Link's issuance of additional stock, warrants, convertible preferred
stock and convertible debt, including the Series N preferred stock which is
a part of the current rights offering, will result in substantial dilution
to the interests of shareholders and may also result in the reduction of
your stock price. I-Link has issued a substantial amount of stock and
convertible securities to finance our operations and to meet our
obligations. I-Link may continue to issue stock and convertible securities
in the future to finance operations and expansion in the event that we are
unable to generate sufficient revenue from operations or other funds. The
sale of a substantial number of shares into the market, or even the
perception that sales could occur, could depress the price of the common
stock. Substantially all of I-Link's currently outstanding shares and
shares issuable upon conversion can be sold into the public market.
Current shareholders will be significantly diluted if convertible
securities and outstanding debt are converted into shares of common
stock.
"Dilution" refers to the reduction in the voting effect and
proportionate ownership interest of a given number of shares of common
stock as the total number of shares increases. Holders of I-Link common
stock have suffered significant dilution as a result of equity and debt
financing and will suffer further dilution in the event that holders of I-
Link's outstanding convertible securities, including shares of Class C
preferred stock, Series F preferred stock and Series M preferred stock,
warrants and options, convert their holdings. The exercise of warrants and
options, including options granted under I-Link's stock option plans and
employment agreements, may result in additional dilution.
The actual number of shares that could potentially be converted and
sold is uncertain because the Series F preferred stock and the Series M
preferred stock are convertible at variable rates based on a discount to
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<PAGE>
the market price of I-Link common stock. Currently there are shares of
preferred stock, options and warrants outstanding which may be converted to
or exercised for over 62,220,000 shares of common stock, which is over
three times the current number of shares outstanding. If all of these
securities were exercised or converted, the 62,220,000 new shares of common
stock to be issued would represent over 75% of the then-outstanding shares
of common stock.
As a result of the equity and debt financings entered into with Winter
Harbor, Winter Harbor would beneficially own over a majority (68%) of I-
Link's then-outstanding stock and already has the potential to take over
voting control of I-Link. In the event Winter Harbor were to acquire all
available share of Series N preferred stock, it would beneficially own
approximately 71% of the outstanding common stock. The potential of all of
these shares of common stock being issued and then sold into the market, or
the anticipation of those sales occurring, may result in a decrease in the
market price of I-Link's common stock, and may make it more difficult for
I-Link to attract additional equity financing. See "Description of
Securities," "Dilution" and "Related Party Transactions."
The additional dilutive impact of outstanding options, warrants and
convertible securities.
The holders of outstanding options, warrants and convertible
securities have the opportunity to profit from a rise in the market price
of the common stock, if any, without assuming the risk of ownership, with a
resulting dilution in the interests of other shareholders. I-Link may find
it more difficult to raise additional equity capital if it should be needed
for its business while the options and warrants are outstanding. At any
time at which the holders of the options, warrants or convertible
securities might be expected to exercise them, I-Link would probably be
able to obtain additional capital on terms more favorable than those
provided by those securities. Also, some holders of the options and
warrants have the right to require registration under the Securities Act of
the shares of common stock that are issuable upon exercise of their options
and warrants. The cost to I-Link of effecting any required registration
may be substantial. See "Dilution."
I-Link does not anticipate paying cash dividends on its securities.
I-Link has not paid any dividends on any of its outstanding securities
to date, except to the extent that accrued dividends have been calculated
and added to the value of the shares of Series F preferred stock which have
been already converted. Other than as set forth in this prospectus, I-Link
does not anticipate paying any cash dividends on its securities in the
foreseeable future. I-Link currently intends to retain all cash flow from
operating activities, if any, to finance its operations and to expand its
businesses. I-Link's future cash flow may be insufficient to enable
payment of cash dividends. As of May 11, 1999, the aggregate amount of
undeclared and unpaid cumulative dividends for each class of I-Link's
preferred stock, and the number of shares of common stock which could be
issued in lieu of the cash dividends, is as follows:
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<PAGE>
<TABLE>
<CAPTION>
Dividend Number of Shares of Common
Class of Security Payable Stock Issuable as Dividends
------------------------ ----------- ---------------------------
<S> <C> <C>
Class C preferred stock $452,880 95,696
Series F preferred stock $276,667 136,088
Series M preferred Stock $1,889,589 n/a
</TABLE>
Dividends on the Class C preferred stock will be payable when declared
by the Board of Directors, to the extent permissible under the Florida
Business Corporation Act, to the holders of the Class C preferred stock in
cash or, at the option of I-Link as determined by the Board of Directors,
in shares of common stock. Dividends may be paid in shares of common stock
only if the shares have been registered under the Securities Act.
Dividends on the Series F preferred stock are payable in shares of common
stock. In connection with the Winter Harbor equity investment in I-Link,
I-Link issued an aggregate of 4,400 shares of Series M preferred stock.
The Series M preferred stock will be entitled to receive cumulative
dividends in the amount of 10% per annum.
Operational Risks
I-Link must raise additional financing to meet its ongoing capital
requirements
I-Link currently has no material commitments for capital or other
expenditures, other than as set forth in this prospectus. There is the
risk that necessary additional financing may not be available to I-Link on
terms that it considers reasonable or favorable; or needed financing may
not be available at all. Failure to secure necessary financing when needed
would have a serious detrimental effect on the continued growth of the
business. However, it is I-Link's intention to continue to implement the
growth of our business and expand our operations. We anticipate that
revenues generated in 1999 from our continuing operations will not be
sufficient to fund our ongoing operations, including the continued
expansion of our private telecommunications network facilities, product
development and anticipated growth in our subscriber base. To provide a
portion of the required capital, I-Link has entered into the following
financing arrangements:
(1) In November 1998, I-Link reached an agreement with Winter Harbor
for a four part financing plan for:
(a) bridge loans of up to $8,000,000;
(b) a standby letter of credit of up to $3,000,000;
(c) a commitment from Winter Harbor to not demand repayment of
the $7,768,000 financing (from 1998) prior to April 15,
2000; and
(d) an additional $12,000,000 in connection with this rights
offering; and
(2) In April 1999, an agreement was reached with Winter Harbor to
borrow an additional $4,000,000.
Beyond these arrangements, additional funds will be necessary from
public or private financing markets to successfully integrate and finance
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<PAGE>
the planned expansion of our business communications services, and to
discharge our financial obligations.
I-Link will incur additional obligations if it fails to meet minimum
purchase requirements under its Sprint and other contracts.
I-Link has a contract with Sprint Communications Company for the
purchase of long distance services which are resold to some I-Link
customers. Our agreement with Sprint requires that we pay a minimum
monthly amount to Sprint, whether or not we need or use that amount of
services. If we are unable to resell enough long distance services to our
own customers which will cover the minimum contracted monthly level of
service, we will have a loss in that area of our business equal to the
difference. The original Sprint contract called for a monthly minimum
payment of $1,200,000. Because we moved many customers to services
provided exclusively on our own private network and no longer needed to
purchase higher volumes from Sprint, in late 1998 we negotiated an
amendment of the Sprint agreement, and now we are required to purchase and
pay for at least $550,000 in services from Sprint per month. As a result of
our negotiations, Sprint waived all prior shortfalls in reaching the prior
monthly minimum. Currently I-Link is meeting its monthly obligations under
the amended arrangement.
In January 1999, I-Link entered into an agreement with another
national carrier to lease local access spans. Local access spans allow
customers connectivity from their local dial-up service to I-Link's
network-supplied services. The three-year agreement includes minimum usage
commitments of $1,512,000 during the first year and $2,160,000 in the
second and third years. If we were to terminate the agreement early, we
would be required to pay any remaining first year minimum monthly usage
requirements and pay 25% of any remaining second and third year minimum
monthly usage requirements. I-Link is currently meeting its monthly
obligations under this agreement.
I-Link must continue to exploit its network marketing sales program and
realize subscriber growth to compete with better capitalized enterprises.
I-Link's future subscription growth is largely dependent on the
subscriber base initially achieved through its network sales program
launched in June 1997. As an expanding business, I-Link must realize
subscriber growth in order to compete with larger, more mature, better
capitalized enterprises. In order to realize subscriber growth, I-Link must
be able to replace terminating subscribers and attract additional
subscribers. However, the sales and marketing expenses and other costs
associated with attracting new subscribers are substantial. Accordingly,
our ability to improve operating margins will depend in part on our ability
to attract new subscribers and retain existing subscribers. We plan to
invest significant resources in our telecommunications infrastructure,
customer support resources, sales and marketing expenses and subscriber
acquisition costs. There is no guarantee that our future efforts in this
area will improve subscriber growth and retention. Since the market for
our services is relatively new and the utility of available services is not
well understood by new and potential subscribers, it is not possible to
predict future subscriber retention rates.
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I-Link's Board of Directors may issue additional shares of preferred stock
without shareholder approval.
Our articles of incorporation authorize the issuance of up to
10,000,000 shares of preferred stock with rights and preferences that may
be determined from time to time by the Board of Directors. To date,
513,500 shares of preferred stock have been designated. Accordingly, the
Board of Directors may, without stockholder approval, issue one or more new
series of preferred stock with rights which are senior to the Series N
preferred shares or which could adversely affect the voting power or other
rights of the holders of outstanding shares of preferred stock or common
stock. In addition, the issuance of additional shares of preferred stock
may have the effect of rendering more difficult, or discouraging, an
acquisition or change in control of I-Link. Although I-Link does not have
any current plans to issue any additional series or shares of preferred
stock, except for the preferred stock to be issued in this rights offering,
I-Link may do so in the future. See "Risk Factors -- Current shareholdings
may be adversely affected by the issuance of new stock and the conversion
of debt."
I-Link's classification of Board of Directors makes it difficult for
shareholders to effect changes in management.
The classification of the Board of Directors makes it difficult for
shareholders to effect a change in management. Our Board of Directors is
divided into three classes. Members of each class serve for staggered
three year terms, with members of one class coming up for election each
year.
Winter Harbor has potential voting control over I-Link.
If Winter Harbor exercises all of its warrants, including the warrants
potentially available under the new loan, converts its Series M preferred
stock to common stock and buys all the rights to purchase Series N
preferred stock, it has the potential to own approximately 55,400,000
shares, or 73%, of I-Link's then-outstanding common stock. These include:
* nearly 6,900,000 shares of common stock from the conversion of 4,400
shares of Series M preferred stock;
* over 8,800,000 shares of common stock directly and indirectly
available from the optional conversion by Winter Harbor of $7,768,000
in promissory notes issued in 1998;
* nearly 7,200,000 shares of common stock underlying all 20,000 shares
of Series N preferred stock;
* up to 28,540,000 shares of common stock underlying warrants which are
exercisable at any time; and
* up to 4,000,000 shares of common stock underlying warrants to be
issued on or after September 30, 1999 in the event that I-Link elects
to extend the maturity date under the new loan and shareholders do not
approve modifications to the Series N preferred stock conversion
price. See "Related Party Transactions."
Thus Winter Harbor could at any time obtain sufficient voting power to
take control of I-Link. Mr. Keenan serves on the Board of Directors as the
designee of Winter Harbor. See "The Rights Offering," "Description of
Securities" and "Related Party Transactions."
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Winter Harbor can prevent I-Link from engaging in certain business matters.
I-Link faces the risk of being forced to forego business
opportunities, conducting its business in a routine manner or otherwise
increasing shareholder value because Winter Harbor has the right to
preclude I-Link from engaging in a variety of business activities without
its concurrence, including among other things: mergers, acquisitions and
dispositions of corporate assets and businesses, hiring or discharging key
employees and auditors, transactions with affiliates, commitments in excess
of $500,000, the adoption or settlement of employee benefit plans and
filing for protection from creditors.
Industry Risks
I-Link must stay current in industry standards and general economic trends
to compete in the communications services industry.
Our ability to compete in the communications services industry
requires that we stay current in industry standards and general economic
trends. Our ability to compete is dependent on maintaining the following:
the capacity, reliability, and security of our Intranet infrastructure; our
market presence; the timing of introductions of new products and services
into the market; our ability to support existing and emerging industry
standards; preserving the balance of network demand with our fixed
expenses. We believe that no competitor in North America currently provides
capabilities and an Internet Protocol (IP)-based platform for delivering
enhanced services in a manner comparable with I-Link. However, there are
many companies that offer communications services, including a few that
have recently introduced IP-based standard services or announced an
intention to do so, and therefore compete with I-Link on some level. These
entities include large telecommunications companies and carriers such as
AT&T, MCI WorldCom and Sprint, and smaller, regional resellers of telephone
line access. These companies and others, including manufacturers of
hardware and software used in the business communications industry, could
in the future develop products and services that compete with I-Link on a
more direct basis, which would pose the risk of costing I-Link its
customers. In many instances these entities are better capitalized than I-
Link and control significant market share in their respective industry
segments. In addition, other businesses may be attempting to introduce
products similar to those used by I-Link for the transmission of business
information over the Internet. Our inability to compete in the
communications industry will negatively affect our profitability.
If I-Link cannot continue to provide a lower rate to customers it may lose
profits.
Our ability to undersell primary sellers is essential to our ability
to attract and retain customers. We are able to provide customers with
lower rates as a result of the volume discount offered to I-Link in
accordance with the terms of its contract with Sprint. Currently the total
charged to our customers for various long distance services is
comparatively less than the rates charged by a primary seller of similar
services. We believe that lower rates are essential to our ability to
attract and retain customers. Therefore, narrowing of the difference
between our rates and the cost of the bulk-rate long distance services we
purchase for resale to our customers could have a significant negative
effect on our profitability. To the extent this differential decreases, we
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will need to spend even more effort to maintain and attract new customers.
If I-Link is unable to continue to lease telecommunication lines from major
suppliers its operations may be significantly impaired.
I-Link's ability to transmit long distance telephone calls on a cost
effective basis, is dependent on transmission facilities leased from
carriers that compete with I-Link. A significant portion of these leased
telecommunications lines are currently provided by Sprint, MCI WorldCom, US
West, Pacific Telesis, Southwest Bell, IXC, Qwest Communications, and Level
III. Further, we use Sprint as our primary supplier of inbound and
outbound telephone services in geographic areas our own network does not
cover. I-Link, like other companies in its industry, is vulnerable to
changes in its lease arrangement. While I-Link has no prior history of
lease-related problems, if any of these suppliers are unable or unwilling
to provide or expand their current levels of service to us in the future,
our operations could be significantly impaired. Although leased
telecommunications lines are available from several alternative suppliers,
there can be no assurance of our being able to obtain substitute services
from them at reasonable or comparable prices or in a timely fashion. We
are also subject to those risks relating to the potential disruptions in
these telecommunications services that could occur in the future. Changes
in tariffs, regulations, or policies by any of our telecommunications
providers may impede our ability to continue to offer long distance service
on what we consider to be commercially reasonable or profitable terms.
I-Link and the long-distance industry in general experience high rates of
customer attrition.
We believe that a high level of customer attrition is common in the
direct dial, long distance industry. I-Link does not have a long history
of operations and accordingly, the level of customer attrition experienced
to date may not be indicative of future attrition levels. In addition, any
steps taken by I-Link to counter increased customer attrition could prove
to be unsuccessful.
Changes in regulations affecting I-Link's operations could have a material
adverse effect on the value of I-Link common stock.
Changes in the regulation of, or the enactment or changes in
interpretation of legislation affecting, our operations could have a
material adverse effect on I-Link and the value of the common stock. Some
of I-Link's operations are subject to regulation by the Federal
Communications Commission ("FCC"). In addition, some of our businesses are
subject to regulation by state public utility or public service
commissions. Recently, the Federal Government enacted the
Telecommunications Act of 1996, which, among other things, allows the
Regional Bell Operating Companies, or RBOCs and others to enter the long
distance business. Entry of the RBOCs or other entities, such as electric
utilities and cable television companies, into the long distance business
may have a negative impact on I-Link or its customers. We anticipate that
some of those companies entering this business will be strong competitors
because, among other reasons, they may enjoy one or more of the following
advantages: they may (a) be well capitalized; (b) already have substantial
end user customer bases; or (c) enjoy cost advantages relating to local
loops and access charges. The introduction of additional strong
competitors into the switched long distance business would mean that I-Link
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would face substantially increased competition. This could have a material
adverse effect on I-Link and the value of the common stock. In addition,
the Telecommunications Act provides that state proceedings may in some
instances determine access charges I-Link is required to pay to the local
exchange carriers. No assurance can be given that these sorts of
proceedings will not result in increases in rates. Increases could have a
material adverse effect on I-Link or its customers, and on the value of the
common stock.
I-Link Communications' activities are regulated by the public utility
commissions of the various states in which I-Link operates. Also,
decisions by the FCC with respect to the permissible business activities or
pricing practices may have an adverse impact on I-Link Communications'
operations. I-Link Communications could be subject to complaints seeking
damages and other relief filed by parties claiming to be harmed by I-Link
Communications' failure to file tariffs. Moreover, any significant change
in regulations by state governmental agencies could significantly increase
I-Link Communications' costs or otherwise have an adverse impact on I-Link
Communications' activities and on its expansion efforts. The FCC has
recently taken or is currently considering action on various proposals,
including proposals relating to interstate access transport services,
public filing of rates, proprietary calling cards and billed party
preference. Additionally, legislation has recently been enacted in
Congress further liberalizing the telecommunications industry, specifically
by permitting the Bell Operating Companies, to provide service in the long
distance market and allowing the long distance carriers such as AT&T, MCI
WorldCom, and I-Link into the local markets. Although safeguards have been
inserted into the legislation to ensure fair competition, there can be no
assurance that the entry of the Bell Operating Companies into the long
distance market will not have a material adverse effect on I-Link's
business.
I-Link's internet-related business may be subject to additional
governmental regulation.
I-Link has been moving its customers off the facilities of existing
long distance carriers, and has increased its reliance on its own
proprietary Internet protocol network, or I-Link Intranet, for transmission
in the hope of enjoying minimal federal regulation under current rules.
However, the FCC's potential jurisdiction over the Internet is broad given
that the Internet relies on wire and radio communication facilities over
which the FCC has long standing authority. While historically the FCC has
not regulated companies that provide the software and hardware for Internet
telephony or other Internet data functions, as common carriers or
telecommunications service providers, and in May 1997 the FCC concluded
that information and enhanced service providers are not required to
contribute to federal universal service funding mechanisms, the FCC's
framework for "enhanced services" confirms that the FCC has authority to
regulate computer-enriched services.
I-Link faces continued exposure to tort liability in the medical industry
through its discontinued medical division.
I-Link directly or indirectly controls two business entities that
comprise I-Link's discontinued medical facilities. As such, I-Link is
exposed to general liability for contracts entered into by those businesses
and for torts committed by I-Link's agents and employees. I-Link is also
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exposed to tort liability in the events of claims of harm to patients due
to the negligence of I-Link, its agents or employees. Any liability claim
could have a substantial negative effect on I-Link's financial position.
I-Link's discontinued medical division operated medical equipment which was
used to perform procedures on or diagnose disease in patients; however, I-
Link has sold substantially all of the assets of those businesses and only
operates them now in order to collect accounts receivable and pay
liabilities. I-Link currently maintains professional liability insurance
coverage in the amount of $1,000,000, and I-Link also maintains an umbrella
policy covering, among other things, workers compensation, general, and
automobile liability in an amount of $9,000,000 in coverage. There is no
assurance that I-Link will be able to continue to maintain similar
insurance coverage in the future.
Technological Risks
The success of I-Link's operations requires continued adaptation to new
services and technological change.
Our success is highly dependent upon our ability to develop new
software and services, and network infrastructure to meet changing customer
requirements. The market for our services is characterized by rapidly
changing technology, evolving industry standards, emerging competition and
frequent new software and service introductions. Our future success will
depend, in part, on our ability to anticipate changes and to offer on a
timely basis market responsive services that meet evolving industry
standards. Our pursuit of technological advances will require substantial
time and expense. In the event that we fail to develop new software and
network infrastructure expansion in a timely manner, it will adversely
affect our overall business, financial condition and results of operations
in the future. See "Technological Risks - The success of I-Link's
operations requires continued adaptation to new services and technological
change."
Year 2000 Issues
I-Link's Year 2000 (Y2K) program is designed to minimize the
possibility of serious Y2K interruptions. Possible worst case scenarios
include the interruption of significant parts of I-Link's business as a
result of critical telecommunication networks and/or information systems
failure. Any such interruption may have a material adverse impact on
future results. Since their possibility cannot be eliminated, I-Link formed
a "Year 2000 Team" during 1998 to evaluate its information technology (IT)
systems as well as its non-IT devices, such as building security, heating
and air-conditioning, safety devices and other devices containing embedded
electronic circuits. I-Link does not believe its non-IT systems will be
significantly affected by Y2K. Nevertheless, the Y2K project team is
continuing to evaluate the readiness of all of the facilities the we occupy
to be certain that the non-IT systems will be compliant. I-Link
anticipates its IT and non-IT systems will be Y2K compliant by September
30, 1999.
State of Readiness. Our approach to the Y2K issue includes six major
phases: Inventory, Assessment, Remediation, Testing, Implementation, and
Contingency Planning. Several phases of this methodology are well
underway. The Inventory and Assessment phases are nearly complete, and
efforts have begun in Remediation and Testing. Based upon the results of
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the assessment, a significant portion of our software and hardware already
appears to be Y2K compliant, though we intend to confirm that opinion in
the Testing phase. As we began operations in 1996, much of the hardware
and software currently in use at I-Link was Y2K compliant when acquired and
implemented.
While we continue to assess various aspects of our Y2K vulnerability,
the project team has begun the process of remediating or replacing systems
and devices that do not appear to be fully compliant. Much of this
remediation effort involves readily available, simple upgrades to hardware
and software components, or relatively minor changes to I-Link's in-house
developed systems. We intend to complete the Remediation phase, except for
the billing system discussed below, by July 31, 1999. Total costs, past
and future, of all remediations are not expected to exceed $225,000. We do
not believe that our use of internal resources will significantly delay any
other systems development efforts. We have initiated testing of some
systems to confirm that they can process calendar dates after December 31,
1999.
I-Link believes that reliance on other telecommunications providers
represents our greatest Y2K exposure and is the primary third-party
relationship that is critical to our ongoing operations. While we have our
own communications network to carry much of our traffic, our network is
dependent upon significant third-party carriers, such as Sprint, and all
local exchange carriers (called LECs), such as U.S. West and PacBell. These
entities originate and terminate local and long-distance caller traffic
which accesses the I-Link communications network or services areas not
covered by I-Link's network. This is substantially the same risk faced by
other telecommunications providers. I-Link is in the process of evaluating
the Y2K preparedness of its carriers and the many LECs. I-Link's carriers
have indicated they intend to be Y2K compliant in public filings and other
notifications. In the event that these carriers do not become Y2K
compliant prior to December 31, 1999, we would need to switch to carriers
who were Y2K compliant or face a significant impact on our ability to
deliver telecommunications services. In the event our current carriers do
not become Y2K compliant and we are unable to switch to a carrier(s) that
is Y2K compliant, we would not be able to deliver our services, which would
have a substantial negative impact on I-Link and its results of operations,
liquidity, and financial position. In the event that certain LECs are not
Y2K compliant, I-Link's customers would not be able to originate or
terminate a call in geographic areas serviced by that LEC, which would
negatively impact the financial condition of I-Link.
In order to assess the preparedness of third party vendors including
I-Link's carriers and LECs, we are surveying the vendors and their public
statements and Web sites. At the conclusion of our internal and third
party assessments, we intend to complete contingency plans to address
various scenarios in which key vendors and suppliers may not be Y2K
compliant.
The internal system I-Link believes most vulnerable to Y2K problems is
the existing billing system which: (1) gathers call detail records (CDRs);
(2) processes the CDRs into billable CDRs; (3) rates the CDRs; (4) prepares
invoices to customers; (5) and records payments received. The inability of
our billing system to operate in the Year 2000 would adversely impact the
recognition and collection of revenue, and therefore, could negatively
impact the results of operations and financial position. The current
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billing system contains some programs that are not Y2K compliant. I-Link
has contracted with an outside consulting company to design and implement a
new operations and customer care software program, part of which would
replace the existing billing system. This new software program is designed
to be Y2K compliant and thus we anticipate that the possibility of
significant interruption of normal business related to the billing system
is not significant. I-Link anticipates the implementation of this system
by August 1999. Nevertheless, in order to mitigate the risk that
implementation schedules could slip, we are also currently making changes
to the existing billing system that would reduce Y2K exposure if the
enhanced billing system were unavailable for use by the end of the year.
The cost of these modifications to the existing billing system would not
exceed $30,000, and would involve internal resources only such as salaries
and benefits.
Costs. I-Link is primarily using internal resources to identify, assess,
correct, test, and implement solutions for minimizing Y2K consequences, but
expects to incur some additional consulting, upgrade, and other expenses.
The total cost of modifications and conversions is not known at this time.
However, we have already expended approximately $30,000 to date for
upgrades, and approximately $20,000 on internal resources for Y2K
preparation. We estimate the remaining expenditures for outside services
and upgrades should not exceed $100,000 and internal resources should not
exceed $75,000. I-Link expects to fund such expenditures from investments
or loans from outside parties.
Risks. The failure to correct a material Y2K problem could result in an
interruption of normal business activities. Such a disruption could
materially and adversely affect our results of operations, liquidity and
financial condition. Our assessment of Y2K risk does not cover all
possible catastrophic events, such as the failure of electrical power grids
or the general telecommunications infrastructure. The following reasonably
likely worst case scenario is based upon conceivable, though not probable,
worst-case disruptions to I-Link's revenue cycle.
I-Link's revenue cycle is dependent on the ability to complete
customer calls and integrate the related CDRs into the billing system
described above. Our ability to complete calls is contingent upon the Y2K
compliance of the underlying carriers and LECs, which have represented that
they will be ready. Barring a long-term, catastrophic failure of
electrical services or the telecommunications industry in general, the most
likely worst-case scenario would be a general failure of I-Link's own
communications network, which carries its call traffic. In that case, we
would not be able to provide enhanced services, such as V-Link, but
customers could still complete long-distance calls as those calls would be
routed over I-Link's carriers' networks. However unlikely, such an event
would seriously and adversely affect operating margins, but operations
could continue until reparations were made. Continuing on with the worst-
case scenario, a failure of our ability to collect CDRs might prevent the
timely billing of services. Such a failure would result in a cash-flow
exposure to I-Link for as long as it may require to correct CDR collection
programs. Since the billing process occurs two to three weeks after the
close of any period, minor problems would probably have minimal financial
impact. Nevertheless, if corrections required a significantly longer time
period, customer billing, revenue collection and cash flows could be
delayed and bad debts increased to the extent that material damages to I-
Link could result. We intend to test various components of this scenario
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to reduce exposure to this reasonably likely worst case scenario.
Milestones and implementation dates and the costs of our Y2K readiness
program are subject to change based on new circumstances that may arise or
new information becoming available that may alter underlying assumptions or
requirements.
Statements included in this prospectus under the heading "Risk
Factors," in addition to statements contained elsewhere in this prospectus
or incorporated by reference, that are not statements of fact are "forward-
looking statements" within the meaning of the private Securities Litigation
Reform Act of 1995, and are thus prospective. The forward-looking
statements are subject to risks, uncertainties and other factors that could
cause actual results to differ materially from future results expressed or
implied by any forward-looking statements. Forward-looking statements can
be identified by the use of forward-looking terminology such as "may,"
"will," "should," "expect," "intend," "estimate" or "continue" or the
negative thereof or comparable terminology. The matters set forth under
the caption "Risk Factors" in the prospectus constitute cautionary
statements identifying important factors with respect to forward-looking
statements. Undue reliance should not be placed on these forward-looking
statements, which speak only as of the date of this prospectus, and I-Link
undertakes no obligation to update these forward-looking statements.
Use Of Proceeds
The net proceeds available from the rights offering will be
approximately $19,900,000. Since Series N preferred shares purchased by
Winter Harbor under its basic subscription privilege may be paid for, at I-
Link's option, by the exchange of debt, at least $4,331,000 of the proceeds
is expected to be used to repay debt which I-Link owes to Winter Harbor.
We have the option to require Winter Harbor to exchange up to an additional
$8,169,000 of debt, an amount which represents the balance due under the
$8,000,000 bridge loan and $4,000,000 new loan (including estimated accrued
interest). To the extent that Winter Harbor chooses to exercise its
oversubscription privilege for Series N preferred stock in excess of the
above amounts, or other stockholders choose to exercise their basic
subscription privileges, I-Link will receive cash. Thus, the maximum cash
proceeds to I-Link are estimated to be approximately $7,400,000 assuming
that I-Link elects to have all Winter Harbor debt exchanged for shares
Series N preferred stock. I-Link may in fact elect to exchange less than
all of its outstanding debt at the time the rights offering closes and it
reserves the right to retain any cash proceeds and repay such debt when it
comes due by its terms. We intend to use any cash proceeds from the
offering for working capital purposes.
</>R
Determination of Offering Price
The subscription price of the rights was determined by I-Link in
negotiation with Winter Harbor, and is not necessarily related to the
assets, book value or net worth of I-Link or any other established criteria
of value, and may not be indicative of the fair value of the securities
offered.
Dilution
Although, other than as disclosed in this prospectus, there are no
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present plans, agreements or undertakings with respect to I-Link's issuance
of any shares of stock or related convertible securities, any such issuance
could dilute I-Link's publicly held ownership. Inasmuch as I-Link may, in
the future, issue authorized shares of common stock or preferred stock
without prior stockholder approval, there may be substantial dilution to
the interests of I-Link's stockholders. Common stockholders will also
suffer significant dilution in the event that any of I-Link's outstanding
convertible securities, including outstanding shares of Class C preferred
stock, Series F preferred stock and Series M preferred stock, warrants and
options are converted by the holders thereof. See "Description of
Securities." Additional dilution may result in the event of the exercise of
warrants and options, including options granted under I-Link's stock option
and purchase plans and employment agreements.
I-Link has authorized capital stock of 150,000,000 shares of common
stock, $.007 par value per share and 10,000,000 shares of preferred stock,
$10.00 par value per share. As of May 11, 1999, there were 20,582,214
shares of common stock issued and outstanding. Currently the following
securities are outstanding, which may be converted to, or exercised for,
shares of common stock. See also "Risk Factors - Future Issuances of Stock
by I-Link; Potential Anti-Takeover Effect."
* 37,927 shares of Class C preferred stock, convertible into
910,248 shares of common stock
* 664 shares of Series F preferred stock convertible into 3,266,109
shares of common stock
* 4,400 shares of Series M preferred stock, convertible into
6,881,253 shares of common stock (includes 929,458 shares payable
in dividends on Series M preferred stock)
* $7,768,000 of Winter Harbor Convertible Debt, convertible into
3,820,954 shares of common stock
* Winter Harbor Warrants, exercisable for 28,540,000 shares of common
stock (includes the issuance of 9,900,000 warrants due to the non-
repayment of Bridge Loan debt by April 26, 1999)
* Winter Harbor Warrants (contingent on debt conversion) exercisable
for 5,000,000 shares of common stock
* Other Options and Warrants, exercisable for 13,140,170 shares of
common stock
If all of the above securities were exercised or converted, a total of
62,215,519 new shares of common stock would be issued. That number
represents approximately over three times the current number of shares
outstanding, and would represent approximately 75% of the common stock
outstanding after all 62,215,519 shares were issued. The potential of
these underlying shares of common stock being issued and then sold into the
market, or the perception that sales may occur, may result in a decrease in
the market price of I-Link's common stock, and may make it more difficult
for I-Link to receive additional equity financing.
Related Party Transactions
During the first and second quarters of 1998 I-Link obtained an
aggregate of $7,768,000 in interim debt financing from Winter Harbor. As
consideration for Winter Harbor's commitment to make the loan, I-Link
agreed to issue 6,740,000 warrants to purchase I-Link common stock at
exercise prices ranging from $5.50 to $7.22. The warrants have exercise
periods of 7.5 years from issuance. I-Link also agreed to extend the
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exercise period on all warrants previously issued to Winter Harbor,
totaling 10,800,000 shares of common stock, to seven and one-half years.
According to the terms of that loan agreement with Winter Harbor, the
initial borrowings of $5,768,000 were payable upon demand by Winter Harbor
no earlier than May 15, 1998, and were collateralized by essentially all of
the assets of I-Link subsidiaries. Because the loan was not repaid by May
15, 1998, the total loan, including additional borrowings of $2,000,000
obtained in the second quarter, continues on a demand basis with interest
accruing at prime plus four percent. On April 15, 1999 Winter Harbor
agreed that it will not demand payment under these promissory notes prior
to April 15, 2000. Additionally, Winter Harbor has the right to elect at
any time until the loan is repaid to convert the unpaid balance of the loan
into additional shares of I-Link Series M preferred stock, reduce the
exercise price of the 6,740,000 Loan Warrants to $2.50 per share, and
receive an additional 5,000,000 warrants to purchase common stock of I-Link
at an exercise price of $2.50 per share.
In June 1998, JNC Opportunity Fund Ltd. purchased 1,000 shares of
Series F preferred stock for cash consideration of $10,000,000. Each share
of Series F preferred stock has a stated value of $10,000 plus any accrued
unpaid dividends, and may be converted at any time. As of May 11, 1999 JNC
has converted 336 shares of Series F preferred stock into 1,680,743 shares
of common stock, and 664 shares of Series F preferred stock remain
outstanding. As of the record date, each outstanding share of Series F
preferred stock may be converted into approximately 4,919 shares of common
stock. If all outstanding shares of Series F preferred stock were
converted on that date, 3,266,109 new shares of common stock would be
issued, without giving effect to the limitations contained in the terms of
the Series F preferred stock. I-Link is currently addressing the possible
elimination of one of these restrictions, as JNC has requested that I-Link
hold a shareholders meeting to approve the issuance of shares of common
stock by conversion of the Series F, in excess of 20% of the number of
shares of common stock outstanding on the date the Series F was originally
issued.
In November 1998, I-Link reached an agreement in principal for a new
financing arrangement with Winter Harbor. Under the terms of the new
financing arrangement, Winter Harbor will provide to I-Link a new bridge
loan facility of up to $8,000,000. The maturity date for the bridge loan
facility is October 31, 1999. The bridge loan will be junior to I-Link's
existing debt to Winter Harbor and shall be on an equal basis with the
balance of I-Link's general obligations. The bridge loan will be secured
by the assets of I-Link via a second priority lien that will be junior to
the existing first lien granted by I-Link to Winter Harbor. Amounts drawn
against the bridge loan will bear interest at rates that increase from
quarter to quarter until the maturity date. The initial interest rate will
be the Wall Street Journal prime rate plus four points. The rate will
increase by one point every succeeding three-month period subject to a
maximum rate equal to the Wall Street Journal prime rate plus seven points.
To date, I-Link has drawn the entire allowable amount (approximately
$7,400,000) against the bridge loan and owes Winter Harbor an additional
$600,000 in accumulated interest and legal fees related to the prior Winter
Harbor financing. For each ten dollars of bridge loan drawn, I-Link will
issue to Winter Harbor a warrant to purchase one share of common stock, at
an exercise price of $2.78 per share. The warrants shall have a maturity
date of 7.5 years from the date of issue, and will have demand and
piggyback registration rights. Because I-Link elected not to repay all
20
<PAGE>
amounts drawn down on the bridge loan by April 26, 1999, it must, in lieu
thereof, issue additional warrants to Winter Harbor, so that the total
number of warrants issued would increase to one warrant for each one dollar
outstanding (or a total of 8,000,000 warrants). I-Link anticipates there
will be a change in our financial statements related to the additional
warrants issued as the remaining funds available are drawn down. I-Link
obtained stockholder approval under the maintenance criteria of the Nasdaq
Stock Market in connection with its election not to repay all amounts drawn
down on the bridge loan by April 26, 1999.
Additionally, Winter Harbor assisted I-Link in obtaining a standby
letter of credit in the amount of $3,000,000, by acting as the account
party thereto, to secure additional capital leases of equipment and
telephone lines relative to the proposed expansion of I-Link's
telecommunications network. For its assistance, I-Link will pay Winter
Harbor a facility fee of 1% per annum on the portion of the letter of
credit that is not used, and issue to Winter Harbor warrants to purchase
300,000 shares of common stock on the same terms as the bridge loan
warrants. Since I-Link elected not to repay all amounts drawn down on the
bridge loan by April 26, 1999, then Winter Harbor will receive similar
warrants to purchase an additional 2,700,000 shares of common stock.
In April 1999 I-Link and Winter Harbor agreed in principal to a new
loan of up to $4,000,000. The terms of the new loan will be substantially
identical to the terms of the bridge loan except that no warrants were
issued upon origination of the new loan. The September 30, 1999 maturity
date under the new loan may be extended, at I-Link's option, to April 15,
2000. In the event that I-Link elects to extend the maturity date to April
15, 2000 and I-Link's shareholders approve a modification to the conversion
price of the Series N preferred stock, then no additional warrants will be
issued to Winter Harbor. The proposed modification of conversion terms
would link the Series N preferred stock rate of conversion to the exercise
price or conversion rate of any new options, warrants, preferred stock or
other convertible security that I-Link may issue, or to the conversion rate
of the Series F preferred stock. It would also establish a floor to the
conversion price of $1.25 per share. This proposal will be considered by
I-Link stockholders at their annual meeting tentatively scheduled to occur
in June 1999. I-Link does not know if it will elect to extend that
maturity date, but it does intend to seek shareholder approval of the
conversion price modification. There is no assurance that the conversion
price modification will be approved. In the event that the modification
to the Series N conversion price is not approved and the maturity date is
extended to April 15, 2000, I-Link will be required to issue to Winter
Harbor one warrant for each $1 of principal outstanding under the new loan
(or, up to 4,000,000 new warrants) as of the date of such extension. The
new warrants issued as a result of the extension under the new loan will be
issued on the same terms and conditions as the warrants issued under the
bridge loan.
The Rights Offering
The Rights
I-Link is distributing to each record holder, at no cost to the record
holder, nontransferable rights to purchase Series N preferred stock. One
right will be distributed for each 1,589 shares of common stock currently
held, and for each 1,589 shares of common stock that the Series M preferred
stock is convertible into (including accrued dividends), as of the record
date. The rights will be evidenced by nontransferable subscription
21
<PAGE>
certificates.
No fractional rights or cash in lieu thereof will be issued or paid,
and the number of rights distributed to each holder of common or preferred
stock will be rounded down to the nearest whole number. The following
table illustrates the number of rights to be issued in various situations:
<TABLE>
<CAPTION>
Shares of common stock(or equivalents) Number of
owned on the record date rights
-------------------------------------- -----------
<S> <C>
0 - 1,588 0
1,589 - 3,177 1
3,178 - 4,766 2
4,767 - 6,355 3
etc.
</TABLE>
No subscription certificate may be divided in such a way as to permit
the holders of common or preferred stock to receive a greater number of
rights than the number to which the subscription certificate entitles its
holder, except that a depository, bank, trust company and securities broker
or dealer holding shares of common stock on the record date for more than
one beneficial owner may, upon proper showing to the rights agent, exchange
its subscription certificate to obtain a subscription certificate for the
number of rights to which all of those beneficial owners in the aggregate
would have been entitled had each been a holder on the record date. I-Link
reserves the right to refuse to issue any subscription certificate if its
issuance would be inconsistent with the principle that each beneficial
owner's holdings will be rounded down to the nearest whole right.
Expiration Date
The rights will expire at 5:00 p.m., New York City local time, on June
30, 1999. After the expiration date, unexercised rights will be null and
void. I-Link will not be obligated to honor any purported exercise of
rights received by the rights agent after the expiration date, regardless
of when the documents relating to exercise were sent. Winter Harbor has
the option to oversubscribe for any rights not exercised by the remaining
shareholders. Winter Harbor is the only party with an oversubscription
privilege. See "Subscription Privileges - Oversubscription Privilege"
below.
Subscription Privileges
Basic Subscription Privilege
Each right entitles its holder to the basic subscription privilege to
receive, upon payment of the subscription price, one share of Series N
preferred stock. Certificates representing the Series N preferred shares
purchased according to the basic subscription privilege will be delivered
to subscribers as soon as practicable after the expiration date.
Banks, brokers and other nominee rights holders who exercise the basic
subscription privilege on behalf of beneficial owners of rights will be
required to certify to the rights agent and I-Link, in connection with the
22
<PAGE>
subscription under the basic subscription privilege, as to the aggregate
number of rights that have been exercised and the amount of Series N
preferred shares that is being subscribed for under the basic subscription
privilege by each beneficial owner of rights on whose behalf the nominee
holder is acting.
Oversubscription Privilege
Winter Harbor is the only party with an oversubscription privilege.
Additional Series N preferred shares will be available for subscription by
Winter Harbor under the oversubscription privilege only to the extent that
any Series N preferred shares are not purchased through the basic
subscription privilege. Certificates representing the Series N preferred
shares purchased under the oversubscription privilege will be delivered to
Winter Harbor as soon as practicable after the expiration date.
Subscription Price
The subscription price is $1,000 per share of Series N preferred stock
purchased under the basic subscription privilege or the oversubscription
privilege. If I-Link so chooses, Winter Harbor will cancel a portion of I-
Link's indebtedness as payment of its subscription price. See "-- Exercise
of Rights."
Exercise Of Rights
Rights may be exercised by delivering to the rights agent, American
Stock Transfer & Trust Company, on or prior to the expiration date, the
properly completed and executed subscription certificate evidencing such
rights with any required signature guaranties, together with payment in
full of the subscription price for the Series N preferred shares to be
purchased under the basic subscription privilege. Payment in full must be
by check or bank draft drawn upon a U.S. bank or postal, telegraphic or
express money order payable to American Stock Transfer & Trust Company as
rights agent, along with the subscription certificate, to American Stock
Transfer & Trust Company for cancellation by I-Link (or any combination
thereof). The subscription price will be considered to have been received
by the rights agent only upon (a) clearance of any uncertified check or (b)
receipt by the rights agent of any certified check or bank draft drawn upon
a U.S. bank or of any postal, telegraphic or express money order. If
paying by uncertified personal check, please note that the funds paid
thereby may take at least five business days to clear. Accordingly, rights
holders who wish to pay the subscription price by means of uncertified
personal check are urged to make payment sufficiently in advance of the
expiration date to ensure that payment is received and clears by that date
and are urged to consider payment by means of certified or cashier's check
or money order.
The address to which the subscription certificates and payment of the
subscription price should be delivered, whether by mail, overnight courier
or hand delivery, is:
American Stock Transfer & Trust Company
Reorganization Department
40 Wall Street
New York, NY 10005
23
<PAGE>
If an exercising rights holder does not indicate the number of rights
being exercised, or does not forward full payment of the aggregate
subscription price for the number of rights that the rights holder
indicates are being exercised, then the rights holder will be considered to
have exercised the basic subscription privilege with respect to the maximum
number of rights that may be exercised for the aggregate subscription price
payment delivered by the rights holder.
If a subscription certificate provides that the Series N preferred
shares to be issued upon the exercise of rights are to be delivered to a
party or person other than the holder of the rights, signatures on each
subscription certificate must be guaranteed by a participant in the
Securities Transfer Agents Medallion Program, the Stock Exchange Medallion
Program or the American Stock Exchange, Inc. Medallion Signature Program.
Persons who hold shares of common stock for the account of others,
such as brokers, trustees or depositories for securities, should notify the
respective beneficial owners of those shares as soon as possible to
ascertain the beneficial owners' intentions and to obtain instructions with
respect to the rights. If the beneficial owner so instructs, the record
holder of the right should complete subscription certificates and submit
them to the rights agent with the proper payment. In addition, beneficial
owners of rights held through a record holder should contact the holder and
request the holder to effect transactions in accordance with the beneficial
owners' instructions.
The instructions accompanying the subscription certificates should be
read carefully and followed in detail. Do not send subscription
certificates or payments to I-Link.
The method of delivery of subscription certificates and payment of the
subscription price to the rights agent will be at the election and risk of
the rights holders, but if they are sent by mail it is recommended that
they be sent by registered mail, properly insured, with return receipt
requested, and that a sufficient number of days be allowed to ensure
delivery to the rights agent and clearance of payment prior to 5:00 p.m.,
New York City local time, on the expiration date. Because uncertified
personal checks may take at least five business days to clear, you are
strongly urged to pay, or arrange for payment, by means of certified or
cashier's check or money order.
All questions concerning the timeliness, validity, form and
eligibility of any exercise of rights will be determined in I-Link's
reasonable discretion. I-Link, in its reasonable discretion, may also
waive any defect or irregularity, or permit a defect or irregularity to be
corrected within such time as it may determine, or reject the purported
exercise of any right. Subscriptions will not be considered to have been
received or accepted until all irregularities have been waived or cured
within such time as I-Link determines in its reasonable discretion.
Neither I-Link nor the rights agent will be under any duty to give
notification of any defect or irregularity in connection with the
submission of subscription certificates or incur any liability for failure
to give notification.
Any questions or requests for assistance concerning the method of
exercising rights or requests for additional copies of the prospectus
should be directed to the rights agent, American Stock Transfer & Trust
24
<PAGE>
Company at one of its addresses set forth under "Rights Agent." The
telephone number of the rights agent is (718) 921-8200 (ask for the
Shareholder Relations Department) and the facsimile number is (718) 234-
5001.
No Revocation
Once a rights holder has exercised the basic subscription privilege,
his or her exercise or subscription may not be revoked.
Rights Of Subscribers
Subscribers have no rights as stockholders of I-Link with respect to
the shares of common stock into which the Series N preferred shares are
convertible until shares of common stock are issued upon conversion of the
Series N preferred shares.
Procedures For DTC Participants
I-Link anticipates that the exercise of basic subscription privileges
(but not the oversubscription privilege) may be effected through the
facilities of the Depository Trust Company.
Amendments and Termination
I-Link reserves the right to amend the terms and conditions of the
rights offering, whether the amended terms are more or less favorable to
rights holders. If I-Link amends the terms of the rights offering, the
registration statement of which this prospectus forms a part will be
amended, and a new definitive prospectus will be distributed to all rights
holders who have exercised rights up to that time and to holders of record
of unexercised rights on the date the terms are amended. In addition, all
rights holders who have exercised rights by that time, or who exercise
rights within four business days after the mailing of the new definitive
prospectus, shall be provided with a consent form, on which they can
confirm their exercise of rights and their subscriptions under the terms of
the rights offering as amended by I-Link; any rights holder who has
exercised any rights, or who exercises rights within four business days
after the mailing of the new definitive prospectus, and who does not return
the consent within ten business days after the mailing of the consent by I-
Link will be considered to have canceled his or her exercise of rights, and
the full amount of the subscription price paid by that rights holder will
be returned promptly by mail, without interest or deduction. Any completed
subscription certificate received by the rights agent five or more business
days after the date of the amendment will be assumed to mean that the
rights holder who completed a subscription certificate consents to the
amended terms.
I-Link reserves the right at any time prior to delivery of the Series
N preferred shares purchased in the rights offering to terminate the rights
offering. Termination would be effected by I-Link by giving oral or
written notice of termination to the rights agent and making a public
announcement. If the rights offering is terminated in this manner, the
subscription price will be promptly returned by mail to exercising rights
holders, without interest or deduction. I-Link will have no obligation to
a rights holder, whether purchase was made through the rights agent or
otherwise, in the event that the rights offering is terminated.
25
<PAGE>
Determination Of Subscription Price
The subscription price was determined by I-Link, based on I-Link's
objective of achieving the maximum net proceeds obtainable from the rights
offering while providing the common and preferred stock holders with an
opportunity to make an additional investment in I-Link, thus avoiding a
dilution of their ownership position in I-Link.
Rights Agent
I-Link has appointed American Stock Transfer & Trust Company as rights
agent for the rights offering. The rights agent's address, which is the
address to which the subscription certificates and payment of the
subscription price must be delivered, whether by mail, overnight courier or
hand delivery, is:
American Stock Transfer & Trust Company
Reorganization Department
40 Wall Street
New York, NY 10005
The rights agent's telephone number is (718) 921-8200 (ask for
Shareholder Relations Department), and the facsimile number is (718) 234-
5001.
I-Link will pay the fees and expenses of the rights agent and has also
agreed to indemnify the rights agent from some of the liability which it
may incur in connection with the rights offering. I-Link has been informed
by the rights agent that it is a bank within the meaning of Section 3(a)(6)
of the Exchange Act.
Obligations and Intentions Of Winter Harbor, L.L.C.
Winter Harbor is obligated to exercise its basic subscription
privileges in full. In addition, Winter Harbor has advised I-Link that it
intends (but it has no obligation) to subscribe for any or all of the
Series N preferred shares that it is entitled to purchase under the
oversubscription privilege. As of May 11, 1999, Winter Harbor owned
beneficially 44,242,268 shares of common stock, all of which would be
issuable upon conversion of the Series M Shares, certain debt, and the
warrants that Winter Harbor holds. If all of that common stock were
issued, it would equal approximately 68% of the outstanding common stock.
In the event Winter Harbor were to acquire all available share of Series N
preferred stock, it would beneficially own the equivalent of 51,436,492
shares of common stock, or approximately 71% of the outstanding common
stock.
No Board Recommendation
An investment in the Series N preferred stock must be made according
to each rights holder's evaluation of his, her or its best interests.
Accordingly, the Board does not make any recommendation to any rights
holder or prospective investor regarding the exercise of his, her or its
rights.
26
<PAGE>
Description Of Securities
Common Stock
I-Link is currently authorized to issue 150,000,000 shares of common
stock, par value $.007 per share. As of May 11, 1999, there were
20,582,214 shares of common stock issued and outstanding and approximately
475 holders of record of the common stock, and approximately 9,000
beneficial owners. Each share of common stock entitles the holder thereof
to one vote on each matter submitted to the stockholders of I-Link for a
vote thereon. The holders of common stock: (a) have equal ratable rights
to dividends from funds legally available therefor when, as and if declared
by the Board of Directors; (b) are entitled to share ratably in all of the
assets of I-Link available for distribution to holders of common stock upon
liquidation, dissolution or winding up of the affairs of I-Link; (c) do not
have preemptive, subscription or conversion rights, or redemption or
applicable sinking fund provisions; and (d) as noted above, are entitled to
one non-cumulative vote per share on all matters submitted to stockholders
for a vote at any meeting of stockholders. Prior to any payment of
dividends to the holders of common stock, all accrued and unpaid dividends
on any outstanding shares of preferred stock must be paid. Other than as
set forth in this prospectus, I-Link anticipates that, for the foreseeable
future, it will retain earnings, if any, to finance the operations of its
businesses. The payment of dividends in the future will depend upon, among
other things, the capital requirements and the operating and financial
conditions of I-Link.
Preferred Stock
The Articles of Incorporation authorize the issuance of up to
10,000,000 shares of preferred stock, $10.00 par value per share. The
Board of Directors is authorized to issue shares of preferred stock from
time to time in one or more series and, subject to the limitations
contained in the Articles of Incorporation and any limitations prescribed
by law, to establish and designate a series and to fix the number of shares
and the relative conversion rights, voting rights and terms of redemption
(including sinking fund provisions) and liquidation preferences. New
issuances of shares of preferred stock with voting rights can affect the
voting rights of the holders of outstanding shares of preferred stock and
common stock by increasing the number of outstanding shares having voting
rights, and by the creation of class or series voting rights. Furthermore,
additional issuances of shares of preferred stock with conversion rights
can have the effect of increasing the number of shares of common stock
outstanding up to the amount of common stock authorized by the Articles of
Incorporation and can also, in some circumstances, have the effect of
delaying or preventing a change in control of I-Link and/or otherwise
adversely affect the rights of holders of outstanding shares of preferred
stock and common stock. To the extent permitted by the Articles of
Incorporation, a series of preferred stock may have preferences over the
common stock (and other series of preferred stock) with respect to
dividends and liquidation rights. As of May 11, 1999, 240,000 shares of
preferred stock had been designated Class C preferred stock, of which
37,927 are issued and outstanding; 29,000 shares of preferred stock had
been designated Series M preferred stock, of which 4,400 are outstanding;
and 1,000 shares of preferred stock had been designated Series F preferred
stock, of which 664 are outstanding.
27
<PAGE>
Series N Preferred Stock. The Series N preferred stock will be paid
dividends on an as-converted basis equal to I-Link common stock, when and
if common stock dividends are paid. The Series N preferred stock is senior
in all rights to other preferred common stock of I-Link, except that the
Series N preferred stock will be equal in seniority to the previously
issued Series F preferred stock. The Series N preferred stock can be
converted into common stock at any time at an initial Series N conversion
price of $2.78. The Series N preferred stock will vote with the common
stock on an as-converted basis on all matters which are submitted to a vote
of the stockholders, except if Florida law or by I-Link's Articles of
Incorporation or By-laws direct otherwise.
Under the terms of a new loan agreement between I-Link and Winter
Harbor, I-Link agreed to hold a shareholders meeting to seek shareholder
approval of a modification to the Series N preferred stock conversion
price, that links the Series N conversion price to the exercise price or
conversion rate of any new options, warrants, preferred stock or other
convertible security, or to the conversion rate of the Series F preferred
stock, and establishes a floor to the conversion price of $1.25 per share.
See "Related Party Transactions."
Series F Preferred Stock. There are 1,000 shares of Series F
preferred stock designated, all of which were issued on July 28, 1998. As
of May 11, 1999, the adjustable conversion price equaled $2.033, which is
the figure determined to be the lower of $3.76 or 81% of the average of the
three lowest per share market values during the twenty-two trading day
period immediately preceding the applicable conversion date. Since the
conversion terms of the Series F preferred stock are determined partly in
relation to a discount to the market price of I-Link's common stock, the
result is that the lower the common stock market price is at the time of
conversion, the more shares of common stock will be issued. As of May 11,
1999, 336 shares of Series F preferred stock had been converted to common
stock and 664 Series F Shares remained outstanding. If all the outstanding
shares of Series F preferred stock were converted using the conversion
price in effect on that date, 3,266,109 shares of common stock would be
issued, which would represent 13.7% of the then outstanding shares. The
factors determining the conversion price of the Series F preferred stock
are subject to further downward adjustment, subject to a minimum conversion
price of $1.25. To the extent the holders of the Series F preferred stock
convert and then sell their shares of common stock, the price of common
stock may decrease even further due to the additional shares in the market,
allowing the holders to convert additional Series F preferred stock into
greater amounts of common stock, providing the potential to depress the
price of common stock even further. Dividends on the Series F preferred
stock may, at the option of I-Link, be paid in shares of common stock.
Consequently, lower market prices of common stock would mean higher amounts
of common stock being issued as dividends, or being issued upon conversion
of Series F preferred stock, resulting in substantial dilution to the
interests of other holders of common stock. As illustration, the following
table shows the number of shares of common stock issuable upon conversion
of Series F preferred stock and as payment of dividends based upon a range
of conversion prices. The information in the table assumes a discount rate
of 81%; the discount rate is used to determine both conversion rates and
dividend payments when dividends are paid in shares of common stock. As
used in the table, "Market Price of Common Stock" means the amount derived
by taking the average of the three lowest per share market values during
the twenty-two trading day period immediately preceding an applicable
28
<PAGE>
conversion date. According to the terms of the Series F preferred stock,
as of May 11, 1999 the highest the Series F conversion price can be is
$3.76 and the lowest the Series F conversion price can be is $1.25.
<TABLE>
<CAPTION>
Common Stock Common
Issuable Upon Percent Of Shares
Conversion of Outstanding Issuable
Series F All Series F Common Upon Payment
Market Price of Conversion Preferred Stock After of Quarterly
Common Stock Price Stock Conversion Dividend
- ---------------- ---------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
$4.64 or greater $3.76 1,765,957 7.9% 22,074
$3.09 $2.50 2,656,000 11.4% 33,200
$1.54 or lower $1.25 5,312,000 20.5% 66,400
</TABLE>
The terms of the Series F preferred stock provide that a holder of
Series F preferred stock may not convert shares of or receive dividends on
Series F preferred stock to the extent the conversion or dividend would
result in the holder of Series F preferred stock beneficially owning, in
the aggregate, in excess of 4.999% of the then issued and outstanding
shares of common stock following that conversion; provided, however, that
the percentage limitation may be waived (as to conversions) by the holder
of the Series F preferred stock upon 75 days written notice to I-Link. It
should be noted that this limitation applies only to the number of shares
of common stock held at any one time, and does not prevent the holder of
Series F preferred stock from converting and selling some of its holdings,
then, subject to the limitation just described, converting additional
holdings. Further, the Series F preferred stock may be converted at any
time, and will be automatically converted on July 28, 2001.
The Series F preferred stock is subject to specific provisions that
would prevent any issuance of common shares upon conversion or upon payment
of dividends, and in some cases, 100,000 shares covered by a warrant held
by JNC, at a price below the market or book value of the common stock if
and to the extent that those shares of common stock would equal or exceed
in the aggregate 20% of the number of shares of common stock outstanding on
July 28, 1998, the date of initial issuance of the Series F preferred
stock, absent shareholder approval as contemplated by the Nasdaq Stock
Market Non-Quantitative Designation Criteria. Should the holder of Series
F preferred stock elect to convert Series F preferred stock on terms that
would require shareholder approval, and shareholder approval has not been
obtained, then, with respect to the issuance of any additional shares of
common stock in excess of the 20% threshold, I-Link may be obligated to
either (a) use its best efforts to obtain shareholder approval of the
issuance of the excess shares within 60 days of receiving request therefor,
(b) issue the excess shares and accrued dividends thereunder at a
conversion price equal to the closing sale price of the common stock on
July 28, 1998 and pay to the converting holder of Series F preferred stock
an amount in cash equal to the product of the conversion price on the
applicable conversion date and the number of excess shares that would have
been issuable but for the application of the 20% limitation provision, or
(c) redeem from the converting holder of Series F preferred stock the
shares of Series F preferred stock relating to the excess shares.
29
<PAGE>
JNC has requested that I-Link obtain shareholder approval to allow the
issuance of common stock, upon conversion of the Series F preferred stock,
to exceed, in the aggregate, 20% of the number of shares of common stock
outstanding on the date the Series F preferred stock was initially issued.
See "Related Party Transactions".
Class C Preferred Stock. Each outstanding share of Class C preferred
stock may be converted into 24 shares of common stock. Any shares of Class
C preferred stock still outstanding on September 6, 2001 shall convert to
common stock automatically at a conversion rate determined by dividing
$60.00 by the lower of (a) $2.50 or (b) 50% of the average closing bid
price of the common stock for the ten trading days immediately preceding
September 6, 2001. As of May 11, 1999, if all outstanding shares of Class
C preferred stock were converted, I-Link would issue 910,248 shares of
common stock therefor.
Series M Preferred Stock. The Series M preferred stock has a
conversion value of $2,750 per share plus any accrued unpaid dividends, and
is currently convertible into shares of common stock at $2.033 per share of
common stock, which price may be adjusted downward in the event of
specified dilutive transactions such as stock splits, dividends or
reclassifications, mergers and reorganizations. Each outstanding share of
Series M preferred stock may be converted into approximately 1,353 shares
of common stock. If all 4,400 outstanding shares of Series M preferred
stock were converted on May 11, 1999, I-Link would issue 5,951,795 shares
of common stock therefor, and an additional 929,458 shares of common stock
as payment for accrued but unpaid dividends. On October 10, 2002, all
shares of Series M preferred stock still outstanding shall be converted to
common stock automatically, at the lower of (a) $2.75 per share of common
stock, subject to adjustment, or (b) 50% of the average closing bid price
of the common stock in the ten trading days preceding October 10, 2002.
Winter Harbor 1998 Convertible Debt. Winter Harbor, the holder of the
Series M preferred stock, may elect at any time after April 15, 2000 to
convert up to $7,768,000 of I-Link debt into approximately 3,821 shares of
Series M preferred stock as of the record date. Those additional shares of
Series M preferred stock would be convertible into 3,820,954 shares of
common stock, on the same terms as outlined in the previous paragraph.
Winter Harbor Warrants. As of May 11, 1999, Winter Harbor held
warrants, exercisable at any time, for the purchase of up to 28,540,000
shares of common stock (includes the additional 9,900,000 warrants to be
issued to Winter Harbor on or after April 26, 1999 because the bridge loan
was not repaid by that date). In addition, if Winter Harbor elects to
convert up to $7,768,000 in debt into additional shares of Series M
preferred stock, it is entitled to receive additional warrants to purchase
5,000,000 shares of common stock. The exercise prices of all of Winter
Harbor's warrants varied at the time of their respective issuances,
however, all are subject to adjustment downward to equal the market price
of common stock in the event the common stock market price is below the
original exercise price at the time of exercise. All but 11,000,000 of
Winter Harbor's warrants are subject to an exercise price lower limit of
$2.033 per share.
Winter Harbor New Loan Warrants. Winter Harbor may be issued warrants
exercisable for the purchase of up to 4,000,000 shares of common stock as
part of a new loan to I-Link. The warrants will be issued to Winter Harbor
30
<PAGE>
in the event that the maturity date of the new loan is extended and
shareholders do not approve modifications to the Series N preferred stock
linking the Series N conversion price to the exercise price or conversion
rate of any new options, warrants, preferred stock or other convertible
security, or to the conversion rate of the Series F preferred stock, and
establishes a floor to the conversion price of $1.25 per share. See
"Related Party Transactions."
Other Outstanding Options and Warrants. I-Link has issued options and
warrants to purchase an aggregate of 13,140,170 shares of common stock to
employees and others, at exercise prices ranging from $0.88 to $7.00.
Anti-Takeover Measures
Although, other than as disclosed in this prospectus, there are no
present plans, agreements or undertakings with respect to I-Link's issuance
of any shares of stock or related convertible securities, any issuance such
as these could have anti-takeover effects insofar as the securities could
be used as a method of discouraging, delaying or preventing a change in I-
Link's control. The issuance of additional shares of common stock may have
the effect of rendering more difficult or discouraging an acquisition or
change in control of I-Link.
Moreover, the Articles of Incorporation and Bylaws contain provisions
that could discourage potential takeover attempts and prevent shareholders
from changing I-Link's management. The Articles of Incorporation provide
for a classified Board of Directors and that vacancies on the Board of
Directors shall be filled only by a majority of the remaining directors
then in office.
In addition, the Bylaws provide, among other things, that no proposal
by a stockholder shall be presented for vote at a special or annual meeting
of stockholders unless the stockholder shall, not later than the close of
business on the fifth day following the date on which notice of the meeting
is first given to stockholders, provide the Board of Directors or the
Secretary of I-Link with written notice of intention to present a proposal
for action at the forthcoming meeting of stockholders, which notice shall
include the name and address of the proposing stockholder, the number of
voting securities he or she holds of record and which he or she holds
beneficially, the text of the proposal to be presented at the meeting and a
statement in support of the proposal. Any stockholder may make any other
proposal at an annual meeting or special meeting of stockholders and the
same may be discussed and considered, but unless stated in writing and
filed with the Board of Directors or the Secretary prior to the date set
forth above, the proposal shall be laid over for action at an adjourned,
special, or annual meeting of the stockholders taking place sixty days or
more thereafter. This provision shall not prevent the consideration and
approval or disapproval at the annual meeting of reports of officers,
directors, and committees; but in connection with those reports, no new
business proposed by a stockholder (acting in that capacity) shall be acted
upon at an annual meeting unless stated and filed as described above.
Transfer Agent
American Stock Transfer & Trust Company, New York, New York is the
Registrar and Transfer Agent for I-Link's common stock, and will act as
rights agent.
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Plan Of Distribution
The Series N preferred shares offered in the rights offering are being
offered by I-Link directly to its holders of common stock and its holders
of Series N preferred shares. I-Link estimates that its expenses in
connection with the rights offering will be $100,000.
I-Link will pay the fees and expenses of American Stock Transfer &
Trust Company, as rights agent, and has also agreed to indemnify the rights
agent from any liability which it may incur in connection with the rights
offering, including liabilities under the Securities Act.
Rights holders who desire to purchase Series N preferred shares in the
rights offering are urged to complete, date and sign the subscription
certificate accompanying this prospectus and return it to the rights agent
on or before the expiration date of the rights offering, together with
payment in full of the aggregate subscription price. See "The Rights
Offering - Exercise of Rights." Subscription rights are nontransferable.
See "Prospectus Summary - Terms of the Rights - Nontransferability of
Rights." Any questions concerning the procedure for subscribing for the
purchase of Series N Notes should be directed to the rights agent.
Interests of Named Experts and Counsel
No expert or counsel named in this prospectus has or is to receive in
connection with this offering any interest, direct or indirect, in I-Link
or any of its subsidiaries, nor was any expert or counsel connected with I-
Link or any of its subsidiaries as a promoter, underwriter, voting trustee,
director, officer or employee.
Legal Matters
Legal matters in connection with the registration of the securities
offered hereby will be passed upon for I-Link by De Martino Finkelstein
Rosen & Virga, Washington, D.C.
Experts
The consolidated financial statements of I-Link Incorporated
incorporated in this Prospectus by reference to the Annual Report on Form
10-K for the year ended December 31, 1998 have been so incorporated in
reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
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No dealer, salesman or any other person has 20,000 Subscription Rights
been authorized in connection with this
offering to give any information or to make 20,000 Shares of
any representations other than those Series N Preferred Stock
contained in this prospectus. The prospectus
does not constitute an offer or a
solicitation in any jurisdiction to any 16,000,000 Shares of
person to whom it is unlawful to make such an
offer or solicitation. Neither the delivery Common Stock
of this prospectus nor any sale made
hereunder shall, under any circumstances,
create an implication that there has been no
change in the circumstances of I-Link or the
facts set forth in this prospectus since the
date indicated below.
I-LINK INCORPORATED
TABLE OF CONTENTS
Page ______________
Where You Can Find More Information.....[xx]
Prospectus Summary......................[xx] PROSPECTUS
General...............................[xx] ______________
The Rights Offering...................[xx]
Terms of the Series N Preferred Stock.[xx]
Other Information.....................[xx]
Selected Financial Information........[xx]
Risk Factors............................[xx]
Use of Proceeds.........................[xx]
Determination of Offering Price.........[xx]
Dilution................................[xx] [____________], 1999
Related Party Transactions..............[xx]
The Rights Offering.....................[xx]
Description of Securities...............[xx]
Plan of Distribution....................[xx]
Interests of Named Experts and Counsel..[xx]
Legal Matters...........................[xx]
Experts.................................[xx]
<PAGE>
PART II
Item 14. Other Expenses of Issuance and Distribution
The estimated expenses to be incurred by the Company in connection
with the registration of the securities subject of this registration
statement, other than underwriting discounts and commissions, are estimated
as follows:
SEC Registration Fee $ 5,560
Printing and Engraving Expenses 7,500
Registrant's Counsel Fees and Expenses 50,000
Accountant's Fees and Expenses 10,000
Rights Agent Fees and Expenses 15,000
Miscellaneous Expenses 11,940
-------
Estimated Total $100,000
=======
Item 15. Indemnification of Officers and Directors.
Section 607.0850 of the Florida Business Corporation Act empowers a
corporation to indemnify any person who was or is a party to a proceeding
by reason of the fact that he was or is an officer, director, employee or
agent of the corporation against liability incurred in connection with such
proceeding. Such person must have acted in good faith and in a manner
reasonably believed to be in or not opposed to, the best interests of the
corporation. With respect to any criminal proceeding, such person must
have had no reasonable cause to believe his conduct was unlawful. Any such
indemnification may only be made upon a determination by the corporation
that such indemnification is proper because the person met the applicable
standard of conduct.
The Florida Business Corporation Act provides further that the
indemnification permitted thereunder is not exclusive; provided, however,
indemnification is not permitted to be made on behalf of any such person if
a judgment or final adjudication establishes (a) a violation of the
criminal law unless such person had reasonable cause to believe his conduct
was lawful or no reasonable cause to believe his conduct was unlawful; (b)
such person derived an improper personal benefit from the transaction; (c)
as to any director such proceeding arose from an unlawful distribution
under Section 607.0834; or (d) willful misconduct or a conscious disregard
for the best interests of the corporation in a proceeding by the
corporation or a shareholder.
The Company's Bylaws provide that the Company shall indemnify any such
person to the fullest extent provided by law and empowers the Company to
purchase and maintain insurance on behalf of any such person.
The Company previously entered into indemnification agreements with
certain officers and directors of the Company for indemnification against
expenses (including attorneys' fees, through all proceedings, trials, and
appeals), judgments, and amounts paid in settlement actually and reasonably
incurred in connection with any threatened, pending, or contemplated
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, arising from any actual or alleged breach of duty, neglect,
effort, or other action taken or omitted, solely in the capacity as an
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officer and/or a director of the Company; provided that no indemnification
will be made in respect of any acts or omissions (a) involving gross
negligence or willful misconduct, (b) involving libel or slander, or (c)
based upon or attributable to gaining, directly or indirectly, any profit
or advantage to which he was not legally entitled.
Insofar as indemnification for liabilities arising under the
securities act may be permitted to directors, officers or persons
controlling the company pursuant to the foregoing provisions, the company
has been informed that in the opinion of the securities and exchange
commission, such indemnification is against public policy as expressed in
the securities act and is therefore unenforceable.
Item 16. Exhibits.
3.1 Amended and Restated Articles of Incorporation, as further
amended, incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997, File
Number 0-17973
3.9 * Articles of Amendment to the Company's Amended and Restated
Articles of Incorporation, establishing the terms of Series N
Preferred Stock
5.1 * Opinion of Counsel
10.47 * Form of Rights Agent Agreement
23.1 Consent of PricewaterhouseCoopers LLP,
23.2 * Consent of Counsel, included in Exhibit 5.1
99.1 * Form of Subscription Certificate
99.2 * Form of Instructions to Rights Holders
99.3 * Form of Guaranteed Delivery Procedures and Instructions
_________________________________
* To be filed by amendment.
Item 17. Undertakings
The Company hereby undertakes:
(a) Rule 415 Offering.
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement to include
any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change
to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) Indemnification.
(1) Insofar as indemnification for liabilities arising under the
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Securities Act may be permitted to directors, officers, and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise,
the Company has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer, or controlling person of the
Company in the successful defense of any action, suit, or proceeding) is
asserted by such director, officer, or controlling person in connection
with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such issue.
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Signatures
Pursuant to the requirements of the Securities Act of 1933, the
Company certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-2 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Draper, Utah, on May 4, 1999.
I-LINK INCORPORATED
By: /s/ John W. Edwards
John W. Edwards, Chairman of the Board,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ John W. Edwards Chairman of the Board, May 4, 1999
John W. Edwards President and Chief
Executive Officer
/s/ Karl S. Ryser, Jr. Treasurer, Chief Financial May 4, 1999
Karl S. Ryser, Jr. Officer and Chief
Accounting Officer
/s/ David E. Hardy Secretary May 4, 1999
David E. Hardy
/s/ Henry Y.L. Toh Director May 4, 1999
Henry Y.L. Toh
/s/ Thomas A. Keenan Director May 4, 1999
Thomas A. Keenan
/s/ Joseph A. Cohen Director May 4, 1999
Joseph A. Cohen
Director
David R. Bradford
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-2 (File No. 333-70645) of our report dated April 15,
1999, relating to the consolidated financial statements of I-Link
Incorporated and Subsidiaries as of December 31, 1998 and 1997, and for
each of the three years in the period ended December 31, 1998, which appear
in the I-Link Incorporated Annual Report on Form 10-K. We also consent to
the reference to us under the caption "EXPERTS" in such Registration
Statement.
/s/ PRICEWATERHOUSECOOPERS, LLP
Salt Lake City, Utah
May 5, 1999
<PAGE>
