<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
File No. 0-17973
/X/ Filed by the Registrant
/ / Filed by a party other than the Registrant
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
I-LINK INCORPORATED
- --------------------------------------------------------------------------------
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
N/A
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
N/A
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
N/A
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
N/A
------------------------------------------------------------------------
5) Total fee paid:
$
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
<PAGE>
[LOGO]
13751 S. Wadsworth Park Drive
Suite 200
Draper, Utah 84020
John W. Edwards
Chairman, Chief Executive
Officer and President
June ___, 1999
Dear Stockholder:
It is my pleasure to invite you to I-Link's 1999 annual meeting of
stockholders.
We will hold the meeting on Monday, July 19, 1999 at 10:00 a.m. local time
at the Marriott Courtyard Hotel, 10701 South Holiday Park Drive, Sandy, Utah
84070. In addition to the formal items of business, I will review the major
developments of 1998 and answer your questions. This booklet includes the
notice of annual meeting and the proxy statement. The proxy statement
describes the business that we will conduct at the meeting, and provides
information about I-Link.
Stockholders of record at the close of business on May 11, 1999 may vote at
the meeting. Your vote is important. Whether or not you plan to attend the
annual meeting, please complete, date, sign and return the enclosed proxy
card promptly. If you attend the meeting and prefer to vote in person, you
may do so.
We look forward to seeing you at the meeting.
Very truly yours,
John W. Edwards
<PAGE>
NOTICE OF 1999 ANNUAL MEETING OF STOCKHOLDERS
[LOGO]
DATE: MONDAY, JULY 19, 1999
TIME: 10:00 A.M.
PLACE: MARRIOTT COURTYARD
10701 SOUTH HOLIDAY PARK DR.
SANDY, UTAH 84070
Dear Stockholders:
At our annual meeting we will ask you to:
1. Elect a Class I Director to serve for three years and until his successor
has been duly elected and qualified;
2. Ratify the continued engagement of PricewaterhouseCoopers LLP as our
independent accountants;
3. Approve a modification of the terms of the Series N preferred stock to
establish a conversion price floor of $1.25 and to link the Series N
conversion price to the price at which common stock is issued upon the
exercise or conversion of any existing or new options, warrants, preferred
stock or other convertible security, including the conversion rate of the
Series F preferred stock; and
4. Transact any other business that may properly be presented at the annual
meeting.
If you were a stockholder of record at the close of business on May 11, 1999,
you may vote at the annual meeting.
By Order of the Board of Directors,
David E. Hardy
SECRETARY
Draper, Utah
June __, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING. . . . . . . . . . . . . . . 1
Why did you send me this proxy statement?. . . . . . . . . . . . . . . . . . 1
How many votes do I have?. . . . . . . . . . . . . . . . . . . . . . . . . . 1
What proposals will be addressed at the annual meeting?. . . . . . . . . . . 1
Why would the annual meeting be postponed? . . . . . . . . . . . . . . . . . 2
How do I vote in person? . . . . . . . . . . . . . . . . . . . . . . . . . . 2
How do I vote by proxy?. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
May I revoke my proxy? . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Where are I-Link's principal executive offices?. . . . . . . . . . . . . . . 3
What vote is required to approve each proposal?. . . . . . . . . . . . . . . 3
Are there any dissenters' rights of appraisal? . . . . . . . . . . . . . . . 4
Who bears the cost of soliciting proxies?. . . . . . . . . . . . . . . . . . 4
How can I obtain additional information regarding I-Link?. . . . . . . . . . 4
INFORMATION ABOUT I-LINK STOCK OWNERSHIP . . . . . . . . . . . . . . . . . . 5
Which stockholders own at least 5% of I-Link?. . . . . . . . . . . . . . . . 5
How much stock is owned by directors and executive officers? . . . . . . . . 6
Do any of the officers and directors have an interest in the matters to
be acted upon? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Did directors, executive officers and greater-than-10% stockholders comply
with Section 16(a) beneficial ownership reporting requirements in 1998?. . . 7
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS . . . . . . . . . . . . . 8
Directors and executive officers . . . . . . . . . . . . . . . . . . . . . . 8
The Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Committees of the Board of Directors . . . . . . . . . . . . . . . . . . . . 11
Compensation of executive officers and directors . . . . . . . . . . . . . . 11
Certain relationships and related transactions . . . . . . . . . . . . . . . 22
RECENT TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
DISCUSSION OF PROPOSALS RECOMMENDED FOR CONSIDERATION BY STOCKHOLDERS. . . . 27
1. To elect a Class I director to serve for three years and until his
successor has been duly elected and qualified. . . . . . . . . . . . . . . . 27
2. To ratify the selection of PricewaterhouseCoopers LLP as independent
public accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3. To approve a modification of the terms of the Series N preferred stock
to establish a conversion price floor of $1.25 and to link the Series N
conversion price to the exercise price or conversion rate of any existing
or new options, warrants, preferred stock or other convertible security,
including the conversion rate of the Series F preferred stock. . . . . . . . 28
OTHER PROPOSED ACTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
STOCKHOLDER PROPOSALS AND SUBMISSIONS. . . . . . . . . . . . . . . . . . . . 32
ATTACHMENT: PROXY
</TABLE>
<PAGE>
I-LINK INCORPORATED
PROXY STATEMENT
DATED JUNE __, 1999
ANNUAL MEETING OF STOCKHOLDERS
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
WHY DID YOU SEND ME THIS PROXY STATEMENT?
We sent you this proxy statement and the enclosed proxy card because the
board of directors of I-Link Incorporated, a Florida corporation, is
soliciting your proxy vote at the 1999 Annual Meeting of Stockholders. This
proxy statement summarizes the information you need to vote intelligently on
the proposals to be considered at the annual meeting. However, you do not
need to attend the annual meeting to vote your shares. Instead you may
simply complete, sign and return the enclosed proxy card.
HOW MANY VOTES DO I HAVE?
We will be sending this proxy statement, the attached notice of the
annual meeting and the enclosed proxy card on or about June ___, 1999 to all
stockholders. Stockholders who owned I-Link common stock at the close of
business on the record date, May 11, 1999, are entitled to one vote for each
share owned on the record date, in all matters properly brought before the
annual meeting. Similarly, the Series M preferred stock is entitled to vote
with the common stock on an as-converted basis. Class C preferred stock and
Series F preferred stock are not entitled to vote. On the record date, the
following classes of stock were issued and outstanding:
<TABLE>
<CAPTION>
NUMBER PERCENT OF
SERIES OUTSTANDING VOTES
------ ----------- ----------
<S> <C> <C>
common stock 21,273,400 75.6%
Class C preferred 34,677 non-voting
Series F preferred 540 non-voting
Series M preferred 4,400 24.4%
</TABLE>
WHAT PROPOSALS WILL BE ADDRESSED AT THE ANNUAL MEETING?
We will address the following proposals at the annual meeting:
1. Election of a Class I Director to serve for three years and until his
successor has been duly elected and qualified;
2. Ratification of the continued engagement of PricewaterhouseCoopers LLP as
our independent accountants;
3. Approval of a modification in the terms of the Series N preferred stock to
establish a conversion price floor of $1.25 and to link the Series N
conversion price to the price at
<PAGE>
which common stock is issued upon the exercise or conversion of any
existing or new options, warrants, preferred stock or other convertible
security, including the conversion rate of the Series F preferred stock;
and
4. The transaction of such other business as may properly come before the
meeting or any adjournment thereof.
WHY WOULD THE ANNUAL MEETING BE POSTPONED?
The annual meeting will be postponed if a quorum is not present on July
19, 1999. If more than half of all of the shares of stock entitled to vote
at the annual meeting are present in person or by proxy, a quorum will be
present and business can be transacted. If a quorum is not present, the
annual meeting may be postponed to a later date when a quorum is obtained.
Abstentions and broker non-votes are counted for purposes of determining the
presence of a quorum for the transaction of business but are not counted as
an affirmative vote for purposes of determining whether a proposal has been
approved.
HOW DO I VOTE IN PERSON?
If you plan to attend the annual meeting on July 19, 1999, or at a later
date if it is postponed, at the Marriott Courtyard, 10701 South Holiday Park
Drive, Sandy, Utah 84070 and vote in person, we will give you a ballot when
you arrive. However, if your shares are held in the name of your broker,
bank or other nominee, you must bring a power of attorney executed by the
broker, bank or other nominee that owns the shares of record for your benefit
and authorizing you to vote the shares.
HOW DO I VOTE BY PROXY?
Whether you plan to attend the annual meeting or not, we urge you to
complete, sign and date the enclosed proxy card and return it promptly in the
envelope provided. Returning the proxy card will not affect your right to
attend the annual meeting and vote in person.
If you properly fill in your proxy card and send it to us in time to
vote, your "proxy" (one of the individuals named on your proxy card) will
vote your shares as you have directed. If you sign the proxy card but do not
make specific choices your proxy will vote your shares as recommended by the
board of directors as follows:
- "FOR" the election of the Class I Director nominee;
- "FOR" ratification of the selection of independent accountants; and
- "FOR" modifying the terms of the Series N preferred stock to establish a
conversion price floor of $1.25 and to link the Series N conversion
price to the price at which common stock is issued upon the exercise or
conversion of any existing or new
2
<PAGE>
options, warrants, preferred stock or other convertible security,
including the conversion rate of the Series F preferred stock.
If any other matter is presented, your proxy will vote in accordance
with his best judgment. At the time this proxy statement went to press, we
knew of no matters that needed to be acted on at the annual meeting other
than those discussed in this proxy statement.
MAY I REVOKE MY PROXY?
If you give a proxy, you may revoke it at any time before it is
exercised. You may revoke your proxy in any one of three ways:
- You may send in another proxy with a later date.
- You may notify I-Link in writing (by you or your attorney authorized in
writing, or if the stockholder is a corporation, under its corporate
seal, by an officer or attorney of the corporation) at our principal
executive offices before the annual meeting, that you are revoking your
proxy.
- You may vote in person at the annual meeting.
WHERE ARE I-LINK'S PRINCIPAL EXECUTIVE OFFICES?
Our principal executive offices are located at 13751 S. Wadsworth Park
Drive, Draper, Utah 84020. Our telephone number is (801) 576-5000.
WHAT VOTE IS REQUIRED TO APPROVE EACH PROPOSAL?
PROPOSAL 1: ELECTION OF A DIRECTOR.
A plurality of votes cast is required to elect the Class I Director. A
nominee who receives a "plurality" means he has received more votes than any
other nominee for the same director's seat. Since there is only one nominee
for the open Class I seat, then, in the event there are no other nominations
received, a simple majority of the votes cast will suffice to elect the
management's nominee. So, if you do not vote for the nominee, or you
indicate "withhold authority to vote" for the nominee on your proxy card,
your vote will not count either "for" or "against" the nominee.
PROPOSAL 2: RATIFICATION OF INDEPENDENT ACCOUNTANTS.
The ratification of the continued engagement of our independent accounts
must be approved by a majority of the votes cast. Therefore, any shares that
are not voted, including shares represented by a proxy which is marked
"abstain," will not count either "for" or "against" Proposal 2.
3
<PAGE>
PROPOSAL 3: APPROVAL OF A MODIFICATION OF THE TERMS OF THE SERIES N
PREFERRED STOCK TO ESTABLISH A CONVERSION PRICE FLOOR OF $1.25 AND TO LINK
THE SERIES N CONVERSION PRICE TO THE PRICE AT WHICH COMMON STOCK IS ISSUED
UPON THE EXERCISE OR CONVERSION OF ANY EXISTING OR NEW OPTIONS, WARRANTS,
PREFERRED STOCK OR OTHER CONVERTIBLE SECURITY, INCLUDING THE CONVERSION RATE
OF THE SERIES F PREFERRED STOCK.
A majority of the votes cast is required for approval of Proposal 3.
Therefore any shares that are not voted, including shares represented by a
proxy which is marked "abstain," will not count either "for" or "against"
Proposal 3.
ARE THERE ANY DISSENTERS' RIGHTS OF APPRAISAL?
The board of directors has not proposed any action for which the laws of
the State of Florida, the articles of incorporation or by-laws of I-Link
provide a right of a stockholder to dissent and obtain payment for shares.
WHO BEARS THE COST OF SOLICITING PROXIES?
I-Link will bear the cost of soliciting proxies in the accompanying form
and will reimburse brokerage firms and others for expenses involved in
forwarding proxy materials to beneficial owners or soliciting their execution.
HOW CAN I OBTAIN ADDITIONAL INFORMATION REGARDING I-LINK?
I-Link is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") which requires that
I-Link file reports, proxy statements and other information (the "Exchange
Act Filings") with the Securities and Exchange Commission (the "SEC").
I-Link's Exchange Act Filings may be inspected and copied at the public
reference facilities of the SEC located at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, DC 20549; and at the SEC's regional offices
at Citicorp Center, 500 West Madison Street, Room 1400, Chicago, IL 60661,
and at 7 World Trade Center, 13th Floor, New York, NY 10048. Copies of the
material may also be obtained upon request and payment of the appropriate fee
from the Public Reference Section of the SEC located at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, DC 20549. In addition, the SEC
maintains a website on the Internet that contains reports, proxy and
information statements and other information regarding registrants, including
I-Link, that file electronically with the SEC. The SEC's website address is
www.sec.gov.
4
<PAGE>
INFORMATION ABOUT I-LINK STOCK OWNERSHIP
WHICH STOCKHOLDERS OWN AT LEAST 5% OF I-LINK?
The common stock and the Series M preferred stock, which votes on an
as-converted basis with the common stock, constitute the only outstanding
voting securities of I-Link. As of the record date, each share of Series M
preferred stock is convertible, at the option of the holder thereof, into
1,566.9 shares of common stock, including unpaid dividends. The following
table shows, as of the record date, to the best of our knowledge, all persons
we know to be "beneficial owners" of more than 5% of the common stock and
Series M preferred stock. On the record date, there were 21,273,400 shares
of common stock issued and outstanding, and the following shares of preferred
stock issued and outstanding: 34,677 shares of Class C; 540 shares of Series
F; and 4,400 shares of Series M.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES % OF COMMON STOCK
OF BENEFICIAL OWNER (1) TITLE OF CLASS BENEFICIALLY OWNED BENEFICIALLY OWNED(2)
- ----------------------- -------------- ------------------ ---------------------
<S> <C> <C> <C>
John W. Edwards common stock 1,496,664(3) 6.4%
13751 S. Wadsworth Park Drive
Draper, UT 84020
Winter Harbor, L.L.C. common stock 45,038,695(4) 67.9%
c/o First Media, L.P. Series M preferred
11400 Skipwith Lane stock 4,400
Potomac, MD 20854
</TABLE>
(1) Unless noted, all of such shares of common stock are owned of record by
each person or entity named as beneficial owner and such person or
entity has sole voting and dispositive power with respect to the shares
of common stock owned by each of them.
(2) As to each person or entity named as beneficial owners, such person's or
entity's percentage of ownership is determined by assuming that any
options or convertible securities held by such person or entity which
are exercisable or convertible within 60 days from the date hereof have
been exercised or converted, as the case may be.
(3) Includes all 1,000,000 shares of common stock subject to the vested
portion of Mr. Edwards' option to purchase 1,000,000 shares of common
stock and 496,664 shares of common stock subject to warrants and other
options. See "Executive Compensation -- Employment Agreements."
(4) Includes 6,894,300 shares of common stock issuable upon conversion of
Series M preferred stock, 4,604,395 shares of common stock issuable upon
conversion of Series M preferred stock which may be issued on conversion
of promissory notes held by the named stockholder, and 28,540,000 shares
of common stock issuable upon exercise of warrants. In addition, I-Link
includes herein 5,000,000 shares of common stock issuable upon exercise
of warrants which the named stockholder will be entitled to receive
should it exchange its promissory notes to common stock. See "Certain
Relationships and Related Transactions -- Winter Harbor." Winter Harbor
is owned by First Media, L.P., a private media and communications
company which is a private investment principally of Richard E. Marriott
and his family. I-Link's general counsel, David E. Hardy, is a brother
of Ralph
5
<PAGE>
W. Hardy, Jr. who is general counsel and a minority equity holder in
Winter Harbor. David E. Hardy has no ownership in or association with
Winter Harbor. Thomas A. Keenan's wife has an interest in First
Media, L.P. See directors and officers table below, Footnote 6.
HOW MUCH STOCK IS OWNED BY DIRECTORS AND EXECUTIVE OFFICERS?
The following table shows, as of the record date, the common stock and
any preferred stock owned by each director and executive officer. As of the
record date, all of the directors, as a group of five people, beneficially
own 2,307,832 shares (9.8% of the total outstanding shares) and all of our
directors and executive officers, as a group of eight people, beneficially
own 3,832,294 shares (15.3% of the total outstanding shares) of our common
stock. We believe that such officers and directors intend to vote their
shares for each of the proposals set forth herein. To the knowledge of
management, as of the record date, John W. Edwards is the only executive
officer or director who beneficially owns five percent or more of our
outstanding shares of common stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES % OF COMMON STOCK
NAME OF BENEFICIAL OWNER (1) TITLE OF CLASS BENEFICIALLY OWNED BENEFICIALLY OWNED(2)
- ---------------------------- -------------- ------------------ ---------------------
<S> <C> <C> <C>
John Ames (O) common stock 1,000 *
David Bradford (D) common stock 20,000 *
Joseph A. Cohen (D) common stock 431,000(3) 2.0%
Class C
preferred stock 3,000
John W. Edwards (D) (O) common stock 1,496,664(4) 6.6%
David E. Hardy (O) common stock 847,949(5) 3.8%
Thomas A. Keenan (D) common stock 116,667(6) *
Karl S. Ryser, Jr. (O) common stock 675,513(7) 3.1%
Henry Y.L. Toh (D) common stock 243,501(8) 1.1%
All Executive Officers and Directors as common stock 3,832,294(9) 15.3%
a Group (8 people) Class C preferred
stock 3,000
</TABLE>
* Indicates less than one percent.
(D) Director
(O) Executive Officer
(1) Unless noted, all of such shares of common stock are owned of record by
each person or entity named as beneficial owner and such person or
entity has sole voting and dispositive power with respect to the shares
of common stock owned by each of them.
(2) As to each person or entity named as beneficial owner, such person's or
entity's percentage of ownership is determined by assuming that any
options or convertible securities held by such person
6
<PAGE>
or entity which are exercisable or convertible within 60 days from the
date hereof have been exercised or converted, as the case may be.
(3) Includes 359,000 shares of common stock issuable pursuant to options and
72,000 shares of common stock issuable to the Leslie Group, Inc. upon
conversion of 3,000 shares of Class C preferred stock held of record by
Leslie Group, Inc., of which Mr. Cohen is President.
(4) Represents all 1,000,000 shares of common stock subject to the vested
portion of Mr. Edwards' option to purchase 1,000,000 shares of common
stock and 496,664 shares of common stock subject to warrants and other
options. See "Executive Compensation -- Employment Agreements."
(5) Includes 843,949 shares of common stock issuable pursuant to options and
warrants.
(6) Includes 46,667 shares of common stock subject to options and 70,000
shares of common stock held of record by members of Mr. Keenan's
immediately family. Mr. Keenan serves on the board of directors as the
designee of Winter Harbor. Mr. Keenan's wife is the beneficiary of a
trust which owns non-voting stock in the corporate general partner of
First Media, L.P., the parent of Winter Harbor. For further information
about Winter Harbor, see "Recent Transactions -- Winter Harbor." Neither
Mr. Keenan nor his wife has dispositive power or voting control over the
securities of I-Link held by Winter Harbor. See Footnote 5 of the
previous table. Mr. Keenan disclaims beneficial ownership of the
securities held by Winter Harbor.
(7) Represents shares of common stock issuable pursuant to options and
warrants.
(8) Represents shares of common stock issuable pursuant to options.
(9) Represents 75,000 shares of common stock issued, 3,685,294 shares of
common stock which may be obtained pursuant to options and warrants
exercisable within 60 days of the date hereof and 72,000 shares of
common stock into which 3,000 shares of Class C preferred stock are
convertible.
DO ANY OF THE OFFICERS AND DIRECTORS HAVE AN INTEREST IN THE MATTERS TO BE
ACTED UPON?
Mr. Thomas A. Keenan has been nominated for re-election as a Class I
Director and, therefore, has an interest in the outcome of Proposal 1.
DID DIRECTORS, EXECUTIVE OFFICERS AND GREATER-THAN-10% STOCKHOLDERS COMPLY
WITH SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING REQUIREMENTS IN 1998?
Section 16(a) of the Exchange Act requires our executive officers and
directors, and persons who own more than ten percent of any publicly traded
class of our Company's equity securities, to file reports of ownership and
changes in ownership of equity securities of I-Link with the SEC. Officers,
directors, and greater than ten percent stockholders are required by SEC
regulation to furnish I-Link with copies of all Section 16(a) forms that they
file.
Based solely upon a review of Forms 3, Forms 4 and Forms 5 furnished to
I-Link pursuant to Rule 16a-3 under the Exchange Act, we believe that all
such forms required to be filed pursuant to Section 16(a) of the Exchange Act
were timely filed, as necessary, by the officers, directors, and security
holders required to file the same during the fiscal year ended December 31,
1998, except
7
<PAGE>
that reports were filed late by the following persons: John M. Ames, 1
report, 2 transactions; Thomas Keenan, 1 report; Clay Wilkes, 4 reports, 12
transactions; Henry Toh, 3 reports, 8 transactions. In addition, the Company
has received no copies of Forms 3, 4, or 5 from the R. Huston Babcock, a
former director, for 1 transaction.
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of I-Link are:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ------------------------- --- ------------------------------------------
<S> <C> <C>
John W. Edwards . . . . . 44 Chairman of the Board, President and Chief
Executive Officer
John Ames . . . . . . . . 39 Vice President of Operations
Karl S. Ryser, Jr. . . . 44 Treasurer and Chief Financial Officer
David E. Hardy . . . . . 46 Secretary
Henry Y.L. Toh . . . . . 41 Director and Assistant Secretary
Joseph A. Cohen . . . . . 51 Director
Thomas A. Keenan. . . . . 33 Director
David R. Bradford . . . . 48 Director
</TABLE>
I-Link's articles of incorporation provide that the board of directors
shall be divided into three classes, and that the total number of directors
shall not be less than five nor more than nine. The board of directors
currently consists of five members: one Class I Director, two Class II
Directors, and two Class III Directors. Mr. Thomas A. Keenan, the Class I
Director appointed during September 1998 as a designee of Winter Harbor,
L.L.C., is standing for re-election for a three-year term at the annual
meeting. The Class II Directors, Joseph A. Cohen and Henry Y.L. Toh, will
stand for re-election in 2000 and the Class III Directors, John W. Edwards
and David R. Bradford, in 2001. Mr. Toh was re-elected in 1995 and Mr. Cohen
was appointed in 1996. Mr. Edwards was re-elected in 1997 and Mr. Bradford
was appointed in January 1999 to fill a vacancy created by the resignation in
1998 of a former director.
Biographical information with respect to the present executive officers
and directors of I-Link are set forth below. There are no family
relationships between any present executive officers or directors.
JOHN W. EDWARDS, Chairman of the Board, President and Chief Executive
Officer of I-Link. Mr. Edwards has served as Chief Executive Officer since
April 1996, as President since September 1996, was selected to fill a vacancy
on the board of directors as a Class III Director in June 1996 and was
elected Chairman of the Board in August 1997. Mr. Edwards was re-elected as
a Class III Director in October 1997. Mr. Edwards served as Acting Chief
Financial Officer of I-Link from September 1996 to January 1997. Mr. Edwards
served as President and a director of Coresoft, Inc., a software company
developing object-oriented computer solutions for small businesses from
September 1995 to April 1996. During the period August 1988 through July
1995, Mr. Edwards served in a number of executive positions with Novell,
Inc., a software
8
<PAGE>
company providing networking software, including Executive Vice President of
Strategic Marketing, Executive Vice President of the Appware and Desktop
Systems Groups and Vice President of Marketing of the NetWare Systems Group.
Mr. Edwards was involved in the development of the NetWare 386 product line.
Until May 1996, he was a visiting faculty member at the Marriott School of
Management at Brigham Young University. Mr. Edwards received a B.S. degree in
Computer Science from Brigham Young University and has taken graduate courses
in Computer Science at Brigham Young University.
JOHN AMES, Vice President of Operations. Mr. Ames joined I-Link as Vice
President of Operations in September 1998. Between April 1997 and September
1998, Mr. Ames organized, developed and sold Time Key L.C., a company
specializing in time and labor management software and consulting. From June
1996 until April 1997, he was the Vice President and Chief Financial Officer
of Neurex (now Elan Pharmaceutical), a Menlo Park, California-based public
biotech company. From August 1993 until June 1996, Mr. Ames managed various
information services, finance and cost accounting, strategic partnering,
international tax, and human resource functions as the Director of Corporate
Services at TheraTech, a public Utah-based pharmaceutical company. From
April 1992 through August 1993, he was responsible for overseeing U.S. sites
information services activities as the Corporate Director of Information
Services with Otsuka Pharmaceutical, a large privately owned Japanese
conglomerate. Prior to joining Otsuka, Mr. Ames spent over eight years with
KPMG Peat Marwick as an auditor and consultant in the High Technology
practice. He is a graduate of Brigham Young University with both a Bachelors
and Masters (MAcc) degrees in accounting with emphasis in accounting
information systems and management consulting.
KARL S. RYSER, JR., Treasurer and Chief Financial Officer. Mr. Ryser
was elected Treasurer in September 1996, and Chief Financial Officer in
January 1997. Mr. Ryser was self-employed as a corporate financial
consultant from May 1995 until September 1996, when he joined I-Link. From
July 1993 through April 1995, Mr. Ryser served as Vice President of Finance
and Treasurer of Megahertz Corporation, a publicly held manufacturer of data
communication products, in which position he served until U.S. Robotics
Corporation acquired Megahertz. After earning his MBA, Mr. Ryser's work
experience was concentrated in the investment-banking field, working first
with the Capital Markets Division of First Security Corporation and later
with Dain Bosworth, Inc. Mr. Ryser holds a B.S. degree in Finance from the
University of Utah, and an MBA from the University of San Diego.
DAVID E. HARDY, Secretary of I-Link. Mr. Hardy was appointed Secretary
of I-Link in December 1996. He is a founding partner of the law firm of
Hardy & Allen, in Salt Lake City. From February 1993 to April 1995, Mr. Hardy
served as Senior Vice President and General Counsel of Megahertz Corporation,
a publicly-held manufacturer of data communication products. Prior to his
association with Megahertz Corporation, Mr. Hardy was a senior partner of the
law firm of Allen, Hardy, Rasmussen & Christensen which was founded in 1982.
Mr. Hardy holds a B.A. degree from the University of Utah and a Juris Doctor
degree from the University of Utah School of Law.
HENRY Y.L. TOH, Director of I-Link. Mr. Toh was elected by the board of
directors as a Class II Director and as Vice Chairman of the board of
directors in March 1992. Mr. Toh was
9
<PAGE>
elected President of I-Link in May 1993, acting Chief Financial Officer in
September 1995 and Chairman of the Board in May 1996, and served as such
through September 1996. Mr. Toh was re-elected as a Class II Director in
1995. He was appointed Assistant Secretary of I-Link in May 1997. Mr. Toh is
a director of Four M International, Ltd., a private investment firm, and is a
director of National Auto Credit, Inc., a publicly-held subprime automobile
credit finance company. Mr. Toh served as a senior tax manager in
international taxation and mergers and acquisitions with KPMG Peat Marwick
from March 1980 to February 17, 1992. He is a graduate of Rice University.
JOSEPH A. COHEN, Director of I-Link. Mr. Cohen was appointed a Class II
Director of I-Link in September 1996. He has been the Chairman, Chief
Executive Officer and Director of New Frontier Entertainment, Inc. since its
formation in May 1995, and held the same positions since January 1993 in New
Frontier's predecessor company, The Frondelle Company, Inc. He is also
President of Leslie Group, Inc., a diversified company with holdings
primarily in the music, film, home video and other entertainment-oriented
businesses. He is also a founder and President of Leslie/Linton
Entertainment Inc., a merchant banking company that provides investment funds
and assists in raising capital and debt for companies. Mr. Cohen also serves
as President of Pickwick Communications, Inc., an independent music
publishing company. From 1977 to 1986, Mr. Cohen served as Executive Vice
President of the National Association of Recording Merchandisers, Inc. and
founder and Executive Vice President of Video Software Dealers Association,
Inc., trade associations representing all segments of the recorded music and
home video industries, respectively.
THOMAS A. KEENAN, Director of I-Link. Mr. Keenan has been nominated for
re-election as a Class I Director. The board of directors appointed Mr.
Keenan to serve as a Class I Director on September 1, 1998. Mr. Keenan was
elected to fill this board seat pursuant to the right of Winter Harbor to
designate up to two board members under the Shareholders Agreement dated
September 30, 1997 between Winter Harbor, I-Link and certain shareholders of
I-Link. Mr. Keenan is the principal of Wolfeboro Holdings, an investment
fund based in Wellesley, Massachusetts. Mr. Keenan received a Juris Doctor
degree from the University of Michigan Law School, and from September 1994 to
August 1996 was employed by McKinsey & Company, an international
management-consulting firm.
DAVID R. BRADFORD, Director of I-Link. Mr. Bradford was appointed by the
board of directors as a Class III director in January 1999 to fill a board
vacancy. An attorney, since 1985 he has been Senior Vice President and
General Counsel of Novell Inc., a leading provider of networking software and
technology. He is a member of the board of directors of Pervasive Software,
Inc. as well as two privately held companies, Altius Inc., and Found.Com.
From 1996 to 1997, he served as chairman of the Business Software Alliance.
Mr. Bradford holds a bachelor's and law degrees from Brigham Young
University, and an MBA from Pepperdine University.
Each officer of I-Link is chosen by the board of directors and holds his
office at the pleasure and direction of the board of directors or until such
time of his resignation or death.
There are no material proceedings to which any director, officer or
affiliate of I-Link, any owner of record or beneficially of more than five
percent of any class of voting securities of
10
<PAGE>
I-Link, or any associate of any such director, officer, affiliate of I-Link
or security holder is a party adverse to I-Link or any of its subsidiaries or
has a material interest adverse to I-Link or any of its subsidiaries.
THE BOARD OF DIRECTORS
The board of directors oversees the business affairs of I-Link and
monitors the performance of management. The board of directors held seven
meetings during the fiscal year ended December 31, 1998. During the fiscal
year ended December 31, 1998, no incumbent director attended fewer than 75
percent of the meetings of the board of directors or of the committees on
which he served.
COMMITTEES OF THE BOARD OF DIRECTORS
AUDIT COMMITTEE. Our audit committee is responsible for making
recommendations to the board of directors concerning the selection and
engagement of I-Link's independent certified public accountants and for
reviewing the scope of the annual audit, audit fees, and results of the
audit. The audit committee also reviews and discusses with management and the
board of directors such matters as accounting policies and internal
accounting controls, and procedures for preparation of financial statements.
Joseph A. Cohen is Chairman of the audit committee, Henry Y.L. Toh, David R.
Bradford and Thomas A. Keenan are members of the audit committee. The audit
committee held three meetings during the fiscal year ended December 31, 1998.
COMPENSATION COMMITTEE. Our compensation committee approves the
compensation for executive employees of I-Link. For the fiscal year ended
December 31, 1998, Joseph A. Cohen was Chairman of the compensation
committee, and John W. Edwards and Thomas A. Keenan were members of the
compensation committee. On March 29, 1999, David R. Bradford replaced Mr.
Cohen as Chairman, Mr. Cohen and Mr. Keenan continued as members and John W.
Edwards resigned as a committee member. The compensation committee held four
meetings during the fiscal year ended December 31, 1998.
FINANCE COMMITTEE. Our finance committee is responsible for reviewing
and evaluating financing, strategic business development and acquisition
opportunities. Thomas A. Keenan is Chairman of the finance committee, and
Joseph A. Cohen and John W. Edwards are also members of the finance
committee. The finance committee held four meetings during the fiscal year
ended December 31, 1998.
We have no nominating committee or any committee serving a similar
function.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
SUMMARY COMPENSATION TABLE
The following table sets forth the aggregate cash compensation paid for
services rendered to the Company during the last three years by each person
serving as the Company's Chief Executive Officer during the last year and the
Company's most highly compensated executive
11
<PAGE>
officers serving as such at the end of the year ended December 31, 1998,
whose compensation was in excess of $100,000.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------------------------- ------------------------- -----------
SECURITIES
OTHER RESTRICTED UNDERLYING
NAME AND ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) AWARDS($) SARS(#) PAYOUTS($) COMPENSATION($)
- -------------------- ---- --------- -------- --------------- ----------- ----------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John W. Edwards 1998 133,333(1) - - - 30,000 - N/A
President and CEO 1997 98,292(1) - - - 520,000 - N/A
1996 101,663(1) - - - 1,250,000 - N/A
Karl Ryser, Jr. 1998 125,000(2) - - - - - N/A
Treasurer and CFO 1997 125,000(2) - - - 550,000 - N/A
1996 41,665(2) - - - 250,000 - N/A
John M. Ames 1998 37,369(3) - - - 350,000 - N/A
Vice President of
Operations
</TABLE>
- --------------------
(1) Mr. Edwards began his employment with I-Link in April 1996 and was
appointed President and CEO as of September 30, 1996; his annual salary
was $175,000 from April to August 21, 1996 and was voluntarily reduced
to $96,000 for the balance of 1996 in exchange for options. Mr. Edwards'
annual salary continued at $96,000 in 1997 until August, when it was
increased to an annual salary of $150,000. In November 1997 Mr. Edwards
again voluntarily reduced his annual salary to $35,000, for the balance
of 1997 and until the Company's financial restraints are reduced. See
"-- Employment Agreements." Mr. Edwards was paid at an annual rate of
$125,000 commencing January 1, 1998. Mr. Edward's salary was increased
to $200,000 effective May 1997, however the salary increase is to accrue
but not be paid until the Company has generated sufficient cash
resources to enable the increase to be paid without creating an undue
burden on the Company's cash resources. Accordingly as of December 31,
1998, the accrued but unpaid salary to Mr. Edwards was $129,375.
(2) Mr. Ryser began his employment with I-Link in September 1996; his annual
salary during the 1996 and 1997 fiscal years was $125,000. See
"-- Employment Agreements." Mr. Ryser's salary was increased to $175,000
effect May 1997, however the salary increase will not be paid until the
Company has generated sufficient cash resources to enable the increase
to be paid without creating an undue burden on the Company's cash
resources. As of December 31, 1998, the accrued but unpaid salary to
Mr. Ryser was $81,250.
(3) Mr. Ames began his employment in September 1998; his annual salary
during 1998 was $120,000. See "Employment Agreements."
OPTION/SAR GRANTS IN LAST FISCAL YEAR (1998)
The following table sets forth certain information with respect to the
options granted during the year ended December 31, 1998, for the persons named
in the Summary Compensation Table (the "Named Executive Officers"):
<TABLE>
<CAPTION>
NUMBER OF SECURITIES PERCENT OF TOTAL EXERCISE OR
UNDERLYING OPTIONS/SARS GRANTED TO BASE PRICE GRANT DATE EXPIRATION
NAME OPTIONS/SARS GRANTED (#) EMPLOYEES IN FISCAL YEAR ($/SHARE) VALUE(2) DATE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
John W. Edwards(1) 30,000 1.7% $3.900 $120,000 1/2/2008
Karl S. Ryser, Jr.(1) - - - - -
John M. Ames 350,000 19.8% 3.125 789,000 8/31/2008
</TABLE>
12
<PAGE>
- --------------------
* Less than 1%.
(1) On December 13, 1998 the board of directors authorized the repricing of
all outstanding options of Mr. Edwards (options to purchase 1,800,000
shares of common stock) and Mr. Ryser (options to purchase 800,000
shares of common stock) as part of a general repricing of all
outstanding options held by current employees, directors and consultants
of the Company. The original exercise prices of between $7.00 and $4.88
were reduced to $3.90. Using the Black Scholes option pricing model the
incremental fair value of the repriced options over the original options
was approximately $351,000 and $119,000 for Mr. Edwards and Mr. Ryser,
respectively.
(2) Determined using the Black Scholes option pricing model.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
The following table sets forth certain information with respect to options
exercised during 1998 by the Named Executive Officers and with respect to
unexercised options held by such persons at the end of 1998.
<TABLE>
<CAPTION>
SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED IN THE
ACQUIRED ON VALUE UNDERLYING UNEXERCISED MONEY OPTIONS/SARS AT
NAME EXERCISE (#) REALIZED ($) OPTIONS/SARS AT FY-END (#) FY-END ($)(1)
- ------------------------------------------------------------------------------------------------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John W. Edwards - - 1,258,328 541,672 - -
Karl S. Ryser, Jr. - - 612,500 187,500 - -
John M. Ames - - 33,333 316,667 - -
</TABLE>
- --------------------
(1) The calculations of the value of unexercised options are based on the
difference between the closing bid price on Nasdaq of the common stock
on December 31, 1998, and the exercise price of each option, multiplied
by the number of shares covered by the option. As the exercise price
exceeds the closing bid price at December 31, 1998, no value is ascribed
to unexercised options.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The compensation committee administers the compensation program for
operating officers of I-Link and bases its decisions on both individual
performance and the financial results achieved by I-Link. For the fiscal
year ended December 31, 1998, the committee consisted of two outside,
independent directors and a third director who serves as the Chairman of the
Board and the Chief Executive Officer.
The principal elements of the compensation program for executive
officers are base salary and stock options. While bonuses are a potential
component of executive officer compensation, no bonuses have been awarded to
executive officers. The goals of the program are to give the executive
officers incentives to work toward the improved financial performance of
I-Link and to reward them for their contributions to I-Link's success. For a
summary of fiscal 1998 compensation, see "Summary Compensation" above.
BASE SALARIES. The committee has based its decisions on salaries for
I-Link's executive officers, including the Chairman, Vice President of
Operations and Chief Financial Officer, on a number of factors, both
objective and subjective. Objective factors considered include increases in
the cost of living, I-Link's overall historical performance, and comparable
industry data, although
13
<PAGE>
no specific formulas based on such factors have been used to determine
salaries. Salary decisions are based primarily on the committee's subjective
analysis of the factors contributing to I-Link's long-term success and of the
executives' individual contributions to such success.
STOCK OPTIONS. The committee views stock options as its primary long
term compensation vehicle for I-Link's executive officers. Stock options
generally are granted at the prevailing market price on the date of grant and
will have value only if I-Link's stock price increases. Options granted to
executive officers generally vest in quarterly increments over three years
beginning on the date of the grant. Some options vest in increments upon the
attainment by I-Link of certain performance benchmarks. Grants of stock
options generally are based upon the performance of I-Link, the level of the
executive's position within I-Link and an evaluation of the executive's past
and expected future performance. The committee grants stock options
periodically, but not necessarily on an annual basis. On December 13, 1998,
the board of directors by unanimous resolution amended the incentive-related
qualified and non-qualified stock options previously granted to I-Link
employees, directors, and consultants (with certain exceptions) to reset the
exercise price of those options with an exercise price in excess of $3.90 per
share to an exercise price of $3.90 per share. The motivation of the board
in taking this action was both to reward these persons for their continued
diligence and efforts on behalf of I-Link, recognizing that many of these
individuals are being compensated at a salary level below market norms, and
to provide added incentive to establish and advance I-Link's business in such
a manner that will reflect on I-Link's stock price to bring it up to and
beyond the reset exercise price.
CHIEF EXECUTIVE OFFICER. The salary established in fiscal 1998 for John
W. Edwards, the Chairman and Chief Executive Officer of I-Link, was based on
the factors and analysis described. Specific factors considered by the
committee include the Chairman's current responsibilities with I-Link.
By the members of the Compensation Committee*:
David R. Bradford, Chairman
Joseph A. Cohen
Thomas A. Keenan
* On March 29, 1999 David R. Bradford replaced Joseph A. Cohen as Chairman,
Mr. Cohen and Mr. Keenan continued as committee members and John W. Edwards
resigned as a committee member.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG I-LINK INCORPORATED, THE RUSSELL
2000 INDEX AND A PEER GROUP
PERFORMANCE GRAPH
The following graph compares I-Link's cumulative total stockholder
return with that of the Russell 2000 index of small-capitalization companies
and a peer group index. The issuers comprising the peer group are IDT
Corporation, Premier Technologies, Inc., ICG Communications, Inc. and
AlphaNet Solutions, Inc. I-Link chose these companies because they are
similar in size, and similar in their lines of business, to I-Link. The
graph assumes an initial
14
<PAGE>
investment of $100.00 made on December 31, 1993, and the reinvestment of
dividends (where applicable). I-Link has never paid a dividend on its common
stock.
[GRAPH]
Note: I-Link's current trading symbol is ILNK. Prior to March 8, 1996
the Company's common stock traded under the symbol MDCR.
The following represents in table form the same information set forth in
the graph above.
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN ($)
-----------------------------------------------
12/93 12/94 12/95 12/96 12/97 12/98
----- ----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
I-Link Incorporated 100.00 37.21 27.91 94.19 113.95 39.53
Industry Peer Group 100.00 75.71 70.00 100.71 130.55 66.43
Russell 2000 100.00 98.17 126.06 146.85 179.80 178.62
</TABLE>
DIRECTOR COMPENSATION
Effective January 1, 1998 and the first business day of January of each
year thereafter, each director then serving will receive options, to purchase
20,000 shares of common stock and, for each committee on which the director
serves, options to purchase 5,000 shares of common stock. The exercise price
of such options shall be equal to the fair market value of the common stock
on the date of grant. The directors are also eligible to receive options
under the Company's stock option plans at the discretion of the board of
directors. In addition to the above options, Mr. Cohen received options to
purchase 64,000 shares of common stock upon his appointment to the board of
directors in September 1996. The original $5.25 exercise price was reset at
$3.90 in December 1998 in connection with a plan to reprice options held by
employees, directors, and consultants.
15
<PAGE>
EMPLOYMENT AGREEMENTS
In February 1996, the Company entered into a two-year employment
agreement with Henry Y.L. Toh. The employment agreement was for an initial
period ending on December 31, 1997 and is automatically renewable for
successive one-year periods unless written notice to the contrary is given by
the Company not less than 120 days prior to expiration of the term. Pursuant
to the terms of the employment agreement, Mr. Toh is required to devote his
time to the business and affairs of the Company as is required to fulfill the
duties and responsibilities of his office. Mr. Toh is entitled under his
employment agreement to receive compensation at the rate of $54,000 per year.
Mr. Toh is entitled to an annual bonus at the discretion of the board of
directors and may participate in fringe benefits, deferred compensation,
stock benefits and option plans of the Company. In the event of termination
of his employment by the Company other than for "cause" (as defined in the
agreement) or by Mr. Toh upon "good reason" (as defined in the agreement),
the Company is required to pay Mr. Toh, as liquidated damages or severance
pay, monthly termination payments equal to the base salary in effect for a
period of six months after such termination. The employment agreement
contains confidentiality and non-solicitation provisions.
On [___________], I-Link and John W. Edwards, I-Link's President, Chief
Executive Officer and Chairman of the Board, reached an understanding for
renewing his employment agreement with I-Link for another three years. The
employment agreement will provide that Mr. Edwards is employed as the Chief
Executive Officer and a director of I-Link, and is required to devote
substantially all of his working time to the business and affairs of I-Link.
The employment agreement entitles Mr. Edwards to compensation at the rate of
$225,000 per year and to cash bonuses, as well as the opportunity to
participate in the fringe benefits of the Company generally provided to
executive officers. The employment agreement also contains non-competition
and confidentiality provisions. The Company and Mr. Edwards are currently
negotiating the terms on which Mr. Edwards will be granted a combination of
incentive-based and milestone options to purchase common stock.
16
<PAGE>
Under Mr. Edwards' prior 1996 employment agreement he was granted an
option to purchase one million shares of common stock of the Company at an
exercise price of $7.00 per share. Such options vested quarterly beginning
in April 1996 and as of the record date, 916,667 of them had vested and are
exercisable. In addition, for a period of time during the term of the 1996
employment agreement Mr. Edwards agreed to reduce his annual salary, and in
consideration of the salary reduction, the Company agreed to grant him
options to purchase 250,000 shares of common stock at an exercise price of
$4.875 per share. Mr. Edward's salary was increased again in May 1997,
however the salary increase was to accrue and not be paid until the Company
has generated sufficient cash resources to enable the increase to be paid
without creating an undue burden on the Company's cash resources.
Accordingly, as of December 31, 1998 accrued but unpaid salary to Mr. Edwards
was $129,375.
On May 15, 1997, Mr. Edwards was granted options to purchase 500,000
shares of common stock, at the exercise price of $5.188 per share; 250,000 of
them vest in quarterly installments over three years (166,664 have vested to
date), while the remaining 250,000 options vest based upon performance
milestones. The milestones have not yet been established by the compensation
committee, so none of the second 250,000 of these options have vested.
All of Mr. Edwards' outstanding options which were issued prior to 1999
were repriced to $3.90 per share, effective December 13, 1998, as part of a
general repricing of outstanding options held by current employees, directors
and consultants of the Company.
During fiscal 1998, Mr. Edwards was granted options to purchase 30,000
shares of common stock in connection with his service on the board of
directors and on two board committees.
In October 1996, I-Link entered into a three-year employment agreement
with Karl S. Ryser, Jr., Treasurer and Chief Financial Officer of the
Company. Pursuant to the terms of the employment agreement, Mr. Ryser is
required to devote all of his time to the business and affairs
17
<PAGE>
of the Company. Mr. Ryser is entitled under his employment agreement to
receive compensation at the rate of $125,000 per year and a bonus at the sole
discretion of the Chief Executive Officer. Mr. Ryser may participate in
fringe benefits, deferred compensation, stock benefits and option plans of
the Company. In addition, Mr. Ryser is entitled to options to purchase
250,000 shares of common stock exercisable at an exercise price equal to the
closing bid price on the date of the employment agreement. Options issuable
to Mr. Ryser to purchase 25,000 shares vested immediately and the remaining
options were to vest in quarterly increments of 20,455 commencing January 1,
1997. In May 1997, Mr. Ryser was also granted options to purchase 250,000
and 300,000 shares of the Company's common stock. The 300,000 options vested
in full upon closing of a financing with Winter Harbor, and the 250,000
options vest as to 10,417 shares at the commencement of each calendar quarter
for twelve quarters. As partial consideration for Mr. Ryser's providing
funds necessary to permit the Company to settle the JW Charles litigation,
the Company modified the original vesting schedule of the 250,000 options in
the employment agreement allowing for the immediate vesting of 100,000 of the
non-vested options and the balance of the non-vested to vest evenly over four
quarters. Mr. Ryser's salary was increased to $175,000 effective May 1997,
however the salary increase will not be paid until the Company has generated
sufficient cash resources to enable the increase to be paid without creating
an undue burden on the Company's cash resources. As of December 31, 1998,
accrued but unpaid salary to Mr. Ryser was $81,250. In the event of a change
of control or upon termination of the employment agreement by the Company
without cause all options shall thereupon be fully vested and immediately
exercisable. In the event of termination by the Company other than for
"cause" (as defined in the agreement), the Company is required to pay Mr.
Ryser a lump sum severance payment equal to one year's then-current salary.
The employment agreement contains confidentiality and non-competition
provisions. All of Mr. Ryser's outstanding options were repriced to $3.90,
effective December 13, 1998, as part of a general repricing of outstanding
options held by current employees, directors and consultants of the Company.
In August 1998, I-Link entered into a two-year employment agreement
(with a one-year renewal option) with John M. Ames, Vice President of
Operations. Pursuant to the terms of the employment contract, Mr. Ames is
required to devote all his time to the business and affairs of the Company.
Mr. Ames is entitled under his employment agreement to receive compensation
at the rate of $120,000 per year and a bonus commensurate with his
performance and that of I-Link. In addition, Mr. Ames is entitled to options
to purchase 200,000 shares of common stock at an exercise price equal to the
closing bid price on the date of employment agreement ($3.125 per share), and
vesting one-third at the end of one year of employment and the balance
ratably over the subsequent eight quarters. Mr. Ames also is entitled to
options to purchase 150,000 share of common stock at an exercise price equal
to the closing bid price on the date of employment agreement ($3.125 per
share) which vest based upon certain incentive milestones. Mr. Ames may
participate in fringe benefits, deferred compensation, and stock benefits and
option plans of the Company.
CONSULTING AGREEMENTS
The Company entered into a consulting agreement with David E. Hardy
effective February 6, 1997 and for a three-year term. Mr. Hardy provides
legal services pursuant to the agreement at a compensation rate of $10,417
per month for the term of the agreement. In addition,
18
<PAGE>
in the event the Company increases the salary of its senior-level vice
presidents, the consulting fee shall be equally increased and in the event
the Company shall pay any Company performance-based bonuses to its senior
level vice presidents, the Company shall pay an equal amount to Mr. Hardy.
Mr. Hardy's fee was increased to $14,583 per month effect May 1997, however
such increase is to accrue but not be paid until the Company has generated
sufficient cash resources to enable the increase to be paid without creating
an undue burden on the Company's cash resources. As of December 31, 1998,
accrued but unpaid fees to Mr. Hardy were $69,875. In May 1997, Mr. Hardy
was also granted options to purchase 250,000 and 300,000 shares of the
Company's common stock. The 300,000 options vested in full upon closing of a
financing with Winter Harbor, and the 250,000 options vest as to 10,417
shares at the commencement of each calendar quarter for twelve quarters. As
partial consideration for Mr. Hardy's providing funds necessary to permit the
Company to settle the JW Charles litigation, the Company modified the
original vesting schedule of the 250,000 options in the Consulting Agreement
allowing for the immediate vesting of 100,000 of the non-vested options and
the balance of the non-vested to vest evenly over four quarters. In the event
of the termination of the agreement prior to the expiration of the full term
for any reason other than as a result of a material, unremedied breach by Mr.
Hardy which remains uncured following 30 days written notice, Mr. Hardy is
entitled to a lump sum payment equal to the lesser of the monthly consulting
fee payable through the end of the term of the agreement or the monthly
consulting fee payable over 12 months and all unvested options shall
accelerate and immediately become fully vested and exercisable. All of Mr.
Hardy's outstanding options were repriced to $3.90, effective December 13,
1998, as part of a general repricing of outstanding options held by current
employees, directors and consultants of the Company.
In September 1996, Joseph A. Cohen, a director, entered into a
consulting agreement in the amount of $4,000 per month for a 36-month period.
Mr. Cohen provided services including business management and financial
consulting services. The consulting agreement was terminated effective March
1, 1999 and all unpaid balances ($78,000) were settled by the grant to Mr.
Cohen of 100,000 options to purchase the Company's common stock at an
exercise price of $3.00 per share and the additional obligation of the
Company to pay Mr. Cohen an aggregate of $50,000 in installments beginning at
such time as the Company reports positive cash flow of at least $150,000 in a
fiscal quarter. On August 29, 1997, Mr. Cohen was also granted options to
purchase 150,000 shares of common stock, 50,000 of the options (with an
original exercise price of $5.375) vested upon closing of the Winter Harbor
equity investment in October 1997, 50,000 (with an original exercise price of
$5.375) will vest when the Company reaches the break even point, and the
balance (with an original issuance price of $5.188) will vest at such time as
the Company has attained $50 million in annual sales. The original exercise
prices of the options were reset at $3.90, effective December 13, 1998, as
part of a plan to reprice options held by employees, consultants, and
directors.
REPRICING OF STOCK OPTIONS AND WARRANTS
On December 13, 1998, the board of directors approved a repricing of all
options to purchase common stock with exercise prices above $3.90 held by
current employees, directors and consultants of the Company. As a result,
the exercise price on options to purchase 6,475,000 shares of common stock
was reduced to $3.90. The options had original exercise prices of
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between $4.375 and $9.938. All other terms of the various option agreements
remained the same. The closing price of the Company's common stock on
December 13, 1998 was $2.56.
DIRECTOR STOCK OPTION PLAN
The Company's director stock option plan authorizes the grant of stock
options to directors of the Company. Options granted under the stock option
plan are non-qualified stock options exercisable at a price equal to the fair
market value per share of common stock on the date of any such grant. Options
granted under the stock option plan are exercisable not less than six (6)
months or more than ten (10) years after the date of grant.
As of December 31, 1998, options for the purchase of 8,169 shares of
common stock at prices ranging from $.875 to $3.875 per share were
outstanding. As of December 31, 1998, options to purchase 15,228 shares of
common stock had been exercised. In connection with adoption of the 1995
director plan the board of directors authorized the termination of future
grants of options under the stock option plan; however, outstanding options
granted under the stock option plan will continue to be governed by the terms
thereof until exercise or expiration of such options.
1995 DIRECTOR STOCK OPTION PLAN
In October 1995, the stockholders of the Company approved adoption of
the Company's 1995 director stock option and appreciation rights plan, which
provides for the issuance of incentive options, non-qualified options and
stock appreciation rights.
The 1995 director plan provides for automatic and discretionary grants
of stock options which qualify as incentive stock options under Section 422
of the Internal Revenue Code of 1986, as amended, as well as options which do
not so qualify to be issued to directors. In addition, stock appreciation
rights may be granted in conjunction with the grant of incentive options and
non-qualified options. No stock appreciation rights have been granted to date.
The 1995 director plan provides for the grant of incentive options,
non-qualified options and stock appreciation rights to purchase up to 250,000
shares of common stock (subject to adjustment in the event of stock
dividends, stock splits and other similar events). The 1995 director plan
also provides for the grant of non-qualified options on a non-discretionary
basis pursuant to the following formula: each member of the board of
directors then serving shall receive a non-qualified option to purchase
10,000 shares of common stock at an exercise price equal to the fair market
value per share of the common stock on that date. Pursuant to such formula,
directors received options to purchase 10,000 shares of common stock as of
October 17, 1995, options to purchase 10,000 shares of common stock on
January 2, 1996, and will receive options to purchase 10,000 shares of common
stock on the first business day of each January. The number of shares
granted to each board member was increased to 20,000 in 1998. In addition,
the board member will receive 5,000 options for each committee membership.
Each option is immediately exercisable for a period of ten years from the
date of grant. The Company has 190,000 shares of common stock reserved for
issuance under the 1995 Director Plan. As of December 31, 1998, options
exercisable to purchase 170,000 shares of common stock at prices ranging from
$1.00 to
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$1.25 per share are outstanding under the 1995 director plan. As of December
31, 1998, options to purchase 60,000 shares had been exercised under the 1995
director plan.
1995 EMPLOYEE STOCK OPTION PLAN
In October 1995, the stockholders of the Company approved adoption of
the Company's 1995 employee stock option and appreciation rights plan, which
plan provides for the issuance of incentive options, non-qualified options
and stock appreciation rights. Directors of the Company are not eligible to
participate in the 1995 employee plan. The 1995 employee plan provides for
the grant of stock options which qualify as incentive stock options under
Section 422 of the Code, to be issued to officers who are employees and other
employees, as well as non-qualified options to be issued to officers,
employees and consultants. In addition, stock appreciation rights may be
granted in conjunction with the grant of incentive options and non-qualified
options. No stock appreciation rights have been granted to date.
The Company has 400,000 shares of common stock reserved for issuance
under the 1995 employee plan. As of December 31, 1998, options to purchase
351,167 shares of common stock with exercise prices of $1.125 to $6.75 per
share have been granted under the 1995 employee plan.
1997 RECRUITMENT STOCK OPTION PLAN
In October 1997, the stockholders of the Company approved adoption of
the Company's 1997 recruitment stock option and appreciation rights plan,
which plan provides for the issuance of incentive options, non-qualified
options and stock appreciation rights (the "1997 Plan"). The 1997 plan
provides for automatic and discretionary grants of stock options which
qualify as incentive stock options under Section 422 of the Code, as well as
options which do not so qualify to be issued to directors. In addition, stock
appreciation rights may be granted in conjunction with the grant of incentive
options and non-qualified options. No stock appreciation rights have been
granted to date.
The 1997 plan provides for the grant of incentive options, non-qualified
options and stock appreciation rights to purchase up to 4,400,000 shares of
common stock (subject to adjustment in the event of stock dividends, stock
splits and other similar events). The price at which shares of common stock
covered by the option can be purchased is determined by the Company's board
of directors; however, in all instances the exercise price is never less than
the fair market value of the Company's common stock on the date the option is
granted. As of December 31, 1998, options to purchase 3,806,500 shares of
common stock, with exercise prices of $2.25 to $3.90 per share have been
granted under the 1997 plan. As of December 31, 1998, no options have been
exercised under the 1997 plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
John Edwards is Chairman of the Board and an executive officer of the
Company. Mr. Edwards resigned his seat on the Compensation Committee
effective March 29, 1999. Joseph Cohen, David R. Bradford and Thomas A.
Keenan are non-employee directors of the Company. See "Executive
Compensation" generally, and "Executive Compensation -- Employment
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Agreements" and "Executive Compensation -- Director Compensation" as well as
"Information About I-Link Stock Ownership."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Executive Compensation" for descriptions of the terms of employment
and consulting agreements between I-Link and certain officers, directors, and
other related parties.
On December 13, 1998, the board of directors reset the exercise price of
several outstanding options to $3.90 per share in accordance with an overall
amendment to incentive-related qualified and non-qualified stock options.
All of the affected options had original exercise prices in excess of $3.90
per share. See "Compensation Committee Report -- Stock Options."
The Company granted to Clay Wilkes, a former director, options to
purchase 1,500,000 shares of common stock for $7.00 per share as part of the
1996 acquisition of I-Link, Ltd. by Medcross, Inc. The options become
exercisable on June 30, 2001, but exercisability accelerates in increments of
25% in the event that the average closing bid price per share of common stock
for five (5) consecutive trading days equals or exceeds $10, $15, $20 and
$25, respectively. As of the date of this prospectus, 25%, or 375,000 of such
options, are exercisable. The options lapse on June 30, 2002.
On May 15, 1997, Karl S. Ryser, Jr. and David E. Hardy were each granted
options to purchase 300,000 shares of common stock in connection with a
financing by Winter Harbor. The options may be exercised at $3.90 per share
(previously, $5.188), through August 2007. See "Management," "Executive
Compensation -- Employment Agreements," "Executive Compensation -- Consulting
Agreements" and "Recent Transactions"
TRANSACTIONS WITH WINTER HARBOR, L.L.C.
On and after June 5, 1997, I-Link entered into a series of financing
transactions with Winter Harbor, L.L.C. See "Recent Transactions -- Winter
Harbor." During 1998, I-Link contracted with an outside consulting firm to
develop a billing and operations information system and capitalized as a
component of furniture, fixture, equipment and software $2,284,574 in costs
(including amounts in accounts payable of $437,286) associated with this
in-process system development. Although Winter Harbor played no part in the
negotiation of the consulting contract and the referral to the consulting
firm did not come through Winter Harbor, I-Link's management was informed
that Winter Harbor holds an ownership interest in the consulting company.
I-Link continually evaluated the functionality and progress of the in-process
system development. In May 1999, I-Link's management and its board of
directors concluded that the new system would not significantly enhance the
I-Link's existing billing and information systems, would not meet its
ultimate needs and had no alternative future use and accordingly did not
justify paying additional billed and contracted expenses of approximately
$1,000,000. Negotiations to discontinue work under the contract were
concluded in May 1999, with the consulting company forgoing any future
payments on the project while retaining amounts paid to date of $1,847,288.
Accordingly, as of March 31, 1999, I-Link recorded a write-down of
capitalized software costs on the in-process system development of $1,847,288.
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MIBRIDGE ACQUISITION; SERIES D PREFERRED STOCK
On September 2, 1997, I-Link acquired all of the issued and outstanding
stock of MiBridge, Inc., a New Jersey corporation. Mr. Dror Nahumi, the
principal stockholder of MiBridge prior to the acquisition continues to serve
as the President of the MiBridge subsidiary. Under the terms of the agreement
governing the acquisition, I-Link agreed to pay the stockholders of MiBridge
consideration consisting of (i) an aggregate $2,000,000 in cash, payable in
quarterly installments over two years; and (ii) an aggregate 1,000 shares of
the Series D preferred stock. All 1,000 shares of Series D preferred stock
were subsequently converted into an aggregate of 1,092,174 shares of common
stock. During the fiscal year ended December 31, 1998, Mr. Nahumi received
cash payments of $850,000 of the acquisition price, and as of January 1,
1999, the balance of such payments due to Mr. Nahumi was $425,000.
RECENT TRANSACTIONS
WINTER HARBOR
Winter Harbor, a significant stockholder of I-Link, is owned by First
Media, L.P., a private media and communications company that is a private
investment principally of Richard E. Marriott and his family. I-Link's
general counsel, David E. Hardy, is a brother of Ralph W. Hardy, Jr., who is
general counsel and a minority equity holder in Winter Harbor. David E.
Hardy has no ownership in, or association with, Winter Harbor. As a result
of this relationship, as well as personal relationships of David E. Hardy
with the principals of Winter Harbor, discussions were initiated which led to
Winter Harbor's investment in I-Link. I-Link and Winter Harbor have been
involved in several financing transactions, including the 1997 purchase by
Winter Harbor of 4,400 shares of Series M preferred stock and the related
issuance to Winter Harbor of 10,800,000 warrants to purchase common stock.
1998 WINTER HARBOR FINANCING ARRANGEMENTS
During the first and second quarters of 1998, I-Link obtained an
aggregate of $7.768 million 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 common stock of I-Link at exercise
prices ranging from $5.50 to $7.22, based upon 110% of the closing price of
the common stock on the day loan funds were advanced. The warrants have
exercise periods of 7.5 years from issuance. I-Link also agreed to extend
the exercise period on all 10,800,000 warrants previously issued to Winter
Harbor to seven and one-half years. Pursuant to the terms of the 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's 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, continued
on a demand basis with interest accruing at prime plus four percent. However,
as an aspect of the April 1999 loan, Winter Harbor agreed not to make demand
on the 1998 loans prior to April, 15, 2000. See "Recent Transactions --
Winter Harbor -- April 1999 Winter Harbor Loan" In addition, should Winter
Harbor elect to convert its $7,768,000 in promissory notes into additional
shares of Series M preferred stock, it is entitled to receive an additional
5,000,000
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warrants to purchase common stock of I-Link at an exercise price of $2.50 per
share, and to reduce the exercise price of the 6,740,000 warrants to $2.50
per share.
JANUARY 1999 WINTER HARBOR FINANCING ARRANGEMENT
On January 15, 1999, I-Link entered into an agreement with Winter Harbor
for additional financing. The January 1999 financing arrangement includes an
$8,000,000 bridge loan and a $3,000,000 letter of credit to secure additional
capital leases of equipment and telephone lines relative to the proposed
expansion of our telecommunications network. In addition, Winter Harbor
received warrants to purchase 11,000,000 shares of common stock. The warrants
may be exercised for a price ranging from a maximum of $2.78 to a minimum of
$1.25 per share. The exercise price will fluctuate depending on recent
market prices of the common stock, but it can never be higher than the
conversion rate for I-Link's outstanding Series F stock, nor can it be higher
than any price at which I-Link sells common stock or convertible securities
in the future. The warrants will terminate seven and one-half years from the
date of their issuance. As of May 25, 1999, the amount borrowed under the
bridge loan was $8,041,712 and I-Link has acquired equipment under the
capital lease letter of credit totaling $2,477,403.
I-Link has the right to require that Winter Harbor exchange its bridge
loan debt and interest, plus any amounts represented by the letter of credit
under the January 1999 financing into shares of a new series of preferred
stock (the Series N preferred stock). The Series N preferred stock will be
issued in a registered rights offering, under which I-Link will distribute to
each record holder of common or preferred stock, free of charge,
non-transferable rights to purchase one Series N preferred stock for
approximately every 1,589 shares held of common stock or preferred stock on
an as-converted basis. On January 15, 1999, I-Link filed a registration
statement on Form S-2 to register the rights and the Series N preferred stock
to be sold in the rights offering. I-Link will commence the rights offering
as soon as practicable after the SEC declares the registration statement
effective. The registration is subject to SEC review and comment, therefore,
the time of commencement of the rights offering cannot be determined at this
time.
The new Series N preferred stock will be paid dividends on an
as-converted basis equal to the common stock, when and if common stock
dividends are paid by I-Link. The Series N preferred stock will be senior in
all rights to other preferred common stock of I-Link, except that the Series
N preferred stock will be ranked equally and in proportion with the
previously issued Series F preferred stock. The Series N preferred stock can
be converted into common stock at any time at a current conversion price of
$2.78. However, Proposal 3 to be acted on by the stockholders, if approved,
will change the conversion price terms (see "Proposal 3"). The Series N
preferred stock conversion price is subject to adjustment in the event of
reclassifications, mergers, splits and reverse splits, and other similar
events. The Series N preferred stock will vote with the common stock on an
as-converted basis on all matters that are submitted to a vote of the
stockholders.
I-Link anticipates that by the time the rights are offered it will have
obligations of approximately $8,554,000 including accrued interest under the
bridge loan and approximately $3,448,000 including accrued interest under the
new loan. Therefore, to the extent that there are
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sufficient unsubscribed rights, I-Link may require that Winter Harbor
exchange its debt outstanding under the January 1999 financing arrangement
into approximately 12,000 shares of Series N preferred stock. As a
stockholder, Winter Harbor will automatically receive rights to purchase
4,340 shares of Series N preferred stock in the rights offering. Winter
Harbor has indicated an intention to subscribe for rights beyond the rights
that may be obtained by exchanging debt. Winter Harbor is entitled, but not
obligated, to subscribe for any unexercised rights, beyond the amount that
Winter Harbor is required by I-Link to purchase by debt exchange.
Consequently, Winter Harbor could conceivably purchase all 20,000 shares of
the Series N preferred stock if no other stockholders subscribe for Series N
preferred stock.
Any unsatisfied obligations under the January 1999 financing are to come
due on October 31, 1999. However, the terms of the January 1999 financing
require that I-Link prepay the debt incurred under the financing with any
cash proceeds received from other loans, or from the issue or sale of any
equity interest. Therefore, to the extent that there is participation in the
rights offering beyond the exchange of Winter Harbor debt, I-Link will be
obligated to use any proceeds to satisfy the outstanding balance under the
January 1999 financing. If there is sufficient participation in the rights
offering (an I-Link believes there will be), the balance outstanding under
the January 1999 financing may be satisfied well before the October 31, 1999
maturity date.
APRIL 1999 WINTER HARBOR LOAN
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 April 1999 loan are substantially
identical to the terms of the January 1999 financing (except that no warrants
will be automatically issued), and further provides that Winter Harbor will
not make demand on the $7.768 million loaned to I-Link during the first and
second quarters of 1998 until April 15, 2000. To date, I-Link has drawn
approximately $2,500,000, including interest, under the April 1999 loan.
The April 1999 loan contains a mechanism whereby the September 30, 1999
maturity date may be extended, at I-Link's option, to April 15, 2000. In the
event I-Link elects to extend the maturity date to April 15, 2000, I-Link
will be required to issue to Winter Harbor one warrant for each $1 of
principal outstanding under the April 1999 loan as of the date of such
extension. The warrants issued as a result of the extension would have been
issued on the same terms and conditions as the warrants issued under the
January 1999 financing. However, I-Link may extend the maturity date and
avoid issuing the warrants if stockholders approve a modification to the
conversion price of the Series N preferred stock, establishing a conversion
price floor of $1.25 and linking its rate of conversion to the exercise price
or conversion rate of any existing or new options, warrants, preferred stock
or other convertible security, including the conversion rate of the Series F
preferred stock (see "Proposal 3").
Winter Harbor is also entitled to subscribe for any unexercised rights
of the Series N preferred stock by exchanging its debt under the April 1999
loan, but has indicated that it will not subscribe for an amount that would
result in Winter Harbor, under the January 1999 financing arrangement and the
April 1999 loan, being invested, in the aggregate, more than $20,000,000 in
debt and equity of the Company. To the extent that any portion of the April
1999 loan is still outstanding after the rights offering, I-Link will have
the option of extending the maturity date.
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However, I-Link does not intend to extend the maturity date under the April
1999 loan, but anticipates repaying the April 1999 loan with the proceeds of
the Series N rights offering. If the April 1999 loan is repaid by the
proceeds of the rights offering then the warrants will not be issued,
diminishing the incentive of stockholders, who do not participate in the
rights offering, to approve Proposal 3.
In the event that Winter Harbor purchases all 20,000 shares of Series N
preferred stock, and it receives the maximum allowable number of warrants to
which it is entitled under the various loans described above, its beneficial
holding in I-Link would increase from 69.3% to 72.2%, and holdings of
existing common stock holders would be diluted by approximately 51.1% (see
"Proposal 3").
JNC OPPORTUNITY FUND
On July 7, 1998, I-Link entered into an agreement with JNC Opportunity
Fund, Ltd., by which it obtained a $10,000,000 equity investment which
resulted in net proceeds to I-Link of $9,470,000. The terms of the equity
investment were amended on July 28, 1998. Under the original terms of the
equity investment, JNC purchased shares of I-Link's newly created 5% Series E
preferred stock, which were convertible into I-Link's common shares at a
conversion price of the lesser of 110% of the market price of I-Link's
publicly traded common shares as of the date of closing, and 90% of the
market price at the time of conversion. In addition, JNC obtained a warrant
to purchase 250,000 shares of I-Link's common stock at an exercise price
equal to 120% of the market price of I-Link's publicly traded common shares
as of the date of closing. On July 28, 1998, the terms of the equity
investment were amended to provide a floor to the conversion price, and in
order to effect such amendment I-Link and Winter Harbor exchanged 1,000
shares of newly created Series F shares for the 1,000 shares of Series E
shares issued earlier. The Series F preferred shares are convertible into
common shares at a conversion price of the lesser of $3.76 per common share
or 81% of the market price of I-Link's common shares at the time of
conversion, subject to a $2.50 floor. In the event the market price remains
below $2.50 for five consecutive trading days, the floor will be re-set to
the lower rate; provided, however, that the floor shall not be less than
$1.25. The current reset floor prices is $2.033. JNC also received an
additional warrant to purchase 100,000 shares of I-Link's common stock at an
exercise price of $4.00 per common share. The Series F preferred shares may
be converted at any time, are automatically converted at the end of three
years, and are subject to specific provisions that would prevent any issuance
of I-Link common stock at a discount if and to the extent that such shares
would equal or exceed in the aggregate 20% percent of the number of common
shares outstanding prior to the JNC transaction. However, JNC may request
that the I-Link shareholders approve a request to waive such 20%
restrictions. As of the record date, JNC had converted 460 shares of Series
F preferred stock into 2,293,929 shares of common stock, or 12.4% of the
number of shares of common stock outstanding prior to the JNC transaction.
I-Link also issued warrants to purchase an aggregate of 75,000 shares of
I-Link's common stock at a price of $4.89 per share to two parties as a
brokerage fee in connection with the JNC equity investment.
See "Compensation of Executive Officers and Directors -- Employment
Agreements" and "Compensation of Executive Officers and Directors --
Consulting Agreements" for descriptions of
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the terms of employment and consulting agreements between I-Link and certain
officers, directors and other related parties.
DISCUSSION OF PROPOSALS RECOMMENDED FOR
CONSIDERATION BY STOCKHOLDERS
PROPOSAL 1
TO ELECT A CLASS I DIRECTOR TO SERVE FOR THREE YEARS AND UNTIL HIS
SUCCESSOR HAS BEEN DULY ELECTED AND QUALIFIED
The board of directors has concluded that the reelection of Thomas A.
Keenan as a Class I Director is in I-Link's best interest and recommends
approval of his election. Biographical information concerning Mr. Keenan can
be found under "Information About Directors and Executive Officers." The
remaining directors will continue to serve in their positions for the
remainder of their terms.
Unless otherwise instructed or unless authority to vote is withheld, the
enclosed proxy will be voted for the election of Mr. Keenan. Although the
board of directors of I-Link does not contemplate that Mr. Keenan will be
unable to serve, if such a situation arises prior to the annual meeting, the
persons named in the enclosed proxy will vote for the election of any other
person the board of directors may choose as a substitute nominee.
VOTE REQUIRED FOR APPROVAL
Mr. Keenan must receive a plurality of the votes cast in order to be
elected. The board of directors unanimously recommends a vote FOR the
election of Mr. Thomas A. Keenan.
PROPOSAL 2
TO RATIFY THE SELECTION OF PRICEWATERHOUSECOOPERS LLP
AS INDEPENDENT PUBLIC ACCOUNTANTS
The board of directors has concluded that the continued engagement of
PricewaterhouseCoopers LLP as I-Link's independent public accountants is in
the best interests of I-Link. Representatives of PricewaterhouseCoopers LLP
will be present at the annual meeting and will have the opportunity to make a
statement if they desire to do so. Such representatives are expected to be
available to respond to appropriate questions.
VOTE REQUIRED FOR APPROVAL
Proposal 2 must be approved by a majority of the votes cast in order to
be effective. The board of directors unanimously recommends a vote FOR the
ratification of its selection of PricewaterhouseCoopers LLP as independent
public accountants for I-Link.
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PROPOSAL 3
TO APPROVE A MODIFICATION OF THE TERMS OF THE SERIES N PREFERRED
STOCK TO ESTABLISH A CONVERSION PRICE FLOOR OF $1.25 AND TO LINK THE
SERIES N CONVERSION PRICE TO THE PRICE AT WHICH COMMON STOCK IS ISSUED UPON
THE EXERCISE OR CONVERSION OF ANY EXISTING OR NEW OPTIONS, WARRANTS,
PREFERRED STOCK OR OTHER CONVERTIBLE SECURITY, INCLUDING THE CONVERSION
RATE OF THE SERIES F PREFERRED STOCK.
Proposal 3 is being presented to stockholders as an aspect of a
$4,000,000 loan I-Link entered into with Winter Harbor in April 1999. The
terms of the April 1999 loan are substantially identical to the terms
contained in the January 1999 financing (except that no warrants will be
automatically issued), and further provides that Winter Harbor will not make
demand on the $7.768 million loaned to I-Link during the first and second
quarters of 1998 until April 15, 2000. To date, I-Link has drawn
approximately $2,500,000, including interest, under the April 1999 loan.
The April 1999 loan contains a mechanism whereby the September 30, 1999
maturity date 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,
I-Link will be required to issue to Winter Harbor one warrant for each $1 of
principal outstanding under the April 1999 loan as of the date of such
extension. The warrants issued as a result of the extension are to be issued
on the same terms and conditions as the warrants issued under the January
1999 financing. However, I-Link may extend the maturity date and avoid
issuing the warrants if stockholders approve this Proposal 3, modifying the
conversion price of the Series N preferred stock to establish a conversion
price floor of $1.25 and to link its rate of conversion to the exercise price
or conversion rate of any existing or new options, warrants, preferred stock
or other convertible security, including the conversion rate of the Series F
preferred stock.
Once I-Link commences the rights offering, I-Link is required to
exchange any outstanding balances under the January 1999 financing (up to $11
million) for Series N preferred stock. I-Link may exchange its outstanding
balance under the April 1999 loan for Series N preferred stock, and to the
extent that I-Link does not elect to do so, and there are sufficient
unexercised rights, Winter Harbor is entitled to exchange its debt under the
April 1999 loan into Series N preferred stock. However, Winter Harbor has
indicated that it will not subscribe for an amount of Series N preferred
stock that would result in Winter Harbor, under the January 1999 financing
arrangement and the April 1999 loan, being invested, in the aggregate, more
than $20,000,000 in debt and equity of the Company. To the extent that any
portion of the April 1999 loan is still outstanding after the rights
offering, I-Link will have the option of extending the maturity date in which
case, if this Proposal 3 is not approved, then the additional warrants must
be issued.
However, I-Link does not intend to extend the maturity date under the
April 1999 loan, but anticipates repaying the April 1999 loan with the
proceeds of the Series N rights offering. If the April 1999 loan is repaid by
the proceeds of the rights offering then the warrants will not be issued,
diminishing the incentive of stockholders, who do not participate in the
rights offering, to approve Proposal 3.
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WHAT ARE THE CURRENT TERMS OF THE SERIES N CONVERSION PRICE?
Currently, the conversion price of the Series N preferred stock is
$2.78. Based on the $1,000 stated value per share, this would mean each share
of Series N preferred stock would be convertible into approximately 360
shares of common stock.
WHAT IS THE PROPOSED MODIFICATION TO THE TERMS OF THE SERIES N CONVERSION
PRICE?
In the event that Proposal 3 is approved, the Series N conversion price
shall be set initially at $2.78, but may be reset to the lowest of:
- 110% of the average trading price for any 20 day period subsequent to
issuance;
- the price at which any common stock or common stock equivalent is
issued (whether by conversion, exercise or otherwise and whether or not
any such security is outstanding on the date the Series N preferred
stock is first issued);
- the price at which common stock issued upon the exercise or conversion
of any existing or new options, warrants, preferred stock or other
convertible security;
- the conversion price of the Series F preferred stock; or
- $1.25.
Based on the $1,000 stated value per share, this means that each share
of Series N preferred stock could become convertible into as many as 800
shares of common stock.
WHAT ARE THE SERIES F PREFERRED STOCK CONVERSION PRICE TERMS?
The conversion price of the Series F preferred stock is determined
partly in relation to a discount to the market price of the common stock.
The lower the market price for the common stock, the more shares of common
stock are issued at the time of a conversion. The terms of the Series F
preferred stock provide that the conversion price shall 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.
The conversion price of the Series F is also adjusted in the event of:
- stock dividends payments;
- divisions, combinations and reclassifications of common stock; and
- a lower issuance price of any new common stock, warrants, options, or
rights.
The Series F conversion price will not be less than the floor price
$2.50, unless the market price remains below $2.50 for five consecutive
trading days. In such case the floor price is re-set at the average of the
five consecutive trading days. Subsequent resets may occur, provided that the
floor price shall never be less than $1.25. As of May 11, 1999, the floor
price has been reset to $2.033.
To the extent the holder of the Series F preferred stock converts and
then sells shares of common stock, the price of common stock may decrease
even further due to the additional shares
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in the market, allowing the holder 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 the Company, 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.
WHAT IS THE POTENTIAL IMPACT TO SHAREHOLDERS OF LINKING THE SERIES N
CONVERSION PRICE TO THE CONVERSION PRICE OF THE SERIES F?
If the Series N conversion price were linked to the current Series F
conversion price, and Winter Harbor purchased all of the outstanding shares
of Series N preferred stock under the rights offering, and converted those
shares, then 8,557,980 shares of common stock would be issued, which would
then represent 28.7% of the shares of common stock outstanding. As an
illustration, assuming the new conversion terms are implemented, the
following table shows the number of shares of common stock issuable upon
conversion of Series N preferred stock based upon a range of conversion
prices. The information in the table assumes a discount rate of 81% (equal
to that to the Series F preferred 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 conversion date. Pursuant to the terms
of the Series N preferred stock, the highest the conversion price can be is
$2.78 and the lowest the conversion price can be is $1.25.
<TABLE>
<CAPTION>
MARKET PRICE OF CONVERSION COMMON SHARES ISSUABLE UPON CONVERSION
COMMON STOCK PRICE OF ALL SERIES N PREFERRED STOCK
--------------- ---------- --------------------------------------
<S> <C> <C>
$3.43 or greater $2.78 7,194,245
$3.09 $2.50 8,000,000
$1.54 or lower $1.25 16,000,000
</TABLE>
WHAT IS THE POTENTIAL IMPACT TO SHAREHOLDERS OF LINKING THE SERIES N
CONVERSION PRICE TERMS TO THE EXERCISE PRICE OF OTHER OUTSTANDING SERIES OR
CLASSES?
In addition to the Series F preferred stock discussed above, the Series
M and the Class C preferred stock are the only other outstanding series or
classes of I-Link securities. Each outstanding share of Class C preferred
stock is convertible into 24 shares of common stock. Any shares of Class C
preferred stock still outstanding on September 6, 2001 shares convert to
common stock automatically at a conversion rate determined by dividing $60.00
by the lower of $2.50 or 50% of the average closing bid price of the common
stock for ten trading days immediately preceding September 6, 2001. If the
modification to the Series N conversion rate terms is approved, and Winter
Harbor was to purchase all of the outstanding shares of Series N preferred
stock and convert those shares in accordance with the conversion terms of the
Class C preferred stock now in effect, 8,000,000 shares of common stock would
be issued, representing 27.3% of the shares outstanding.
30
<PAGE>
The Series M preferred stock is convertible into shares of common stock
at $2.033 per share. This price may be adjusted downward in the event of
specified dilutive transactions such as stock splits, dividends or
reclassifications, mergers and reorganizations. If all 4,400 outstanding
shares of Series M preferred stock were converted as of the record date,
6,894,300 shares of common stock would be issued (which includes shares
issuable to pay accrued 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 $2.033 per share, subject to adjustment, or
50% of the average closing bid price of the common stock ten trading days
preceding October 10, 2002. If the modification to the Series N conversion
rate terms is approved, and Winter Harbor was to purchase all of the
outstanding shares of the Series N preferred stock and convert those shares
in accordance with the conversion terms of the Series M preferred stock now
in effect, 9,837,678 shares of common stock would be issued, representing
31.6% of the shares outstanding.
VOTE REQUIRED FOR APPROVAL
A majority of the votes cast is required for approval of Proposal 3.
The board of directors unanimously recommends a vote FOR approval of Proposal
3. Therefore any shares that are not voted, including shares represented by a
proxy marked "abstain," will not count either "for" or "against" Proposal 3.
31
<PAGE>
OTHER PROPOSED ACTION
The board of directors does not intend to bring any other matters before
the annual meeting, nor does the Board know of any matters that other persons
intend to bring before the annual meeting. If, however, other matters not
mentioned in this proxy statement properly come before the annual meeting,
the persons named in the accompanying form of proxy will vote thereon in
accordance with the recommendation of the board of directors.
You should be aware that I-Link's By-Laws provide that no proposals or
nominations of directors by stockholders shall be presented for vote at an
annual meeting of stockholders unless notice complying with the requirements in
the By-Laws is provided to the board of directors or I-Link's Secretary no later
than the close of business on the fifth day following the day that notice of the
annual meeting is first given to stockholders.
STOCKHOLDER PROPOSALS AND SUBMISSIONS
If you wish to present a proposal for inclusion in the proxy materials
to be solicited by I-Link's board of directors with respect to the next
annual meeting of stockholders, such proposal must be presented to I-Link's
management prior to ___________, 2000.
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE SIGN AND
RETURN THE ENCLOSED PROXY PROMPTLY USING THE ENVELOPE PROVIDED. YOUR VOTE IS
IMPORTANT. IF YOU ARE A STOCKHOLDER OF RECORD AND ATTEND THE MEETING AND
WISH TO VOTE IN PERSON, YOU MAY WITHDRAW YOUR PROXY AT ANY TIME PRIOR TO THE
VOTE.
I-LINK INCORPORATED
David E. Hardy, Secretary
32
<PAGE>
PROXY
ANNUAL MEETING OF STOCKHOLDERS OF I-LINK INCORPORATED
JULY 19, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints John W. Edwards, Henry Y.L. Toh, Joseph
A. Cohen, Thomas A. Keenan and David R. Bradford, and each or any of them
proxies, with power of substitution, to vote all shares of the undersigned at
the annual meeting of stockholders to be held on July 19, 1999, at 10:00 a.m.
local time at Marriott Courtyard Hotel, 10701 South Holiday Park Drive,
Sandy, Utah 84070, or at any adjournment thereof, upon the matters set forth
in the Proxy Statement for such meeting, and in their discretion, on such
other business as may properly come before the meeting.
1. TO ELECT A CLASS I DIRECTOR TO SERVE FOR THREE YEARS AND UNTIL HIS
SUCCESSOR HAS BEEN DULY ELECTED AND QUALIFIED.
/ / FOR THE NOMINEE LISTED BELOW / / WITHHOLD AUTHORITY
to vote for the nominee listed below
(INSTRUCTION: To withhold authority to vote for the nominee strike a line
through the nominee's name below:)
Thomas A. Keenan
2. TO RATIFY THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT PUBLIC
ACCOUNTANTS.
/ / FOR / / AGAINST / / ABSTAIN
3. TO APPROVE A MODIFICATION OF THE TERMS OF THE SERIES N PREFERRED STOCK TO
ESTABLISH A CONVERSION PRICE FLOOR OF $1.25 AND TO LINK THE SERIES N
CONVERSION PRICE TO THE PRICE AT WHICH COMMON STOCK IS ISSUED UPON THE
EXERCISE OR CONVERSION OF ANY EXISTING OR NEW OPTIONS, WARRANTS, PREFERRED
STOCK OR OTHER CONVERTIBLE SECURITY, INCLUDING THE CONVERSION RATE OF THE
SERIES F PREFERRED STOCK.
/ / FOR / / AGAINST / / ABSTAIN
Dated: ____________________________ ________________________________
Signature
Dated: ____________________________ ________________________________
Signature if held jointly
NOTE: When shares are held by joint tenants, both should sign. Persons signing
as Executor, Administrator, Trustee, etc. should so indicate. Please sign
exactly as the name appears on the proxy.
IF NO CONTRARY SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR
PROPOSALS 1, 2 and 3.
PLEASE MARK, SIGN AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
