UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of the Securities
Exchange Act of 1934
Check the appropriate box:
[_] Preliminary Information Statement
[_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14c-5(d)(2))
[X] Definitive Information Statement
eConnect
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(Name of Small Business Issuer in its charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee Computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
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NOTICE OF CORPORATE ACTION TO BE TAKEN ON JULY 22, 2002, BY CONSENT OF
SHAREHOLDERS HOLDING A MAJORITY OF THE VOTING POWER
Notice is hereby given that corporate action will be taken by the Company
on July 22, 2002, for the following purpose:
1. To adopt an amendment to the Articles of Incorporation that will effect
a 1 for 100 reverse split of the common stock outstanding.
The written consents to this action of a majority of the voting power have
been provided to the Company. These information statements are first being
sent to security holders on July 1, 2002.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE TRANSACTION, PASSED UPON THE
MERITS OR FAIRNESS OF THE TRANSACTYION OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THE DISCLOSURE IN THIS DOCUMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE COMPANY IS NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND
US A PROXY.
By order of the Board of Directors July 1, 2002.
/s/ Jack M. Hall
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Jack M. Hall, Director, Corporate Secretary
INFORMATION STATEMENT
eConnect 2500 Via Cabrillo Marina, Suite 112 San Pedro, California 90731
This Information Statement is furnished to shareholders at the direction and on
behalf of the Board of Directors of eConnect, a Nevada corporation ("Company"),
for the purpose of informing shareholders of corporate action to be taken on
July 22, 2002.
The cost of preparing, assembling and distributing this Information Statement is
being borne by the Company. Brokers, dealers, banks, or voting trustees, and
their nominees, are requested to forward soliciting materials to the beneficial
owners of shares and will be reimbursed for their reasonable expenses. This
Information Statement and accompanying proxy will be distributed to shareholders
on or about July 1, 2002.
PURPOSE AND EFFECTS OF THE REVERSE SPLIT
Purposes
The primary purpose of the reverse stock split is to combine the outstanding
shares of common stock so that the common stock outstanding after the reverse
split trades at a significantly higher price per share than it did before the
reverse split.
The closing bid price for the common stock on June 17, 2002, was $.007 per
share. The Bulletin Board does not require any minimum share price for shares to
be quoted on it. However, we believe that such a low quoted market price per
share
o may discourage potential new investors,
o increases market price volatility and
o reduces the liquidity of the common stock.
We believe that the reverse stock split will increase the price at which the
shares are quoted, but we cannot guarantee that this will happen.
We believe that the current per share price level of our common stock has
reduced the effective marketability of the shares because many leading brokerage
firms are reluctant to recommend low priced stock to their clients. Some
investors view low-priced stock as unattractive because of the greater trading
volatility sometimes associated with these stocks. In addition, a variety of
brokerage house policies and practices relating to the payment of brokerage
commissions make the handling of low priced stocks unattractive to brokers from
an economic standpoint.
In addition, since brokerage commissions on low-priced stock are generally
higher as a percentage of the stock price than commissions on higher priced
stock, the current share price of the common stock means that stockholders are
paying higher transaction costs than they would pay if the share price were
substantially higher. The relatively high commission costs also may limit the
willingness of institutions to purchase the common stock at its current low
share price.
The present lack of enough authorized but unissued shares may prevent us from
responding to other corporate needs or opportunities, such as financing
transactions, possible future acquisitions, employee benefits and other
corporate purposes.
The reverse split will make additional authorized but unissued shares available
to honor commitments for conversion of outstanding securities and will provide
the needed flexibility to respond to opportunities as they arise.
For all the above reasons, we believe the reverse stock split is in the best
interests of both the Company and its stockholders. We expect that after the
reverse stock split, the common stock will trade at a price significantly higher
than the current market price of the common stock. However, we cannot give any
assurance that it will trade at one hundred times the market price before the
reverse stock split.
Effects
Effects on Shareholders
Except for the minor effect of rounding fractional shares up or down, the
reverse stock split will not affect any stockholder's proportionate equity
interest in the company.
As of May 31, 2002, we had approximately 1,383 record holders of common stock.
Many of the record holders are brokers who hold the shares for multiple
beneficial holders or "street name" holders. We estimate that, after the reverse
stock split, we will continue to have approximately the same number of
stockholders.
A stockholder who has fewer than 100 shares will be entitled to receive, in lieu
of a fractional share, upon written request, a cash payment of $0.10. Other
fractional shares that would result from the reverse split will be rounded up or
down to the nearest whole share.
Effect on holders of options, warrants, and convertible securities
After the reverse stock split, the number of shares of common stock that may be
purchased upon the exercise of outstanding options, warrants, and other
securities convertible into, or
exercisable or exchangeable for, common stock, and the per share exercise or
conversion prices under those securities, will be adjusted appropriately, so
that the aggregate number of shares of common stock that may be issued on
exercise or conversion will be one one-hundredth of the number issuable before
the reverse split, and the aggregate exercise or conversion prices will remain
unchanged.
No appraisal rights
Nevada law does not provide dissenters' rights as the result of a reverse stock
split. Any stockholders who object will nevertheless be bound by the decision of
the majority of stockholders to approve the reverse split on the proposed terms.
Objecting stockholders will not be entitled to receive payment for their shares,
and will not have any other legal rights to prevent the transaction from
occurring.
Effect on the Company
The reverse split will reduce the number of shares of common stock that are
issued and outstanding. We are currently authorized under our certificate of
incorporation to issue 910,000,000 shares of the common stock. As of
June 20, 2002, an aggregate of 893,561,464 shares of the common stock were
issued and outstanding. The Reverse Stock Split will reduce the number of issued
and outstanding shares of the common stock to approximately 8,935,614;
however, the number of authorized shares will remain at 910,000,000.
The par value of the common stock will remain at $.001 per share following the
reverse stock split, and the number of shares of the common stock outstanding
will be reduced. As a result, the aggregate par value of the outstanding common
stock will be reduced, while the aggregate capital in excess of par value
attributable to the outstanding common stock for statutory and accounting
purposes will be correspondingly increased. The reverse stock split will not
affect our retained deficit, and stockholders' equity will remain substantially
unchanged.
After the reverse stock split is completed, the per share information and the
average number of shares outstanding as presented in previously issued
consolidated financial statements and other publicly available information about
us will be restated to reflect the reverse stock split.
Exchange Act registration
The shares are currently registered under the Securities Exchange Act of 1934.
We intend to continue filing reports under that Act.
Additional effects of authorized but unissued shares
The reverse split will increased the number of authorized but unissued shares of
common stock as a percentage of the total
number of shares of common stock authorized. Existing stockholders do not have
any preemptive rights under the certificate of incorporation or otherwise to
purchase any shares of common stock that we may issue. Shares may be issued in
the future that may dilute the voting power of existing stockholders, increase
or decrease earnings per share and/or increase or decrease the book value per
share of the shares then outstanding.
The ability of the Board of Directors to issue additional shares of common stock
without further stockholder approval could discourage any possible unsolicited
efforts to acquire control of the company. However, the reverse split is not
intended as an anti-takeover device, and we are not contemplating any other
specific anti-takeover measures. Management is not aware of any third party that
may currently intend to accumulate our common stock or to gain control of the
Company.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT
The following is a summary of the material federal income tax consequences of
the reverse stock split to holders of common stock and to the Company. This
summary is based on the Internal Revenue Code of 1986, as amended (the "Code"),
regulations, rulings and judicial decisions currently in effect, all of which
are subject to change. The summary does not address all aspects of federal
income taxation that may apply to a stockholder because of his particular
circumstances, and it does not discuss any special rules that may be applicable
to some types of investors (for example, estates, trusts, individuals who are
not citizens or residents of the United States, foreign corporations, insurance
companies, regulated investment companies, tax-exempt organizations and dealers
in securities). The discussion assumes throughout that stockholders have held
the shares of Company common stock subject to the reverse stock split as capital
assets at all relevant times. The summary does not cover the applicability and
effect of any state, local or foreign tax laws on the reverse stock split, and
investors should accordingly consult their own tax advisors for information
about the state, local and foreign tax consequences of the transaction.
Stockholders will not recognize gain or loss from the reverse split. Their
adjusted tax basis of their new common stock will be the same as their adjusted
tax basis in their existing common stock. The holding period of new common stock
received as a result of the reverse split will be the same as holding period for
the stockholder's existing common stock.
The reverse split will be a tax-free recapitalization to the Company under the
Internal Revenue Code. The Company will not recognize any gain or loss as a
result of the reverse split. There will not be any other material tax
consequences to the
Company from the transaction. The tax consequences of the reverse split to
affiliates of the Company who are stockholders will be the same to those
affiliates as they are to other stockholders. There will be no material tax
consequences from the reverse split to affiliates who are not stockholders of
the Company.
EXCHANGE OF CERTIFICATES
When the reverse stock split is effected, the Company or its transfer agent will
provide holders of record on the effective date of the reverse stock split with
transmittal forms and instructions for exchanging their stock certificates for a
new certificate or certificates representing the appropriate number of new
shares of Company common stock. On the effective date of the reverse stock
split, each certificate representing an outstanding share of the Company common
stock will be deemed for all corporate purposes, and without further action by
any person, to evidence ownership of the reduced whole number of new shares of
Company common stock.
If certificates for shares of common stock have been lost or destroyed, we may,
in our discretion, accept a properly executed affidavit and indemnity agreement
of loss or destruction, in a form satisfactory to us, in lieu of the lost or
destroyed certificate. Additional instructions regarding lost or destroyed stock
certificates will be included with the transmittal form and instructions sent to
stockholders of record after the reverse stock split is effected.
We will send the transmittal form and instructions to stockholders of record
promptly after the effective date of the reverse stock split. Do not send in
your stock certificate until you receive the transmittal form and instructions.
Stockholders will not have to pay any brokerage commissions in connection with
the exchange of certificates.
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 910,000,000 shares of Common Stock, $.001 par
value per share. As of May 31, 2002, 849,776,353 shares were issued and
outstanding. Holders of common stock are entitled to one vote for each share of
common stock owned of record on all matters to be voted on by stockholders,
including the election of directors. The holders of common stock are entitled to
receive such dividends, if any, as may be declared from time to time by the
Board of Directors, in its discretion, from funds legally available for
dividends.
The Company is also authorized to issue 100 shares of Class A Preferred stock.
The holder of these shares is entitled to exercise 60% of the voting power of
the common stock.
The reverse stock split will be accomplished by the Company on July 22, 2002.
The next day, July 23, 2002, will be the record date. Stockholders of record on
that date will be entitled to exchange their stock certificates for new
certificates.
The common stock has no preemptive or other subscription rights, and there are
no conversion rights or redemption provisions. All outstanding shares of common
stock are validly issued, fully paid, and nonassessable.
VOTING SECURITIES
On May 31, 2002, the Company had issued and outstanding 849,776,353 shares of
$0.001 par value common stock. In addition, the Company has one class of
preferred shares, the Class A Preferred Shares. The Class A Preferred Shares
taken as a whole comprise 60% of the voting power of the Company. The matter to
be acted on by the Company on July 17, 2002, is a matter that requires approval
by either vote or consent of a majority of the voting power of the Company.
STOCK OWNERSHIP
The following table sets forth information regarding the beneficial ownership of
shares of the Company's common stock as of May 31, 2002 by (i) all stockholders
known to the Company to be beneficial owners of more than 5% of the outstanding
common stock; and (ii) all directors, executive officers, and key employees of
the Company, individually and as a group:
Title of Name and Address of Amount of Percent
Class Beneficial Owner (1) Beneficial of Ownership(2)
Ownership
Common Richard Epstein 40,000,000 5.35%
Stock 12147 Northwest 9/th/ Drive
Coral Springs, FL 33071
Common Thomas S. Hughes 1,869,889 *
Stock 2500 Via Cabrillo Marina
Suite 112
San Pedro, CA 90731
Common Jack M. Hall 600,000 *
Stock 2500 Via Cabrillo Marina
Suite 112
San Pedro, CA 90731
Common Laurence B. Donoghue 510,000 *
Stock 2500 Via Cabrillo Marina
Suite 300
San Pedro, CA 90731
Common Shares of all directors, 1,710,000 *
Stock executive officers,
and key employees
as a group (3 persons)
(1) Each person has sole voting power and sole dispositive power as to all of
the shares shown as beneficially owned by him.
By order of the Board of Directors
/s/ Jack M. Hall
Jack M. Hall
Corporate Secretary
July 1, 2002