INFORMATION STATEMENT PURSUANT TO SECTION 14(C)
OF THE SECURITIES EXCHANGE ACT OF 1934
PRELIMINARY INFORMATION STATEMENT
DATE: APRIL 9, 2004
KLEVER MARKETING, INC.
350 WEST 300 SOUTH, SUITE 201
SALT LAKE CITY, UTAH 84101
PAYMENT OF FILING FEE: NO FEE REQUIRED
INFORMATION STATEMENT
CONCERNING AMENDMENT OF CERTIFICATE OF INCORPORATION
GENERAL
The following is information given by KLEVER MARKETING, INC., a Delaware
corporation (the "Company"), to its shareholders prior to seeking the consent of
the shareholders pursuant to Section 228(a) of the Delaware General Corporation
Law to amendment of the Company's Certificate of Incorporation to increase the
number of authorized shares.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY
VOTING RIGHTS AND OUTSTANDING SHARES
As of March 26, 2004, there were outstanding 35,351,267 common shares and
convertible preferred stock that have the right convert into 10,236,652 common
shares. Thus, there were as of such date a total of 45,587,919 common and common
equivalent shares. Holders of common stock are entitled to one vote for each
such share so held of record. Holders of preferred stock are entitled to one
vote for each share of common stock into which such preferred stock is
convertible. Each share of preferred stock is convertible into a formula
determined number of common stock, which formula is dependant upon the price
that the Company sold or issued common stock. This formula prevents the
preferred Stock from dilution. Stockholders of record at the close of business
on the Record Date are entitled to vote on the proposal to amend the Certificate
of Incorporation. A written consent signed by the holders of a majority of the
total number of shares issued and outstanding on the Record Date will constitute
approval by the Stockholders of the proposed amendment. Abstentions and "broker
non-votes" (which occur if a broker or other nominee does not have discretionary
authority and has not received voting instructions from the beneficial owner
with respect to the particular item) are counted for purposes of determining
whether or not a majority of the share of Stock entitled to vote has signed
written consents in favor of the amendment of the Certificate of Incorporation.
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PROPOSAL TO AMEND TO CERTIFICATE OF INCORPORATION
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On March 30, 2004 the Board of Directors considered, and approved for
recommendation to the stockholders an amendment to the Certificate of
Incorporation. The Certificate of Incorporation, as currently in force, provides
that the Company is authorized to issue up to 50,000,000 shares of common stock,
par value $.01 per share. The proposed amendment provides for an increase in the
number of shares of common stock the Company would be authorized to issue in the
future, from 50,000,000 shares to 175,000,000 shares. This increase is needed to
provide sufficient authorized common stock for the current and future needs of
the Company.
The Board of Director's recommendation was based upon two reasons. First,
additional authorized shares are needed to be held in reserve in the event the
already existing options, warrants, convertible debt and convertible preferred
stock are exercised resulting in the issuance of additional shares of common
stock (collectively "Prospective Stock Rights"). Currently there are 35,351,267
shares of common stock issued and outstanding. The number of shares of common
stock that could result from the Prospective Stock Rights is 28,722,872 shares.
Given the currently authorized 50,000,000 shares, there would be an
over-issuance of 14,074,139 shares if all of the Prospective Stock Rights were
to be exercised. Thus, an increase in authorized common stock is needed to
provide for the possible exercise of these Prospective Stock Rights.
The approval of the proposed amendment would, in essence, be a defacto approval
of these Prospective Stock Rights since but for this increase in authorized
shares, these Prospective Stock Rights may not be funded. This factor should be
considered in determining whether or not to approve the proposed amendment.
The following is a summary of the Prospective Stock Rights that if exercised
would result in the issuance of 28,722,872 shares and hence the potential
over-issuance of 14,074,139 shares. This table includes all of the Prospective
Stock Rights and not just those that compose the 14,074,139 because it is
unclear as to which of the Prospective Stock Rights have priority over the other
rights and hence which of the Prospective Stock Rights compose the potential
over-issuance of 14,074,139. All of the Prospective Stock Rights are owned by
principal shareholders, management and/or employees. The table also shows this
ownership.
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TYPE OF STOCK CONVERSION RIGHTS TOTAL NO. OF PRINCIPAL SHAREHOLDERS AND/OR MANAGEMENT
COMMON SHARES OWNING THESE SHARES
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Preferred Stock (these were Each share of preferred stock may at 1,684,340 Olson Foundation & Affiliates: 951,170
generally sold to raise any time be converted into common Paul Begum & Affiliates: 15,380
needed operating capital) stock; this is the initial conversion Seabury Entities 717,790
number.
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In addition to the initial conversion 8,552,312 Olson Foundation & Affiliates: 4,030,895
rights, the number of common stock is Paul Begum & Affiliates 144,046
increased pursuant to the below Seabury Entities 4,377,371
described anti-dilution factor.
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Each share of preferred stock provides 530,645 Olson Foundation & Affiliates: 290,333
for cumulative dividends that at the Paul Begum & Affiliates 5,581
discretion of the Board of Directors Seabury Entities 234,731
may be paid in .0425 shares of
preferred stock payable semi-annually,
which dividend shares may then be
converted at any time into common stock
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Convertible debt (this debt The debt holders listed below have a 10,952,814 Olson Foundation & Affiliates: 9,418,228
was usually given for right to convert their debt at any Seabury Entities 1,435,666
barrowed capital or for time into common stock based upon a $1 Arbinger 42,511
provided services) per share value or the current reset D. Paul Smith 2,599
price.
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Options and Warrants (the These may be exercised at any time 7,002,761 Paul Begum & Affiliates 237,000
bulk of these were given to prior to their expiration date (most Seabury Entities 412,936
directors, management and all expire prior to 9/13/07) upon Arbinger 193,353
employees as supplemental payment of their strike price (471,213 Bailey & Affiliates 520,000
compensation) have a strike price of $0.05 or less, D. Paul Smith 1,261,225
3,867,000 have a strike price of Michael L. Mills 512,000
$0.06, 700,000 have a strike price of Richard J. Trout 1,028,278
between $0.07 and $0.50, 130,303 with William J. Dupre 200,000
a strike price of between $0.51 and C. Terry Warner 612,747
$0.99, and 1,834,245 with a strike Danny Warner 200,000
price of $1.00 or more Other Employees 350,000
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TOTAL 28,722,872 28,722,872
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As indicated in the above table, the preferred stock has an
anti-dilution conversion factor (sometimes referred to as a "toxic"
factor) which is designed to cause the preferred stock to be converted
into additional common stock if the Company sells common stock for less
than the preferred stock's initial conversion price of $2.60 (subject
to adjustment) for class A preferred stock, $1.70 (subject to
adjustment) for class B preferred stock and $0.66 (subject to
adjustment) for class C Preferred Sock. This anti-dilution formula is
designed to effectuate the conversion based upon the premise that the
converted value of the preferred stock is to remain constant. The
factor looks to the average issue price over the most recent 12 months
to determine the current value of the common stock. Thus, if the value
of the common stock decreases, based upon this one year average
issuance price, then in order to maintain the value of the converted
preferred stock, additional shares of common stock need to be issued
upon the preferred stock's conversion. As a result of a significant
decrease in the issuance price, as compared to the initial conversion
price of each class of preferred shares provided above, the number of
conversion common stock has grown as provided for above. In the event
the Company issues additional common stock for a reduced price, then
this anti-dilution factor would again be triggered and result in
additional conversion shares. The below table illustrates the number of
additional shares that would be necessary if there is a reduction in
average issue price. As is demonstrated by the table, the number of
additional common stock into which the preferred stock can be converted
could increase dramatically if the Common Share average issue price
were to decrease. In the event of such a decrease in issue price, the
Company would need to come back to the Shareholders for authorization
for the issuance of additional common stock. Because of the nature of
the anti-dilution factor, there is no ceiling or limit on the number of
shares common shares into which the Preferred Shares would be
converted.
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Reduction in latest average issue price Number of additional common conversion shares
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(assumes a 25% reduction in issue price) 3,219,727
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(assumes a 50% reduction in issue price) 9,659,180
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(assumes a 75% reduction in issue price) 28,977,541
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the second reason for the proposed amendment is to provide sufficient common
shares to generate needed operating funds. The Company is in the process of
seeking additional equity capital investments to satisfy the Company's short
term and long term financing needs. Currently, the Company has insufficient
operating funds or funds to complete its research, development and deployment so
that it can commence full-scale operations. The Company plans on obtaining this
needed financing through equity investment. Although the Company is in
discussion with a couple different potential investors, it has not yet secured
this funding and does not currently have specific plans, arrangements or
proposals for when or what form that either of these financing will occur. The
Company is considering several different equity investors as well as several
different forms that this equity investment may take. The Company is considering
raising about $600,000 for current operations through equity investment or debt
with a convertible equity right. It is anticipated that this will require the
issuance or potential issuance of about 10,000,000 common shares. The Company
believes that to complete its research, development and commencement of
operations that an additional infusion of $6,000,000 to $9,000,000 is needed. It
is anticipated that this would require the issuance of about 75,000,000 shares.
Thus, a total of 85,000,000 common shares are needed for current and future
operations. In the event the Company was to issue preferred stock to raise part
or all of this funding then there is a potential of significant additional
dilution to common shareholders as a result of the preferred stock's
anti-dilution factor discussed above. If after the issuance of such preferred
stock the average issue price of the common stock were to be decrease, then the
preferred stock's anti-dilution factor would result in the number of potential
common conversion stock to increase. Thus, if preferred stock were to be issued
there is a potential that the resulting number of common stock to be eventually
issued would be significantly greater than indicated above and shareholder
approval for additional authorized shares would need to be sought again. The
Company currently intends to only issue common stock or convertible debt without
an anti-dilution factor so as to prevent this addition dilution phenomenon.
One of the options that the Company is considering with respect to this
long-term equity financing is to enter into an agreement for the sale of common
shares each month to a single investor over the next approximately four-eight
months. This equity funding would require the registration of the shares being
purchased by the investor with the Securities and Exchange Commission. This
would permit this purchaser/investor to sell part or all of the purchased shares
to the public. The Company is also considering investors that would not require
a registration with the Securities and Exchange Commission of the newly issued
shares.
In summary, the proposed amendment to the Certificate of Incorporation is for
the purpose of increasing the number of authorized common shares from 50,000,000
to 175,000,000. Approximately 40,000,000 of these additional 125,000,000 shares
will be held in reserve for the Prospective Stock Rights, with the balance,
85,000,000 for current operations and for long-term financing for research,
development and deployment.
When the Company first commenced upon obtaining approval for the increase in
capitalization its shares were being traded for $.10 to $.15. Assuming the
additional authorized shares would be sold for a similar price, the additional
number of authorized shares would have been sufficient to raise the needed $6 to
$9 million dollars. Since that time the trading price has decreased to about
$.07 per share. If this figure is used, then there would not be sufficient
authorized shares to raise the needed $6 to $9 million dollars. However, because
of a relative light trading volume and a delay in obtaining needed equity
funding, the Company does not believe that this trading price is an accurate
reflection upon the true value of the Company. As indicated, the Company intends
to raise an initial small amount of equity. It is thought that once this equity
has been raised and the Company is then able to show financial ability to
initiate its business plan that its share price would respond positively. This
would permit the later equity funding to take place at a time when the trading
stock price would have rebounded. This would mean the larger equity funding
could be based upon the increased trading price. If so, the share volume and
equity raised numbers would be accurate. In addition one of the equity funding
being pursued would acquire a significant portion of the Company and thus, would
be looking to the Company's assets value in determining the value of the stock
rather than the currently low trading price. The Company believes that this
approach would also result in a higher true value for the shares to be issued.
In either case, the Company continues to believe that the above increase in
authorized shares will permit the raising of the $6 to $0 million dollars.
However, the Company's view as to the future trading price is speculative and
the Company could be wrong. It is possible that the share price will not
increase or could decrease. Not only would such a decrease result in the need to
issue additional common shares to raise the needed capital, it would also result
in additional conversion common shares due to the preferred shares anti-dilution
rights discussed above. In such event, the Company would need to come again to
the Shareholders for authorization to increase the number of authorized shares.
The Company recognizes that this large increase in the number of authorized
shares could be viewed as an anti-takeover action. The Company does not,
however, have any knowledge of any specific effort to accumulate the Company's
securities or to obtain control of the Company and it is not the Company's
intention to use such additional authorized shares for any type of anti-takeover
purpose. However, the potential for such is present and should be considered in
determining whether or not to approve the proposed amendment. For your
information, neither the Company's certificate of incorporation nor its by-laws
presently contain any provisions having an anti-takeover effect, nor does the
Company intend to propose any anti-takeover measures in future proxy
solicitations, adopt any anti-takeover provision, or enter into any other
arrangements that may have material anti-takeover consequences.
CONSENT REQUIRED FOR APPROVAL. The written consent of a majority of the shares
of the issued and outstanding Stock entitled to vote is required to approve the
proposal to amend the Certificate of Incorporation.
SECURITY OWNERSHIP
The following table sets forth, as of March 26, 2004, certain information
regarding the ownership of the Company's common stock and common equivalent
stock by the indicated shareholders.
Total Beneficial Common Shares
TOP HOLDERS Ownership Voting Percentage
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Olson Foundation & Affiliated Entities 44,665,2341 61.60%
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Paul Begum & Affiliated Entities 33,555,2332 7.76%
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Seabury Entities 6,943,7643 14.64%
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Primavera 3,252,7714 7.14%
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Arbinger 3,360,4445 7.94%
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DIRECTORS, OFFICERS & EMPLOYEES
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Bailey & Affiliated Entities 3,764,9146 8.17%
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D. Paul Smith 2,364,3417 5.04%
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Michael L. Mills 1,463,7628 3.18%
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Richard J. Trout 1,093,9229 2.35%
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William J. Dupre 600,00010 1.31%
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C. Terry Warner 3,198,85311 6.91
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Danny Warner 100,00012 0.22%
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Other Employees 843,15613 1.16%
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Other Existing Shareholders 14,839,57914 20.47%
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TOTAL COMMON SHARES ISSUED 35,351,267
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1 Olsen Foundation & Affiliated Entities- Includes Olsen Holdings (of
which Michael Mills is a director/officer), Estate of PDO (which
includes Michael Mills), Olsen Legacy Trust and Presidio Investments.
Composed of 7,080,073 issued common shares, 9,645,277 common shares
issuable upon conversation of preferred stock, 26,520,081 common shares
issue able upon conversion of debt, 1,419,802 common shares issuable
upon exercise of options and warrants, and 558,241 common shares
issuable as a result of accrued but unpaid dividends
2 Paul Begum & Affiliates- Composed of 3,158,807 issued common shares,
159,426 common shares issuable upon conversation of preferred stock,
26,520,081 common shares issuable upon conversion of debt, 237,000
common shares issuable upon exercise of options and warrants, and 5,581
common shares issuable as a result of accrued but unpaid dividends
3 Seabury- Composed of 0 common shares, 5,095,161 common shares issuable
upon conversation of preferred stock, 1,435,666 common shares issuable
upon conversion of debt, 412,936 common shares issuable upon exercise
of options and warrants, and 234,730 common shares issuable in accrued
but unpaid dividends
4 Primavera- all issued common shares
5 Arbinger- Composed of 3,490,756 issued common shares, 42,511 common
shares issuable upon conversion of debt, and 97,176 common shares
issuable upon exercise of options and warrants
6 Baily & Affiliated Entities- Composed of 3,244,914 issued common
shares, and 520,000 common shares issuable upon exercise of options and
warrants
7 D. Paul Smith- includes 25% of Arbinger which Paul is part owner,
composed of 1,041,301 common shares, 13,277 common shares issuable upon
conversion of debt, and 1,309,813 options and warrants
8 Michael Mills- (included in Estate of PDO) Composed of 951,762 common
shares, , and 512,000 options and warrants
9 Richard Trout- Composed of 65,645 common shares, and 1,028,278 options
and warrants
10 William Dupre- Composed of 400,000 common shares, and 200,000 options
and warrants
11 C. Terry Warner- (includes 25% Arbinger and 50% Primavera), Composed of
2,526,574 common shares, 10,628 common shares issuable upon conversion
of debt and 661,335 options and warrants
12 Danny Warner- Composed of 100,000 common shares issuable upon exercise
of options
13 Other Employees- Composed of 493156 issued common shares, and 350,000
common shares issuable upon exercise of options
14 Other Existing Shareholders- Composed of 13,947,269 issued common
shares, 53,810 common shares issuable upon conversion of debt and
838,500 common shares issuable upon exercise of options and warrants
By Order of the Board of Directors
/s/ D. Paul Smith,
Corporate Secretary
Salt Lake City, Utah