UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE I4C
INFORMATION STATEMENT PURSUANT TO SECTION 14(C)
OF THE SECURITIES EXCHANGE ACT OF 1934
Check the appropriate box:
/X/ Preliminary Information Statement
/ / Confidential. For Use of the Commission only (as permitted by
Rule 14c-5(d)(2))
/ / Definitive Information Statement
AVALON DIGITAL MARKETING SYSTEMS, INC.
(Name of Registrant As Specified In Charter)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules l4c--5(g) and 0--11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-1l:
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
/ / Fee paid previously with preliminary materials.
I I 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.
I) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
AVALON DIGITAL MARKETING SYSTEMS, INC.
5255 N. Edgewood Dr. Suite, 250
Provo, UT 84604
(801) 225-7073
INFORMATION STATEMENT
INTRODUCTION
This Information Statement is furnished by the Board of Directors of Avalon
Digital Marketing Systems, Inc. (the "Company") to stockholders of record of the
Company's Common Stock at the close of business on ________ _____, 2005 (the
"Record Date"), and is being sent to you in connection with the action taken by
the holders of a majority of the Common Stock of the Company. Those stockholders
approved, by written consent, dated _______ ____, 2005, an amendment to the
Company's Certificate of Incorporation to Amend the Company's Certificate of
Incorporation to provide for a stock combination (reverse split) of the Common
Stock (the "Reverse Split) in an exchange ratio of one newly issued share for
each twenty outstanding shares of Common Stock and to increase the authorized
number of shares of Common Stock to 50,000,000 (the "Increased Share
Authorization") as designated herein (the "Amendments").
This Information Statement is being mailed on of before the close of business on
________, ___ 2005, to every security holder entitled to vote or give an
authorization or consent in regard to any matter to be acted upon. It is
anticipated that the Amendment will become effective twenty days after _________
___ 2005, the date this Information Statement is first sent to the stockholders.
WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE REQUESTED NOT TO SEND US A PROXY
APPROVAL
As of the Record Date there was 7,348,281 shares of Common Stock ("Common
Stock") of the Company issued and outstanding. All holders of shares of Common
Stock as of the Record Date are entitled to receive this Information Statement.
Each share of Common Stock entitled the holder thereof to one vote on all
matters submitted to the Company's stockholders. Holders of the Common Stock do
not have dissenters' rights of appraisal in connection with the proposed
Amendments.
The Company is incorporated under the laws of the State of Delaware. Delaware
law provides that any action that may be taken at any stockholders' meeting may
be taken by written consent of the requisite number of stockholders required to
take such action. Approval of the Amendments required the written consent of the
holders of a majority of the Company's outstanding Common Stock. By written
consent dated ___________ ____, 2005, stockholders owning more than a majority
of the issued and outstanding shares of Common Stock of the Company (the
"Consenting Stockholders") authorized and approved the Amendments without a
meeting.
AMENDMENTS TO THE CERTIFICATE OF INCORPORATION
The Company's Amended and Restated Certificate of Incorporation, as
currently in effect, provides that the Company is authorized to issue 10,000,000
shares designated as Common Stock, $0.0001 par value per share.
REVERSE SPLIT
On ____________ ___ 2005 the Board of Directors adopted a resolution setting
forth a proposed amendment to our Amended and Restated Certificate of
Incorporation to effect the Reverse Split. The resolution declares the
advisability of the proposed amendment and directs that the proposed amendment
be considered at a meeting of the shareholders. The Amendment will modify the
Article IV of the Company's Amended and Restated Certificate of Incorporation to
read as set forth in Annex A.
The Reverse Split will not change the proportionate equity interests of the
Company's stockholders at the time of the split, nor will the respective voting
rights and other rights of stockholders be altered, except for possible
immaterial changes due to rounding up to eliminate fractional shares. The Common
Stock issued pursuant to the Reverse Split will remain fully paid and
nonassessable. The Company will continue to be subject to the periodic reporting
requirements of the Securities Exchange Act of 1934, as amended.
The following table illustrates the effect that the Reverse Split would have on
the 7,348,281 shares of Common Stock that were outstanding on _____________
2005:
NUMBER OF SHARES
--------------------------- ---------------------- -----------------------------
Prior to Reverse Split After 1 for 20 Reverse Split
--------------------------- ---------------------- -----------------------------
Common Shares Outstanding 7,348,281 367,414 (1)
--------------------------- ---------------------- -----------------------------
(1) Gives effect to the Reverse Split, excluding the new shares to be issued in
lieu of fractional shares. Stockholders should recognize that the Reverse Split
will reduce the number of shares they own by a number equal to the number of
shares owned immediately prior to the filing of the amendment regarding the
Reverse Split divided by the Exchange Number (i.e. divide by 20 as adjusted to
include new shares to he issued in lieu of fractional shares).
INCREASE IN AUTHORIZED STOCK
On ____________ ___ 2005 the Board of Directors adopted a resolution setting
forth a proposed amendment to our Amended and Restated Certificate of
Incorporation to increase the authorized number of shares of Common Stock by
40,000,000 shares to an aggregate of 50,000,000 shares. The resolution declares
the advisability of the proposed amendment and directs that the proposed
amendment be considered at a meeting of the shareholders. The Amendments will
modify the Fourth Article IV of the Company's Amended and Restated Certificate
of Incorporation to read as set forth in Annex A.
The terms of the additional shares of Common Stock will be identical to those of
the currently outstanding shares of Common Stock. However, because holders of
Common Stock have no preemptive rights to purchase or subscribe for any unissued
stock of the Company, the additional shares of Common Stock will reduce the
current stockholders' percentage in total outstanding shares of authorized
Common Stock. This Amendment and the creation of additional shares of authorized
Common Stock will not alter the current number of issued shares.
PRINCIPAL PURPOSE OF AMENDMENTS
The principal purpose of the Amendments to the Amended and Restated Certificate
of Incorporation is to ensure that there is a sufficient number of shares of
authorized Common Stock available to the Company in the future in the event the
Board of Directors determines that it is necessary or appropriate to raise
additional capital through the sale of securities, to acquire another company or
its business or assets, to establish strategic relationships with business
partners, to provide equity incentives to employees, officers or directors or to
pursue other matters.
Increasing the authorized shares and causing the Reverse Split does not result
in the issuance of additional shares, and any such issuance would take place
only if approved by the Board of Directors or shareholders, if appropriate, at
some future time. The Company has completed a number of private placements of
our equity securities and it is anticipated that it likely will complete
additional private placements in the future. The Board of Directors does not
intend to solicit further shareholder approval prior to the issuance of any
additional shares of Common Stock, except as may be required by applicable law
or the rules of the National Association of Securities Dealers, Inc.
Any future issuance of additional shares of Common Stock will impact the
Company's shareholders in a number of respects, including the following:
-by diluting the voting power of the current holders of the Common
Stock at such time; and
-by diluting the earnings per share and book value per share of
outstanding shares of the Common Stock at such time.
SHAREHOLDER DISSENTER'S RIGHT OF APPRAISAL
The General Corporate Law of Delaware does not provide for dissenters
rights of appraisal in connection with the Amendments.
THIS IS NOT A NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS AND NO SHAREHOLDER
MEETING WILL BE HELD TO CONSIDER ANY MATTER WHICH WILL BE DESCRIBED IN THIS
INFORMATION STATEMENT.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of material federal income tax consequences of the
Reverse Split and Increased Share Authorization and does not purport to be
complete. It does not discuss any state, local, foreign or minimum income or
other tax consequences. Also, it does not address the tax consequences to
holders that are subject to special tax rules, including banks, insurance
companies. regulated investment companies, personal holding companies, foreign
entities, nonresident alien individuals, broker dealers and tax exempt entities.
The discussion is based on the provisions of the United States federal income
tax law as of the date hereof, which are subject to change retroactively as well
as prospectively. This summary also assumes that the shares are held as a
"capital asset." as defined in the Internal Revenue Code of 1986 (generally,
property held for investment). The tax treatment of a stockholder may vary
depending upon the particular facts and circumstances of the stockholder.
ACCORDINGLY EACH STOCKHOLDER IS URGED TO CONSULT HIS, HER OR ITS TAX ADVISOR TO
DETERMINE THE PARTICULAR TAX CONSEQUENCES TO HIM, HER OR IT OF THE STOCK SPLIT.
INCLUDING THE APPLICATION AND EFFECT OF FEDERAL. STATE, LOCAL OR FOREIGN INCOME
TAX AND OTHER LAWS.
No gain or loss should he recognized by a stockholder upon the stockholder's
exchange of shares pursuant to the Reverse Split. The aggregate tax basis of the
shares received in the Reverse Split including any fraction of a share deemed to
have been received, would be the same as the stockholder's aggregate tax basis
in the shares exchanged. The stockholder's holding period for the shares would
include the period during which the stockholder held the pre-split shares
surrendered in the Reverse Split. Our beliefs regarding the Tax consequence of
the Reverse Split are not binding upon the Internal Revenue Service or the
courts. and there can he no assurance that the Internal Revenue Service or the
courts will accept the positions expressed above. The state and local tax
consequences of the Reverse Split may vary significantly as to each stockholder,
depending upon the state in which lie or she resides.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
No director, executive officer, associate of any officer or director or
executive officer, or any other person has any interest, direct or indirect, by
security holdings or otherwise, in the Amendments referenced herein which is not
shared by the majority of the stockholders.
All the members of the Board of Directors of the Company approved the Amendments
by unanimous consent dated __________________, 2005.
No security holder entitled to vote at a shareholder's meeting or by written
consent has submitted to the Company a proposal.
OTHER MATTERS
No Further business will be transacted by written consent to corporation
action in lieu of a meeting of stockholders regarding matters to which this
Information Statement Pertains.
ADDITIONAL INFORMATION
We are subject to the informational requirements of the Securities Exchange Act
of 1934 as amended, and in accordance with the requirements thereof file
reports. proxy statements and other information with the Securities and Exchange
Commission ("SEC") Copies of these reports, proxy statements and other
information can he obtained at the SEC's public reference facilities at
Judiciary Plaza. Room 1024, 450 Fifth Street. N.W., Washington. D.C. 20549.
Additionally, these filings may be viewed at the SEC's website at
http://www.sec.gov.
DISTRIBUTION OF INFORMATION STATEMENT
The cost of distributing this Information Statement has been borne by the
Company. The distribution will be made by mail.
Pursuant to the requirements of the Exchange Act of 1934, as amended, the
Registrant has duly caused this Information Statement to he signed on its behalf
bye the undersigned.
By Order of the Board of Directors
------------------------
/s/ Daniel D. Walter
NOTICE PURSUANT TO SECTION 228 OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
TO: ALL STOCKHOLDERS
PLEASE TAKE NOTICE THAT STOCKHOLDERS owning at least a majority of the
outstanding stock of Avalon Digital Marketing Systems, Inc., by written consent
dated _________, 2005 have duly adopted resolutions approving the Amendment to
the certificate of incorporation affixed hereto as Annex A.
Date _______________, 2005.
ANNEX A
AMENDMENT TO THE AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION OF AVALON DIGITAL MARKETING
SYSTEMS, INC.
"FOURTH
The total number of shares that this Corporation is authorized to issue is Fifty
Million (50,000,000) shares of common stock each having a par value of $0.0001.
Upon the effectiveness of the certificate of amendment to the Certificate of
Incorporation containing this sentence (the "Split Effective Date"), shares of
the Common Stock issued and outstanding as of the date and time immediately
preceding the Split Effective Date shall be automatically changed and
reclassified in accordance with an exchange ratio of one newly issued share for
each 20 outstanding shares of Common Stock. There shall be no fractional shares
issued. A holder of record of Common Stock on the Split Effective Date who would
otherwise he entitled to a fraction of a share shall have the number of new
shares to which they are entitled rounded to the nearest whole number of shares.
The number of new shares will he rounded up if the fractional share is equal to
or greater than 0.5 and rounded down if the fraction is less than 0.5. No
shareholders will receive cash in lieu of fractional shares."