<PAGE> 1
As Filed with the Securities and Exchange Commission on October 22, 1998
Commission File No. 333-62133
----------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
FUTURELINK DISTRIBUTION CORP.
(Exact name of registrant as specified in its charter)
603-7th Avenue S.W.
Suite 550
Calgary, Alberta CANADA T2P 2T5
(403) 543-5511
(Address, including zip code, and
telephone number, including area
code, of registrant's principal
executive offices)
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Colorado 7371 95-3895211
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) Number)
</TABLE>
CAMERON CHELL
CHIEF EXECUTIVE OFFICER
FUTURELINK DISTRIBUTION CORP.
603-7th Avenue S.W., Suite 550
Calgary, Alberta CANADA T2P 2T5
(403) 543-5511
(Name and address, including zip code, and telephone number,
including area code, of agent for service)
Approximate Date of Commencement of Proposed Sale to the Public: As soon as
possible after the Registration Statement is declared effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<PAGE> 2
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CALCULATION OF REGISTRATION FEE
============================================================================================================================
Title of Each Proposed Maximum Proposed Maximum
Class of Securities Amount To Offering Price Per Aggregate Offering Amount of
To Be Registered Be Registered Security (1) Price Registration Fee(2)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock Underlying Bialik 4,250,000 Shares of $1.00 $4,250,000 $ 1253.75
Exchangeable Shares Common Stock
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock Underlying 10% 9,615,385 Shares of $1.00 $9,615,385 $ 2836.54
Convertible Debentures, Principal Common Stock
Amount $5,000,000
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock Underlying Thomson 1,000,000 Shares of $1.00 $1,000,000 $ 295.00
Kernaghan Warrants Common Stock
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL 14,865,385 Shares of $1.00 $14,865,385 $ 4,385.29
Common Stock
============================================================================================================================
</TABLE>
(1) Calculated pursuant to Rule 457(c) and (g).
(2) Based on the average closing bid and asked price of the Registrant's
Common Stock on August 18, 1998, on the NASD OTC Bulletin Board.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
THE INFORMATION IN THIS REGISTRATION STATEMENT IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS REGISTRATION
STATEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
<PAGE> 3
FUTURELINK DISTRIBUTION CORP.
CROSS REFERENCE SHEET
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ITEM NUMBER AND HEADING IN LOCATION
FORM SB-2 REGISTRATION STATEMENT IN PROSPECTUS
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1. Front of the Registration Statement and Outside
Front Cover Page of Prospectus............................... Facing Page and Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Prospectus...... Inside Front Cover and Outside Back Cover Pages
of Prospectus
3. Summary Information and Risk Factors......................... Prospectus Summary; Risk Factors
4. Use of Proceeds.............................................. Use of Proceeds
5. Determination of Offering Price.............................. Not Applicable
6. Dilution..................................................... Not Applicable
7. Selling Security Holders..................................... Selling Security Holders; Security Ownership of Certain
Beneficial Owners and Management
8. Plan of Distribution......................................... Plan of Distribution
9. Legal Proceedings............................................ Business
10. Directors, Executive Officers, Promoters and Control Persons. Management; Certain Transactions; Risk Factors
11. Security Ownership of Certain Beneficial Owners and Management Security Ownership of Certain Beneficial Owners
and Management
12. Description of Securities.................................... Description of Securities
13. Interest of Named Experts and Counsel........................ Not Applicable
14 Disclosure of Commission Position on Indemnification
for Securities Act Liabilities............................... Not Applicable
15. Organization Within Last Five Years.......................... The Company; Business
16. Description of Business...................................... Business; Prospectus Summary; Risk Factors; Management's
Discussion and Analysis
17. Management's Discussion and Analysis or Plan of Operations... Management's Discussion and Analysis
18. Description of Property ..................................... Business
19. Certain Relationships and Related Transactions............... Certain Relationships and Related Transactions
20. Market for Common Equity and Related Stockholder Matters..... Market for Common Equity and Related Stockholder Matters;
Description of Securities
21. Executive Compensation....................................... Management; Executive Compensation
22. Financial Statements......................................... Financial Statements
23. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure.......................... Not Applicable
</TABLE>
<PAGE> 4
PROSPECTUS October 21, 1998
FUTURELINK DISTRIBUTION CORP.
4,250,000 SHARES OF COMMON STOCK UNDERLYING BIALIK EXCHANGEABLE SHARES
9,615,384 SHARES OF COMMON STOCK UNDERLYING $5,000,000 CONVERTIBLE DEBENTURES
1,000,000 SHARES OF COMMON STOCK UNDERLYING THOMSON KERNAGHAN WARRANTS
This Prospectus relates to (i) 4,250,000 shares of common stock underlying
Exchangeable Shares in FutureLink/SysGold issued to Don and Olivia Bialik in
FutureLink Distribution Corp., a Colorado corporation (the "Company" or
"FutureLink USA") held by Don and Olivia Bialik (the "Bialik Exchangeable
Shares") (ii) 9,615,384 shares of common stock of the Company issuable upon
exercise of a 10% Convertible Debenture with a US$5,000,000 principal amount
held by Thomson Kernaghan & Co., Ltd. ("Convertible Debenture") and (iii)
1,000,000 warrants ("Warrants") to purchase 1,000,000 shares of common stock of
the Company, issued to Thomson Kernaghan & Co., Ltd. The securities issued to
the Bialiks' and to Thomson Kernaghan were each issued in Reg S transactions by
the Company on August 4, 1998 and August 14, 1998 respectively and amended by
agreement dated August 21, 1998. See "Selling Security Holder" and "Plan of
Distribution".
The Exchangeable Shares issued to Don and Olivia Bialik allow the Company to
issue 4,250,000 shares of the Company's common stock in consideration for
exchange of the Exchangeable Shares. The Convertible Debenture issued allows
Thomson Kernaghan & Co., Ltd. to convert to common shares of the Company at a
conversion price equal to the lesser of $.75 cents or 78 percent of the average
closing bid price on the OTC Bulletin Board for the Company 's common shares in
the three trading days prior to the date of notice of conversion, which must be
on or before August 14, 2001. The 1,000,000 warrants issued to Thomson Kernaghan
& Co., Ltd. are at an exercise price $1.00 per share expiring August 14, 2001.
Don and Olivia Bialik and Thomson Kernaghan & Co. Ltd.(the "Selling Security
Holders") may be deemed underwriters within the meaning of the 1933 Act, with
respect to the securities offered, and any profits realized or commissions
received may be deemed underwriting compensation.
The Company will not receive any proceeds upon the exercise of the conversion
rights by Don and Olivia Bialik. In the event, that all the Thomson Kernaghan
Warrants and Debenture conversion feature are exercised, the Company will
receive gross proceeds not to exceed $1,000,000. The Company will have already
received the proceeds from the initial placement of the Debenture in the amount
of up to $5,000,000. See "Selling Security Holders", "Plan of Distribution" and
"Use of Proceeds". The Company will pay all of the expenses of this prospectus
estimated at approximately $50,000.
FutureLink USA's Common Stock is traded on the NASD OTC Bulletin Board under the
symbol FLNK, and last traded at $.30 on October 15, 1998.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. FOR INFORMATION
REGARDING CERTAIN RISKS RELATING TO THE COMPANY, SEE THE SECTION MARKED "RISK
FACTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE COMMISSION OR ANY
STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 5
AVAILABLE INFORMATION
The Company has filed with the Commission a registration statement under the
Securities Act with respect to the Securities registered hereby. This Prospectus
omits certain information contained in said registration statement as permitted
by the rules and regulations of the Commission. For further information with
respect to the Company and the Common Stock, reference is made to the
registration statement, including the exhibits thereto. Statements contained
herein concerning the contents of any contract or any other document are not
necessarily complete, and in each instance, reference is made to such contract
or other document filed with the Commission as an exhibit to the registration
statement, or otherwise, each such statement being qualified in all respects by
such reference. The registration statement, including exhibits and schedules
thereto, may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549. Copies of such materials can be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates and at the Commission's web site.
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in or incorporated by reference into this Prospectus. Except where
otherwise indicated, all share and per share data and information included in
this Prospectus relating to the number of shares of Common Stock assume no
exercise of (i) the Warrants, (ii) the options available for grant under the
Company's 1998 Incentive Stock Option Plan or (iii) the Bialik Reserved Shares.
ALL REFERENCES HEREIN ARE IN US DOLLARS UNLESS OTHERWISE REFERENCED. AS OF CLOSE
OF BUSINESS ON OCTOBER 15, 1998, THE CONVERSION RATE ON THE CANADIAN DOLLAR WAS
$1.5460 CANADIAN ON $1.00 US.
THE COMPANY
DESCRIPTION OF THE COMPANY
FUTURELINK DISTRIBUTION CORP. (A COLORADO CORPORATION) ("FUTURELINK USA")
FutureLink USA is a Colorado company which transacts business through the
following subsidiaries: (i) a 46.229% interest in FutureLink Distribution Corp.
(an Alberta corporation) ("FutureLink Alberta") located in Calgary, Alberta;
(ii) a 50% interest in NextClick, an Alberta corporation; (iii) a 100% interest
in FutureLink Acquisition Corp. (an Alberta corporation) which owns 100% of the
Class "B", "J" and "K" shares in FutureLink/SysGold (see "Certain Relationships
and Related Transactions"). FutureLink USA is in the process of attempting to
acquire substantially all of the remaining issued and outstanding securities of
FutureLink Alberta.
FutureLink USA is a total solution provider that supplies integrated business
and information technology ("IT") solutions in the areas of management
consulting, land and land systems, accounting, software development and
infrastructure management. FutureLink USA strives to understand its clients'
organizational processes and
<PAGE> 7
information requirements and provides a full suite of information management
services.
FutureLink USA believes itself to be the world's first computer utility company
(see "Patents & Trademarks"). It is dedicated to providing small to medium sized
businesses (50-1000 seats) with the most efficient and cost effective system for
the delivery of computer hardware, software and electronic content at an
attractive cost for installation, administration and maintenance. It is
FutureLink USA's objective to make computer use as affordable and convenient to
use as the telephone.
FutureLink USA's key technology platform to deliver its computing model is thin
client computing. A thin client is a computer that has a central processing unit
(CPU), a keyboard, a mouse and a monitor that is connected to a network. Thin
clients have no hard drive, floppy disks or CD-ROM drives nor any moving parts
thus greatly reducing operating and maintenance costs. The thin client is
connected to a network that delivers any software application to any desktop
from a server. The thin client is designed to eliminate the need for constant
computer upgrades, reduce the initial capital investment of buying PCs and
reduce the time and money spent on computer maintenance. FutureLink USA is
branding this service W.A.T.C.H.(TM) (Wide Area Thin Client Hookup(TM)) (see
"Patents and Trademarks").
FutureLink USA is offering its W.A.T.C.H.TM service as an integrated IT
outsourcing service to the mid-market (companies with 50 -- 1000 seats).
FutureLink USA's management believes that strategic acquisitions could
tremendously enhance FutureLink USA's growth and profitability over the next
several years. On August 3, 1998, as amended by agreement dated September 28,
1998, FutureLink USA entered into an agreement with FutureLink Alberta
("FutureLink Alberta Acquisition Agreement"), which provides that, subject to
regulatory approval and certain exceptions, FutureLink USA will acquire all of
the FutureLink Alberta Securities in consideration of the issuance of FutureLink
USA Common Shares to the FutureLink Alberta Security holders on a one-for-one
basis for each such security. Management of FutureLink Alberta is identical to
that of FutureLink USA and certain security holders of FutureLink Alberta are
also security holders of FutureLink USA.
<PAGE> 8
In addition, by agreement among FutureLink Alberta, FutureLink USA, Donald A.
Bialik, Olivia B. Bialik, Bialik Family Trust, Riverview Management Corporation
(now known as FutureLink/SysGold) and SysGold Ltd. dated August 4, 1998, as
amended by agreement dated August 21, 1998, FutureLink USA has acquired all of
the issued and outstanding shares of FutureLink/SysGold (the "SysGold
Acquisition Agreement"). The consideration was CDN$8,685,000 paid by
CDN$3,000,000 cash on closing (August 21, 1998), CDN$685,000 by a promissory
note payable within 90 days of closing, and by the issuance of 4,250,000
FutureLink/SysGold shares exchangeable into 4,250,000 FutureLink USA Common
Shares (attributed value $0.85/share).
THE OFFERING
Common Stock Offered Hereby 14,865,385 shares
Common Stock Outstanding as of October 15, 1998 15,499,303 shares
NASD OTC Bulletin Board Symbol FLNK
SUMMARY FINANCIAL DATA
A. PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The summary pro forma financial data in the table are derived from the pro forma
consolidated financial statements and related notes thereto of the Company. The
data should be read in conjunction with the pro forma consolidated financial
statements and the related notice contained elsewhere herein.
<PAGE> 9
SUMMARY OF SELECTED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION (1)
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- ----------------------------------------------------------------------------------------
Six Months Ended June 30 Year Ended December 31
1998 1997
- ----------------------------------------------------------------------------------------
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Statement of Income Data:
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Revenues $ 5,360,575 $ 6,665,460
- ----------------------------------------------------------------------------------------
Total operating expenses $ 8,828,955 $ 10,542,478
- ----------------------------------------------------------------------------------------
Loss from operations ($ 3,618,345) ($ 3,866,940)
- ----------------------------------------------------------------------------------------
Net loss ($ 3,638,804) ($ 4,621,792)
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Balance Sheet Data:
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Current assets $ 1,011,381 $ 704,437
- ----------------------------------------------------------------------------------------
Working capital (deficiency) ($ 567,034) ($ 1,035,555)
- ----------------------------------------------------------------------------------------
Total assets $ 10,107,276 $ 9,105,589
- ----------------------------------------------------------------------------------------
Total liabilities $ 3,723,869 $ 3,460,533
- ----------------------------------------------------------------------------------------
Stockholders' equity $ 6,368,652 $ 5,605,244
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</TABLE>
Note:
(1) The pro forma financial statements as at June 30, 1998, as at December 31,
1997, for the six months ended June 30, 1998 and for the year ended December 31,
1997 give effect to the acquisition of all the outstanding shares in FutureLink
Alberta and all the outstanding shares of FutureLink/SysGold as if the effective
dates of these transactions were December 31, 1997/June 30, 1998 for the balance
sheet data and January 1, 1997/January 1, 1998 for the income statement data.
<PAGE> 10
B. FUTURELINK DISTRIBUTION CORP., A COLORADO CORPORATION
The summary financial data in the table are derived from the consolidated
financial statements and related notes thereto of the Company. The data should
be read in conjunction with the consolidated financial statements and the
related notice contained elsewhere herein.
SUMMARY OF SELECTED CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
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Six Months Ended Years Ended
June 30 December 31
1998 1997 1996
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Statement of Income Data:
------------------------------------------------------------------------------
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Revenues $0 $0 $0
------------------------------------------------------------------------------
Total operating expenses $71,076 $122,049 $6,864
------------------------------------------------------------------------------
Loss from operations ($71,076) ($122,049) ($6,864)
------------------------------------------------------------------------------
Net loss ($482,392) ($737,049) ($6,864)
------------------------------------------------------------------------------
Net loss per common share ($0.25) ($1.65) ($2.75)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Balance Sheet Data:
------------------------------------------------------------------------------
Current assets $0 $0 $0
------------------------------------------------------------------------------
Working capital (deficiency) ($24,981) ($23,932) ($6,873)
------------------------------------------------------------------------------
Total assets $1,269,259 $0 $515,000
------------------------------------------------------------------------------
Total liabilities $529,783 $23,932 $11,377
------------------------------------------------------------------------------
Stockholders' equity $739,476 ($23,932) $503,623
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</TABLE>
FORWARD-LOOKING STATEMENTS
When included in this Prospectus, the words "expects," "intends," "anticipates,"
"plans," "projects" and "estimates," and analogous or similar expressions are
intended to identify forward-looking statements. Such statements, which include
statements contained in "Prospectus Summary," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business," are inherently subject to a variety of risks and uncertainties that
could cause actual results to differ materially from those reflected in such
forward-looking statements. For a discussion of certain of such risks, see "Risk
Factors." These forward-looking statements speak only as of the date of this
Prospectus. The Company expressly disclaims any obligation or undertaking to
release publicly any updates or revisions to any forward-looking statement
contained herein to reflect any change in the Company's expectations with regard
thereto or any change in events, conditions or circumstances on which any such
statement is based.
RISK FACTORS
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THE PROSPECTUS, PROSPECTIVE
INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS BEFORE MAKING AN
INVESTMENT. THIS PROSPECTUS CONTAINS CERTAIN FORWARD LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES, SUCH AS STATEMENTS OF THE COMPANY'S PLANS,
OBJECTIVES, EXPECTATIONS AND INTENTIONS. THE CAUTIONARY STATEMENTS MADE IN THIS
PROSPECTUS
<PAGE> 11
SHOULD BE READ AS BEING APPLICABLE TO ALL RELATED FORWARD-LOOKING STATEMENTS
WHEREVER THEY APPEAR IN THIS PROSPECTUS. THE COMPANY'S ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED BELOW, AS WELL AS THOSE
DISCUSSED ELSEWHERE HEREIN.
RISKS CONCERNING FUTURELINK USA
FutureLink USA is a Colorado company which transacts business through the
following subsidiaries (i) a 46.229% interest in FutureLink Distribution Corp.
(an Alberta corporation) ("FutureLink Alberta") located in Calgary, Alberta;
(ii) a 50% interest in NextClick, an Alberta corporation; (iii) a 100% interest
in FutureLink Acquisition Corp. (an Alberta corporation) which owns 100% of the
Class "B", "J" and "K" shares in FutureLink/SysGold (see "Certain Relationships
and Related Transactions"). FutureLink USA is in the process of attempting to
acquire substantially all of the remaining issued and outstanding securities of
FutureLink Alberta.
Limited Control and Influence on the Company. The current officers and
directors, including the controlling beneficial shareholders of the Company in
the aggregate, directly or beneficially, currently own approximately 20.6% of
the total outstanding Common Stock. As a result, these individuals will probably
be able to elect a majority of the Company's directors and thereby control the
management policies of the Company, as well as determine the outcome of
corporate actions requiring shareholder approval by majority action, regardless
of how other shareholders of the Company may vote. Such ownership of Common
Stock may have the effect of delaying, deferring or preventing a change in
control of the Company and may adversely affect the voting rights of holders of
Common Stock.
Limitation of Liability of Directors. As permitted by the Colorado Business
Corporation Act, the Company has Articles of Incorporation, as amended,
eliminates, with certain exceptions, the personal liability of its directors to
the Company and its shareholders for monetary damages as a result of a breach of
fiduciary duty. Such a provision makes it more difficult to assert a claim and
obtain damages from a director in the event of a breach of his fiduciary duty.
The Colorado Business Corporation Act provides that a corporation has the power
to (i) indemnify directors, officers, employees and agents of the corporation
against judgments, fines and amounts paid in settlement in connection with
suits, actions and proceedings and against certain expenses incurred by such
parties if specified standards of conduct are met: and (ii) purchase and
maintain insurance on behalf of any of the foregoing parties against liabilities
incurred by such parties in the foregoing capacities. The Bylaws of the Company
provide for indemnification of its officers and directors against expenses
actually and necessarily incurred by them in connection with the defense of any
action, suit or proceeding in which they are made parties by reason of being or
having been officers or directors of the Company; except in relation to matters
as to which any such director or officer is adjudged in such action, suit or
proceeding to be liable for gross negligence or willful misconduct in the
performance of duty. However, such indemnification is not exclusive of any other
rights to which those indemnified may be entitled under any bylaw, agreement,
vote of shareholders or otherwise.
Solvency of FutureLink USA. FutureLink Alberta was in a research and development
stage until early 1998, and accordingly it incurred significant losses borne by
the Company. In addition, the Company and its subsidiaries are a party to
certain lawsuits described under "Legal Proceedings". The Company can not
conclusively predict the outcome of these lawsuits and could be directed to pay
penalties to the other parties in the suits. Should this happen, it could put a
considerable cash burden on the Company. FutureLink USA may also require
additional financing in order to carry on its business. There can be no
assurance that such financing will be available or, if available, that it will
be upon terms satisfactory to FutureLink USA.
Dependence on Key Personnel. The success of the Company is highly dependent on
the efforts and abilities of its directors, officers and employees. The
unexpected loss or departure of any of FutureLink USA's key directors, officers
or employees could be detrimental to the future operations of FutureLink USA.
The success of FutureLink USA's business will depend, in part, upon FutureLink
USA's ability to attract and retain qualified personnel as they are needed.
There can be no assurance that FutureLink USA will be able to engage the
services of such personnel or retain its current personnel.
<PAGE> 12
Risks Related to Possible Acquisitions. The Company may expand its operations
through the acquisition of additional businesses. There can be no assurance that
the Company will be able to identify, acquire or profitably manage additional
businesses or successfully integrate any acquired businesses into the Company
without substantial expenses, delays or other operational or financial problems.
Further, acquisitions may involve a number of special risks or effects,
including diversion of management's attention, failure to retain key acquired
personnel, unanticipated events or circumstances, legal liabilities and
amortization of acquired intangible assets and other one-time or ongoing
acquisition related expenses, some or all of which could have a material adverse
effect on the Company's business, operating results and financial condition.
Client satisfaction or performance problems of a single acquired firm could have
a material adverse impact on the reputation of the Company as a whole. In
addition, there can be no assurance that the acquired businesses, if any, will
achieve anticipated revenues and earnings. The failure of the Company to arrange
its acquisition strategy successfully could have a material adverse effect upon
the Company's business, operating results and financial condition As of the date
of this Registration Statement, the Company has not entered into any discussions
with any person or entity regarding
<PAGE> 13
future acquisitions.
Creditworthiness of Clients. The value of FutureLink USA's computer equipment,
software, and intellectual property thereto may depend on the credit and
financial stability of FutureLink USA's customers. FutureLink USA's projected
income would be adversely affected if a significant number of customers were
unable to meet their obligations to FutureLink USA or if FutureLink USA were
unable to continue to collect its accounts receivables. In the event of default
by customers, FutureLink USA may experience delays in enforcing its rights as a
vendor and may incur substantial costs in protecting its investment.
Speculative Nature of Computer Business. The acquisition and management of
computer services may result in a failure to produce income or revenue.
Moreover, the industry is subject to significant risk factors including changes
in general economic conditions, competition from other properties, the failure
of customers to meet their obligations and other operating costs
Competition. The market for IT services is very competitive because of the large
number of competitors and the rapidly changing environment. Primary competitors
include participants from a variety of market segments, including "Big Five"
accounting firms, systems consulting and implementation firms, application
software firms, service groups of computer equipment companies, facilities
management companies, general management consulting firms and programming
companies. Many of these competitors have significantly greater financial,
technical and marketing resources and greater name recognition than FutureLink
USA. In addition, FutureLink USA competes with its client's internal resources,
particularly where these resources represent a fixed cost to the client. Such
competition may impose additional pricing pressures on FutureLink USA. There can
be no assurances that FutureLink USA will compete successfully with its existing
competitors or with any new competitors.
Tradename A number of U.S. international companies currently use all or a
portion of the name "FutureLink" in connection with products or services in
similar industries as that engaged in by the Company. While the Company is
attempting to qualify under a trademark its name throughout the U.S. and Canada,
significant issues may be present as to the ability to widely use the name in
connection with the products or services to be rendered by the Company.
Rapid Technological Change; Dependance on New Solutions. FutureLink USA's
success will depend in part on its ability to develop IT solutions that keep
pace with continuing changes in IT, evolving industry standards and changing
client preferences. There can be no assurance that FutureLink USA will be
successful in adequately addressing these developments on a timely basis or
that, if these developments are addressed, FutureLink USA will be successful in
the marketplace. In addition, there can be no assurance that products or
technologies developed by others will not render FutureLink USA's services
uncompetitive or obsolete. FutureLink USA's failure to address these
developments could have a material adverse effect on FutureLink USA's business,
operating results and financial conditions.
Attraction and Retention of Employees. FutureLink USA's business involves the
delivery of professional services and is labor-intensive. FutureLink USA's
success depends in large part upon its ability to attract, develop, motivate and
retain highly skilled technical employees. Qualified technical employees are in
great demand and are likely to remain a limited resource for the foreseeable
future. There can be no assurance that FutureLink USA will be able to attract
and retain sufficient numbers of highly skilled technical employees in the
future. FutureLink
<PAGE> 14
USA has historically experienced turnover rates which it believes are consistent
with industry norms. An increase in this rate could have a material adverse
effect on FutureLink USA's business, operating results and financial condition,
including its ability to secure and complete engagements.
Project Risks. Many of FutureLink USA's engagements involve projects that are
critical to the operations of its clients' businesses and provide benefits that
may be difficult to quantify. FutureLink USA's failure or inability to meet a
client's expectations in the performance of its services could result in a
material adverse change to the client's operations and therefore could give rise
to claims against FutureLink USA or damage FutureLink USA's reputation,
adversely affecting its business, operating results and financial condition.
Fixed-Bid Projects. FutureLink USA undertakes many projects billed on a
fixed-bid basis, which is distinguishable from the Company's other method of
billing on a time and materials basis. The failure of the Company to complete
such projects within budget would expose the Company to risks associated with
cost overruns, which could have a material adverse effect on FutureLink
<PAGE> 15
USA's business, operating results and financial condition.
RISKS CONCERNING THE SECURITIES OF FUTURELINK USA
Limited Trading History of FutureLink USA Common Shares; Stock Price Volatility.
Between January 1, 1998 and September 30, 1998, the closing sale price has
ranged from a low of $0.34 per share to a high of $4.34 per share. The market
price of the FutureLink USA Common Shares could continue to fluctuate
substantially due to a variety of factors, including quarterly fluctuations in
results of operations, adverse circumstances affecting the introduction of
market acceptance of new products and services offered by the Company,
announcements of new products and services by competitors, changes in the IT
environment, changes in earnings estimates by analysts, changes in accounting
principles, sales of FutureLink USA Common Shares by existing holders, loss of
key personnel and other factors. The market price for the FutureLink USA Common
Shares may also be affected by the Company's ability to meet analysts'
expectations, and any failure to meet such expectations, even if minor, could
have a material adverse effect on the market price of FutureLink USA Common
Shares. In addition, the stock market is subject to extreme price and volume
fluctuations. This volatility has had a significant effect on the market prices
of securities issued by many companies for reasons unrelated to the operating
performance of these companies. In the past, following periods of volatility in
the market price of a company's securities, securities class action litigation
has often been instituted against such a company. Any such litigation instigated
against the Company could result in substantial costs and a diversion of
management's attention and resources, which could have a material adverse effect
upon the Company's business, operating results and financial condition.
<PAGE> 16
Risks of Low-Priced or Penny Stock. The common stock of the Company is traded on
the NASD OTC Bulletin Board. As such it is subject to Rule 15(g)-(9) under the
1934 Act such Rule adversely effects the ability of purchasers in this Offering
to sell the securities acquired hereby in the secondary market.
Rule 15g-9 requires additional disclosure, relating to the market for penny
stocks, in connection with trades in any stock defined as a penny stock. The
Commission defines a penny stock to be any equity security that has a market
price of less than $5.00 per share (exclusive of commissions), subject to
certain exceptions. Such exceptions include any equity security listed on Nasdaq
and any equity security issued by an issuer that has (i) net tangible assets of
at least $2,000,000, if such issuer has been in continuous operation for three
years, (ii) net tangible assets of at least $5,000,000, if such issuer has been
in continuous operation for less than three years, or (iii) average annual
revenue of at least $6,000,000, if such issuer has been in continuous operation
for less than three years. Unless an exemption is available, the regulations
require the delivery, prior to any transaction involving a penny stock, of a
disclosure schedule explaining the penny stock market and the risks associated
therewith.
In addition, trading in the common stock would be covered by Rules 15g-1 through
15g-6 trading in the Common Stock would be covered by Rules 15g-1 through 15g-6
under the 1934 Act for non-Nasdaq and non-exchange listed securities. Under such
rules, broker/dealers who recommend such securities to persons other than
established customers and accredited investors must make a special written
suitability determination for the purchaser and receive the purchaser's written
agreement to a transaction prior to sale. Securities also are exempt from these
rules if the market price is at least $5.00 per share.
Although the Company's securities are, as of the date of this Prospectus,
outside the definitional scope of penny stocks as they are listed on Nasdaq, in
the event the Company's securities were subsequently to become characterized as
penny stocks, the market liquidity for the Company's securities could be
severely affected. In such an event, the regulations on penny stocks could limit
the ability of broker/dealers to sell the Company's securities and thus the
ability of purchasers of the Company's securities to sell their securities in
the secondary market.
No Dividends Anticipated on Common Stock. The Company has not paid any dividends
on its Common Stock to date. The Company currently transacts all of its business
through its subsidiaries. The Company does not currently intend to declare or
pay any dividends on its Common Stock in the foreseeable future, but plans to
retain earnings, if any, for development and expansion of its business
operations.
Current Prospectus and State Registration Required to Exercise Warrants. The
purchasers of the Warrants will only be able to exercise the Warrants if: (i) a
current Registration Statement under the 1933 Act relating to the Common Stock
is qualified for sale or exempt from qualification under the 1933 Act and; (ii)
such Common Stock is qualified for sale or exempt from qualification under the
applicable securities laws of the states in which the various holders of the
Warrants reside. Although the Company will use its best efforts to maintain the
effectiveness of the current Registration Statement covering the Common Stock
issuable upon the exercise of the Warrants, there can be no assurance the
Company will be able to continue to do so. The value of the Warrants may be
greatly reduced if a current Registration Statement covering the Common Stock
issuable upon the exercise of the Warrants is not kept effective or if such
Common Stock is not qualified or exempt from qualification in the states in
which the holders of the Warrants reside.
USE OF PROCEEDS
With the exception of the exercise price of the Warrants, the Company will not
receive any proceeds from the sale of securities offered hereby. It is currently
anticipated that the net proceeds from the exercise of the Warrants, estimated
at $1,000,000 will be added to the general funds of the Company and used for
working capital and other general corporate purposes. The Company will pay all
the expenses of this Prospectus, estimated to be approximately $50,000.
<PAGE> 17
MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of the Company commenced quotation on the OTC Bulletin Board
under the symbol "CVNK" in early 1995. Subsequent to the share acquisition
agreement of January 20, 1998(See "Certain Relationships and Related
Transactions") the Company changed its name from Core Ventures Inc. to
FutureLink Distribution Corp. and trading commenced under the symbol "FLNK" in
early 1998. Until the third quarter of 1995 no substantial public trading market
had developed for the common stock of the Company.
NASD OTC Bulletin Board Symbol
Common Stock FLNK
The closing price of the Common Stock of the Company as reported on the NASD OTC
Bulletin Board Issues on October 15, 1998, by brokers making a market, was $30.
As of October 15, 1998, there were approximately 255 beneficial holders of the
Common Stock of the Company. The following table summarizes the trading activity
of FutureLink USA from January 1998.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Price Range USD Trading Volume Share Value
Note 1
------------------------------------------------------------------------------------------------------
High Low USD
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE> 18
<TABLE>
<S> <C> <C> <C> <C>
January, 1998 3.56 1.75 1,294,400 $ 3,849,893
February, 1998 3.50 2.90 714,100 2,241,748
March, 1998 4.12 2.75 1,834,300 6,253,275
April, 1998 4.34 3 .06 5,333,400 14,219,948
May, 1998 4.00 1.37 7,575,200 19,470,561
June 1-5, 1998 1.31 1.00 1,001,300 1,044,374
June 8-12, 1998 1.25 1.03 572,000 632,511
June 15-19, 1998 1.02 0.73 1,763,500 1,407,873
June 22-26, 1998 1.03 0.80 688,200 583,900
June28-July 3, 1998 0.81 0.66 744,000 518,001
July 6-10, 1998 0.64 0.57 978,700 599,967
July 13-17, 1998 1.68 0.72 2,724,100 3,510,358
July 20-29, 1998 1.25 1.00 1,033,000 2,092,682
August 3-7, 1998 1.20 1.04 959,600 1,117,851
August 10-14, 1998 1.21 1.02 702,500 784,019
August 17-21, 1998 1.01 0.96 423,700 415,750
August 24-28, 1998 0.89 0.83 326,200 283,398
August 31-Sep 4, 1998 0.92 0.71 510,100 409,243
September 7-11, 1998 0.69 0.61 606,500 389,026
September 14-18, 1998 0.56 0.43 1,385,400 633,132
September 21-25, 1998 0.47 0.38 1,845,600 778,063
------------------------------------------------------------------------------------------------------
Totals 33,015,800 $61,235,573
======================================================================================================
</TABLE>
Note 1) Calculated by mutiplying the average daily price reported by
Bloomberg by the daily volume. This is only an estimate of the true
share values traded. This method would tend to overstate the true share
value.
On October 15, 1998 the high and low prices of FutureLink USA's Common Stock
were $.33 and $.30 per share, respectively.
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements and the related notes thereto and the other
financial information included elsewhere in this Prospectus. When used in the
following discussions, the words "believes", "anticipates", "intends", "expects"
and similar expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks and uncertainties, which could
cause actual results to differ materially from those projected, including, but
not limited to, those set forth in "Risk Factors." readers are cautioned not to
place undue reliance on forward-looking statements, which speak only as of the
date hereof.
FUTURELINK USA
JUNE 30, 1998 VS. JUNE 30, 1997
On January 20, 1998, Core Ventures, Inc.(now known as FutureLink Distribution
Corp.) acquired a 46% interest in FutureLink Alberta.
FutureLink Alberta is the world's first computing utility and specializes in
providing IT services to mid-sized companies. FutureLink USA accounts for its
investment in FutureLink Alberta using the equity method for accounting for
investments.
In the six months ended June 30, 1998, FutureLink USA incurred $71,076 of
administration expenses in administering its 46% investment in FutureLink
Alberta. In addition, FutureLink USA recorded an increase on its share capital
of $60,200 related to the forgiveness of a loan to the company by a shareholder.
FutureLink USA's equity in FutureLink Alberta losses during this period was
$411,316.
FutureLink USA has no revenues or expenses in the similar period in 1997.
Liquidity and Capital Resources
FutureLink USA raised $1,351,602 in equity and advances from shareholders.
FutureLink USA has invested $1,680,515 in FutureLink Alberta in advances and
purchases of FutureLink Alberta shares. As at June 30, 1998, the company's
investment in FutureLink Alberta had a book value (net of its equity loss) of
$1,269,259. FutureLink USA had liabilities of $529,783 representing accounts
payable and advances from shareholders of $504,802. The $504,802 advance was
converted to equity in July 1998.
FISCAL 1997 VS. FISCAL 1996
For the year ended December 31, 1997, revenues were $0 compared to $0 in the
year ended December 31, 1996, as FutureLink USA had no active operations.
Operating expenses increased from $115,189 to $122,049 as FutureLink USA
unsuccessfully attempted to acquire the operations of Printscan Technologies
Inc.
Share capital income increased $39,494 as a result of the forgiveness of a loan
from a shareholder.
Other non-operation losses in 1997 included the write-off of mining assets
recorded on the balance sheet at a book value of $515,000 and a loss of a
non-refundable deposit of $100,000 related to the failed attempt to acquire the
assets of Printscan.
Liquidity and Capital Resources
In 1997, FutureLink USA raised $170,000 from the issuance of common shares.
These funds were used to pay operating
<PAGE> 20
administration expenses and the non-refundable deposit in the failed attempt to
acquire the assets of Printscan. At the end of 1997, FutureLink USA had no
recorded assets and current account payables were $23,932.
1996
FutureLink USA has been an inactive company for a number of years. In 1996,
FutureLink USA incurred nominal administrative expenses of $6,864 in maintaining
the FutureLink USA legal entity.
Liquidity and Capital Resources
FutureLink USA received shareholder advances of $3,602 in 1996 and ended the
year with mining assets with a book value of $515,000 and liabilities (accounts
payable and shareholder advances) of $11,377.
FUTURELINK ALBERTA
JUNE 30, 1998 VS. JUNE 30, 1997
In January 1998, FutureLink USA acquired a significant interest in FutureLink
Alberta with plans to acquire the rest of FutureLink Alberta later in 1998 via a
takeover bid to minority shareholders. During the first six months of 1998,
FutureLink Alberta launched its information technology services business focused
on distributed thin client technology.
In the six months ended June 30, 1998, FutureLink Alberta recognized revenues of
CDN$30,675 from information technology services and hardware/software sales.
Operating expenses were CDN$1,096,052 in the six months ended June 30, 1998,
versus CDN$160,775 of operating expenses in the six months ended June 30, 1997.
The tremendous increase in operating expenses in 1998 vs. 1997 can be attributed
to an increase in office premises, administration, marketing and technical
management, marketing efforts and the addition of employees in conjunction with
the launch of FutureLink Alberta's IT services business. In addition, in July
1998 FutureLink Alberta discontinued its web page development activities and
sold its interest in the business to NextClick Ltd. in exchange for equity. This
equity was recorded at CDN$1.00 in its books and records.
As at June 30, 1998, FutureLink Alberta has signed significant multi-year IT
service contracts with revenues to be recognized over the next 3-5 years.
Liquidity and Capital Resources
During the six months ended June 30, 1998, FutureLink Alberta raised
CDN$2,193,198 of financing which included CDN$333,775 of common share equity
financing and CDN$1,859,423 of shareholder advances from FutureLink USA. The
financing helped fund CDN$1,492,710 of operating activities and CDN$370,173 of
capital asset investments. As of June 30, 1998, FutureLink Alberta had
CDN$232,971 of cash, CDN$143,703 of net working capital, capital assets of
CDN$515,050 and long-term liabilities of CDN$1,891,401 (including shareholder
loans and capital leases.).
FISCAL 1997 VS. FISCAL 1996
During the fiscal 1997 year, there was a shift in FutureLink Alberta's business
as the interactive cafe initiative was discontinued in favor of distribution of
computing services to businesses via thin client networks.
In 1997, FutureLink Alberta had nominal interest income of CDN$4,820 versus
CDN$2,752 in 1996. FutureLink Alberta had operating expenses of CDN$805,568,
with consulting expenses of CDN$401,320 being the major category of expense.
Operating expenses in 1997 increase tremendously from 1996 levels of CDN$200,845
as the company increased its development expenditures with respect to the
distribution of information technology services and ceased its interactive cafe
development expenditures. FutureLink Alberta's discontinued web page development
activities had a net loss of CDN$14,179 in 1997.
<PAGE> 21
Liquidity and Capital Resources
In fiscal 1997, FutureLink Alberta raised CDN$593,454 of equity and debt
financing to help fund operating activities of CDN$392,897 (net of working
capital decrease) and capital asset purchases of CDN$279,523. At December 31,
1997, FutureLink Alberta had cash of CDN$10,886, a working capital deficit of
CDN$413,508 and capital assets of CDN$239,330. In addition, FutureLink Alberta
had long term debt obligations (including capital leases) of CDN$106,753.
FISCAL 1996
FutureLink Alberta commenced operations as 689936 Alberta Ltd. In March 1996
FutureLink Alberta was initially focused on developing a chain of internet cafes
focused on exposing and distributing new information technology to consumers.
From the date of commencement of operations to December 31, 1996, FutureLink
Alberta had nominal interest income of CDN$2,752 and incurred CDN$200,845 of
operating expenses in developing the interactive cafe business model.
CDN$109,625 of the expenses were for consultants who assisted the company in
developing its business model and planning its internet cafes.
Liquidity and Capital Resources
In 1996, FutureLink Alberta raised CDN$370,329 in equity financing. In addition
to funding CDN$269,817 of operations, the company loaned CDN$104,500 to a
company owned by a director. The loan was repaid in 1997. As of December 31,
1996, FutureLink Alberta had CDN$89,852 of cash, CDN$104,500 of notes
receivables and CDN$10,545 of other assets. The company had CDN$40,458 of trade
payables and accrued liabilities as of December 31, 1996.
FUTURELINK/SYSGOLD
8 MONTHS ENDED JUNE 30, 1998 COMPARED TO 8 MONTHS ENDED JUNE 30, 1997
For the 8 months ended June 30, 1998, revenues increased CDN$2,351,872 (43%) to
CDN$7,844,545 from CDN$5,492,673 recorded in the 8 months ended June 30, 1997.
This increase resulted from several factors. The number of major clients
increased by 13 (29%) to 58 from 45. The number of staff increased by 28 (58%)
to 76 from 48.
Hardware and software sales increased by CDN$982,497 (37%) to CDN$4,232,998 from
CDN$2,863,237 for the same period in the previous fiscal year. Cost of goods
sold rose proportionately by CDN$911,046 (38%) to CDN$3,314,946 from
CDN$2,403,900.
The major cost of system consulting revenue - system consultant salaries,
benefits, and contract costs increased by CDN$1,283,238 (58%) to CDN$3,500,311
from CDN$2,217,073. This greater than proportional increase in staffing costs
rose from competitive pressure on staff salaries.
General and administrative expenses increased by CDN$332,435 (76%) to
CDN$769,665 (9.8% of revenue) from CDN$437,230 (8.0% of revenue) in the prior
year. This increase in overhead costs occurred because we had to add
supervisory, purchasing and administrative staff to handle our larger number of
consultants. Advertising and Promotional costs went up by CDN$33,380 (64%) to
CDN$85,851 (1.1% of revenue) from CDN$52,471 (1.0% of revenue) for the same
period.
After provision for income taxes, FutureLink/SysGold recorded a decrease in
profit of CDN$33,668 to CDN$143,716 for the 8 months ended June 30, 1998,
compared to CDN$177,384 for the 8 months ended June 30, 1997.
<PAGE> 22
FISCAL YEAR 1997 AS COMPARED TO FISCAL YEAR 1996
For the year ended October 31, 1997, revenues increased CDN$4,233,532 (80%) to
CDN$9,520,789 from CDN$5,287,257 recorded in the year ended October 31, 1996.
This increase resulted from several factors. The number of major clients
increased by 9 (22%) to 49 from 40. The number of staff increased by 21 (60%) to
58 from 35. FutureLink/SysGold's client base spent more on expansion of their
management information systems in 1997 compared to 1996.
Hardware and software sales increased by CDN$1,961,878 (66%) to CDN$4,929,610
from CDN$2,967,732 the previous fiscal year. Cost of goods sold rose
proportionately by CDN$1,776,779 (65%) to CDN$4,500,816 from CDN$2,724,037.
The major cost of system consulting revenue - system consultant salaries,
benefits, and contract costs increased by CDN$1,921,208 (100%) to CDN$3,835,563
from CDN$1,914,355. This greater than proportional increase in staffing costs
arose mainly from competitive pressure on staff salaries, prior to revenue
contract renewal dates with clients.
Advertising and Promotional costs went up by CDN$55,467 (130%) to CDN$97,897
(1.0% of revenue) from CDN$42,430 (0.8% of revenue) the previous fiscal year.
This low marketing cost basically reflected FutureLink/SysGold's policy of
obtaining new customers by reference from our staff and clients.
General and administrative expenses increased by CDN$217,975 (39%) to
CDN$773,921 (8.1% of revenue) from CDN$555,946 (10.5% of revenue) in the prior
year. This increase in overhead costs occurred generally because
FutureLink/SysGold added supervisory, purchasing and administrative staff to
handle its larger number of consultants. As well, a favorable tenant sub-lease
ended and FutureLink/SysGold moved, incurring increased rent costs of
CDN$48,000, additional furniture rent and lease costs of CDN$28,000, and
telephone cost of CDN$11,000.
After provision for income taxes, the Company recorded an increase in profit of
CDN$114,635 (430%) to CDN$141,311 for the year ended October 31, 1997, compared
to CDN$26,676 for the year ended October 31, 1996.
BUSINESS
HISTORY
FutureLink USA was incorporated under the Colorado Corporation Code on April 4,
1955 under the name of Cortez Uranium and Mining Co. On February 25, 1957, the
Company changed its name to Core Oil, Inc. On June 16, 1983, it changed its name
to Core Mineral Recoveries, Inc. and on July 20, 1997, changed its name again to
Core Ventures, Inc. Finally, on February 17, 1998, the Company changed its name
to FutureLink Distribution Corp. In conjunction with these name changes, the
Company has undertaken a number of changes to its authorized capital. Upon
incorporation, the authorized capital was 10,000,000 shares with a par value of
$0.01. On June 16, 1983, the authorized capital was altered to authorize the
issuance of 15,000,000 shares with a par value of $0.01/share. On October 7,
1986, the authorized capital was altered to authorize the issuance of 30,000,000
shares with a par value of $0.01/share. On July 20, 1997, the articles were
amended to provide for a par value of $0.001 per share. On July 20, 1997,
FutureLink USA effected a 200:1 reverse split. On December 2, 1997, FutureLink
USA effected a 30:1 reverse split. On January 20, 1998, the articles were
amended to authorize the issuance of 100,000,000 common shares with a par value
of $0.0001 per share and 5,000,000 preferred shares with no par value.
<PAGE> 23
On January 19, 1998 the shareholders of FutureLink USA ratified a share purchase
agreement between FutureLink USA, FutureLink Alberta, Cameron Chell, Linda
Carling, Colleen Rudolph, Bernie March, and Gerald Albert whereby FutureLink USA
agreed to acquire 1,540,000 Class "A" Common Voting Shares of FutureLink Alberta
(48% of the outstanding shares of such Company) in consideration of the issuance
of 1,540,000 FutureLink USA Common Shares. The shares were issued subject to an
escrow agreement. The agreement provided that 3,500,000 FutureLink USA Common
Shares would be issued to various employees for the consideration of $3,500 USD.
FutureLink Alberta was added as a party for the purpose of making
representations and warranties to induce FutureLink USA to enter into the
agreement.
On September 28, 1998, FutureLink USA issued a take-over bid circular offering
to purchase the remaining 52% of FutureLink Alberta on the basis of one
FutureLink USA Common Share for each FutureLink Alberta Class "A" Common Voting
Share. Management of FutureLink Alberta is identical to that of FutureLink USA
and certain security holders of FutureLink Alberta are also security holders of
FutureLink USA.
In addition, by agreement among FutureLink Alberta, FutureLink USA, Donald A.
Bialik, Olivia B. Bialik, Bialik Family Trust, Riverview Management Corporation
(now known as FutureLink/SysGold) and SysGold Ltd. dated August 4, 1998, as
amended by agreement dated August 21, 1998, FutureLink USA has acquired all of
the issued and outstanding
<PAGE> 24
shares of FutureLink/SysGold (the "SysGold Acquisition Agreement"). The
consideration was CDN$8,685,000 paid by CDN$3,000,000 cash on closing (August
21, 1998), CDN$685,000 by a promissory note payable within 90 days of closing,
and by the issuance of 4,250,000 FutureLink/SysGold shares exchangeable into
4,250,000 FutureLink USA Common Shares (attributed value $0.85/share).
Subsequent to this transaction, SysGold Ltd. and SysGold Inc. were rolled up
into FutureLink/SysGold.
FutureLink/SysGold (formerly known as Riverview Management Corporation)
purchased a 33% minority interest in its subsidiary SysGold Ltd. from a minority
shareholder for a purchase price of CDN$315,000 on July 24, 1998. The buy out
was based on an effective evaluation dated April 30, 1996. At that date, the
valuation for 100% of SysGold Ltd. was approximately CDN$950,000. The
acquisition by FutureLink USA valued SysGold Ltd. at CDN$8,000,000 on an arms
length basis. FutureLink USA believed this to be a reasonable valuation at the
time and substantially higher than the valuation of SysGold Ltd. at April 30,
1996. The reasons for the increased valuation over the past 28 months are
primarily as follows:
a) SysGold's revenues increased from approximately CDN$3 million
for the year ended October 31, 1995 to approximately CDN$9.7
million for the year ended October 31, 1997.
b) SysGold's employee/consultant base (one of its key assets)
increased from approximately 30 at the end of fiscal 1995 to a
current of 75.
<PAGE> 25
c) SysGold had a strong management team, excellent reputation, blue
ship client base and proven technology service delivery
platform.
FutureLink USA entered into a Debenture Acquisition Agreement dated August 14,
1998, as amended by agreement dated August 21, 1998 with Thompson Kernaghan &
Co., Ltd. an Ontario corporation ("TK"). Pursuant to this agreement TK purchased
from FutureLink USA up to $5,000,000 of a 10% convertible debenture
("Debenture") and $1,000,000 in a series of warrants in FutureLink USA. (see
"Certain Relationships and Related Transactions")
GENERAL
FutureLink USA is a total solution provider that supplies integrated business
and IT solutions in the areas of management consulting, land and land systems,
accounting, software development and infrastructure management. FutureLink USA
strives to understand its clients' organizational processes and information
requirements and provides a full suite of information management services.
It is dedicated to providing small to medium sized businesses (50-1000 seats)
with the most efficient and cost effective system for the delivery of computer
hardware, software and electronic content at an attractive cost for
installation, administration and maintenance.
FutureLink USA's key technology platform to deliver its computing model is the
thin client computing. A thin client is a computer that has a central processing
unit (CPU), a keyboard, a mouse and a monitor that is connected to a network.
Thin clients have no hard drive, floppy disks or CD-ROM drives nor any moving
parts thus greatly reducing operating and maintenance costs. The thin client is
connected to a network that delivers any software application to any desktop
from a server. The thin client is designed to eliminate the need for constant
computer upgrades, reduce the initial capital investment of buying PCs and
reduce the time and money spent on computer maintenance.
Since 1995, FutureLink USA has been engaged in the development of its own thin
client service: Wide Area Thin Client Hook-up(TM) (W.A.T.C.H.(TM)). For a
monthly fee of approximately $200 per desktop (depending on the number of
desktops and applications required) FutureLink USA's customers will receive:
1. access to common business software applications including Microsoft
Office;
<PAGE> 26
2. access to a secured Internet or Intranet connection and all the necessary
software;
3. the ability to use existing proprietary applications and databases;
4. security enabled workstations for each employee including monitor, mouse,
keyboard and thin client network computer; and
5. system management and support including installation, software upgrades,
help desk and technical support.
<PAGE> 27
SERVICES
Management believes that FutureLink USA is among the first companies to take the
next step in IT delivery and services: the outsourcing of small and mid-sized
company's computer networks (those companies with between 50 and 1000 computer
users or seats) through the use of the thin client computers. FutureLink USA
will deliver this service by subscription (the customer signs a service
agreement) over highly secure, remote wide area networks (WAN) to its clients.
In addition, FutureLink USA will ally itself with value added resellers (VARs)
who will incorporate or bundle FutureLink USA's products and service into their
own, thus allowing FutureLink USA to quickly enter and capture lucrative
vertical industry markets such as oil and gas, independent insurance brokerage
companies and automobile dealerships.
Applications Software
FutureLink USA will offer its customers access to the following high-use
software programs as part of FutureLink USA's service contract price: Microsoft
Office 97 (Word, Excel and PowerPoint) and either Netscape Navigator or
Microsoft's Internet Explorer Web Browser. It should be noted that these
programs are just a sample of the available programs.
Internet Services
FutureLink USA will offer customers seamless integration and access to the
Internet, and a secured Intranet environment due to FutureLink USA's extensive
use of firewalls designed to prevent unauthorized access to the customer's
network. For additional charges, FutureLink USA will provide its customers with
a Web presence and/or the ability to conduct electronic commerce (e-commerce)
over the Internet.
Industry and Company Specific Software
In certain industries, customers use industry specific or proprietary software
programs to conduct business, as an example, in the insurance industry many
brokers use Agency Manager. FutureLink USA's W.A.T.C.H.TM service will provide
users with access to industry specific software, as well as their existing
proprietary applications and databases. However, it should be noted that these
custom or industry specific applications must first be tested to ensure proper
operation in the thin client environment.
Customer Premise Equipment and Software
FutureLink USA is using Citrix Systems Software as its' primary network
operating system, WYSE Technologies as the main thin client hardware supplier,
and Network Computing Devices Inc. (NCD) as an additional source for thin client
hardware.
<PAGE> 28
Citrix Systems, Inc. is known in the IT industry as the pace-setter and a world
leader in thin-client/Server software solutions. Their award winning WinFrame(R)
and MetaFrame(TM) software, based on the innovative ICA(R) and MultiWin(TM)
technologies, provides access to virtually any application, across any type of
network connection to any type of client.
The Wyse(R) Winterm(TM) thin client family delivers the broadest range of
innovative, cost-effective terminals for accessing 32-bit Windows(R), Java(TM),
and browser-based applications. Winterm(TM) thin clients combine the ease of
management and inherent security of a terminal environment with the application
and performance capabilities of desktop PCs. Wyse(R) was named the worldwide
leader in unit shipments for the thin client/enterprise network computer (NC)
market segments in 1997 according to a report released by industry analyst firm
International Data Corporation (IDC).
NCD was founded in 1988 and since then has shipped more than 500,000 thin
clients to various companies including Federal Express, Barclays' Bank and the
University of Washington.
FutureLink USA's Server Farm
Many of FutureLink USA's thin clients will be connected to a server facility. A
server facility consists of many servers linked together that act as the central
nervous system of the network, in that they store and receive all the programs
or data that the thin clients execute. It is through the servers that FutureLink
USA will perform all the network maintenance and hardware upgrade functions,
thus eliminating the time and cost of upgrading applications on each individual
computer. The client to server ratio is highly variable, depending on the
resource requirements of the applications, the performance requirements of the
user, and the fundamental processing power of the server itself. The use of
multiple servers permits dynamic load balancing and assures maximum performance
for all users.
FutureLink USA connects its server farm to its customers on-site thin clients
via the best available high capacity data transmission service (ie. phone line,
fiber optic network, coaxial cable network, ADSL (Asymmetric Digital Subscriber
Lines), ATM (Asynchronous Transfer Mode)) in the customer's area. ADSL and ATM
are high-speed lines that are dedicated for data transmission.
Network Maintenance and Support
FutureLink USA will initially provide its customers with technical support five
days a week (Monday to Friday) for ten hours a day, a so-called 5 X 10 system.
The support will include installation and upgrade of software, daily maintenance
and back-up of the network and the customers' files (tape, mirrored or redundant
storage) and an emergency four-hour battery power back-up system, with the goal
of providing 99.9% up-time reliability.
In addition, FutureLink USA will provide its customers the following support
services:
- - Year 2000 (Y2K) compliant general business application software. Y2K is
a serious problem for most companies that use computers, especially if
the company uses a legacy computer operating system (pre 1985 software).
When computer programmers were first designing programs, they decided
that in order to save space on the computer's memory, they only allowed
two digits to express dates. The accidental outcome of this shortcut is
that computer programs will recognize January 1, 2000 as January 1,
1900. This problem could have dramatic effects on corporate and
government payroll and accounts payable and receivable programs. It has
been estimated that the Y2K problem will cause 50% of all companies
(with more than 20 networked computer users) to reshape and/or delay
major IT deployment decisions and will consume 15% to 20% of the
company's IT budget (The Gartner Group Report: Future, September 22,
1997, page 7);
- - security enabled workstations for each employee, allowing access to only
the appropriate or approved programs.
It should be noted that:
- - the cost of the data transmission service is not included in the $200 a
month service fee. The connection is leased from the telecom, cable or
satellite provider and is managed by FutureLink USA;
<PAGE> 29
- - the customer requires a minimum of a 56 kps baud rate per station to
allow the user to receive information from FutureLink USA's remote
server. An example: a customer that has 10 thin clients would therefore
requires a 560 kps data transmission pipeline. Bandwidth costs are
highly variable, depending on local infrastructure and competition.
These costs are dropping rapidly in many jurisdictions as cable
television companies and independent providers compete with telephone
companies for this new and lucrative business; and
- - through the use of FutureLink USA's W.A.T.C.H.TM program, companies may
be able to integrate a company's multiple locations under one system.
Prior to installing any equipment for a client, FutureLink USA would first
conduct a needs analysis of the customer's computing and software requirements.
The needs analysis consists of:
- - determining what are the requirements of the customer (Y2K software
compliance, data security, reducing the cost of managing a computer
network, etc.),
- - evaluating the customer's hardware and software needs and how they are
being addressed, and
- - conducting a cost/benefit analysis to demonstrate the economic viability
of FutureLink USA's service in comparison to other options.
FutureLink USA also offers traditional IT outsourcing in that, should the client
either not be suited to a thin client environment(uses a lot of local processing
power or uses a high number of computer peripherals) or not wish a thin client
environment, FutureLink USA will provide a traditional network environment with
all the hardware, software and maintenance.
INDUSTRY SUMMARY
The outsourcing of computer service, whereby a client company obtains all or
part of its information processing requirements (including systems design,
software and hardware, communications, training, maintenance, and support) from
an information technology provider such as FutureLink USA, continues to be a
growing trend. FutureLink USA believes that it is generally significantly more
cost-effective and efficient for its clients to outsource information processing
services to FutureLink USA than it would be to provide equivalent services for
themselves by hiring or contracting for service and support personnel.
Outsourcing provides clients with the following benefits:
- - The refocus of personnel, financial and technological resources on core
business and client related activities.
- - Access to highly skilled personnel and technology resources.
- - Access to experienced resources to perform selected information
processing functions.
- - Reduction of operating costs.
The information technology ("IT") industry encompasses everything from mainframe
computers to personal computers to the Internet to computer service companies.
As such, the IT industry is in a constant state of evolution. At present, the
industry is undergoing three main revolutions:
1. the shift to a networked computer environment,
2. the desire of organizations to reduce their cost of operating and
maintaining their IT departments thereby increasing their operating
efficiencies, and
3. the ability to conduct business electronically without regard to
distance via the Internet or an Intranet (an internal or corporate
Internet).
The Networked Computer
Companies have shifted their computational resources away from mainframes,
developed in the 1960s, which required a legion of programmers and technicians
to manage the system. The problem with the mainframes of the 1960s was that they
used proprietary software and were difficult to manage, maintain and customize.
The advent of the desktop personal computers (PCs) in the 1980s changed the
dynamics of the computer industry, for it allowed individual users to create,
manage and distribute information throughout an organization. In the 1990s,
companies realized that by harnessing the
<PAGE> 30
power of individual PCs together to form a network computing environment they
could further streamline operations while at the same time increase the
communication capabilities of the users. The networked computer or PC
environment refers to having PCs connected to servers (high-powered PCs,
workstations or mainframe computers), which act as information gatekeepers and
route data over a local or wide area network (LAN or WAN). The servers also
maintain the databases that provide information to the PCs.
IT Outsourcing
In the 1980s, organizations, as part of their drive to cut costs to become more
competitive, started to view their IT department as a cost center that should be
managed for cost efficiency and effectiveness. One of the ways that companies
optimized this cost was by outsourcing all or part of their IT functions to a
third party. As part of the outsourcing process, the third party may buy the
company's hardware and software and then supply it back to the company via a
services agreement. According to International Data Corp, (IDC) of Framingham,
Mass., outsourcing is a $84 billion world-wide industry and this market is
projected to grow to over $120 billion by 2001. Part of the reason for the
explosive growth in IT outsourcing is that companies are realizing that they
can:
- - receive better IT products or service than the company could normally
afford,
- - receive a cash infusion. Normally when a company outsources its IT
department, there is a sale of assets (computer hardware and software
and the customers IT personnel) from the customer to the service
provider, - concentrate their resources on their core products and
services, and
- - increase return on their assets -- by outsourcing they can take their IT
assets off the balance sheet.
The Internet
The Internet is changing the dynamics of how business is conducted. Through the
use of electronic or Internet commerce (e-commerce) businesses can increase
their purchasing options, expand their geographic territory, and reduce their
delivery time while decreasing their costs. A case in point, Dell Computers of
Austin, TX, is selling over $4 million a day of computers over the Internet, up
from $750,000 a day just a year ago. According to market research firm Jupiter
Communications Co., e-commerce could balloon to $37.5 billion by 2002, up from
$2.6 billion in 1997. However, most of these benefits (network PCs, IT
outsourcing and the Internet) are generally unavailable to small companies
(those with between 50 to 1000 computer users) for they may not have:
- - the financial resources to keep upgrading their computer's processing
and storage capacity to accommodate the larger and slower application
software,
- - the corporate data security knowledge or backup storage technology that
is necessary in a networked PC environment,
- - calculated the true cost and time required to maintain their network. It
has been estimated that the yearly cost of maintaining and upgrading a
networked PC environment ranges from $7,000 to $12,000 per unit,
- - the opportunity to outsource their IT department to traditional
outsourcers, as most outsourcing companies cater to larger corporations
(those with 1,000 plus seats), and
- - the ability or resources to purchase and install the latest Internet
software & hardware technology.
COMPETITION AND COMPETITIVE ANALYSIS
Status Quo (the networked PC)
A market researcher, Computer Intelligence, recently conducted a survey of 319
technology decision-makers at large U.S. companies and found that 42% of them
had no plans to evaluate or adopt thin clients in the next year. However, 51% of
those same respondents were not familiar with thin clients. Management believes
that the status quo is FutureLink USA's biggest roadblock to success, in that:
- - companies may be reluctant to try new technology;
<PAGE> 31
- - it will upset Chief Information Officers (CIOs) at some companies, who
will view FutureLink USA's product and service as a threat to their
department;
- - employees may resist the fact that FutureLink USA's products have no
storage devices or CD-ROMs; and
- - businesses have started to cut the costs of managing a PC network by
tightening up their computer management, maintenance and administration
practices (for example, by restricting users access to floppy disks),
using automated management tools and the standardization among PC
platforms and end-user configurations. These businesses may feel that
they can better manage their IT costs than an IT outsourcing company.
Computer Outsourcing Companies
According to EDS, the market for managed network services or IT outsourcing in
the United States is expected to generate $36 billion in revenue in 1998 and $70
billion by the year 2000.
IDC estimates that there are 22 million desktops in the USA in the small to
mid-market range. FutureLink USA has conservatively added 10 percent to this
number to come up with an estimated 25 million desktops in Canada and the United
States in companies that have 50-1000 employees. The IT outsourced service
market opportunity for small to mid sized businesses in North America is $60
billion a year (assuming each seat was outsourced at $200 per seat per month).
FutureLink USA believes this market has great potential for conversion to its
W.A.T.C.H.(TM) environment over the next 3 to 5 years as these companies move to
upgrade their current computer networks.
The computer outsourcing market in the United States alone is estimated to have
generated over $30 billion in revenue in 1997. The four largest firms are IBM,
EDS, GE Capital Services and Computer Sciences Corp. These companies take over
the complete management and administration of large corporate IT networks
(1,000+ computer users) or government agency computer needs.
IBM Global Service is the world's largest information technology service company
with 1997 revenue of approximately $26 billion. IBM's 110,000 service employees
serve customers in 164 countries providing business and information technology
consulting, systems integration, application development, product-specific
support and managed network services to Fortune 500 companies.
EDS is the world's second largest global information service provider with 1997
revenue of $15.2 billion. EDS' 110,000 employees serve 9,000 customers in 44
countries, providing business and information technology consulting, systems
integration, application development, product-specific support and managed
network services to Fortune 500 companies and governments. It should be noted
that EDS and Bell South have recently formed a new alliance to develop and
market network solutions to mid-size companies. The new company is to be called
MNS Alliance and will target companies with 500 to 10,000 employees. MNS will
provide companies with an integrated telecommunication and IT (software and
hardware) management solution.
GE's IT Solutions is one of the leading global desktop service providers with
1997 revenue of $10 billion. IT Solutions provides desktop and client server
products, operating and application software, local and wide area network
design, and IT consulting service to government and commercial customers in over
20 countries.
Computer Sciences Corporation (CSC) is a world leader in IT management with 1997
revenues of $6.3 billion of which $1.2 billion is derived from outsourcing
contracts. CSC's 44,000 employees serve clients from 600 offices world-wide
providing customers with management consulting, information systems consulting
and integration and operation support.
The Company does not view mainstream outsourcers as direct competition for
FutureLink USA as FutureLink USA is addressing a mid-market niche that the
management believes other IT outsourcers are not focusing on.
<PAGE> 32
FutureLink USA's Competitive Advantages
- - Less expensive to operate than a networked PC. A W.A.T.C.H.(TM) station
can offer all the convenience of a networked PC(unless it uses a lot of
local processing power(eg: graphic designers) or uses a high number of
computer peripherals) without the problems associated with networked PCs
such as having to upgrade programs, replace parts or manage the network.
According to the Gartner Group of Stamford, CT, the five-year cost of
owning a PC with Windows 3.1 is $44,250. The cost would be $38,900 for
Windows 95 and $38,400 for Windows NT (Byte Magazine, April 1997 issue).
This is compared with FutureLink USA's cost of $200 per W.A.T.C.H.TM
station per month over a five-year period or $12,000 in total.
- - PC users often try to solve technical problems themselves -- which
sometimes makes the problems worse, interferes with their real jobs, and
lowers their productivity. With FutureLink USA's off-site
troubleshooting, the customer is ensured that a professional corrects
the problem.
- - Its products and services provide intruder security through
state-of-the-art firewalls, mirrored (duplicated) servers and databases,
and sophisticated data access permissions. This level of protection is
usually only available in Fortune 500 companies and government agencies
- - It removes management's requirement to continually upgrade their PCs to
handle the latest software programs as most hardware upgrades occur on
FutureLink's server.
- - FutureLink USA's target market is companies with 50-1000 users, where
there is little competition from other IT service companies.
- - FutureLink USA is vendor-neutral. FutureLink USA has no vested interest
in pushing particular products and is free to help clients choose
products best suited to their needs.
FutureLink USA's Challenges
- - FutureLink USA is a new company with a new method of distributing
computer services and applications. FutureLink must develop a brand name
and reference customer base to increase its market penetration.
- - W.A.T.C.H.TM may not be appropriate for people who require extensive
amount of local processing power or those users who use many different
computer peripherals.
- - W.A.T.C.H.TM works most effectively with software programs that are
Windows NT compliant.
<PAGE> 33
INDUSTRY ANALYSIS
Thin Client Computer Environment
The thin client computing model is just in its infancy. Even though the products
have been available for nearly ten years, they have been directed at very narrow
market segments. Their broader application potential is just now coming to
light. Leading computer market research firms have come up with a wide variety
of estimates regarding thin client penetration and adoption.
- - International Data Corp, (IDC) estimates that about 300,000 thin clients
will be shipped in 1998 and 7 million units by the year 2000.
- - Dataquest (San Jose, CA) estimates that 2.5 million thin client
computers will be shipped by the year 2000.
- - The Gartner Group predicts that by the year 2000, 20 -- 30% of all
computers, or 18 million units, will be thin clients.
- - Zona Research Inc. predicts that the thin client market will grow from
approximately 1.7 million in 1997 to over 6.7 million in 2000 for the
commercial market and up to 70 million units for the consumer
marketplace.
BUSINESS STRATEGY
FutureLink USA's objective is to provide a comprehensive computer outsourcing
alternative to meet all or part of its clients' information technology
requirements. FutureLink USA's strategy includes the following key elements:
Industry Specific Outsourcing Services FutureLink USA develops and acquires
industry-specific outsourcing applications and services, so that FutureLink
USA's in-depth knowledge of a particular industry can then be applied to
servicing multiple clients in that field. FutureLink USA currently provides
outsourcing services to approximately 4000 seats, many of which are in the oil
and gas sector.
Customer Service and Support FutureLink USA believes that close attention to
customer service and support has been, and will continue to be, crucial to its
success. FutureLink USA provides a high degree of customer service and support,
including customized training and rapid response to customer needs.
Service Flexibility FutureLink USA attempts to maximize utilization of its
services by offering a wide range of services to each client.
<PAGE> 34
System Optimization FutureLink USA's technical expertise is in networks, PC's,
AS/400s, NetWare, Windows, Windows 95 and NT. Their strength lies in their Total
Quality Management approach to system improvement. While many people can
"optimize" a single PC, FutureLink USA is strongest at assessing the needs of
the client and meeting those needs whether it be setting up a traditional
networked PC environment, implementing a W.A.T.C.H(TM) environment or
combination of both. The process of optimization includes work and data flow
analysis, user training and support, and strong implementation of standards.
Facilities Management (Outsourcing) In most sites, FutureLink USA can save money
and improve the service to users. They have the technical and management
experience to "outsource" the entire IT function, or any part of it. They can
supply full-time, part-time, or variable staffing as an organization's needs
change. The most significant economy from outsourcing is reducing duplicated
effort. For example, they will convert many sites to Windows NT in the coming
year, but only do the research once.
Network Design and Installation FutureLink USA designs simple, effective
networks. They get installed on time, within budget, and with a minimum of
disruption to existing systems. Installation is followed by training and support
to help users quickly become efficient.
Application Design, Development and Implementation FutureLink USA's technical
expertise is in software development, including the latest Internet / Intranet /
Extranet tools. Their strength is in the Total Quality Management approach to
software development. They design simple, effective applications that meet
client expectations.
Training FutureLink USA provides in-house, hands-on training for groups of up to
8 people at a time. They cover the most popular user software such as the
individual products in Microsoft Office and Lotus Smartsuite, as well as
specialized training on specific other packages. This type of training is
cheaper and more effective than sending your staff out to a training service.
Users learn on their own computer, on their own network, and print to the exact
network printer they use everyday.
Hardware and Software Procurement Services Most of FutureLink USA's clients ask
the Company to procure their hardware and software for them. As a service to
their clients, they have set themselves up as a re-seller, enabling them to
purchase at wholesale prices.
Information Technology Planning FutureLink USA provides technology planning
services to a range of clients. The objective is to help clients determine their
technology needs, select the appropriate technologies, and implement and use
these technologies in ways that add value to their business operations.
Customer and Billing Arrangements The needs of the Company's clients are
diverse. Some large clients contract to have several FutureLink USA employees
on-site all of the time. Other smaller clients utilize FutureLink USA resources
on a "on call" hourly basis. The service commitments FutureLink USA makes vary
from client to client, depending on client needs and their ability to meet them.
Flexibility FutureLink USA's responsibility can be for total systems management,
or limited to a specific system. Contracts are tailored to suit the needs of a
particular client. Billing is done on a cost plus model based on a per hour
rate, based on a flat monthly fee, or per-user-per-month. Contracts can be
multi-year, or month to month.
MARKETING STRATEGY
Management believes FutureLink USA is among the first companies to take the next
step in information technology delivery and services -- the outsourcing of a
company's computer network and delivering the software applications by
subscription over a highly-secure, remote wide area networks (WAN) to a
mainstream corporate client base via thin client desktop computers. It is the
objective of FutureLink USA to create a new model of network computing services
that has the cost and convenience of a telephone and will be the dominant player
in this market.
<PAGE> 35
FutureLink USA has chosen Calgary as its first market due to its proximity to
the advanced telecommunication infrastructure that Telus, Shaw Cable and
MetroNet have installed in the downtown core. Over the next 18 months,
FutureLink USA will expand its service offering to other cities in Western
Canada and the United States.
FutureLink USA will initially target:
1. companies with between 50 and 1000 users,
2. industries where the giants have chosen to outsource their IT
departments (ie: the oil and gas sector), thus giving a frame of
reference for mid-sized industry players,
3. marketing alliances with niche telecom service providers targeting the
business market, and
4. strategic alliances with value added resellers (VARs) of applications
and services.
FutureLink USA will initially target these market segments because of the
following:
These industries use a few standard software programs. The key factor is that
these users rarely need new applications. Most industry segments will need some
standard word processor and spreadsheet package. Then there are typically a few
industry specific software packages that dominate each market segment. There is
seldom a need for a broad range of software offerings.
Users share desktops. The old business model of full-time employees and one
person per office is giving way to a workplace with part-time employees,
independent contractors, temporary workers, and telecommuters. It makes little
sense to reserve a PC for everyone who might need occasional use of a computer
at the office. Because thin clients are stateless, employees can share them and
enjoy their own personalized working environment while sharing desktops.
Services remote users who are difficult to support. If a PC breaks down at a
remote location (ie. an oil field), MIS must either send someone to fix the
problem or talk the user through the repairs. Because thin clients lack extras
such as persistent storage, there are lower failure risks. With a true hardware
failure, MIS can easily replace a stateless client with a new machine because
there's no local software or data files to restore.
Jobs revolve around remote data instead of local data. An order-entry person who
spends the day checking data in a centralized database and filling in electronic
forms is well served by a simple, foolproof machine. So is a factory foreman who
needs to view the latest engineering drawings in a database. These jobs are
highly specific and network-centric, so the workers aren't sacrificing
flexibility by switching to a network-centric device.
Security is paramount. Conventional desktop and laptop PCs can be security
nightmares because they store everything locally and users have virtually
unrestricted access to local storage. Every loss, theft, virus attack,
breakdown, or break-in is potentially catastrophic if it endangers strategic
data. Thin clients that store everything on a server are generally safer because
server closets are more physically secure and professionals regularly back up
the servers.
Companies need replacements for older, text-based terminals. Analysts estimate
that there are 30 million to 50 million dumb terminals (refers to terminals that
allowed only text-based information processing with all information being
processed by the company's mainframe). The insurance and the health care
industry continue to use dumb terminals for most of their data entry staff.
Today's thin clients can use the same legacy programs and data that these dumb
terminals use, yet they provide a graphic user interface (GUI), as well as,
access to the Internet and corporate Intranets.
In addition, FutureLink USA will target companies that do not have a Chief
Information or Technology Officer. FutureLink USA plans to target the
Owner/Chief Executive Officer or the Chief Financial or Operating Officers of
these small to mid-size companies because they can understand the cost benefit
of outsourcing of their MIS department, and the MIS department may not be
powerful enough to resist the change.
The key to the sales of services is an impressive client reference list.
FutureLink USA is starting to generate a reference base through its initial
clients and also plans to build its client base and reputation via strategic
acquisitions
<PAGE> 36
of IT outsourcing and other information technology firms with solid
client bases, product and service offerings, and outstanding reputations.
It should be noted that FutureLink USA will not initially target companies whose
users need a lot of local processing power, frequently need to install new
software, or use a variety of peripherals.
SALES STRATEGY
FutureLink USA's sales strategy is to educate the customer on the benefits of
outsourcing their IT department by using the W.A.T.C.H.(TM) service. As part of
the sales process, FutureLink USA will emphasize to its customers:
- - Total Cost of Ownership (TCO). FutureLink USA's W.A.T.C.H.(TM) program
is less expensive than even a well managed networked PC environment,
- - the relief in not having their hardware become obsolete, as all hardware
upgrades are done on FutureLink USA's server,
- - state-of-the-art data security, back-up and encryption technology that
FutureLink USA provides which ensures that the customer's data is secure
against unwanted internal or external threats,
- - the removal of all the problems associated with the computer
administration and support functions, and
- - the customer receives extensive customer service and support, including
5 days a week, 10 hours a day on-line support.
FutureLink USA plans to sell its services through two sources:
- - FutureLink USA will hire sales representatives experienced in selling
information technology services or computeroutsourcing services.
- - FutureLink USA will form strategic alliance partnerships (SAPs) within
specific sectors. SAPs will be companies that offer a product or service
that can be easily integrated into the W.A.T.C.H.(TM) program. The SAPs
must create a win-win situation for FutureLink USA, the partner and
their customers.
ADVERTISING AND PROMOTION STRATEGY
FutureLink USA's advertising strategy is to place ads in vertical and business
publications that are read by its targeted industries (oil and gas, insurance,
hotels, etc). In addition, it plans to run direct marketing campaigns and
advertise extensively over the Internet.
STRATEGIC GROWTH OPPORTUNITIES
The plans and projections of the Company are based on internal growth via sales
of computer utility services to small to medium sized businesses and growth
through strategic acquisitions.
FutureLink USA is in discussions with several large customers concerning
outsourced IT services agreements using thin client technology and other
technology platforms. The opportunities are in such sectors as hospitality and
e-commerce in the office stationery sector.
In particular, FutureLink USA has been awarded the Information Technology
Services contract for Willson Stationers Ltd., a major Western Canadian retail
chain. Under the terms of the agreement, FutureLink USA will be
<PAGE> 37
responsible for the design, implementation and management of Willson's complete
network systems and functions at all stores and the head office. The
installation will involve more than 175 computing stations and will provide
FutureLink USA with contracted revenues of approximately CND$4,000,000 over the
term of the contract.
Willson Stationers Ltd., founded in 1890, is one of the most widely recognized
and respected business names in Western Canada. Today, Willson's operates 25
retail outlets and four telemarketing/commercial sales offices in six cities, as
well as, a distribution centre and custom products division.
Each of the other large strategic initiatives involves potential multi-million
dollar IT services contracts, and the closing of even one of these deals
significantly enhances FutureLink USA's reputation, revenue base, revenue
backlog and income.
FutureLink USA's management believes that strategic acquisitions could
tremendously enhance FutureLink USA's growth and profitability over the next
several years. FutureLink USA plans to aggressively search out strategic
acquisitions in the short term in the USA and Canada. These purchases would
provide FutureLink USA with the following:
- - a blue chip client base which gives FutureLink USA customer references
for sales proposals,
- - quality management and client service delivery personnel critical to
success in the IT services sector,
- - bases for entry into new geographic and industry markets,
- - additional sources of potential revenues from customer sales of
additional IT.
FutureLink USA's general acquisition criteria are:
1. IT service companies in the outsourcing, network management, application
development and maintenance and Y2K consulting fields;
2. target is located in Canada or the United States;
3. target has strong customer base and valuable existing service contracts;
and
4. target has talented management and client service delivery teams that
can integrate into FutureLink USA's service organization.
As of the date of this Registration Statement, the Company has not entered into
discussions with any potential acquisition targets.
The principal executive office of FutureLink USA is located at Suite 550 -- 603
- -- 7th Avenue S.W. Calgary, Alberta, T2P 2T5. The contact telephone number is
(403) 543 - 5511. The registered and records office of the Company is located at
5025 South Federal Boulevard, Englewood, Colorado, 80110.
PATENTS AND TRADEMARKS
Although FutureLink USA's business has not depended on trademark or patent
protection, it recognizes the increasing value of its various trade names,
trademarks, and technical innovations. FutureLink USA has applied for federal
trademark registration of the names "FutureLink", "Flink", "FutureServe", "Wide
Area Thin Client Hook-up", "W.A.T.C.H.", "Your Way Ahead", "The world's first
computer utility company" and "Computer Utility" and of our two logos in both
Canada and the United States. In addition, FutureLink USA may seek patents on
its inventions in the future. FutureLink USA's ability to compete may be
enhanced by its ability to protect its proprietary information, including the
issuance of patents and trademarks. The process of seeking patent protection can
be expensive and can consume significant management resources. FutureLink USA
believes that patents may strengthen its negotiating position with respect to
future disputes that may arise regarding its technology and processes. However,
it believes that its continued success depends primarily on such factors as the
technological skills and innovative abilities of its personnel rather than on
any patents that it may obtain. In addition, there can be no assurance that
patents will issue from pending or future applications or that any patents that
are issued will provide meaningful protection or other
<PAGE> 38
commercial advantage to FutureLink USA.
ENVIRONMENTAL MATTERS
FutureLink USA believes it is in material compliance with all relevant federal,
state, and local environmental regulations and does not expect to incur any
significant costs to maintain compliance with such regulations in the
foreseeable future.
RESEARCH AND DEVELOPMENT
During each of the last two fiscal years FutureLink USA did not expend in excess
of Ten Thousand Dollars ($10,000) on research and development of products.
During fiscal year 1997, FutureLink USA did not capitalize research, development
or engineering costs, and such costs were expensed during the period of their
occurrence.
GOVERNMENTAL MATTERS
Except for usual and customary business and tax licenses and permits, and the
licenses and permits described elsewhere herein, no governmental approval is
required for the principal products/services of FutureLink USA, nor does
FutureLink USA know of any existing or probable governmental regulations
affecting FutureLink USA's activities.
INSURANCE
FutureLink USA maintains a $2,000,000 directors and officers liability insurance
policy. The Company also maintains a $2,000,000 commercial liability insurance
policy, an employee health insurance policy, business interruption insurance to
fund its operation in the event of catastrophic damage to any of its operation
centres and insurance for the loss and reconstruction of its computer systems.
FutureLink USA also maintains extensive data backup procedures to protect both
client and company data. It currently does not, however, maintain a product
liability insurance policy or an errors and omissions policy to cover the sale
of its services. There can be no assurance that its insurance will be adequate
to cover future claims or that FutureLink USA will be able to maintain adequate
liability insurance at commercially reasonable rates.
EMPLOYEES
As of October 15, 1998, FutureLink USA employed a total of 97 persons.
FutureLink USA has experienced no work stoppages and is not a party to a
collective bargaining agreement. It believes that it maintains good relations
with its employees.
<PAGE> 39
DESCRIPTION OF PROPERTY
FutureLink USA currently maintains offices and a computer center at two
locations. The first facility is of approximately 6,970 square feet in Calgary,
Alberta under a lease that expires April 30, 2002. This lease has an aggregate
minimum annual rental payments of approximately CDN$61,440 plus operating
expenses and is subject to escalation.
The second facility is of approximately 5,888 square feet in Calgary, Alberta
under a lease that expires January 31, 2002. This lease has an aggregate minimum
annual rental payments of approximately CDN$43,831 plus operating expenses and
is subject to escalation.
FutureLink USA recently leased additional space at the second facility location
and has plans to consolidate the two facilities prior to the end of 1998.
FutureLink USA generally leases its equipment under standard commercial leases,
in some cases with purchase options which the Company exercises from time to
time. FutureLink USA's equipment is generally covered by standard commercial
maintenance agreements.
LEGAL PROCEEDINGS
The Company and its subsidiaries are aware of the following lawsuits:
1. Midland Walwyn Capital Inc. has commenced an action in the Supreme Court
of Ontario against Core Ventures, Inc. (now known as FutureLink USA),
Abecorn Enterprises Limited, Alixe Cormick, Venture Law Corporation, and
Raymond Kompani. At the time of the alleged transactions, John Xinos of
Abecorn Enterprises Limited was a director of Core Ventures Inc. Alixe
Cormick of Venture Law Corporation acted as corporate legal counsel for
both Abecorn and Core Ventures. Ray Kompani was a third party with no
relation to Core Ventures. Midland Walwyn Capital Inc. is seeking
judgement in the amount of CDN$500,000 against all defendants. The
action against Core Ventures, Inc. alleges fraudulent misrepresentation,
negligent misrepresentation, intentional or negligent interference with
contractual relations. The action was commenced in October 1997. Core
Ventures, Inc. has filed a defense. The action relates to a share sale
transaction between Abecorn Enterprises Limited and Raymond Kompani.
Raymond Kompani apparently failed to pay Abecorn Enterprises Limited for
50,000 FutureLink USA Common Shares. Alixe Cormick acted as solicitor
for Abecorn Enterprises Limited and Core Ventures, Inc. Alixe Cormick
requested the General Securities Transfer Agency, Inc. to stop transfer
share certificate #3190 in the amount of 50,000 FutureLink USA Common
Shares standing in the name of Abecorn Enterprises Limited. The General
Securities Transfer Agency, Inc. stop transferred share certificate
#3190. Raymond Kompani deposited share certificate #3190 with Midland
Walwyn Capital Inc. Midland Walwyn Capital Inc. proceeded to sell 50,000
FutureLink Common Shares on behalf of Raymond Kompani. When Midland
Walwyn Capital Inc. sent share certificate #3190 to the Depository Trust
Company (clearing house), the clearing house advised Midland Walwyn
Capital Inc. that the shares had been stop transferred by the transfer
agent for Core Ventures, Inc. Midland Walwyn Capital Inc. had paid the
net sale proceeds to Raymond Kompani before they were advised by
Depository Trust Company of the problem. Midland Walwyn Capital Inc. was
required to repurchase 50,000 FutureLink USA Common Shares on the
market. The cost was $325,000. Midland Walwyn Capital Inc. demanded the
repayment of the funds from Raymond Kompani. Raymond Kompani has not
repaid the monies to Midland Walwyn Capital Inc. Midland Walwyn Capital
Inc. is suing to recover its losses. John Anastasios Xinos and Core
Ventures, Inc. entered into an indemnity agreement dated January 19,
1998 whereby John Anastasios Xinos agreed to indemnify Core Ventures,
Inc. for any losses suffered by Core Ventures, Inc. arising from the
Midland Walwyn Capital Inc.
<PAGE> 40
lawsuit.
2. US Bankruptcy Proceedings. FutureLink USA is aware that on April 4,
1995, Core Mineral Recoveries, Inc. voluntarily filed a petition under
Chapter 11 of the US Bankruptcy Code (95-70091) seeking protection from
its creditors. FutureLink USA was not bankrupt. The petition was
dismissed thereby not compromising any of the creditors. It was a term
of the January 20, 1998 share acquisition agreement that there were no
debts in FutureLink USA.
3. 554495 Alberta Ltd. commenced an action against Coffee.com Interactive
Cafe Corp. (now known as FutureLink Alberta) in October 1997 in the
Court of Queen's Bench of Alberta, Judicial District of Calgary, Action
# 9701-15514. The action relates to a purported lease agreement with
respect to space in Calgary. The Plaintiff seeks judgement in an amount
in excess of CDN$285,000. FutureLink Alberta has defended and
counterclaimed. The parties are proceeding to discovery of corporate
officers.
PalmerJarvis Inc. commenced an action against FutureLink Alberta in June 1998 in
the Court of Queen's Bench of Alberta, Judicial District of Calgary, Action #
9801-07637. The action relates to a claim for unpaid public relations and
marketing services of approx. CDN$34,000. FutureLink Alberta disputes the claim.
As of the date of filing of this
<PAGE> 41
Registration Statement, the parties have agreed to settle out of court.
4. A Statement of Claim was issued by TAP Consulting Ltd. on August 19, 1998
in the Court of Queen's Bench of Alberta, Judicial District of Calgary
naming SysGold Ltd. as a defendant. The suit alleges that SysGold Ltd.
wrongfully terminated a management services contract dated January 19,
1991 between SysGold Ltd. and TAP Consulting Ltd. without cause or
reasonable notice. The Plaintiff seeks CDN$150,000 plus court costs.
SysGold Ltd. believes it has a sustainable defence to the action and
intends to vigorously defend it and to file a counterclaim. FutureLink USA
and Don Bialik entered into an indemnity agreement dated August 21, 1998
whereby Don Bialik agreed to indemnify FutureLink USA for any losses
suffered by FutureLink USA arising from the TAP Consulting Ltd. lawsuit.
<PAGE> 42
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of October 15, 1998 for (i) each of
the Company's directors; (ii) each of the Company's executive officers; (iii)
all executive officers and directors as a group; and (iv) each person who
beneficially owns 5% or more of the outstanding shares of Common Stock. The
Company believes that the persons named in the table below have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to community property law, where applicable.
<PAGE> 43
<TABLE>
<CAPTION>
Shares Beneficially Owned
Name and Address(1) Number of Shares Percent Owned Prior to Percent Owned Following
Owned Registration(2) Registration(3)
Cameron Chell 1,067,750(4) 6.9% 3.5%
<S> <C> <C> <C>
</TABLE>
<TABLE>
<S> <C> <C> <C>
Don Bialik 4,375,000(5) 0.8% 14.4%
Raghunath Kilambi 550,000(4) 3.5% 1.8%
Linda M. Murray 61,000(6) 0.4% 0.2%
F. Bryson Farrill 350,000(7) 2.6% 1.2%
Philip Ladouceur 500,000(8) 3.2% 1.6%
Robert Kubbernus 350,000(7) 2.6% 1.2%
Robert Kohn 475,000(9) 3.0% 1.6%
Thomson Kernaghan 9,615,385(10) 0.0% 31.6%
All directors and executive
officers a group(8 persons) 3,478,750 22.4% 25.4%
</TABLE>
Notes:
1) Unless otherwise stated, the business address of each of the
stockholders named in the table is c/o the Company at 603-7 Avenue S.W.,
Suite 550, Calgary, Alberta T2P 2T5 Canada.
2) Based upon 15,499,303 Common Stock outstanding as of October 15, 1998.
3) Based upon 30,364,688 Common Stock outstanding as of the effective date
of this Registration Statement. This number includes (i) 4,250,000
Common Stock underlying Bialik Exchangeable Shares; (ii) 9,615,385
shares underlying 10% Convertible Debenture to Thomson Kernaghan; and
(iii) 1,000,000 shares of Common Stock underlying Thomson Kernaghan
Warrants.
4) Includes options for the purchase of 250,000 shares of Common Stock
exercisable at $0.76 per share which vested on June 29, 1998. Does not
include options to purchase 250,000 shares of Common Stock exercisable
upon the same terms subject to vesting on June 29, 1999.
5) Donald A. Bialik and Olivia B. Bialik do not own any shares of
FutureLink USA. However, Donald A. Bialik owns 1,418,084
FutureLink/SysGold Ltd. Exchangeable Shares and Olivia B. Bialik owns
2,831,916 FutureLink/SysGold Ltd. Exchangeable Shares. Because the
FutureLink/SysGold Ltd. Exchangeable Shares may be converted into
FutureLink USA Common Shares by Donald A. Bialik and Olivia B. Bialik
without the payment of any further consideration, FutureLink USA has
deemed these shares to be issued for the purpose of this calculation.
Includes options for the purchase of 125,000 shares of Common Stock
exercisable at $1.17 per share which vested on August 5, 1998. Does not
include options to purchase 125,000 share of Common Stock exercisable
at $1.17 per share which vest on August 5, 1999.
6) Includes options for the purchase of 25,000 shares of Common Stock
exercisable at $0.76 per share which vested on June 29, 1998 and options
future purchase of 25,000 shares of Common Stock exercisable at $0.76
per share which vest on December 29, 1998. Does not include options to
purchase 25,000 shares of Common Stock exercisable upon the same terms
subject to vesting on June 29, 1999. Ms. Murray also currently owns
25,000 shares of FutureLink Alberta and plans to participate in the
share for share exchange with FutureLink USA.
7) Includes options for the purchase of 150,000 shares of Common Stock
exercisable at $0.76 per share which vested on June 29, 1998. Does not
include options to purchase 150,000 share of Common Stock exercisable
upon the same terms subject to vesting on June 29, 1999.
8) Options for the purchase of 250,000 shares of Common Stock exercisable
at $0.76 per share which vested on July 16, 1998. Does not include
options for the purchase of 250,000 shares of Common Stock under the
same conditions which vest July 16, 1999.
9) Includes Options for the purchase of 100,000 shares of Common Stock
exercisable at $0.76 per share which vested on June 29, 1998. Does not
include options to purchase 100,000 shares of Common Stock exercisable
upon the same terms subject to vesting on June 29, 1999.
10) Share certificates totalling 11,000,000 FutureLink USA Common Shares
have been issued in the name of Thomson Kernaghan pursuant to the
Thomson Kernaghan Debenture Agreement (see "Certain Relationships and
Related Transactions"). As of August 20, 1998, the agreements
contemplated: (a) $5.0 million being advanced over time; (b) a share
price of $0.93 per share; and (c) a conversion rate of the lesser of
$.75 or 78% of the 3 day average trading price prior to the date of
conversion. As of September 28, 1998, only $2,250,000 had been advanced.
Of the $2,250,000 advanced only $200,000 has been converted. On
September 21, 1998, Thomson Kernaghan converted $200,000 of debt into
700,000 share at $0.3016 per share (78% of 3 previous days trading
average) resulting in 700,000 of the 11,000,000
<PAGE> 44
FutureLink USA Common Shares held in escrow becoming fully paid and
non-assessable. Management takes the position that because 10,300,000 of
the 11,000,000 shares issued to Thomson Kernaghan are not fully paid and
are assessable that Thomson Kernaghan will not be considered beneficial
owner of the 10,300,000 shares for the purposes of this calculation. If
Thomson Kernaghan converted all remaining debt, based on a current stock
price of $0.40 per share, and a conversion price of $0.312 per share,
FutureLink USA would be obliged to confirm that an additional 6,490,000
FutureLink USA Common Shares would be fully paid and non assessable
resulting in 2,810,000 shares being returned to treasury. The sum of
1,000,00 would remain in escrow pursuant to the Thomson Kernaghan #1
Warrant Agreement and Thomson Kernaghan #2 Warrant Agreement.
MANAGEMENT
<TABLE>
<CAPTION>
% of Time Devoted to
Name Age Position Held FutureLink
<S> <C> <C> <C>
Cameron B. Chell 29 Chairman of the Board and
Chief Executive Officer 75
Don Bialik 42 Director, President 100
Raghunath Kilambi 32 Director, V.P.-Corporate Finance and
Chief Financial Officer, 90
Corporate Secretary
Linda M. Murray 32 Assistant Corporate Secretary 100
Philip Ladouceur 57 Director 10
Robert Kubbernus 39 Director 20
F. Bryson Farrill 71 Director 10
Robert H. Kohn 41 Director 10
</TABLE>
The following is a brief description of the background of the key management and
directors of FutureLink USA:
CAMERON CHELL - CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER, PRESIDENT --Mr.
Chell's primary responsibility has been to assemble a leading edge professional
technology and business team to implement the FutureLink Alberta and FutureLink
USA business plans. His secondary responsibility is to seek financing for
FutureLink Alberta and FutureLink USA. Mr. Chell has helped build several
technology companies over the past 10 years. He is a Vice President of JAWS
Technologies Inc., an internet based encryption technology company (OTC -- BB
symbol JAWZ), C.E. O. of Willson Stationers and a director of NextClick Ltd.. He
is also a principal of the investment banking firm of Chell McNeill Inc. From
1994 to May 1997 Mr. Chell was employed as a registered representative of a
brokerage firm in Calgary, Alberta. Prior to 1994, Mr. Chell was self employed
in computer sales and other non related positions.
DON BIALIK -- PRESIDENT -- Mr. Don Bialik received his Bachelor of Applied
Science (B. A. Sc.) in Civil Engineering from University of Toronto in 1980 and
an MBA from the University of Calgary in 1988. Mr. Bialik's focus as President
will be on the opening and integration of new markets and acquisitions. Mr.
Bialik is a highly respected, successful entrepreneur and the founder of SysGold
Ltd. with 15 years in the Information Systems business, he is a pioneer in the
outsourcing sector. Mr. Bialik offers clients 10 years of specific information
systems expertise.
RAGHUNATH KILAMBI -- DIRECTOR/VICE PRESIDENT OF CORPORATE FINANCE, CHIEF
FINANCIAL OFFICER AND CORPORATE SECRETARY - Mr. Kilambi has been Chief Financial
Officer of FutureLink USA since March 1998. As President of New Economy Capital
Inc., Mr. Kilambi has raised significant equity and debt financing for Canadian
and US public and private high technology corporations. Previously, Mr. Kilambi
was the Director, Financial Services and Taxation and Corporate Secretary for
Canada Starch Company Inc., a CDN$400 million subsidiary in the US multinational
Bestfoods group of companies. Mr. Kilambi graduated from McGill University with
a Bachelor of Finance and Accounting. Mr. Kilambi is a Chartered Accountant. Mr.
Kilambi is also a director of Advanced Vision Systems Corp. (ASE:AVD) and
NextClick Ltd.
LINDA M. MURRAY - ASSISTANT CORPORATE SECRETARY - Ms. Murray has extensive
experience in the hospitality industry and administration of companies. In 1996
and 1997, Ms. Murray was an independent office administration contractor with
three publicly
<PAGE> 45
traded clients(Advanced Vision Systems Corp.(ASE:AVD), Imaging Dynamics
Corp.(ASE:ID) and Reliance Energy Inc.(ASE:RLA)). From 1990 to 1996, Ms.
Murray's focus was in the hospitality industry at the Banff Park Lodge in
positions varying from Tour Coordinator to Executive Secretary to the General
Manager.
PHILIP LADOUCEUR -- DIRECTOR -- Mr. Ladouceur has served MetroNet as a director
since October 1996 and was President of MetroNet from October 1996 to October
1997. When Mr. Ladouceur joined MetroNet, the company was a local Calgary
telecom concern. He has led the company through equity and debt financings of
more than CDN$2 billion as well as the company's initial public offering on the
NASDAQ and Toronto Stock Exchanges. Also, Mr. Ladouceur guided the company
through its recent acquisition of Rogers Communications' Telecom business, a
transaction valued at over CDN$1 billion. MetroNet has now become a major
national presence and the largest competitive local exchange carrier in Canada.
Prior to joining MetroNet, Mr. Ladouceur was Executive Vice President,
Operations at Bell Canada International Inc., from February 1995 to October 1996
where he led key restructuring efforts and the formation of a major joint
venture with IBM Canada. From October 1992 to February 1995, Mr. Ladouceur was
the founding President and Chief Executive Officer of ISM Information Systems
Management (Alberta) Ltd., ("ISM") a Canadian computer and network management
outsourcing company. Under Mr. Ladouceur's direction, ISM grew to CDN$75 million
in revenue on an annual basis, and over 700 employees in a two-year period from
start-up. Mr. Ladouceur founded and, from June 1990 to October 1992, was the
Managing Director of HDL Capital Corporation, a Toronto-based merchant bank that
specializes in business turnarounds, management buyouts, and financing for
medium and small businesses in the telecommunications, technology, software, and
retail sectors. From 1986 to 1989, Mr. Ladouceur was Senior Vice President,
Finance, Chief Financial Officer and a director of Rogers Communications Inc.,
one of the largest cable, cellular and broadcasting companies in North America.
While there, he oversaw the completion of over CDN$3 billion in public and
private financings. Additionally, Mr. Ladouceur is currently serving as the
Chairman of the Competitive Telecommunications Association of Canada.
ROBERT KUBBERNUS -- DIRECTOR -- Prior to 1992, Mr. Kubbernus was the Chief
Financial Officer of Bankers Capital Group. His responsibilities included the
development of new products and markets as well as overseeing the financial
controls of the Company. Since 1992, Mr. Kubbernus has been the President of
Bankton Financial Corporation, which specializes in the placement of debt
instruments with institutional and private lenders. Bankton Financial
Corporation is also involved in corporate restructuring and planning. Mr.
Kubbernus is the President of JAWS Technologies, Inc. (OTC --BB symbol JAWZ).
F. BRYSON FARRILL -- DIRECTOR --Until 1989 Mr. Farrill had various positions
with Scotia McLeod and McLeod Young Wier including acting in the capacity as the
former Chairman of Scotia McLeod (USA) Inc. and McLeod Young Weir Ltd. Mr.
Farrill brings to FutureLink USA more than 30 years of equity, fixed income and
corporate finance experience in North America and Europe. He is the President
and Chairman of Solar Pharmaceuticals Ltd. (VSE.SLR) and Director of Panther
Resources Ltd. (OTC-BB -- PATHR), Devine Entertainment Inc. (TSE-BBD), and Home
Life Inc. (OTC-BB-HLMF).
ROBERT KOHN -- DIRECTOR -- Mr. Kohn has a Bachelor's degree in Business
Administration from California State University in Northridge. Mr. Kohn has a
law degree from Loyola Law School in Los Angeles. From 1983 to 1985 he worked as
corporate counsel to Ashton-Tate Corporation, a developer and marketer of
personal computer software. From October 1985 to March 1987 Mr. Kohn was
associate general counsel for Candel Corporation, a developer of software for
IBM mainframes. From March of 1987 to September 1996, Mr. Kohn was a Senior
Vice-President of Borland International, Inc. (now Inprise Corp.), a developer
and marketer of personal computer software (Inprise Corp. trades on
NASDAQ-National Board INPR). From October 1996 to December 1997, Mr. Kohn was
Vice President of Business Development and General Counsel of Pretty Good
Privacy, Inc. a data encryption company. From January 1998 to present Mr. Kohn
has been the Chairman of GoodNoise Corporation (OTC-BB symbol GDNO), an internet
record company. Mr. Kohn is also an Adjunct Professor of Law and Business
Organisations of the Monterey College of Law.
<PAGE> 46
EXECUTIVE COMPENSATION
FutureLink USA pays its non-employee directors an honorarium of $250.00 per
board meeting at which they are in physical attendance. FutureLink USA may
reimburse expenses incurred due to their attendance at such meetings. No other
payments have been made to directors. The directors are eligible to receive
stock options under the FutureLink USA's stock option plan.
<PAGE> 47
FutureLink USA has adopted a stock option plan (the "FutureLink USA's Stock
Option Plan") for senior officers, directors and full-time employees of the
Company, which does not restrict the number of options which may be granted. The
number of options and the exercise price of all options is set by the board of
directors of FutureLink USA, or a committee thereof, at the time of grant.
<PAGE> 48
The following table sets forth compensation in respect of the senior officers
and Directors of the Company and it's subsidiaries for the fiscal year ended
December 31, 1997 and the period from January 1 to September 30, 1998.
<TABLE>
<CAPTION>
Annual Compensation Long Term
Compensation
Securities
Name and Period Other Under
Principal Ended Annual Options All Other
Position Salary Bonus Compensation Granted Compensation
($) ($) ($) (#) ($)(1)
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE> 49
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Chief Executive Officer 1997 Nil Nil Nil Nil CDN$121,580
Cameron Chell 1998 CDN$62,500 Nil Nil 500,000 CDN$13,417
Past President 1997 N/A N/A N/A N/A N/A
Murray Korth 1998 CDN$28,214 Nil Nil Nil CDN$1,128
Chief Financial Officer 1997 N/A N/A N/A N/A N/A
Raghu Kilambi 1998 CDN$37,500 Nil Nil 500,000 CDN$9,500
Director 1997 N/A N/A N/A N/A N/A
Philip Ladouceur 1998 Nil CDN$100,000 Nil 500,000 N/A
Director 1997 N/A N/A N/A N/A N/A
Robert Kohn 1998 Nil Nil Nil 200,000 $6,000
Director 1997 Nil Nil Nil Nil N/A
Bryson Farrill 1998 Nil Nil NIl 250,000 N/A
Director, President 1997 CDN$17,083 CDN$110,250 Nil Nil N/A
Don Bialik 1998 CDN$55,897 Nil Nil 250,000 CDN$600
Past Director, Past VP 1997 CDN$53,383 CDN$76,050 Nil Nil N/A
Olivia Bialik 1998 CDN$29,054 Nil Nil Nil N/A
Assistant Corporate Secretary 1997 Nil Nil Nil 15,000(2) CDN$12,900
Linda M. Murray 1998 CDN$24,125 CDN$1750 Nil 75,000 CDN$4,229
</TABLE>
NOTES:
1) Other Compensation:
a) for Cameron Chell for 1997 consisted of consulting fees. In
1998, Other Compensation consists of consulting fees of
CDN$10,417 having been paid plus CDN$3,000 of vacation pay
owing.
b) for Murray Korth for 1998 was vacation pay owed.
c) for Raghu Kilambi in 1998 was for CDN$7,000 of consulting fees
having been paid and CDN$2,500 of vacation pay owing.
d) for Robert Kohn in 1998 was for consulting fees in USD having
been paid.
e) for Don Bialik in 1998 was for vacation pay owing.
f) for Linda Murray in 1997 was for consulting fees and in 1998 was
for consulting fees in the amount of CDN$2750 for the first two
months of 1998 and the remainder is vacation pay owing. As of
February 1, 1998, Ms. Murray became an employee.
2) These represent options in FutureLink Alberta that expired on July 31,
1998 and were not exercised.
BOARD COMMITTEES
The Compensation Committee currently consists of Messrs. Farrill, Kohn and
Kubbernus. The Compensation Committee establishes salaries, incentives and other
forms of compensation for officers of FutureLink USA and FutureLink Alberta. The
Audit Committee consists of Messrs. Kohn, Kubbernus and Farrill.
<PAGE> 50
SELLING SECURITYHOLDERS
For information on Selling Security Holders see "Security Ownershop of
Beneficial Owners and Management".
DESCRIPTION OF SECURITIES
As of the date of this Registration Statement, FutureLink USA is authorized to
issue: (a) 100,000,000 FutureLink USA Common Shares with par value of
$.0001/share; and (b) 5,000,000 FutureLink USA Preferred Shares with no par
value. There are 26,499,303 FutureLink USA Common Shares issued and outstanding
as fully paid and non-assessable. As at the date hereof, FutureLink USA has
reserved for issuance: (a) 3,730,000 FutureLink USA Common Shares pursuant to a
stock option plan (See "FutureLink USA Stock Options"); (b) 255,813 FutureLink
USA Common Shares pursuant to warrant and (c) 1,127,240 FutureLink USA Common
Shares pursuant to a debt for share exchange agreement and an additional
1,127,240 FutureLink USA Common Shares pursuant to warrants granted in the same
debt for share exchange agreement. There are no issued and outstanding
FutureLink USA Preferred Shares.
The following is a general description of the material rights, privileges and
restrictions and conditions attaching to each class of shares:
<PAGE> 51
The authorized capital stock of the Company consists of 100,000,000 shares of
Common Stock, $.0001 par value, and 5,000,000 shares of Preferred Stock, $1.00
par value.
As of October 30, 1998, there were 15,499,303 shares of Common Stock
outstanding held of record by 255 stockholders.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters to be
voted upon by the stockholders. Subject to preferences that may be applicable to
the holders of outstanding shares of Preferred Stock, if any, the holders of
Common Stock are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. See "Dividend Policy". In the event of liquidation,
dissolution or winding up of the Company, and subject to the prior distribution
rights of the holders of outstanding shares of Preferred Stock, if any, the
holders of shares of Common Stock shall be entitled to receive pro rata all of
the remaining assets of the Company available for distribution to its
stockholders. The Common Stock has no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are fully
paid and nonassessable.
PREFERRED STOCK
The Board of Directors is authorized, subject to any limitations prescribed by
the laws of the State of Colorado, with approval by the Company's stockholders,
to provide for the issuance of up to 5,000,000 shares of Preferred Stock in one
or more series, to establish from time to time the number of shares to be
included in each such series, to fix the designations, powers, preferences and
rights of the shares of each such series and any qualifications, limitations or
restrictions thereof, and to increase or decrease the number of shares of any
such series (but not below the number of shares of such series then outstanding)
without any further vote or action by the stockholders. The Board of Directors
may authorize and issue Preferred Stock with voting or conversion rights that
could adversely affect the voting power or other rights of the holders of
Shares.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for FutureLink USA is General Securities
Transfer Agency, Inc. in Albuquerque, New Mexico.
<PAGE> 52
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SHARE ACQUISITION AGREEMENT
In the Share Acquisition Agreement dated January 20, 1998, between Core
Ventures, Inc. (now known as FutureLink USA), FutureLink Alberta, Cameron
Chell, Linda Carling, Colleen Rudolph, Bernie March, and Gerald Albert,
FutureLink USA agreed to acquire 1,540,000 Class "A" Common Voting Shares
of FutureLink Alberta (48% of such Company's issued shares) in
consideration of the issuance of 1,540,000 FutureLink USA Common Shares.
The shares were issued subject to an escrow agreement. The agreement
provided that 3,500,000 FutureLink USA Common Shares would be issued to
various employees for the consideration of $3,500. FutureLink Alberta was
added as a party for the purpose of making representations and warranties
to induce FutureLink USA to enter into the agreement. All parties involved
were at one point principles in FutureLink Alberta and Cameron Chell is
currently C.E.O. of both companies.
TAKE-OVER BID CIRCULAR
The Take-Over Bid Circular dated September 28, 1998 is an offer by
FutureLink USA to purchase the remaining 52% of the outstanding shares of
FutureLink Alberta. The board of directors and officers of both companies
are essentially the same. See "Business--History."
ESCROW AGREEMENT
The Escrow Agreement dated, January 20, 1998, is an agreement among the
General Securities Transfer Agency, Inc., FutureLink USA, Cameron Chell
(as to 500,000 FutureLink USA Common Shares), Linda Carling (as to 490,000
FutureLink USA Common Shares), Bernie March (as to 200,000 FutureLink USA
Common Shares), Colleen Rudolph (as to 250,000 FutureLink USA Common
Shares) and Gerald Albert (as to 100,000 FutureLink USA Common Shares)
pursuant to which an aggregate of 1,540,000 FutureLink USA Common Shares
were deposited in escrow. The agreement states that one half of the
FutureLink USA Common Shares be released on July 20, 1998 and one half be
released on January 20, 1999. All parties involved were at one point
principles in FutureLink Alberta and Cameron Chell is currently C.E.O. of
the Company and FutureLink Alberta.
SYSGOLD AGREEMENT
Agreement by and among FutureLink Alberta, FutureLink USA, Donald A.
Bialik, Olivia B. Bialik, Bialik Family Trust, Riverview Management
Corporation (now known as FutureLink/SysGold) and SysGold Ltd. ("SysGold")
dated August 4, 1998, and amended by agreement August 21, 1998 ("SysGold
Acquisition Agreement") wherein FutureLink USA agreed to acquire all of
the issued and outstanding shares of FutureLink/SysGold which in turn owns
all of the issued and outstanding shares of SysGold. The consideration was
CDN$8,685,000 payable by CDN$3,000,000 cash on closing (August 21, 1998),
CDN$685,000 by a promissory note payable within 90 days of closing, and
partly by the issuance of 4,250,000 shares in FutureLink/SysGold
exchangeable into shares of FutureLink USA Common Shares (attributed value
$0.85/share). Don Bialik is currently the President of FutureLink USA and
FutureLink Alberta.
<PAGE> 53
INDEMNITY AGREEMENT
FutureLink USA, FutureLink Alberta, FutureLink Acquisition Corp., SysGold
Ltd. and Riverview Management Corporation (now known as
"FutureLink/SysGold) entered into an Indemnity Agreement dated August 21,
1998 whereby Riverview Management Corporation agreed to indemnify all of
the parties from any loss, damage, liability, deficiency, claim, cost
recovery, expense, assessment or re-assessment arising from the claim
filed by TAP Consulting Ltd., without limitation as well as any claims by
Kevin Sebastion or other employees of SysGold Inc. or SysGold Ltd. with
respect to any claim for options, warrants or other similar rights. Don
Bialik was the President of Riverview Management Corporation at the time
of signing this agreement and is now the President of FutureLink USA,
FutureLink Alberta and FutureLink Acquisition Corp.
<PAGE> 54
WILLSON STATIONERS CONTRACT
Willson Stationers Ltd. has entered into the Company's standard Service
Provider Agreement. The contract is material because of the potential
size of the transaction and because of the relationship with Cameron
Chell. Mr. Chell is the Chief Executive Officer of Willson Stationers
Ltd. He also has an option to acquire 50% of the issued and outstanding
shares in Willson Stationers Ltd.
<PAGE> 55
ACCOUNTING AND FINANCIAL DISCLOSURE
Due to the lack of activity for numerous years, FutureLink USA did not engage
the services of an accounting firm. The Company is not currently aware of any
disagreements on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure which Ernst & Young may
have had with the Company's past auditors.
In May, 1998 FutureLink USA engaged Ernst & Young as their independent chartered
accountants, to audit the financial statements for the years ended December 31,
1997 and December 31, 1996. Ernst & Young reported without reservation on those
financial statements.
Ernst & Young will act as independent chartered accountants for all subsidiaries
of FutureLink USA to audit the financial statements of the year ended December
31, 1998 and thereafter.
FutureLink Alberta retained Halpin Anthony Owen & Mayer(HAOM) since its
incorporation in March of 1996. During the term of HAOM's engagement, there were
no disagreements on any matter of accounting principle or practice, financial
statement disclosure, or auditing scope or procedure which, if not resolved to
the satisfaction of HAOM, would have caused it to make reference to the subject
matter of the disagreement in connection with its report.
FutureLink/SysGold retained Buchanan Barry & Co. as accountants and then
auditors since 1993. During the term of Buchanan Barry's engagement there were
no disagreements on any matter of accounting principle or practice, financial
statement disclosure, or auditing scope or procedure which, if not resolved to
the satisfaction of Buchanan Barry, would have caused it to make reference to
the subject matter of the disagreement in connection with its report.
PLAN OF DISTRIBUTION
The Selling Securityholders (or pledges, donees, transferees or successors in
interest) may sell all or a portion of the respective Selling Securityholders'
Securities held by them from time to time while the registration statement of
which this Prospectus is a part remains effective. The aggregate proceeds to the
Selling Securityholders from the sale of the respective Selling Securityholders'
Securities offered by the Selling Securityholders hereby will be the prices at
which such securities are sold, less any commissions. There is no assurance that
the Selling Securityholders will sell any or all of the Selling Securityholders'
Securities offered hereby.
The Selling Securityholders' Securities may be sold by the Selling
Securityholders in transactions on the NASDAQ Bulletin Board, in negotiated
transactions, or by a combination of these methods, at fixed prices that may be
changed, at market prices prevailing at the time of sale, at prices related to
such market prices or at negotiated prices or through the writing of options on
the Selling Securityholders' Securities. The Selling Securityholders may elect
to engage a
<PAGE> 56
broker or dealer to effect sales in one or more of the following transactions:
(a) block trades in which the broker or dealer so engaged will attempt to sell
the Selling Securityholders' Securities as agent but may position and resell a
portion of the block as principal to facilitate the transaction, (b) purchases
by a broker or dealer as principal and resale by such broker or dealer for its
account pursuant to this Prospectus, and (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers. In effecting sales,
brokers and dealers engaged by the Selling Securityholders may arrange for other
brokers or dealers to participate. Brokers or dealers may receive commissions or
discounts from the Selling Securityholders in amounts to be negotiated (and, if
such broker-dealer acts as agent for the purchaser of such Selling
Securityholders' Securities, from such purchaser). Broker-dealers may agree with
the Selling Securityholders to sell a specified number of such Selling
Securityholders' Securities at a stipulated price per Selling Securityholder's
Security, and to the extent that such broker-dealer is unable to do so, acting
as agent for the Selling Securityholders to purchase as principal any unsold
Selling Securityholders' Securities at the price required to fulfill the
broker-dealer commitment to the Selling Securityholders. Broker-dealers who
acquire Selling Securityholders' Securities as principal may thereafter resell
such Selling Securityholders' Securities from time to time in transactions
(which may involve crosses and block transaction and sales to and through other
broker-dealers, including transactions of the nature described above) in the
over-the-counter market, or otherwise at prices and on terms then prevailing at
the time of sale, at prices then related to the then-current market price or in
negotiated transactions and, in connection with such resales, may pay to or
receive from the purchasers of such Selling Securityholders' Securities
commissions as described above.
The Selling Securityholders and any broker-dealers or agents that participate
with the Selling Securityholders in sales of the Selling Securityholders'
Securities may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933 in connection with such sales. In such event, any
commissions received by such broker-dealers or agent and any profit on the
resale of the Selling Securityholders' Securities purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act of
1933.
The Company will pay all expenses incidental to this offering and sale of the
Selling Securityholders' Securities to the public other than selling commissions
and fees.
The Selling Securityholders have been advised that during the time they are
engaged in "distribution" (as defined under Regulation M under the Securities
Exchange Act of 1934, as amended) of the securities covered by this Prospectus,
they must comply with Regulation M under the Securities Exchange Act of 1934, as
amended, and pursuant thereto: (i) shall not engage in any stabilization
activity in connection with the Company's securities; and (ii) shall not bid for
or purchase any securities of the Company or attempt to include any person to
purchase any of the Company's securities other than as permitted under the
Securities Exchange Act of 1934, as amended. Any Selling Securityholders who are
"affiliated purchasers" of the Company, as defined in Regulation M, have been
further advised that they and their affiliates must coordinate their sales under
this Prospectus and otherwise with the Company and any other "affiliated
purchasers" of the Company for purposes of Regulation M. The Selling
Securityholders must also furnish each broker through which Selling
Securityholders' Securities are sold copies of this Prospectus.
LEGAL OPINION
The validity of certain of the Securities offered hereby will be passed upon for
the Company by Jeffer, Mangels, Butler & Marmaro LLP, Los Angeles, California.
EXPERTS
The audited Financial Statements of FutureLink USA including in this Prospectus
as at December 31, 1997 and December 31, 1996 and for the years then ended have
been audited by Ernst & Young, Independent Chartered Accountants, as indicated
in their report with respect thereto, and are included herein in reliance upon
the authority of said firm as experts in accounting and auditing.
The audited Financial Statements of FutureLink Alberta including in this
Prospectus as at December 31, 1996 and December 31, 1997 and the periods from
March 28, 1996 to December 31, 1996 and from January 1, 1997 to December
<PAGE> 57
31, 1997 have been audited by Halpin Anthony Owen Mayer, Independent Chartered
Accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in accounting and
auditing.
The audited Financial Statements of FutureLink/SysGold including in this
Prospectus as at October 31, 1996 and October 31, 1997 and for the years then
ended have been audited by Buchanan Barry & Co., Independent Chartered
Accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in accounting and
auditing.
<PAGE> 58
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Description Pages
<S> <C>
1. FutureLink USA Unaudited Pro Forma Consolidated Statement of Income for
year ended December 31, 1997 and Pro Forma Consolidated Balance Sheet as
at December 31, 1997
2. FutureLink USA Unaudited Pro Forma Consolidated Statement of Income for
six months ended June 30, 1998 and Pro Forma Consolidated Balance Sheet as
at June 30, 1998.
3. FutureLink USA Unaudited June 30, 1998 Financial Statements, Audited
December 31, 1997 Financial Statements and Unaudited December 31, 1996
Financial Statements
4. FutureLink Alberta Unaudited June 30, 1998 Financial Statements, Audited
December 31, 1997 and December 31, 1996 Financial Statements
5. RMC Unaudited June 30, 1998 and 1997 Financial Statements
6. RMC Audited October 31, 1997 and 1996 Financial Statements
</TABLE>
----------
<PAGE> 59
FUTURELINK DISTRIBUTION CORP.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(All amounts stated in $U.S.)
December 31, 1997
<TABLE>
<CAPTION>
FutureLink
Riverview USA
FutureLink FutureLink Pro Forma Management Pro Forma Pro Forma
USA Alberta Adjustments Corporation Adjustments Consolidated
$ $ $ $ $ $
----------- ---------- --------------- ------------ --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT
Cash -- 7,617 (2.2) (100,000) 26,542 (2.3) 80,803 (310,038)
(2.4 (325,000)
Accounts receivable -- 37,172 -- 955,528 -- 992,699
Inventory -- -- -- 8,168 -- 8,168
Prepaid expenses -- 7,302 -- 6,305 -- 13,608
----------- ---------- --------------- ------------ --------------- -----------
-- 52,091 (100,000) 996,543 (244,197) 704,437
Goodwill -- (2.1) 1,569,978 -- (2.3) 6,091,699 8,086,677
-- (2.2) 100,000 (2.4) 325,000
Capital assets -- 167,469 -- 141,924 -- 309,393
Incorporation costs -- 420 -- -- -- 420
Deposits -- -- -- 4,662 -- 4,662
----------- ---------- --------------- ------------ --------------- -----------
-- 219,980 1,569,978 1,143,129 6,172,502 9,105,589
----------- ---------- --------------- ------------ --------------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Accounts payable and accrued
liabilities 23,932 253,012 -- 916,932 -- 1,193,876
Current portion of capital leases -- 21,602 -- 22,966 -- 44,568
Loan payable -- -- -- 23,639 -- 23,639
Promissory note payable -- -- -- -- (2.3) 409,349 409,349
Shareholder loans -- -- -- 1,735 -- 1,735
Notes payable -- 66,825 -- -- -- 66,825
----------- ---------- --------------- ------------ --------------- -----------
23,932 341,439 -- 965,272 409,349 1,739,992
----------- ---------- --------------- ------------ --------------- -----------
DUE TO STOCKHOLDERS -- 61,259 -- -- -- 61,259
----------- ---------- --------------- ------------ --------------- -----------
OBLIGATIONS UNDER CAPITAL LEASES -- 13,441 -- 38,698 -- 52,139
----------- ---------- --------------- ------------ --------------- -----------
CONVERTIBLE DEBENTURE -- -- -- -- (2.3) 1,607,143 1,607,143
----------- ---------- --------------- ------------ --------------- -----------
MINORITY INTEREST -- -- -- 39,812 -- 39,812
----------- ---------- --------------- ------------ --------------- -----------
STOCKHOLDERS' EQUITY
Share capital 1,020 512,693 (2.1) (512,693) 28 45.3) 1,375,614
(2.1) 1,373,819 (2.3)
(2.5) 350 (28)
Capital in excess of par 1,425,211 -- -- (2.3) 642,857 7,797,293
(2.5) 2,117,150 (2.3) 3,612,075
Deficit (1,450,163) (708,852) (2.1) 708,852 99,319 (2.3) (99,319) (3,567,663)
(2.5)(2,117,500)
----------- ---------- --------------- ------------ --------------- -----------
(23,932) (196,159) 1,569,978 99,347 4,156,010 5,605,244
----------- ---------- --------------- ------------ --------------- -----------
-- 219,980 1,569,978 1,143,129 6,172,502 9,105,589
----------- ---------- --------------- ------------ --------------- -----------
</TABLE>
See accompanying notes to the unaudited pro forma consolidated financial
statements
<PAGE> 60
FUTURELINK DISTRIBUTION CORP.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(All amounts stated in $U.S.)
Year ended December 31, 1997
<TABLE>
<CAPTION>
Riverview FutureLink
FutureLink FutureLink Pro Forma Management Pro Forma USA Pro Forma
USA Alberta Adjustments Corporation Adjustments Consolidated
$ $ $ $ $ $
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUE -- 3,373 -- 6,662,087 -- 6,665,460
----------- ----------- ----------- ----------- ----------- -----------
EXPENSES
Salaries and employee benefits -- 48,946 (2.5) 2,117,500 2,052,751 -- 4,219,197
Staff development -- -- -- 120,253 -- 120,253
Consulting -- 280,820 -- 631,150 -- 911,970
Travel -- 13,293 -- 14,734 -- 28,027
Accounting and legal fees 109,992 9,818 -- 60,870 -- 180,680
Hardware and software purchases -- -- -- 3,149,406 -- 3,149,406
Advertising and promotion -- 21,057 -- 68,503 -- 89,560
Depreciation and amortization -- 35,084 (3.1) 166,998 51,604 (3.2) 641,670 895,356
Office 12,057 22,438 -- 133,515 -- 168,010
Rent -- 25,078 -- 70,628 -- 95,706
Equipment rental -- 20,780 -- 8,901 -- 29,681
Internet -- 13,961 -- -- -- 13,961
Architectural and design fees -- 47,922 -- -- -- 47,922
Automotive -- -- -- 26,492 -- 26,492
Other -- 24,492 54,547 79,039
Interest on long term debt -- -- -- -- (3.3) 487,218 487,218
----------- ----------- --------------- ----------- ------------- -----------
122,049 563,689 -- 6,443,354 -- 10,542,478
----------- ----------- --------------- ----------- ------------- -----------
LOSS BEFORE DISCONTINUED OPERATIONS (122,049) (560,316) -- 218,733 -- (3,877,018)
LOSS FROM DISCONTINUED OPERATIONS -- (9,922) -- -- -- (9,922)
----------- ----------- --------------- ----------- ------------- -----------
LOSS FROM OPERATIONS (122,049) (570,238) -- 218,733 -- (3,886,940)
WRITE-OFF MINING RELATED ASSETS (515,000) -- -- -- -- (515,000)
LOSS ON NON-REFUNDABLE DEPOSIT (100,000) -- -- -- -- (100,000)
----------- ----------- --------------- ----------- ------------- -----------
LOSS FOR THE YEAR BEFORE INCOME TAXES (737,049) (570,238) -- 218,733 -- (4,501,940)
INCOME TAXES -- -- -- (94,409) -- (94,409)
----------- ----------- --------------- ----------- ------------- -----------
(737,049) (570,238) -- 124,324 -- (4,596,349)
MINORITY INTEREST -- -- -- (24,443) -- (25,443)
----------- ----------- --------------- ----------- ------------- -----------
NET EARNINGS (LOSS) FOR THE YEAR (737,049) (570,238) -- 98,881 -- (4,621,792)
----------- ----------- --------------- ----------- ------------- -----------
</TABLE>
See accompanying notes to the unaudited pro forma consolidated financial
statements
<PAGE> 61
1. The accompanying unaudited pro forma consolidated financial statements
have been prepared by management from the audited financial statements as
at December 31, 1997 and for the year then ended of FutureLink
Distribution Corp. (a Colorado corporation) ("FutureLink USA") and
FutureLink Distribution Corp. (an Alberta corporation) ("FutureLink
Alberta"), and from the audited financial statements as at October 31,
1997 and for the year then ended of Riverview Management Corporation
("Riverview") together with other information available to the companies.
In the opinion of the management of FutureLink USA, these pro forma
consolidated financial statements include all adjustments necessary for
fair presentation in accordance with accounting principles generally
accepted in the United States. These pro forma consolidated financial
statements may not be indicative of the financial position or the results
of operations that actually would have occurred if the events reflected
therein had been in effect on the dates indicated nor of the financial
position or the results of operations which may be obtained in the future.
These pro forma consolidated financial statements should be read in
conjunction with the audited financial statements of the companies
included elsewhere in this registration document.
2. The pro forma consolidated balance sheet at December 31, 1997 gives effect
to the following assumptions and transactions, all of which will become
effective on the date of the fulfillment or waiver of the conditions of
the FutureLink Alberta Acquisition Agreement and the SysGold acquisition
agreement as if the effective dates of those agreements were December 31,
1997:
2.1 The initial acquisition of 1,540,000 common shares of FutureLink
Alberta in exchange for an equal number of common shares of
FutureLink USA and the subsequent acquisition of all remaining
outstanding shares of FutureLink Alberta in exchange for an equal
number of common shares of FutureLink USA have been reflected as
though both acquisitions occurred on December 31, 1997.
The initial and subsequent acquisitions have been accounted for in
these pro forma financial statements using the purchase method. Based
on an independent valuation report dated March 1998 that attributed a
value of $0.22 to common shares of FutureLink Alberta, the total
value ascribed to the initial acquisition was $338,800. Based on an
independent valuation report dated September 1998 that attributed a
value of $0.59 to common shares of FutureLink Alberta, the total
value ascribed to the subsequent acquisition was $1,035,019. The
aggregate purchase price of $1,373,819 has been allocated to the net
assets acquired based on their estimated fair values, as follows:
<TABLE>
<CAPTION>
Purchase Price
Allocation
$
----------
<S> <C>
Net liabilities acquired (196,159)
Goodwill 1,569,978
----------
Purchase price 1,373,819
----------
</TABLE>
2.2 The allocation to goodwill of the estimated costs of the acquisition
described in 2.1 above, in the amount of $100,000 financed through
bank credit facilities of FutureLink USA.
2.3 The acquisition of all of the outstanding common shares of Riverview
for cash consideration of $3,100,000 Canadian, as well as a
promissory note for $585,000 Canadian and 4,250,000 common shares of
FutureLink USA with an ascribed value of $3,612,500 U.S.
The acquisition has been accounted for in these pro forma
consolidated financial statements by the purchase method. The
purchase price has been allocated to the net assets acquired based
on their estimated fair values, as follows:
<TABLE>
<CAPTION>
Purchase Price
Allocation
$
----------
<S> <C>
Net assets acquired 99,347
Goodwill 6,091,699
----------
Purchase price 6,191,046
----------
</TABLE>
<PAGE> 62
<PAGE> 63
<TABLE>
<S> <C>
Consideration:
Promissory note payable 409,349
Debt component of 10% convertible debenture* 1,607,143
Equity component of 10% convertible debenture* 642,857
Common shares of FutureLink USA 3,612,500
Excess cash (80,803)
----------
Total consideration 6,191,046
----------
</TABLE>
*the proceeds from the convertible debenture will be drawn in an
initial amount of $2,250,000, with the excess cash of $80,803 being
held by FutureLink USA for general use. The difference between the
amount attributed to the debt component and the face value
represents additional interest expense, to be amortized over the 3
year life of the debenture.
2.4 The allocation to goodwill of the estimated costs of the
acquisition described in 2.3 above, in the amount of $325,000
financed through bank credit facilities of FutureLink USA.
2.5 The issuance of 3.5 million common shares to officers, directors
and employees that took place in July 1998 has been reflected as if
the transaction had taken place on December 31, 1997. The shares
were issued for consideration of $0.001 per share. The fair value
of these shares at the date of issuance was $2,117,500. The excess
of fair value over the issue price has been included in salaries
and employee benefits.
3. The pro forma consolidated statement of income for the year ended December
31, 1997 gives effect to the acquisitions by FutureLink USA as described
in 2.1 and 2.3 above which will become effective on the date of the
fulfillment or waiver of the conditions of the FutureLink Alberta
Acquisition Agreement and the SysGold acquisition agreement, as if the
transactions had occurred January 1, 1997. The following adjustments are
reflected:
3.1 The amortization of Goodwill attributable to the allocation of the
purchase price of FutureLink Alberta in excess of the carrying value
of the net assets acquired, (see 2.1 and 2.2 above) calculated on a
straight-line basis over a period of 10 years.
3.2 The amortization of Goodwill attributable to the allocation of the
purchase price of Riverview in excess of the carrying value of the
net assets acquired, (see 2.3 and 2.4 above) calculated on a
straight-line basis over a period of 10 years.
3.3 The inclusion of interest expense on the convertible debenture for
one year, at an annual rate of 10%, together with the annual
amortization of the difference between the value initially
attributable to the debt component of the convertible debenture and
its face value.
3.4 The inclusion in salaries and employee benefits of $2,117,500
related to the issuance of common shares to officers, directors and
employees as described in note 2.5 above.
4. The amounts shown in these pro forma consolidated financial statements for
FutureLink Alberta and for Riverview have been translated into United
States dollars from Canadian dollars at a rate of $1 US equal to $1.4291
Canadian.
<PAGE> 64
FUTURELINK DISTRIBUTION CORP.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(All amounts stated in $U.S.)
June 30, 1998
<TABLE>
<CAPTION>
Riverview FutureLink USA
FutureLink FutureLink Pro Forma Management Pro Forma Pro Forma
USA Alberta Adjustments Corporation Adjustments Consolidated
$ $ $ $ $ $
----------- ----------- --------------- ------------ -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT
Cash -- 158,581 (2.2) (100,000) -- (2.3) 139,864 (126,555)
(2.4) (325,000)
Accounts receivable -- 51,110 -- 1,028,028 -- 1,079,138
Inventory -- 2,480 -- 12,961 -- 15,441
Prepaid expenses -- 32,653 -- 10,704 -- 43,357
----------- ----------- --------------- ------------ -------------- -----------
-- 244,823 (100,000) 1,051,693 (185,136) 1,011,381
Goodwill -- -- (2.1) 2,216,166 -- (2.3) 5,957,683 8,598,849
(2.2) 100,000 (2.4) 325,000
Capital assets -- 350,589 -- 140,615 -- 491,203
Investment 1,269,259 -- (2.1)(1,269,259) -- -- --
Discontinued operations -- 1 -- -- -- 1
Incorporation costs -- 272 -- -- -- 272
Deposits -- -- -- 5,570 -- 5,570
----------- ----------- --------------- ------------ -------------- -----------
2,269,259 595,685 946,907 1,197,878 6,097,547 10,107,276
----------- ----------- --------------- ------------ -------------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Bank indebtedness -- -- -- 118,524 -- 118,524
Accounts payable and accrued liabilities 24,981 83,759 -- 748,873 -- 857,613
Current portion of capital leases -- 29,187 -- 33,913 -- 63,100
Loan payable -- -- -- 19,152 -- 19,152
Promissory note payable -- -- -- -- (2.3) 398,203 398,203
Shareholder loans -- -- -- 87,763 -- 87,763
Notes payable -- 34,060 -- -- -- 34,060
----------- ----------- --------------- ------------ -------------- -----------
24,981 147,006 -- 1,008,225 398,203 1,578,415
----------- ----------- --------------- ------------ -------------- -----------
DUE TO STOCKHOLDERS 504,802 10,338 -- -- -- 515,140
----------- ----------- --------------- ------------ -------------- -----------
OBLIGATIONS UNDER CAPITAL LEASES -- 11,429 -- 11,742 -- 23,171
----------- ----------- --------------- ------------ -------------- -----------
DUE TO FUTURELINK USA -- 1,265,689 (2.1)(1,265,689) -- -- --
----------- ----------- --------------- ------------ -------------- -----------
CONVERTIBLE DEBENTURE -- -- -- -- (2.3) 1,607,143 1,607,143
----------- ----------- --------------- ------------ -------------- -----------
MINORITY INTEREST -- -- -- 14,755 -- 14,755
----------- ----------- --------------- ------------ -------------- -----------
STOCKHOLDERS' EQUITY
Share capital 1,200 725,930 (2.1) (725,930) 27 (2.2) 425 1,375,794
(2.1) 1,373,819 (2.3) (27)
(2.5) 350
Capital in excess of par 2,670,831 -- (2.5) 2,117,150 -- (2.3) 642,857 9,042,913
(2.3) 3,612,075
Deficit (1,932,555) (1,564,707) (2.1) 1,564,707 163,129 (2.3) (163,129) (4,050,055)
(2.5)(2,117,500)
----------- ----------- --------------- ------------ -------------- -----------
739,476 (838,777) 2,212,596 163,156 4,092,201 6,368,652
----------- ----------- --------------- ------------ -------------- -----------
1,269,259 595,685 946,907 1,197,878 6,097,547 10,107,276
----------- ----------- --------------- ------------ -------------- -----------
</TABLE>
See accompanying notes to the unaudited pro forma consolidated financial
statements
<PAGE> 65
FUTURELINK DISTRIBUTION CORP.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(All amounts stated in $U.S.)
Six months ended June 30, 1998
<TABLE>
<CAPTION>
Riverview FutureLink USA
FutureLink FutureLink Pro Forma Management Pro Forma Pro Forma
USA Alberta Adjustments Corporation Adjustments Consolidated
$ $ $ $ $ $
----------- ---------- ------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUE -- 20,880 -- 5,339,694 -- 5,360,575
----------- ---------- ------------- ----------- ------------ -----------
EXPENSES
Salaries and employee benefits -- 219,781 (2.5)2,117,500 2,382,623 -- 4,719,904
Staff development -- -- -- 172,522 -- 172,522
Consulting -- 154,316 -- -- -- 154,316
Travel -- 52,591 -- 9,541 -- 62,133
Accounting and legal fees 40,158 51,827 -- 43,102 -- 135,087
Hardware and software purchases -- -- -- 2,256,447 -- 2,256,447
Advertising and promotion -- 49,408 -- 58,438 -- 107,846
Depreciation and amortization -- 49,034 (3.1) 115,808 46,634 (3.2) 314,134 525,610
Office 30,918 48,101 -- 139,946 -- 218,965
Rent -- 34,771 -- 51,393 -- 86,164
Investor relations -- 22,229 -- -- -- 22,229
Equipment rental -- 19,578 -- 4,955 -- 24,533
Internet -- 16,754 -- -- -- 16,754
Automotive -- -- -- 26,268 -- 26,268
Other -- 27,680 29,540 57,220
Interest on long term debt -- -- -- -- (3.3) 242,957 242,957
Equity in loss of an affiliate 411,316 -- (3.4) (411,316) -- -- --
----------- ---------- ------------- ----------- ------------ -----------
482,392 746,070 -- 5,221,409 -- 8,828,955
----------- ---------- ------------- ----------- ------------ -----------
LOSS BEFORE DISCONTINUED OPERATIONS (482,392) (725,190) -- 118,285 -- (3,468,380)
LOSS FROM DISCONTINUED OPERATIONS -- (149,965) -- -- -- (149,965)
----------- ---------- ------------- ----------- ------------ -----------
LOSS FOR THE YEAR BEFORE INCOME TAXES (482,392) (875,156) -- 118,285 -- (3,618,345)
INCOME TAXES -- -- -- (44,432) -- (44,432)
----------- ---------- ------------- ----------- ------------ -----------
</TABLE>
<PAGE> 66
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
(482,392) (875,156) -- 73,853 -- (3,662,777)
MINORITY INTEREST -- -- -- 23,973 -- 23,973
----------- ---------- ------------- ----------- ------------ -----------
NET EARNINGS (LOSS) FOR THE YEAR (482,392) (875,156) -- 97,826 -- (3,638,804)
----------- ---------- ------------- ----------- ------------ -----------
</TABLE>
See accompanying notes to the unaudited pro forma consolidated financial
statements
<PAGE> 67
1. The accompanying unaudited pro forma consolidated financial statements
have been prepared by management from the unaudited financial statements
as at June 30, 1998 of FutureLink Distribution Corp. (a Colorado
corporation) ("FutureLink USA"), FutureLink Distribution Corp. (an Alberta
corporation) ("FutureLink Alberta") and Riverview Management Corporation
("Riverview"), and for the six month period then ended (eight month period
then ended in the case of Riverview) together with other information
available to the companies. In the opinion of the management of FutureLink
USA, these pro forma consolidated financial statements include all
adjustments necessary for fair presentation in accordance with accounting
principles generally accepted in the United States. These pro forma
consolidated financial statements may not be indicative of the financial
position or the results of operations that actually would have occurred if
the events reflected therein had been in effect on the dates indicated nor
of the financial position or the results of operations which may be
obtained in the future.
These pro forma consolidated financial statements should be read in
conjunction with the audited and unaudited financial statements of the
companies included elsewhere in this registration document.
2. The pro forma consolidated balance sheet at June 30, 1998 gives effect to
the following assumptions and transactions, all of which will become
effective on the date of the fulfillment or waiver of the conditions of
the FutureLink Alberta Acquisition Agreement and the SysGold acquisition
agreement as if the effective dates of those agreements were June 30,
1998:
2.1 The acquisition of all of the outstanding common shares of
FutureLink Alberta in exchange for an equal number of common shares
of FutureLink USA. This acquisition has been reflected as though the
initial acquisition of 1,540,000 common shares and the subsequent
acquisition of all the remaining common shares at a later date both
occurred on June 30, 1998.
The initial and subsequent acquisitions have been accounted for in
these pro forma financial statements using the purchase method.
Based on an independent valuation report dated March 1998 that
attributed a value of $0.22 to common shares of FutureLink Alberta,
the total value ascribed to the initial acquisition was $338,800.
Based on an independent valuation report dated September 1998 that
attributed a value of $0.59 to common shares of FutureLink Alberta,
the total value ascribed to the subsequent acquisition was
$1,035,019. The aggregate purchase price of $1,373,819 has been
allocated to the net assets acquired based on their estimated fair
values, as follows:
<PAGE> 68
<TABLE>
<CAPTION>
Purchase Price
Allocation
$
----------
<S> <C>
Net liabilities acquired (842,347)
Goodwill 2,216,166
----------
Purchase price 1,373,819
----------
</TABLE>
2.2 The allocation to goodwill of the estimated costs of the acquisition
described in 2.1 above, in the amount of $100,000 financed through
bank credit facilities of FutureLink USA.
2.3 The acquisition of all of the outstanding common shares of Riverview
for cash consideration of $3,100,000 Canadian, as well as a
promissory note for $585,000 Canadian and 4,250,000 common shares of
FutureLink USA with an ascribed value of $3,612,500 U.S.
The acquisition has been accounted for in these pro forma
consolidated financial statements by the purchase method. The
purchase price has been allocated to the net assets acquired based
on their estimated fair values, as follows:
<TABLE>
<CAPTION>
Purchase Price
Allocation
$
----------
<S> <C>
Net assets acquired 163,156
Goodwill 5,957,683
----------
Purchase price 6,120,839
----------
Consideration:
Promissory note payable 398,203
Debt component of 10% convertible debenture* 1,607,143
Equity component of 10% convertible debenture* 642,857
Common shares of FutureLink USA 3,612,500
Excess cash (139,864)
----------
Total consideration 6,120,839
----------
</TABLE>
*the proceeds from the convertible debenture will be drawn in an
initial amount of $2,250,000, with the excess cash of $139,864 being
held by FutureLink USA for general use. The difference between the
amount attributed to the debt component and the face value
represents additional interest expense, to be amortized over the 3
year life of the debenture.
2.4 The allocation to goodwill of the estimated costs of the acquisition
described in 2.3 above, in the amount of $325,000 financed through
bank credit facilities of FutureLink USA.
2.5 The issuance of 3.5 million common shares to officers, directors and
employees that took place in July 1998 has been reflected as if the
transaction had taken place on June 30, 1998. The shares were issued
for consideration of $0.001 per share. The fair value of these
shares at the date of issuance was $2,117,500. The excess of fair
value over the issue price has been included in salaries and
employee benefits.
3. The pro forma consolidated statement of income for the six months ended
June 30, 1998 gives effect to the acquisitions by FutureLink USA as
described in 2.1 and 2.3 above which will become effective on the date of
the fulfillment or waiver of the conditions of the FutureLink Alberta
Acquisition Agreement and the SysGold acquisition agreement, as if the
transactions had occurred January 1, 1998. The following adjustments are
reflected:
3.1 The amortization of Goodwill attributable to the allocation of the
purchase price of FutureLink Alberta in excess of the
<PAGE> 69
carrying value of the net assets acquired, (see 2.1 and 2.2 above)
calculated on a straight-line basis over a period of 10 years.
3.2 The amortization of Goodwill attributable to the allocation of the
purchase price of Riverview in excess of the carrying value of the
net assets acquired, (see 2.3 and 2.4 above) calculated on a
straight-line basis over a period of 10 years.
3.3 The inclusion of interest expense on the convertible debenture for
six months, at an annual rate of 10%, together with the annual
amortization of the difference between the value initially
attributable to the debt component of the convertible debenture and
its face value.
3.4 The reversal of FutureLink USA's equity in the loss of FutureLink
Alberta.
3.5 The inclusion in salaries and employee benefits of $2,117,500
related to the issuance of common shares to officers, directors and
employees as described in note 2.5 above.
4. The amounts shown in these pro forma consolidated financial statements for
FutureLink Alberta and for Riverview have been translated into United
States dollars from Canadian dollars at a rate of $1 US equal to $1.4691
Canadian.
<PAGE> 70
FINANCIAL STATEMENTS
FUTURELINK DISTRIBUTION CORP.
(A COLORADO CORPORATION)
DECEMBER 31, 1997
DECEMBER 31, 1996
JUNE 30, 1998 (UNAUDITED)
<PAGE> 71
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
FUTURELINK DISTRIBUTION CORP.
We have audited the accompanying balance sheet of FUTURELINK DISTRIBUTION CORP.
as at December 31, 1997 and 1996 and the related statements of loss and deficit,
changes in stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audits in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Futurelink Distribution Corp.
as at December 31, 1997 and 1996 and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States.
Calgary, Canada
August 20, 1998 Chartered Accountants
<PAGE> 72
FUTURELINK DISTRIBUTION CORP.
BALANCE SHEETS
(All amounts stated in $U.S.)
<TABLE>
<CAPTION>
DECEMBER 31
JUNE 30, ----------------------------
1998 1997 1996
(UNAUDITED)
$ $ $
--------- --------- ---------
<S> <C> <C> <C>
CAPITAL ASSETS -- -- 515,000
Investment [note 3] 1,269,259 -- --
--------- --------- ---------
1,269,259 -- 515,000
--------- --------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Accounts payable and accrued liabilities 24,981 23,932 6,873
--------- --------- ---------
24,981 23,932 6,873
DUE TO STOCKHOLDER [NOTE 6] 504,802 -- 4,504
--------- --------- ---------
529,783 23,932 11,377
--------- --------- ---------
STOCKHOLDERS' EQUITY
Authorized
5,000,000 preferred shares without par value
100,000,000 common shares with par value of $0.0001
Issued
11,999,313, 10,203,500 and 2,500
common shares issued and outstanding
at June 30, 1998 and December 31,
1997 and 1996, respectively [note 5] 1,200 1,020 25
Capital in excess of par [note 5] 2,670,831 1,425,211 1,216,712
Deficit (1,932,555) (1,450,163) (713,114)
--------- --------- ---------
739,476 (23,932) 503,623
--------- --------- ---------
1,269,259 -- 515,000
--------- --------- ---------
</TABLE>
Contingencies [note 9]
See accompanying notes
On behalf of the Board:
Director Director
<PAGE> 73
FUTURELINK DISTRIBUTION CORP.
STATEMENTS OF LOSS AND DEFICIT
(All amounts stated in $U.S.)
<TABLE>
<CAPTION>
SIX MONTHS YEARS ENDED
ENDED DECEMBER 31
JUNE 30 ---------------------------------
1998 1997 1996
$ $ $
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
REVENUE -- -- --
----------- ----------- -----------
EXPENSES
Accounting and legal 40,158 109,992 3,803
General and administrative 30,918 12,057 3,061
----------- ----------- -----------
71,076 122,049 6,864
----------- ----------- -----------
Loss from operations (71,076) (122,049) (6,864)
----------- ----------- -----------
Write-off mining related assets [note 4] -- (515,000) --
Loss on non-refundable deposit [note 7] -- (100,000) --
Equity in loss of affiliate [note 3] (411,316) -- --
----------- ----------- -----------
(411,316) (615,000) --
----------- ----------- -----------
NET LOSS FOR THE PERIOD [NOTE 8] (482,392) (737,049) (6,864)
Deficit, beginning of period (1,450,163) (713,114) (706,250)
----------- ----------- -----------
DEFICIT, END OF PERIOD (1,932,555) (1,450,163) (713,114)
----------- ----------- -----------
LOSS PER COMMON SHARE (0.04) (1.65) (2.75)
----------- ----------- -----------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 11,720,175 447,445 2,500
----------- ----------- -----------
</TABLE>
See accompanying notes
<PAGE> 74
FUTURELINK DISTRIBUTION CORP.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(All amounts stated in $U.S.)
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN
-------------------------- EXCESS OF PAR DEFICIT
SHARES $ $ $
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 AND 1995 2,500 25 1,216,712 (713,114)
Issuance of share capital 1,000 10 9,990 --
---------- ---------- ---------- ----------
3,500 35 1,226,702 (713,114)
Change of par value from .01 to .0001 -- (35) 35 --
Issuance of share capital for cash 10,200,000 1,020 158,980 --
Forgiveness of shareholder debt -- -- 39,494 --
Net loss for the period -- -- -- (737,049)
---------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1997 10,203,500 1,020 1,425,211 (1,450,163)
Issuance of share capital on exercise of
special warrants 255,813 26 846,774 --
Issuance of share capital under Share
Purchase Agreement with Futurelink
Distribution Corp., an Alberta,
Canada corporation 1,540,000 154 338,646 --
Forgiveness of shareholder debt -- -- 60,200 --
Net loss for the period -- -- -- (482,392)
---------- ---------- ---------- ----------
BALANCE, JUNE 30, 1998 11,999,313 1,200 2,670,831 (1,932,555)
---------- ---------- ---------- ----------
</TABLE>
The above statement gives retroactive effect to a share rollback of 200 to 1 on
July 20, 1997 and a rollback of 30 to 1 on December 2, 1997.
See accompanying notes
<PAGE> 75
FUTURELINK DISTRIBUTION CORP.
STATEMENTS OF CASH FLOWS
(All amounts stated in $U.S.)
<TABLE>
<CAPTION>
SIX MONTHS YEARS ENDED
ENDED DECEMBER 31
JUNE 30 -------------------------------
1998 1997 1996
$ $ $
---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES
Net loss for the period (482,392) (737,049) (6,864)
Adjustments to reconcile net loss to net cash provided by
operating activities
Write off mining related assets [note 4] -- 515,000 --
Equity in loss of affiliate 411,316 -- --
Loss on refundable deposit -- 100,000 --
---------- ---------- ----------
(71,076) (122,049) (6,864)
Changes in non-cash working capital balances
Accounts payable and accrued liabilities 1,049 17,059 3,802
---------- ---------- ----------
(70,027) (104,990) (3,062)
---------- ---------- ----------
CASH FLOWS USED IN INVESTING ACTIVITIES
Advances to Futurelink Distribution Corp. (Alberta)
[note 3] (1,341,775) -- --
Loss on refundable deposit -- (100,000) --
---------- ---------- ----------
(1,341,775) (100,000) --
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from stockholders [note 6] 504,802 (4,504) 3,062
Proceeds from the issuance of common stock [note 5] 846,800 170,000 --
Forgiveness of shareholder debt [note 5] 60,200 39,494 --
---------- ---------- ----------
1,411,802 204,990 3,062
---------- ---------- ----------
----------
INCREASE IN CASH -- -- --
Cash, beginning of period -- -- --
---------- ---------- ----------
CASH, END OF PERIOD -- -- --
---------- ---------- ----------
</TABLE>
See accompanying notes
<PAGE> 76
1. INCORPORATION AND OPERATIONS
The Company was formed on April 4, 1955 in the state of Colorado, USA, as Cortez
Uranium and Mining Co. The company was involved in several mining related
projects and had changed its name several times. On July 20, 1997, the company
changed its names to Core Ventures, Inc. The company changed its name to
Futurelink Distribution Corp. effective February 17, 1998.
The Company had no operations in the first six months of 1997. Accordingly
comparative interim financial statements are not presented for this period.
In early 1998, the Company changed its focus to concentrate on the acquisition
and development of companies in the business of information technology
outsourcing. The Company currently has no sources of revenue, except indirectly
through its investee, and has a deficit at June 30, 1998 of $1,932,555. Its
future viability is dependent upon acquiring or developing profitable operations
and securing additional financing to support these activities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements have, in management's opinion, been properly prepared
in accordance with accounting principles generally accepted in the United
States. Differences between accounting principles generally accepted in Canada
and the United States would have no material impact on these financial
statements.
USE OF ESTIMATES
Because a precise determination of many assets and liabilities is dependent upon
future events, the preparation of financial statements for a period necessarily
involves the use of estimates which would affect the amount of recorded assets,
liabilities, revenues and expenses. Actual amounts could differ from these
estimates.
INVESTMENT
The Company's investment in Futurelink Distribution Corp. (an Alberta, Canada
corporation), representing a 47% interest in the outstanding common shares at
June 30, 1998, is accounted for using the equity method.
INCOME TAXES
The Company records its provision for income taxes using the liability method.
Under this method deferred tax assets and liabilities are recognized based on
the anticipated future tax effects arising from the differences between the
financial statement carrying amounts of assets and liabilities and their
respective tax bases.
FINANCIAL INSTRUMENTS
The carrying values of financial instruments, including accounts payable and
accrued liabilities, and amounts due to stockholders approximate their fair
values. It is management's opinion that the Company is not exposed to
significant interest, currency or credit risks arising from these financial
instruments.
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company's investment is Canadian dollars.
Adjustments arising from translating the investee's financial statements into
United States dollars are recorded in stockholders' equity as a cumulative
translation adjustment.
INTERIM FINANCIAL STATEMENTS
The interim financial statements as at and for the period ended June 30, 1998,
in the opinion of management, include all adjustments (consisting of normal
recurring adjustments and accruals) necessary to present fairly the results for
the interim period presented. Operating results for the period ended June 30,
1998 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1998.
<PAGE> 77
NET INCOME (LOSS) PER SHARE
Net income (loss) per common share is net income (loss) for the period divided
by the weighted average number of common shares outstanding. Net income (loss)
per common share assuming dilution includes the dilutive effect of stock options
outstanding.
3. INVESTMENT
<TABLE>
<CAPTION>
DECEMBER 31
JUNE 30, -----------------------------------------------
1998 1997 1996
(UNAUDITED) (Unaudited)
$ $ $
---------- ------------------ ------------------
<S> <C> <C> <C>
Futurelink Distribution Corp. (an Alberta, Canada
corporation)
1,540,000 common shares (47%) 338,800 -- --
Advances, non-interest bearing 1,341,775 -- --
Equity loss (411,316) -- --
---------- ------------------ ------------------
1,269,259 -- --
---------- ------------------ ------------------
</TABLE>
On January 20, 1998 the Company issued 1,540,000 common shares in exchange for
1,540,000 common shares of Futurelink Distribution Corp., an Alberta, Canada
corporation ("Futurelink Alberta") representing 48% of the issued and
outstanding shares at that time. Based on an independent valuation report dated
March 1998 that attributed a value of $0.22 to common shares of Futurelink
Alberta, the total value ascribed to the investment was $338,800. The Company
has also advanced Futurelink Alberta $1,341,775. This amount is non-interest
bearing and has no repayment terms.
SUMMARY FINANCIAL INFORMATION OF FUTURELINK ALBERTA
Summary financial information of FutureLink Alberta is presented below:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
(UNAUDITED)
$ $
---------- ----------
<S> <C> <C>
Current assets 244,823 52,091
Non-current assets 350,862 167,889
Current liabilities (147,006) (341,439)
Long-term debt (10,338) (61,259)
Other liabilities (11,429) (13,441)
Due to FutureLink Distribution Corp. (1,265,689) --
---------- ----------
NET ASSETS (838,777) (196,159)
---------- ----------
GROSS REVENUES 20,880 3,373
---------- ----------
NET LOSS BEFORE DISCONTINUED OPERATIONS (752,190) (560,316)
---------- ----------
</TABLE>
4. CAPITAL ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
$ $ $
------- ------- -------
<S> <C> <C> <C>
Mining concessions 85,000 -- 85,000
Proprietary mining process 430,000 -- 430,000
------- ------- -------
515,000 -- 515,000
------- ------- -------
</TABLE>
<PAGE> 78
During 1997 the Company wrote off these assets to their estimated net realizable
value of nil. The Company is no longer in the mining business.
5. SHARE CAPITAL
On January 20, 1998 the articles of the Company were amended to increase the
authorized share capital to 100,000,000 common shares and 5,000,000 preferred
shares.
83,334 warrants were issued to the share subscribers who were issued shares on
January 29, 1998. The warrants allow the holder to purchase additional shares at
$3.00 on or before one year and $3.30 before two years from the date of
acquisition. None of the outstanding warrants have been exercised as at June 30,
1998.
105,813 warrants were issued to the share subscribers who were issued shares on
April 3, 1998. The warrants allow the holder to purchase additional shares at
$3.75 on or before one year and $4.00 before two years from the date of
acquisition. None of the outstanding warrants have been exercised as at June 30,
1998.
66,666 warrants were issued to the share subscribers who were issued shares on
April 22, 1998. The warrants allow the holder to purchase additional shares at
$3.25 on or before two years from the date of acquisition. None of the
outstanding warrants have been exercised as at June 30, 1998.
On January 19, 1998, the Company reserved 3,500,000 restricted common shares for
the issuance to officers, directors and employees of Futurelink Alberta. These
shares were issued in July, 1998. The amount by which the fair value of the
shares on the date of issuance exceeds the cash received will be recorded as a
charge to earnings with an offsetting credit to share capital.
Of the 11,999,313 shares issued at June 30, 1998, 1,341,000 are restricted and
10,658,313 are freely trading. Restricted shares held by non-affiliates of the
Company must be held for at least one year. Restricted shares held by affiliates
of the Company must be held for 1 to 2 years.
The 1,540,000 common shares issued to purchase a 48% investment in Futurelink
Alberta, are subject to a hold period. One half of the shares given to the
vendors will be released from escrow on July 20, 1998 and the balance will be
released on January 20, 1999.
On June 29, 1998, the Company issued stock options to purchase 3,080,000 common
shares to employees and non-employee directors with an exercise price of $0.755.
These stock options were all outstanding as at June 30, 1998. The options expire
on June 29, 2001.
A stockholder of the Company forgave $60,200 in 1998 and $39,494 in 1997 which
he had advanced to the Company during that period.
6. RELATED PARTY TRANSACTIONS
During 1998, Linear Strategies Ltd., a stockholder, advanced the Company
$504,802. The Company in turn advanced the money to Futurelink Alberta. Interest
incurred on the loan to June 30, 1998 in the amount of $2,904 has been added to
the principal amount owing. Subsequent to June 30, 1998, the loan was converted
into shares and warrants.
The amount of $4,504 due to a stockholder of the Company at December 31, 1996
was non-interest bearing and had no repayment terms.
7. LOSS ON NON-REFUNDABLE DEPOSIT
During 1997, the Company made a $100,000 non-refundable deposit to purchase
Printscan Technology; however, the Company did not raise sufficient funds to
complete the purchase, and the deposit was forfeited.
8. INCOME TAXES
The provision for income taxes differs from the Company's statutory rate of 40
percent as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30 DECEMBER 31
---------------------------
<S> <C> <C> <C>
</TABLE>
<PAGE> 79
<TABLE>
<CAPTION>
1998 1997 1996
$ $ $
-------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Provision for income taxes based on net loss as reported 192,957 294,820 2,746
Add temporary differences not recognized
Write-off of mining related assets -- (206,000) --
Equity in loss of affiliate (164,526) -- --
Loss carryforwards (28,431) (88,820) (2,746)
-------- -------- --------
Provision for income taxes -- -- --
-------- -------- --------
</TABLE>
The Company has cumulative temporary differences related to mining operations
written off in prior years and loss carryforwards which would give rise to
deferred tax assets. The Company has lost the tax records that would quantify
such, as the result of a complete management turnover. Therefore, the Company
does not know the extent of its loss carryforwards nor in what years they
expire. Were the losses quantified, then valuation allowances would reduce all
such assets to zero as there is significant uncertainty as to whether the
Company will generate taxable income. Present management is endeavoring to be
more diligent concerning the corporate records.
9. CONTINGENCIES
A statement of claim has been filed against the Company in the amount of
approximately of $350,000 plus any interest on any damages awarded, costs on a
solicitor client basis and other damages the court may award. The statement of
claim alleges that the Company made certain misrepresentations and interfered
with contractual relations in respect of a sale transaction between two third
parties involving the Company's common shares. It is management's position that
the claim is without merit; consequently, no liability in respect of the claim
has been recorded in the financial statements.
10. SUBSEQUENT EVENTS
On August 4, 1998 the Company signed a share purchase agreement which provides
for the acquisition of Riverview Management Corporation, an information
technology outsourcing and services firm, for cash consideration of $3,000,000
Canadian, as well as a 90 day promissory note for $685,000 Canadian and
4,250,000 common shares with an ascribed value of $3,612,500 U.S. Closing of the
purchase is subject to various conditions, including obtaining third party
financing for the cash portion of the purchase cost.
On August 20, 1998 the Company issued a takeover bid circular in order to
complete the purchase of 100% of Futurelink Alberta through the issue of an
additional 1,791,275 common shares with an ascribed value of $394,081. It is
management's intention to complete the acquisition by the end of October, 1998.
<PAGE> 80
FINANCIAL STATEMENTS
FUTURELINK DISTRIBUTION CORP. ("FUTURELINK ALBERTA")
JUNE 30, 1998
(Unaudited)
<PAGE> 81
AUDITORS' REPORT
To the Shareholders of
FutureLink Distribution Corp.
We have audited the balance sheet of FutureLink Distribution Corp. as at
December 31, 1997 and the statements of loss and deficit and changes in
financial position for the year then ended. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statements presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at December 31, 1997 and the
results of its operations and the changes in its financial position for the
period then ended in accordance with generally accepted accounting principles.
Calgary, Alberta Halpin Antony Owen Mayer
February 26, 1998 CHARTERED ACCOUNTANTS
<PAGE> 82
FUTURELINK DISTRIBUTION CORP. ("FUTURELINK ALBERTA")
BALANCE SHEETS (all amounts stated in $ Cdn.)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
----------------------------------------------
998 1997 1996
(Unaudited)
$ $ $
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS
CURRENT
Cash and short term deposits 232,971 10,886 89,852
Accounts receivable 75,085 53,122 8,158
Inventory 3,643 -- --
Prepaid expenses and deposits 47,971 10,436 1,669
Notes receivable [note 8] -- -- 104,500
---------- ---------- ----------
359,670 74,444 204,179
CAPITAL ASSETS [NOTE 3] 515,050 239,330 9,745
DISCONTINUED OPERATIONS [NOTE 11] 1 -- --
INCORPORATION COSTS [NOTE 4] 400 600 800
---------- ---------- ----------
875,121 314,374 214,724
---------- ---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Accounts payable and accrued liabilities 123,051 361,581 40,458
Current portion of capital leases [note 5] 42,879 30,871 --
Notes payable [note 8] 50,037 95,500 --
---------- ---------- ----------
215,967 487,952 40,458
---------- ---------- ----------
DUE TO SHAREHOLDERS [NOTE 8] 15,188 87,545 2,030
---------- ---------- ----------
OBLIGATION UNDER CAPITAL LEASES [NOTE 5] 16,790 19,208 --
---------- ---------- ----------
DUE TO FUTURELINK DISTRIBUTION CORP., A COLORADO CORPORATION
[NOTE 8] 1,859,423 -- --
---------- ---------- ----------
SHAREHOLDERS' EQUITY
Share capital [note 7] 1,066,464 732,689 370,329
Deficit (2,298,711) (1,013,020) (198,093)
---------- ---------- ----------
(1,232,247) (280,331) 172,236
---------- ---------- ----------
875,121 314,374 214,724
---------- ---------- ----------
</TABLE>
Contingency [note 12]
See accompanying notes
Behalf of the Board:
Director Director
<PAGE> 83
Futurelink Distribution Corp. ("FUTURELINK ALBERTA")
STATEMENTS OF INCOME AND RETAINED EARNINGS
(all amounts stated in $ Cdn.)
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTHS ENDED JUNE 30 YEAR ENDED MARCH 28 TO
------------------------- DECEMBER 31 DECEMBER 31
1998 1997 1997 1996
(Unaudited) (Unaudited)
$ $ $ $
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUE
Sales 10,015 -- -- --
Equipment sales 19,668 -- -- --
Interest income 992 3,083 4,820 2,752
---------- ---------- ---------- ----------
30,675 3,083 4,820 2,752
---------- ---------- ---------- ----------
EXPENSES
Salaries 322,881 69,950 69,949 7,716
Consulting 226,705 30,442 401,320 109,625
Travel 77,262 8,645 18,997 12,196
Accounting and legal fees 76,139 4,794 14,031 17,172
Advertising and promotion 72,585 12,178 30,093 11,778
Depreciation and amortization 72,036 2,849 50,138 2,145
Office 70,665 6,109 32,066 12,674
Rent 51,082 7,046 35,839 3,300
Investor relations 32,656 -- -- --
Equipment rental 28,762 13,074 29,696 6,569
Internet 24,613 -- 19,952 --
Architectural and design fees -- -- 68,485 --
Other 40,666 5,688 35,002 17,670
---------- ---------- ---------- ----------
1,096,052 160,775 805,568 200,845
---------- ---------- ---------- ----------
LOSS BEFORE DISCONTINUED OPERATIONS (1,065,377) (157,692) (800,748) (198,093)
LOSS FROM DISCONTINUED OPERATIONS [NOTE 11] (220,314) (6,680) (14,179) --
---------- ---------- ---------- ----------
NET LOSS FOR THE PERIOD (1,285,691) (164,372) (814,927) (198,093)
DEFICIT, BEGINNING OF PERIOD (1,013,020) (198,093) (198,093) --
---------- ---------- ---------- ----------
DEFICIT, END OF PERIOD (2,298,711) (362,465) (1,013,020) (198,093)
---------- ---------- ---------- ----------
</TABLE>
See accompanying notes
<PAGE> 84
Futurelink Distribution Corp. ("FUTURELINK ALBERTA")
STATEMENTS OF CASH FLOWS (all
amounts stated in $ Cdn.)
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTHS ENDED JUNE 30 YEAR ENDED MARCH 28 TO
------------------------- DECEMBER 31 DECEMBER 31
1998 1997 1997 1996
(Unaudited) (Unaudited)
$ $ $ $
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CASH WAS PROVIDED BY (USED FOR):
Loss before discontinued operations (1,065,377) (157,692) (800,748) (198,093)
Add items not affecting cash:
Depreciation and amortization 72,036 2,849 50,138 2,145
---------- ---------- ---------- ----------
(993,341) (154,843) (750,610) (195,948)
Net change in non-cash working capital
related to operating activities [note 10] (339,671) (24,483) 371,892 (73,869)
---------- ---------- ---------- ----------
Cash used for continuing operations (1,333,012) (179,326) (378,718) (269,817)
---------- ---------- ---------- ----------
Loss from discontinued operations (220,314) (6,680) (14,179) --
Add item not affecting cash:
Loss on discontinuance 60,616 -- -- --
---------- ---------- ---------- ----------
Cash used for discontinued operations (159,698) (6,680) (14,179) --
---------- ---------- ---------- ----------
(1,492,710) (186,006) (392,897) (269,817)
---------- ---------- ---------- ----------
INVESTING ACTIVITIES
Purchase of capital assets (370,173) (68,019) (279,523) (11,690)
Incorporation costs -- -- -- (1,000)
---------- ---------- ---------- ----------
(370,173) (68,019) (279,523) (12,690)
---------- ---------- ---------- ----------
FINANCING ACTIVITIES
Proceeds from issuance of common shares 333,775 160,000 362,360 370,329
Advances from shareholders (72,357) 31,500 85,515 2,030
Advances from Futurelink Distribution Corp.
1,859,423 -- -- --
Increase in capital lease obligation 9,590 -- 50,079 --
Increase (decrease) in note payable (45,463) -- 95,500 --
---------- ---------- ---------- ----------
2,084,968 191,500 593,454 372,359
---------- ---------- ---------- ----------
INCREASE (DECREASE) IN CASH 222,085 (62,525) (78,966) 89,852
CASH AND SHORT TERM DEPOSITS, END OF PERIOD
232,971 27,327 10,886 --
---------- ---------- ---------- ----------
CASH, BEGINNING OF PERIOD 10,886 89,852 89,852 89,852
---------- ---------- ---------- ----------
</TABLE>
See accompanying notes
<PAGE> 85
1. DESCRIPTION OF BUSINESS
The Company was incorporated under the Business Corporations Act (Alberta) on
March 28, 1996 as 689936 Alberta Ltd. The name of the Company was changed to
Coffee.com Interactive Cafe Corp. by articles of amendment on June 19, 1996. The
name of the Company was subsequently changed to Futurelink Distribution Corp. on
November 17, 1997.
The Company is in the initial stages of development. Its future viability is
dependent upon management's ability to generate revenues or secure additional
financing to support continued service.
2. SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the Company have been prepared in accordance with
accounting principles generally accepted in Canada. Differences between
accounting principles generally accepted in the United States and Canada would
have no material impact on these financial statements. Because a precise
determination of many assets and liabilities is dependent upon future events,
the preparation of financial statements for a period necessarily involves the
use of estimates and approximations which have been made using careful judgment.
The financial statements have, in management's opinion, been properly prepared
within reasonable limits of materiality and within the framework of the
significant account policies summarized below.
CAPITAL ASSETS
Capital assets are recorded at cost. Depreciation is recorded at the following
rates:
Furniture and fixtures 20% declining balance
Computer hardware 30% declining balance
Computer software 100% declining balance
Leasehold improvements 5 years straight line
One half of the normal depreciation is taken in the year of acquisition.
INCORPORATION COSTS
Incorporation costs are recorded at cost and are amortized on a straight line
basis over five years.
FINANCIAL INSTRUMENTS
The carrying values of financial instruments, including cash, accounts
receivable, accounts payable and accrued liabilities, notes payable, due to
shareholders, note payable, and long term debt, approximate their fair values.
<PAGE> 86
3. CAPITAL ASSETS
<TABLE>
<CAPTION>
JUNE 30, 1998
-------------------------------------
<S> <C> <C> <C>
Furniture and fixtures 67,290 8,785 58,505
Computer hardware 404,211 75,916 328,295
Computer software 92,916 33,779 59,137
Leasehold improvements 74,352 5,239 69,113
------- ------- -------
638,769 123,719 515,050
------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
$ $ $
------- ------- -------
<S> <C> <C> <C>
Furniture and fixtures 33,385 4,346 29,039
Computer hardware 226,854 35,239 191,615
Computer software 20,830 11,284 9,546
Leasehold improvements 10,145 1,015 9,130
------- ------- -------
291,214 51,884 239,330
------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
$ $ $
------- ------- -------
<S> <C> <C> <C>
Furniture and fixtures 5,595 559 5,036
Computer hardware 4,747 712 4,035
Computer software 1,348 674 674
------- ------- -------
11,690 1,945 9,745
------- ------- -------
</TABLE>
Included in computer hardware at June 30, 1998 are assets under capital lease of
$84,802 (December 31, 1997 - $61,069; December 31, 1996 - $Nil) and related
accumulated depreciation of $18,727 (December 31, 1997 - $9,160).
<PAGE> 87
4. INCORPORATION COSTS
<TABLE>
<CAPTION>
JUNE 30, 1998
----------------------------------------
ACCUMULATED
COST AMORTIZATION NET BOOK VALUE
$ $ $
---- ------------ --------------
<S> <C> <C> <C>
Incorporation costs 1,000 600 400
----- ----- -----
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------
ACCUMULATED
COST AMORTIZATION NET BOOK VALUE
$ $ $
---- ------------ --------------
<S> <C> <C> <C>
Incorporation costs 1,000 400 600
----- ----- -----
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------------------
ACCUMULATED
COST AMORTIZATION NET BOOK VALUE
$ $ $
---- ------------ --------------
<S> <C> <C> <C>
Incorporation costs 1,000 200 800
----- ----- -----
</TABLE>
5. LEASE COMMITMENTS
The future minimum lease payments at June 30, 1998 under capital and operating
leases are as follows:
<TABLE>
<CAPTION>
OPERATING
CAPITAL LEASES LEASES
$ $
------- -------
<S> <C> <C>
1998 25,435 72,903
1999 30,414 131,740
2000 8,843 131,184
2001 1,474 124,938
2002 -- 40,952
------- -------
Total future minimum lease payments 66,166 501,717
-------
Less: imputed interest (6,497)
------- -------
Balance of obligations under capital lease 59,669
Less: current portion (42,879)
------- -------
Long term obligation under capital lease 16,790
------- -------
</TABLE>
6. NOTES PAYABLE
The notes payable are due to 679132 Alberta Ltd., a corporation controlled by a
director and officer of the Company. The notes are payable on demand on or
before December 31, 1998. Interest accrues on the notes at the prime rate of a
Canadian chartered bank plus 1%. These notes were repaid in full in July, 1998.
7. SHARE CAPITAL
AUTHORIZED:
Unlimited Class "A" common shares
Unlimited Class "B" non-voting common shares
Unlimited first preferred shares
<PAGE> 88
<TABLE>
<CAPTION>
ISSUED Shares $
---------- ----------
<S> <C> <C>
Class A common shares
Balance at December 31, 1996 3,660,000 370,329
Rollback of initial founder shares (1,400,000) (140)
Shares issued for cash during the year, net of issue costs of $5,000 367,500 362,500
Shares issued to key employees 325,000 --
---------- ----------
Balance, December 31, 1997 2,952,500 732,689
Shares issued for cash 145,000 145,000
Shares issued as compensation 188,775 188,775
---------- ----------
Balance, June 30, 1998 3,286,275 1,066,464
---------- ----------
</TABLE>
At June 30, 1998, there were 165,000 (December 31, 1997 - 225,000) Class A
common shares reserved for issuance on exercise of stock options, of which
45,000 were exercised subsequent to June 30, 1998. These remaining 120,000
options outstanding may be exercised at a price of $1.00 per share and expire on
August 26, 1998.
8. RELATED PARTY TRANSACTIONS
At June 30, 1998, the Company had amounts due to shareholders of $15,188
(December 31, 1997 - $87,545; 1996 - $2,030).
At June 30, 1998, the Company had amounts owing to 679132 Alberta Ltd., a
corporation controlled by a director and officer of the Company of $47,000 plus
$3,037 of accrued interest (1997 - $95,500). This amount is due on or before
December 31, 1998. Interest is accumulated at the Royal Bank of Canada prime
plus 1%.
During the year, the Company received $1,859,423 of cash advances from a
significant shareholder, FutureLink Distribution Corp., a Colorado corporation,
which remains payable at June 30, 1998. The amount does not carry interest and
has no set repayment terms. The Company has been advised by its shareholder that
it does not intend to demand repayment within the next year; consequently, this
amount has been classified as long-term in the financial statements.
As at December 31, 1996 there is an amount of $104,500 including accrued
interest owing from a corporation controlled by a director of the Company. This
amount was repaid during 1997.
Included in accounts receivable at June 30, 1998 are amounts due from two
shareholders of the Company, FutureLink Distribution Corp., a Colorado
corporation, and Chell McNeill Inc. for $18,893 and $9,681 respectively
(December 31, 1997 and 1996 - $Nil).
9. INCOME TAXES
As at December 31, 1997, the Company has approximately $950,000 of non-capital
loss carry forwards for tax purposes. The potential future benefit of these
losses has not been recognized in these financial statements.
These losses expire in 2004 and 2005.
10. NET CHANGE IN NON-CASH WORKING CAPITAL BALANCES RELATED TO OPERATING
ACTIVITIES
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTHS ENDED JUNE 30 YEAR ENDED MARCH 28 TO
---------------------- DECEMBER 31 DECEMBER 31
1998 1997 1997 1996
$ $ $ $
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Accounts receivable (21,963) (11,806) (44,964) (8,158)
Inventory (3,643) -- -- --
Prepaid expenses and deposits (75,535) (25,689) (8,767) (1,669)
Notes receivable -- -- 104,500 (104,500)
</TABLE>
<PAGE> 89
<TABLE>
<S> <C> <C> <C> <C>
Accounts payable and accrued liabilities
(238,530) 13,012 321,123 40,458
-------- -------- -------- --------
(339,671) (24,483) 371,892 (73,869)
-------- -------- -------- --------
</TABLE>
<PAGE> 90
11. DISCONTINUED OPERATIONS
Effective April 23, 1998, the Company discontinued its operations that provided
Internet web page design services. The remaining assets and liabilities related
to these operations have been written down to $1 resulting in a loss on
discontinuance of $60,616. On July 1, 1998, the Company disposed of the
discontinued operations in exchange for an investment in 50% of the common
shares of NextClick Ltd. The fair market value of this investment has been
estimated at $1.
During the period, revenues and results of the discontinued operations were as
follows:
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTHS ENDED JUNE 30 YEAR ENDED MARCH 28 TO
-------------------------------- DECEMBER 31 DECEMBER 31
1998 1997 1997 1996
$ $ $ $
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue 21,190 -- 22,585 --
=================================================================================================================
Results of operations (159,698) (6,680) (14,179) --
Loss on discontinuance (60,616) -- -- --
- -----------------------------------------------------------------------------------------------------------------
(220,314) (6,680) (14,179) --
=================================================================================================================
</TABLE>
12. CONTINGENCY
A statement of claim has been filed against the Company in the amount of
$285,000 seeking damages and loss of rent related to a purported lease agreement
with respect to a building in Calgary, Alberta. The Company is counter claiming
an amount of $360,000 against the claimant. It is impossible at this time for
the Company to predict with any certainty the outcome of such litigation.
However, management is of the opinion that the claim is without merit and will
defend the Company's position vigorously. These financial statements contain no
provision for loss related to the claims.
<PAGE> 91
RIVERVIEW MANAGEMENT CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
(ALL AMOUNTS STATED IN $ CDN.)
JUNE 30, 1998 and 1997
(Unaudited)
<PAGE> 92
I N D E X
<TABLE>
<CAPTION>
Page
<S> <C>
REVIEW ENGAGEMENT REPORT 1
FINANCIAL STATEMENTS
Consolidated Balance Sheets 2
Consolidated Statements of Earnings and Retained Earnings 3
Consolidated Statements of Changes in Financial Position 4
Notes to Consolidated Financial Statements 5 - 8
</TABLE>
<PAGE> 93
REVIEW ENGAGEMENT REPORT
To the Directors of
Riverview Management Corporation
We have reviewed the consolidated balance sheets of Riverview Management
Corporation as at June 30, 1998 and 1997 and the consolidated statements of
earnings and retained earnings and changes in financial position for the eight
months then ended. Our review was made in accordance with generally accepted
standards for review engagements and accordingly consisted primarily of enquiry,
analytical procedures and discussion related to information supplied to us by
the company.
A review does not constitute an audit and consequently we do not express an
audit opinion on these financial statements.
Based on our review, nothing has come to our attention that causes us to believe
that these financial statements are not, in all material respects, in accordance
with generally accepted accounting principles.
<PAGE> 94
Calgary, Alberta
August 13,
<PAGE> 95
1
1998, expect as to Note 5 and 6(b)
which is as September 24, 1998 CHARTERED ACCOUNTANTS
<PAGE> 96
2
RIVERVIEW MANAGEMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
(all amounts stated in $ Cdn.)
JUNE 30, 1998 AND 1997
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
CURRENT
Cash $ 66,806 $ 36,559
Accounts receivable (net of allowance for doubtful
accounts, (1998 - $13,974, 1997 - $3,922)) 1,510,276 1,539,994
Prepaid expenses 15,725 15,679
Inventory 19,041 51,840
---------- ----------
1,611,848 1,644,072
CAPITAL ASSETS (Note 2) 206,577 111,552
DEPOSITS 8,183 6,663
---------- ----------
$1,826,608 $1,762,287
========== ==========
LIABILITIES
CURRENT
Bank indebtedness $ 240,930 $ 137,960
Accounts payable and accrued liabilities 937,919 1,162,768
Income taxes payable 162,250 141,550
Loan payable 28,136 33,782
Shareholder loan 128,933 24,577
Current portion of obligation under capital lease 49,821 --
---------- ----------
1,547,989 1,500,637
OBLIGATION UNDER CAPITAL LEASE (Note 3) 17,250 --
---------- ----------
1,565,239 1,500,637
MINORITY INTEREST 21,676 83,600
---------- ----------
1,586,915 1,584,237
---------- ----------
SUBSEQUENT EVENTS (Note 6)
</TABLE>
<PAGE> 97
<TABLE>
<S> <C> <C>
COMMITMENTS (Note 7)
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 4) 40 40
RETAINED EARNINGS 239,653 178,010
---------- ----------
239,693 178,050
---------- ----------
</TABLE>
<PAGE> 98
4
<TABLE>
<S> <C> <C>
$1,826,608 $1,762,287
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 99
RIVERVIEW MANAGEMENT CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
(all amounts stated in $ Cdn.)
EIGHT MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
REVENUE
System consulting $ 4,232,998 $ 2,863,237
Hardware and software sales 3,611,356 2,628,859
Sundry 191 577
----------- -----------
7,844,545 5,492,673
----------- -----------
EXPENSES
Advertising and promotion 85,851 52,471
Amortization 68,510 43,775
Automotive 38,590 18,662
Bad debts 7,475 3,300
Bank charges and interest 23,764 11,283
Equipment rental 7,280 8,498
Hardware and software purchases 3,314,946 2,403,900
Interest on capital lease obligation 12,161 --
Office 95,677 41,926
Professional fees 63,321 40,821
Rent 75,501 57,308
Salaries 3,500,311 2,217,073
Staff development 253,452 125,243
Telephone 109,917 78,351
Travel 14,017 8,063
----------- -----------
7,670,773 5,110,674
----------- -----------
EARNINGS BEFORE INCOME TAXES 173,772 381,999
INCOME TAXES 65,275 141,550
----------- -----------
108,497 240,449
MINORITY INTEREST (35,219) 63,065
----------- -----------
NET EARNINGS 143,716 177,384
RETAINED EARNINGS, beginning of period 141,937 46,626
----------- -----------
285,653 224,010
DIVIDENDS (46,000) (46,000)
----------- -----------
RETAINED EARNINGS, end of period $ 239,653 $ 178,010
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 100
RIVERVIEW MANAGEMENT CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
(all amounts stated in $ Cdn.)
EIGHT MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 143,716 $ 177,384
Adjustments to operations not involving cash
Amortization 68,510 43,775
Minority interest (35,219) 63,065
Change in non-cash working capital items
Accounts receivable (144,732) (459,733)
Prepaid expense (6,714) (15,014)
Inventory (7,368) (45,000)
Accounts payable and accrued liabilities (53,779) 245,041
Deferred revenue -- (13,778)
Income taxes payable 28,060 127,289
Bonus payable (184,500) (108,600)
--------- ---------
(192,026) 14,429
--------- ---------
INVESTING ACTIVITIES
Acquisition of capital assets (72,264) (88,005)
Advancement of deposits (1,520) (6,663)
--------- ---------
(73,784) (94,668)
--------- ---------
FINANCING ACTIVITIES
Advances from shareholder 126,454 21,050
Repayment of loan payable (5,646) --
Proceeds on bank financing 223,018 113,430
Repayment of capital lease obligation (21,053) --
Repayment of long-term debt -- (5,555)
Dividends paid (46,000) (46,000)
--------- ---------
276,773 82,925
--------- ---------
</TABLE>
<PAGE> 101
9
<TABLE>
<S> <C> <C>
NET CHANGE IN CASH 10,963 2,686
CASH, beginning of period 55,843 33,873
--------- ---------
CASH, end of period $ 66,806 $ 36,559
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 102
10
RIVERVIEW MANAGEMENT CORPORATION
NOTES TO FINANCIAL CONSOLIDATED STATEMENTS
(all amounts stated in $ Cdn.)
JUNE 30, 1998 AND 1997
(Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include the accounts of the
company, its wholly-owned subsidiary Sysgold Inc. and it's 67/100 owned
subsidiary Sysgold Ltd. The consolidated financial statements represent
nine months of the parent company and eight months of the subsidiaries as
a result of different fiscal year-ends.
The consolidated financial statements are prepared in accordance with
accounting principles generally accepted in Canada, which conform in all
material respects to accounting principles generally accepted in the
United States.
INVENTORY
Inventory has been valued at the lower of cost or net realizable value.
Cost being determined on a first-in first-out basis.
CAPITAL ASSETS
Capital assets are recorded at cost. Amortization is provided annually at
rates calculated to write-off the assets over their estimated useful
lives as follows:
<TABLE>
<S> <C> <C>
Cellular phones 2.7% per month straight line
Computer hardware 4% per month straight line
Computer software 100% per annum declining balance
Leasehold improvements straight-line over the term of the lease
Office equipment 20% per annum declining balance
Equipment under capital lease 20% per annum declining balance
</TABLE>
INCOME TAXES
The Company follows the deferral method of income tax allocation.
Deferred income taxes arise as a result of timing differences between the
recognition of accounting income and taxable income. Because the
company's depreciation rates and methods closely approximate those
allowable by the taxation authorities, there are no material differences
between the tax bases and book bases of the company's capital assets.
MEASUREMENT UNCERTAINTY
The amount recorded for amortization of capital assets is based on
estimates. Management requires estimates to forecast economic indicators
for determining the net recoverable amount of such assets under generally
accepted accounting principles. By their nature, these estimates are
subject to measurement uncertainty and the effect of any changes in such
estimates on the financial statements of future periods could be
material. Management periodically reviews the useful lives of these
assets to determine the adequacy of the amortization policy.
FINANCIAL INSTRUMENTS
The Company is exposed to credit risk from customers. The Company does
not obtain collateral or other security to support financial instruments
subject to credit risk but mitigates this risk by dealing only with
financially sound counterparties and, accordingly, does not anticipate
unaccounted for losses arising from trade receivables.
The majority of trade receivables are concentrated in the oil and gas
industry, and accordingly are exposed to the risks associated with that
industry. The Company does not have a significant exposure to any
individual customer or counterparty as at June 30, 1998 nor as at June
30, 1997.
<PAGE> 103
RIVERVIEW MANAGEMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
(Unaudited)
2. CAPITAL ASSETS
<TABLE>
<CAPTION>
1998 1997
--------------------------------------------------
Accumulated Net Book Net Book
Cost Amortization Value Value
<S> <C> <C> <C> <C>
Cellular phones $ 44,529 $ 23,007 $ 21,522 $ 15,844
Computer hardware 254,812 201,962 52,850 49,339
Computer software 28,752 25,883 2,869 4,354
Leasehold improvements 39,081 11,692 27,389 30,795
Office equipment 24,564 7,945 16,619 11,220
Equipment under capital lease 104,377 19,049 85,328 --
-------- -------- -------- --------
$496,115 $289,538 $206,577 $111,552
======== ======== ======== ========
</TABLE>
<PAGE> 104
3. OBLIGATION UNDER CAPITAL LEASE
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
The following is a schedule of future minimum lease
payments under capital leases expiring between July
1999 and July 2000
Year ending October 31,
1998 $ 49,819 $ --
1999 30,222 --
2000 2,090 --
-------- --------
Total minimum lease payments 82,131 --
Less amount representing interest imputed at rates of 14 - 34% (15,060) --
-------- --------
Balance of obligation 67,071 --
Less current portion (49,821) --
-------- --------
Long-term portion of obligation $ 17,250 $ --
======== ========
</TABLE>
4. SHARE CAPITAL
<TABLE>
<CAPTION>
Authorized 1998 1997
------ ------
<S> <C> <C>
Unlimited number of Class A common voting shares Class B common
non-voting shares
Class C common non-voting redeemable shares Class D common
non-voting 8% cumulative preferred shares
with a redemption price of $1 per share
Issued
100 Class A shares $ 10 $ 10
100 Class B shares 10 10
100 Class C shares 10 10
10 Class D shares 10 10
------ ------
$ 40 $ 40
====== ======
</TABLE>
<PAGE> 105
13
RIVERVIEW MANAGEMENT CORPORATION
NOTES TO FINANCIAL CONSOLIDATED STATEMENTS
JUNE 30, 1998 AND 1997
(Unaudited)
5. INCOME TAXES
Income taxes presented in the consolidated statements of earnings and
retained earnings differs from the combined statutory income tax rate as
follows;
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Income taxes based on the combined statutory rate of 45% $ 78,197 $ 171,900
Utilization of the small business deduction for
Canadian controlled private corporations (34,466) (36,600)
Unrecognized benefit of loss carry forwards of a
wholly owned subsidiary 15,818 1,895
Permanent differences 3,658 5,360
Other 2,068 (1,005)
--------- ---------
$ 65,275 $ 141,550
========= =========
</TABLE>
The potential income tax benefits resulting from losses carried forward
are not recorded in the financial statements. As at October 31, 1997,
Sysgold Inc., a wholly owned subsidiary, had non-capital loss carry
forwards of $1,800 and $14,113 which expire in 2002 and 2003
respectively. Under Untied States GAAP, the $6,800 (1996 - $785)
potential tax benefit associated with the losses carried forward would
have been offset entirely by a valuation allowance.
6. SUBSEQUENT EVENT
(a) The company purchased the remaining 33% interest in its subsidiary
Sysgold Ltd. from the minority shareholder for cash proceeds of
$315,000 on July 24, 1998. The purchase was accounted for using the
purchase method. The purchase price allocation is estimated as
follows:
<TABLE>
<S> <C>
Net Assets Acquired
Current assets $514,182
Capital assets 67,257
Other assets 20,728
Goodwill 222,886
--------
825,053
Current liabilities 411,740
Other liabilities 98,313
510,053
Net Assets $315,000
========
</TABLE>
(b) A statement of claim was filed on August 19, 1998 against the
corporation in the amount of $150,000 seeking damages for wrongful
termination of a consulting contract. Management does not believe
there is any merit to the lawsuit and it will be vigorously defended.
<PAGE> 106
14
RIVERVIEW MANAGEMENT CORPORATION
NOTES TO FINANCIAL CONSOLIDATED STATEMENTS
JUNE 30, 1998 AND 1997
(Unaudited)
7. COMMITMENTS
The company is committed under various operating leases including: office
equipment lease; $930 per month expiring May 2000, premises lease; $3,653
per month expiring January 2002 and vehicle lease; $1,693 expiring March
2001. The basic minimum lease payments for the duration of the agreements
is as follows:
<TABLE>
<S> <C>
1999 $ 75,311
2000 74,381
2001 59,068
2002 25,571
--------
$234,331
========
</TABLE>
<PAGE> 107
RIVERVIEW MANAGEMENT CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997 and 1996
<PAGE> 108
I N D E X
<TABLE>
<CAPTION>
Page
----
<S> <C>
AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Consolidated Balance Sheets 2
Consolidated Statements of Earnings and Retained Earnings 3
Consolidated Statements of Changes in Financial Position 4
Notes to Consolidated Financial Statements 5 - 8
</TABLE>
<PAGE> 109
AUDITORS' REPORT
To the Directors of
Riverview Management Corporation
We have audited the consolidated balance sheets of Riverview Management
Corporation as at October 31, 1997 and 1996 and the consolidated statements of
earnings and retained earnings and changes in financial position for the years
then ended. These consolidated financial statements are the responsibility of
the company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at October 31, 1997
and 1996 and the results of its operations and the changes in its financial
position for the years then ended in accordance with accounting principles
generally accepted in Canada.
Calgary, Alberta
August 13, 1998, except as to Note 5 and Note 6(b)
which are as of September 24, 1998 CHARTERED ACCOUNTANTS
<PAGE> 110
RIVERVIEW MANAGEMENT CORPORATION
CONSOLIDATED BALANCE SHEETS (all
amounts stated in $ Cdn.)
OCTOBER 31, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
CURRENT
Cash $ 55,843 $ 33,873
Accounts receivable (net of allowance for doubtful
accounts, (1997 - $6,499, 1996 - $622)) 1,365,544 1,080,261
Prepaid expenses 9,011 665
Inventory 11,673 6,840
---------- ----------
1,442,071 1,121,639
CAPITAL ASSETS (Note 2) 202,823 67,319
DEPOSITS 6,663 --
$1,651,557 $1,188,958
========== ==========
LIABILITIES
CURRENT
Bank indebtedness $ 17,912 $ 24,530
Accounts payable and accrued liabilities 991,698 917,725
Bonus payable 184,500 108,600
Income taxes payable 134,190 14,261
Deferred revenue -- 13,778
Loan payable 33,782 33,782
Shareholder loans 2,479 3,527
Current portion of obligation under capital lease (Note 3) 32,821
----------
Current portion of long-term debt -- 5,555
---------- ----------
1,397,382 1,121,758
OBLIGATION UNDER CAPITAL LEASE (Note 3) 55,303 --
---------- ----------
1,452,685 1,121,758
MINORITY INTEREST 56,895 20,534
---------- ----------
1,509,580 1,142,292
---------- ----------
SUBSEQUENT EVENTS (Note 6)
COMMITMENTS (Note 7)
</TABLE>
<PAGE> 111
<TABLE>
<S> <C> <C>
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 4) 40 40
RETAINED EARNINGS 141,937 46,626
---------- ----------
141,977 46,666
---------- ----------
$1,651,557 $1,188,958
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 112
RIVERVIEW MANAGEMENT CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
(all amounts stated in $ Cdn.)
YEARS ENDED OCTOBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
REVENUE
System consulting $ 4,587,504 $ 2,309,576
Hardware and software sales 4,929,610 2,967,732
Sundry 3,675 9,949
----------- -----------
9,520,789 5,287,257
----------- -----------
EXPENSES
Advertising and promotion 97,897 42,430
Amortization 73,747 57,218
Automotive 37,860 25,947
Bad debts 5,878 3,556
Bank charges and interest 15,986 13,474
Employee benefits 343,976 173,462
Equipment rental 12,720 --
Hardware and software purchases 4,500,816 2,724,037
Interest on long-term debt and capital lease obligation 4,629 4,150
Management fees -- 74,357
Memberships and subscriptions 26,161 27,351
Office 58,304 37,917
Out sourced administration 3,802 12,679
Professional fees 86,990 74,264
Rent 100,935 32,520
Repairs and maintenance 2,770 3,177
Salaries 2,589,611 1,386,708
Staff development 171,853 69,812
Supplies 18,727 23,067
System consultants 901,976 354,185
Telephone 132,503 78,360
Travel 21,056 18,097
----------- -----------
9,208,197 5,236,768
----------- -----------
EARNINGS BEFORE INCOME TAXES 312,592 50,489
INCOME TAXES 134,920 14,991
----------- -----------
177,672 35,498
MINORITY INTEREST 36,361 8,822
----------- -----------
NET EARNINGS 141,311 26,676
RETAINED EARNINGS, beginning of year 46,626 65,950
----------- -----------
187,937 92,626
</TABLE>
<PAGE> 113
<TABLE>
<S> <C> <C>
DIVIDENDS (46,000) (46,000)
----------- -----------
RETAINED EARNINGS, end of year $ 141,937 $ 46,626
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 114
RIVERVIEW MANAGEMENT CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
(all amounts stated in $ Cdn.)
YEARS ENDED OCTOBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 141,311 $ 26,676
Adjustments to operations not involving cash
Amortization 73,747 57,218
Minority interest 36,361 8,822
Change in non-cash working capital items
Accounts receivable (285,283) (636,392)
Prepaid expense (8,346) 335
Inventory (4,833) 16,528
Accounts payable and accrued liabilities 73,973 552,704
Deferred revenue (13,778) (496)
Income taxes payable 119,929 (6,017)
Bonus payable 75,900 78,600
--------- ---------
208,981 97,978
--------- ---------
INVESTING ACTIVITIES
Acquisition of capital assets (209,251) (66,001)
Advancement of deposits (6,663) --
--------- ---------
(215,914) (66,001)
--------- ---------
FINANCING ACTIVITIES
Advances (to) from shareholders (1,048) 5,423
Proceeds (repayment) on bank financing (6,618) 24,530
Dividends paid to minority shareholders -- (2,128)
Advancement of capital lease obligation 104,376 --
Repayment of capital lease obligation (16,252) --
Repayment of long-term debt (5,555) (13,332)
Dividends paid (46,000) (46,000)
--------- ---------
28,903
--------- ---------
NET CHANGE IN CASH 21,970 470
CASH, beginning of year 33,873 33,403
--------- ---------
CASH, end of year $ 55,843 $ 33,873
--------- ---------
</TABLE>
<PAGE> 115
See accompanying notes to consolidated financial statements
<PAGE> 116
RIVERVIEW MANAGEMENT CORPORATION
NOTES TO FINANCIAL CONSOLIDATED STATEMENTS
(all amounts stated in $ Cdn.)
OCTOBER 31, 1997 AND 1996
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include the accounts of the
company, its wholly-owned subsidiary Sysgold Inc. and it's 67/100 owned
subsidiary Sysgold Ltd.. The fiscal year of the parent company is
September 30th and the fiscal year of the two subsidiaries is October
31st.
The consolidated financial statements are prepared in accordance with
accounting principles generally accepted in Canada, which conform in all
material respects to accounting principles generally accepted in the
United States.
INVENTORY
Inventory has been valued at the lower of cost or net realizable value.
Cost being determined on a first-in first-out basis.
CAPITAL ASSETS
Capital assets are recorded at cost. Amortization is provided annually at
rates calculated to write-off the assets over their estimated useful
lives as follows:
<TABLE>
<S> <C> <C>
Cellular phones 2.7% per month straight line
Computer hardware 4% per month straight line
Computer software 100% per annum declining balance
Leasehold improvements straight-line over the term of the lease
Office equipment 20% per annum declining balance
Equipment under capital lease 20% per annum declining balance
</TABLE>
INCOME TAXES
The Company follows the deferral method of income tax allocation.
Deferred income taxes arise as a result of timing differences between the
recognition of accounting income and taxable income. Because the
company's depreciation rates and methods closely approximate those
allowable by the taxation authorities, there are no material differences
between the tax bases and book bases of the company's capital assets.
MEASUREMENT UNCERTAINTY
The amount recorded for amortization of capital assets is based on
estimates. Management requires estimates to forecast economic indicators
for determining the net recoverable amount of such assets under generally
accepted accounting principles. By their nature, these estimates are
subject to measurement uncertainty and the effect of any changes in such
estimates on the financial statements of future periods could be
material. Management periodically reviews the useful lives of these
assets to determine the adequacy of the amortization policy.
FINANCIAL INSTRUMENTS
The Company is exposed to credit risk from customers. The Company does
not obtain collateral or other security to support financial instruments
subject to credit risk but mitigates this risk by dealing only with
financially sound counterparties and, accordingly, does not anticipate
unaccounted for losses arising from trade receivables.
The majority of trade receivables are concentrated in the oil and gas
industry, and accordingly are
<PAGE> 117
exposed to the risks associated with that industry. Furthermore, the
Company has a trade receivable of $543,105 (1996 - $149,005) from a
customer which accounts for 40% (1996 - 14%) of the total trade
receivables.
<PAGE> 118
RIVERVIEW MANAGEMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997 AND 1996
2. CAPITAL ASSETS
<TABLE>
<CAPTION>
1997 1996
--------------------------------------------------------
Accumulated Net Book Net Book
Cost Amortization Value Value
<S> <C> <C> <C> <C>
Cellular phones $ 31,125 $ 15,551 $ 15,574 $ 11,323
Computer hardware 215,111 167,779 47,332 44,460
Computer software 21,896 19,444 2,452 1,723
Leasehold improvements 36,272 6,676 29,596 204
Office equipment 15,071 5,658 9,413 9,609
Equipment under capital lease 104,377 5,921 98,456 --
-------- -------- -------- --------
$423,852 $221,029 $202,823 $ 67,319
-------- -------- -------- --------
</TABLE>
<PAGE> 119
RIVERVIEW MANAGEMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997 AND 1996
3. OBLIGATION UNDER CAPITAL LEASE
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
The following is a schedule of future minimum lease
payments under capital leases expiring between July
1999 and July 2000
Year ending October 31,
1998 $ 49,819 $ --
1999 46,155 --
2000 19,370 --
--------- ---------
Total minimum lease payments 115,344 --
Less amount representing interest imputed at rates of 14 - 34% (27,220) --
--------- ---------
Balance of obligation 88,124 --
Less current portion of obligation 32,821 --
--------- ---------
Long-term portion of obligation $ 55,303 $ --
--------- ---------
</TABLE>
4. SHARE CAPITAL
<TABLE>
<CAPTION>
Authorized 1997 1996
------ ------
<S> <C> <C>
Unlimited number of
Class A common voting shares
Class B common non-voting shares
Class C common non-voting shares
Class D common non-voting 8% non-cumulative preferred
shares with a redemption price of $1 per share
Issued
100 Class A shares $ 10 $ 10
100 Class B shares 10 10
100 Class C shares 10 10
10 Class D shares 10 10
------ ------
</TABLE>
<PAGE> 120
<TABLE>
<S> <C> <C>
$ 40 $ 40
------ ------
</TABLE>
No changes in share capital occurred in the year ended October 31, 1996.
<PAGE> 121
RIVERVIEW MANAGEMENT CORPORATION
NOTES TO FINANCIAL CONSOLIDATED STATEMENTS
OCTOBER 31, 1997 AND 1996
5. INCOME TAXES
Income taxes presented in the consolidated statements of earnings and
retained earnings differs from the combined statutory income tax rate as
follows;
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Income taxes based on the combined statutory rate of 45% $ 140,666 $ 22,720
Utilization of the small business deduction for
Canadian controlled private corporations (36,480) (20,109)
Unrecognized benefit of loss carry forwards of a
wholly owned subsidiary 6,800 785
Permanent differences 17,327 7,213
Other 6,607 4,382
--------- ---------
$ 134,920 $ 14,991
--------- ---------
</TABLE>
The potential income tax benefits resulting from losses carried forward
are not recorded in the financial statements. As at October 31, 1997,
Sysgold Inc., a wholly owned subsidiary, had non-capital loss carry
forwards of $1,800 and $14,113 which expire in 2002 and 2003
respectively. Under Untied States GAAP, the $6,800 (1996 - $785)
potential tax benefit associated with the losses carried forward would
have been offset entirely by a valuation allowance.
6. SUBSEQUENT EVENTS
(a) The company purchased the remaining 33% interest in its subsidiary
Sysgold Ltd. from the minority shareholder for cash proceeds of $315,000
on July 24, 1998. The purchase was accounted for using the purchase
method. The purchase price allocation is estimated as follows:
<TABLE>
<CAPTION>
Net Assets Acquired
<S> <C>
Current assets $514,182
Capital assets 67,257
Other assets 20,728
Goodwill 222,886
--------
825,053
Current liabilities 411,740
Other liabilities 98,313
510,053
Net assets $315,000
========
</TABLE>
Goodwill will be amortized on a straight-line basis over the next
twenty years.
(b) A statement of claim was filed on August 19, 1998 against the
corporation in the amount of $150,000 seeking damages for wrongful
termination of a consulting contract. Management does not believe there
is any merit to the lawsuit and it will be vigorously defended.
<PAGE> 122
RIVERVIEW MANAGEMENT CORPORATION
NOTES TO FINANCIAL CONSOLIDATED STATEMENTS
OCTOBER 31, 1997 AND 1996
7. COMMITMENTS
The company is committed under various operating leases including: office
equipment lease; $930 per month expiring May 2000, premises lease; $3,653
per month expiring January 2002 and vehicle lease; $1,693 per month
commencing March 1998 and expiring March 2001. The basic minimum lease
payments for the duration of the agreements are as follows:
<TABLE>
<S> <C>
1998 $ 68,535
1999 75,311
2000 70,661
2001 64,151
2002 10,958
--------
$289,616
--------
</TABLE>
<PAGE> 123
================================================================================
NO DEALER, SALES REPRESENTATIVE OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS
AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY THE COMMON STOCK BY ANYONE IN
ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PROSPECTUS SUMMARY).............................................................
THE OFFERING....................................................................
RISK FACTORS....................................................................
USE OF PROCEEDS.................................................................
DIVIDEND POLICY.................................................................
CAPITALIZATION..................................................................
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................................
BUSINESS........................................................................
MANAGEMENT......................................................................
CERTAIN TRANSACTIONS............................................................
SELLING SHAREHOLDERS............................................................
DESCRIPTION OF CAPITAL STOCK....................................................
PLAN OF DISTRIBUTION............................................................
LEGAL OPINION...................................................................
EXPERTS.........................................................................
INDEX TO FINANCIAL STATEMENTS................................................F-1
</TABLE>
---------------
14,865,385 SHARES
FUTURELINK DISTRIBUTION CORP.
4,250,000 SHARES OF COMMON STOCK
UNDERLYING BIALIK EXCHANGEABLE SHARES
9,615,384 SHARES OF COMMON STOCK
UNDERLYING $5,000,000 CONVERTIBLE DEBENTURES
1,000,000 SHARES OF COMMON STOCK UNDERLYING THOMSON KERNAGHAN
WARRANTS
---------------
PROSPECTUS
---------------
August 21, 1998
<PAGE> 124
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
FutureLink USA's Articles state that it may, in its sole discretion indemnify
and advance expenses to any person who incurs liability or expense by reason of
such person acting as a director, officer, employee or agent of FutureLink USA,
to the fullest extent allowed by the Colorado Business Corporation Act.
Sections 7-109-102 and 7-109-107 of the Colorado Business Corporation Act
provides that a corporation may indemnify its current and former officers,
directors, employees and agents against reasonable expenses (including
attorneys' fees), judgments, penalties, fines and amounts paid in settlement
which, in each case, were incurred in connection with actions, suits, or
proceedings in which such persons are parties by reason of the fact that they
are or were an officer, director, employee or agent of the corporation, if: (i)
they acted in good faith; (ii) in the case of conduct in an official capacity
with the corporation; the conduct was in the corporation's best interests; (iii)
in all other cases, the conduct was at least not opposed to the corporation's
best interests; and (iv) in the case of a criminal proceeding, they had no
reasonable cause to believe the conduct was unlawful. The corporation may not
indemnify an officer, director, employee or agent of the corporation: (i) in
connection with a proceeding by the corporation or enforcing rights of the
corporation in which such person is adjudged liable to the corporation or (ii)
in connection with any proceeding charging improper personal benefit, whether or
not acting in an official capacity, in which such person is adjudged liable on
the basis that personal benefit was improperly received. Unless limited by its
articles of incorporation, a corporation shall be required to indemnify an
officer, director, employee, or agent who was wholly successful in defense of a
proceeding, against reasonable attorneys' fees.
The articles of incorporation of FutureLink USA provide that FutureLink USA will
exercise, to the extent permitted by law, its power of indemnification, and that
the foregoing right of indemnification shall not be exclusive of other rights to
which a person shall be entitled as a matter of law.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
Effective July 1, 1998, FutureLink USA purchased Directors and Officers
Liability insurance with coverage of $2,000,000 from AON Financial Management
out of Denver, CO.
II-1
<PAGE> 125
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following tables sets forth the various expenses in connection with the sale
and distribution of the securities being registered, other than underwriting
discounts and commissions and non-accountable expense allowance. All of the
amounts shown are estimates, except the Securities and Exchange Commission
registration and NASD filing fees.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee ......... $ 4,732.31
Accounting fees and expenses ................................ $ 5,000.00
Printing and engraving expenses ............................. $ 5,000.00
Transfer agent and registrar (fees and expenses) ............ $ 2,000.00
Blue sky fees and expenses (including counsel fees) ......... $ 2,000.00
Other legal fees and legal expenses ......................... $ 25,000.00
Miscellaneous expenses ...................................... $ 8,000.00
Total ....................................................... $ 51,732.31
</TABLE>
II-2
<PAGE> 126
ITEM 26. RECENT SALE OF UNREGISTERED SECURITIES.
The following securities have been sold by FutureLink USA since June 1997:
1. Two Subscription Agreements dated June 9, 1997 pursuant to
which the Company sold 6,000,000 shares of Common Stock at $0.0166 per share for
an aggregate investment of $10,000 to two individuals, both residing outside the
United States. The Offering was made pursuant to an exemption provided by Rule
504 of Regulation D promulgated under the Securities Act of 1933, as amended
("Res. D Exemption")
2. Subscription Agreements dated July 23, 1997 pursuant to which
the Company sold 10,000,000 shares of Common Stock (following a 200:1 reverse
stock split) at $0.01 per share for an aggregate investment of $100,000. The
Offering was made pursuant to a Reg D Exemption. The sale of shares was to
twenty three investors.
3. Subscription Agreements dated December 18, 1997 pursuant to
which the Company sold 10,000,000 shares of Common Stock at $0.01 per share for
an aggregate investment of $100,000. The Offering was made pursuant to a Reg D
Exemption. The sale of shares was to twenty five different investors.
4. Subscription Agreements dated January 29, 1998 pursuant to
which the Company sold 83,344 shares of Common Stock at $3.00 per share for an
aggregate investment of $250,000. The sale of shares was to Bank August Roth AG
("Bank Roth"), a Swiss entity. In connection with the investment, the Company
granted Roth a warrant for the purchase of 83,334 shares of Common Stock
exercisable at US$3.00 per share until January 20, 1999 or at US$3.10 per share
at any time prior to January 20, 2000. The Offering was made pursuant to a Reg D
Exemption.
5. Subscription Agreement dated April 3, 1998 pursuant to which
the Company sold 64,480 shares of Common Stock at $3.75 per share for an
aggregate investment of $256,800. The sale of shares was to Bank Roth. The
Company also granted Bank Roth a warrant for the purchase of 64,480 shares of
Common Stock at US$3.75 if exercised prior to April 3, 1999 or at US$4.00 if
exercised prior to April 3, 2000. The Offering was made pursuant to a Reg D
Exemption.
6. Subscription Agreement dated April 3, 1998 pursuant to which
the Company sold 37,333 shares of Common Stock at $3.75 per share for an
aggregate investment of $140,000. The sale of shares was to Tidewater
Enterprises Limited, a Canadian entity. The Company also granted the investor a
warrant for the purchase of 37,333 shares of Common Stock at US$3.75 if
exercised prior to April 3, 1999 or at US$4.00 if exercised prior to April 3,
2000. The Offering was made pursuant to a Reg D Exemption.
7. Subscription Agreement dated April 22, 1998 pursuant to which
the Company sold 46,666 shares of Common Stock at $3.00 per share for an
aggregate investment of $140,000. The sale of shares was to Deremie Enterprises
Limited, a foreign entity. The Company also granted the investor a warrant to
purchase up to 46,666 shares of Common Stock at US$3.25 per share exercisable
at any time prior to May 4, 2000. The Offering was made pursuant to a Reg D
Exemption.
8. Subscription Agreement dated April 24, 1998 pursuant to which
the Company sold 20,000 shares of Common Stock at $3.00 per share for an
aggregate investment of $60,000. The sale of shares was to Linear Strategies
Ltd., a Canadian entity. The Company also granted the investor a warrant for
the purchase of up to 20,000 shares of Common Stock at US$3.25 per share
exercisable at any time prior to May 4, 2000. The Offering was made pursuant
to a Reg D Exemption.
II-3
<PAGE> 127
(a) EXHIBITS
The following exhibits pursuant to Rule 601 of Regulation SB are included
herein.
<TABLE>
<S> <C>
3.1.1 Articles of Incorporation of Cortez Uranium and Mining Co.
(now known as FutureLink USA), as amended dated April 4, 1955
(to be filed by amendment).
3.1.2 Articles of Incorporation of FutureLink Alberta dated March
28, 1996 as amended dated June 13, 1996 and November 17,
1997.(1)
3.1.3 Articles of Incorporation of Riverview Management Corporation
dated August 18, 1987, as amended.(1)
3.2.1 ByLaws of Core Ventures, Inc. (now known as FutureLink USA),
as adopted July 20, 1997.(1)
3.2.2 By-Laws of FutureLink Alberta.(1)
3.2.3 By-Laws of Riverview Management Corporation, as adopted
September 9, 1987.(1)
4.1.1 Agreement by and between FutureLink and Thomson Kernaghan &
Co. Ltd. dated August 14, 1998.(1)
4.1.2 Share Purchase Agreement by and among FutureLink USA, Donald
A. Bialik, Olivia B. Bialik, Bialik Family Trust, Riverview
Management Corporation, SysGold Ltd., and FutureLink Alberta
dated August 4, 1998 and related Indemnity Agreement.
4.1.3 Targetco Acquisition Agreement by and between FutureLink USA
and FutureLink Alberta, dated August 3, 1998.(1)
4.1.4 Take-Over Bid Circular dated September 28, 1998.
5 Jeffer, Mangels, Butler & Marmaro LLP Legal Opinion (to be
filed by amendment).
10.1.1 Commercial Insurance Policy with Financial Management Alberta
Ltd., dated February 10, 1998.(1)
10.1.2 Indemnity Agreement by and between Core Ventures, Inc. (now
known as FutureLink USA) and John Anastasios Xinos, dated
January 19, 1998.(1)
10.1.3 Letter of Intent from Core Ventures, Inc. (now known as
FutureLink USA) to Printscan International, Inc., dated
August 22, 1997.(1)
</TABLE>
(1) Previously filed on August 24, 1998.
II-4
<PAGE> 128
<TABLE>
<S> <C>
10.1.4 Lease Agreement, as amended by and between Coffee.Com
Interactive Cafe Corp. (now known as FutureLink Alberta) and
Manufacturers Life Insurance Company, dated
March 20, 1997.(1)
10.1.5 Employment Agreement by and between SysGold Ltd. and
Apprentice of Calgary dated January 1, 1998.(1)
10.1.6 Consulting and Confidentiality Agreement by and between
SysGold, Inc. and S.1.Systems Ltd., dated August 13, 1997.(1)
10.1.7 Independent Contractor Agreement by and SysGold Ltd. and BV
Ridge Consulting dated March 10, 1997.(1)
10.1.8 Revised Offer to Lease by and between SysGold Ltd. and Bow
Valley Square Management Ltd., dated March 24, 1998.(1)
10.1.9 Generic Contract Information Systems Services Agreement by and
between UMC Resources CANADA Ltd. and SysGold Ltd., dated
July 1, 1998.(1)
10.1.10 Business Partner Agreement with addendum by and between
SysGold Ltd. and Lotus Development Canada Limited.(1)
10.1.11 Final Invoice/Enrollment Contract by and between SysGold Ltd.
and Microsoft Certified Solution Provider, dated December 12,
1997.(1)
10.1.12 Agreement of understanding by and between SysGold Ltd. and
Seanix.(1)
10.1.13 Industry Partner Agreement by and between MISSolutions D.B.A.
ETI Solutions and SysGold Ltd.(1)
10.1.14 Arbor Systems Integration Partner Agreement by and between
Arbor Software Corporation and SysGold, Inc., dated March 1,
1998.(1)
10.1.15 Citrix Solutions Network Membership Agreement by and between
Citrix Systems, Inc. and FutureLink Alberta, dated May 5,
1998.(1)
10.1.16 Solution Provider Contract by and between IBM Canada Ltd. and
SysGold Ltd. dated July 17, 1998.(1)
10.1.17 Distributor Authorized Reseller Agreement by and between
Hewlett Packard and SysGold, Inc., dated March 19, 1998.(1)
</TABLE>
(1) Previously filed on August 24, 1998.
II-5
<PAGE> 129
<TABLE>
<S> <C>
10.1.18 Security Agreement by and between Canadian Imperial Bank of
Commerce and Riverview Management Corporation, dated December
11, 1997.(1)
10.1.19 Letter Agreement by and between FutureLink USA and NTN
Network, dated April 29, 1998.(1)
10.1.20 Enrollment Agreement by and between Microsoft Corporation and
FutureLink, dated April 28, 1998.(1)
10.1.21 Service Agreement by and between FutureLink USA and Willson
Stationers Ltd., dated June 1, 1998.(1)
10.1.22 Service Agreement by and between FutureLink USA and Jaws
Technologies, Inc., dated June 1, 1998.(1)
10.1.23 Service Agreement by and between FutureLink USA and Financial
Management Alberta, Ltd.(1)
10.1.24 Service Agreement by and between FutureLink USA and Chell
McNeill, Inc., dated April 17, 1998.(1)
10.1.25 Service Agreement by and between FutureLink USA and Sheraton
Business Forms Ltd. dated July 1, 1998.(1)
10.1.26 Service Agreement by and between FutureLink and Bankton
Financial Corporation, dated April 17, 1998.(1)
10.1.27 Business Credit Agreement by and between Canadian Imperial
Bank of Commerce and SysGold Ltd., dated April 16, 1998.(1)
10.1.28 Share Purchase Agreement by and among Core Ventures, Inc.
(now known as FutureLink USA), FutureLink Alberta, Cameron
Chell, and Linda Carling, dated January 20, 1998.(1)
10.1.29 FutureLink USA Stock Option Plan dated June 29, 1998.(1)
10.1.30 Employment Agreement by and between FutureLink USA,
FutureLink/SysGold Ltd. and Donald A. Bialik dated
August 1998.
10.1.31 Agreement by and between 692594 Alberta Ltd. and FutureLink
USA dated March 1998.
21 Subsidiaries of Issuer include:
1. FutureLink Alberta
2. Riverview Management Corporation
23.1 Consent of Jeffer, Mangels, Butler & Marmaro LLP.
</TABLE>
(1) Previously filed on August 24, 1998.
II-6
<PAGE> 130
<TABLE>
<S> <C>
23.2.1 Consent of Ernst & Young.
23.2.2 Consent of Halpin Antony Owen Mayer.
23.2.3 Consent of Buchanan Barry & Co.
</TABLE>
ITEM 28. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration
Statement:
(i) To include any Prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events
arising after the effective date of the Registration
Statement (or the most recent post-effective
amendment thereof) which, individually, or in the
aggregate, represent a fundamental change in the
information set forth in the Registration Statement;
notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the
total dollar value of securities offered would not
exceed that which was registered) and any deviation
from the low or high end of the estimated maximum
Offering range may be reflected in the form of
prospectus filed with the Commission pursuant to
Rule 424(b) (Section 230.424(b) of this Chapter) if,
in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum
aggregate Offering price set forth in the
"Calculation of Registration Fee" table in the
effective registration statement; and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the Registration Statement or any material change to
such information in the Registration Statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new Registration
Statement relating to the securities offered therein, and
the Offering of such securities at that time shall be
deemed to be the initial bona fide Offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which
remain unsold at the termination of the Offering.
Insofar as indemnification for liabilities arising from the Securities Act of
1933 (the "Act") may be permitted to directors, officers, and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-7
<PAGE> 131
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Calgary,
Province of Alberta on the 21st day of October, 1998.
FUTURELINK DISTRIBUTION CORP.
By: /s/ CAMERON CHELL
--------------------------------------
Cameron Chell, Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
Cameron Chell or Raghu Kilambi, or either of them, his true and lawful
attorney-in-fact and agent, acting alone, with full powers of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, any Amendments thereto and any Registration
Statement for the same Offering which is effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent, each acting
alone, full powers and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all said attorney-in-fact and agent, acting alone, or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons on behalf
of the Company in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
*
- ------------------------------------ Director October 21, 1998
Robert Kubbernus
*
- ------------------------------------ Director October 21, 1998
Bryson Farrill
*
- ------------------------------------ Director, Vice President Corporate October 21, 1998
Raghu Kilambi Finance, Corporate Secretary,
CFO and Chief Accounting Officer
*
- ------------------------------------ Assistant Corporate October 21, 1998
Linda M. Murray Secretary
*
- ------------------------------------ Director October 21, 1998
Philip Ladouceur
*
- ------------------------------------ President October 21, 1998
Don Bialik
*
- ------------------------------------ Director October 21, 1998
Robert H. Kohn
*By: /s/ CAMERON CHELL
-------------------------------- October 21, 1998
Cameron Chell
CEO and Director
</TABLE>
II-8
<PAGE> 1
FUTURELINK DISTRIBUTION CORP
PURCHASE OF
ALL OF THE ISSUED AND OUTSTANDING SHARES
IN THE CAPITAL OF
RIVERVIEW MANAGEMENT CORPORATION
August 4, 1998
THE SECURITIES, INCLUDING THE FUTURELINK SHARES AND ANY SHARES ISSUED PURSUANT
SUBSECTION 2.04(c) OF THIS AGREEMENT HAVE NOT BEEN REGISTERED WITH THE UNITED
STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE. THE SECURITIES ARE BEING SOLD PURSUANT TO A SAFE HARBOR FROM REGISTRATION
UNDER REGULATION S PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"). THE SECURITIES ARE "RESTRICTED" AND MAY NOT BE SOLD IN THE UNITED STATES
OR TO U.S. PERSONS (AS SUCH TERM IS DEFINED IN REGULATION S PROMULGATED UNDER
THE ACT) UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT, PURSUANT TO
REGULATION S OR PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS OF THE ACT AND THE SELLER IS PROVIDED WITH OPINION OF COUNSEL OR
OTHER SUCH INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
EXEMPTIONS ARE AVAILABLE. FURTHER, HEDGING TRANSACTIONS INVOLVING THE SECURITIES
MAY BE MADE ONLY IN COMPLIANCE WITH THE ACT.
MORRISON, BROWN, SOSNOVITCH
1 TORONTO STREET
SUITE 910, P.O. BOX 28
TORONTO, ONTARIO
M5C 2V6
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
RECITALS ....................................................................................2
ARTICLE 1.00 - INTERPRETATION ...............................................................2
1.01 Definitions ..................................................................2
1.02 Canadian Dollars .............................................................6
1.03 Extended Meanings ............................................................6
1.04 Entire Agreement .............................................................6
1.05 Headings .....................................................................7
1.06 Accounting Terms .............................................................7
1.07 Schedules ....................................................................7
1.08 Recitals .....................................................................8
ARTICLE 2.00 - PURCHASE AND SALE OF SHARES ..................................................8
2.01 Purchase and Sale ............................................................8
2.02 Purchase Price ...............................................................8
2.04 Payment of Purchase Price ....................................................8
ARTICLE 3.00 - REPRESENTATIONS AND WARRANTIES ...............................................9
3.01 Representations and Warranties of the Sellers ................................9
3.02 Representations and Warranties of the Buyer .................................22
ARTICLE 4.00 - COVENANTS ...................................................................35
4.01 Covenants of the Sellers and the Corporation During Interim Period ..........35
4.02 Covenants of the Buyer During Interim Period ................................37
4.04 Covenants on Closing ........................................................39
4.05 Post-Closing Covenants ......................................................39
ARTICLE 5.00 - CONDITIONS PRECEDENT TO OBLIGATIONS OF THE BUYER ............................40
5.01 Conditions Precedent ........................................................40
5.02 Result of Failure to Satisfy Condition Precedent ............................44
6.01 Conditions Precedent ........................................................44
6.02 Result of Failure to Satisfy Condition Precedent ............................46
ARTICLE 7.00 - PRIOR TRANSACTIONS ..........................................................46
7.01 Interim Period Transactions .................................................46
ARTICLE 8.00 - BREAK-UP FEE AND DEPOSIT ....................................................47
ARTICLE 9.00 - RISK OF LOSS ................................................................47
9.01 Risk of Total Loss ..........................................................47
9.02 Risk of Partial Loss ........................................................48
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE 10.00 - SURVIVAL OF REPRESENTATIONS AND WARRANTIES .................................48
10.01 Survival of the Sellers's Representations, Warranties and Covenants ........48
10.02 Survival of the Buyer's Representations, Warranties and Covenants ..........49
ARTICLE 11.00 - INDEMNIFICATION ............................................................49
11.01 Scope of Indemnification ...................................................49
11.02 Litigation .................................................................49
11.03 Set Off and Similar Rights of the Buyer ....................................50
11.04 Reimbursement ..............................................................50
12.01 Public Announcement. .......................................................50
12.02 Notices ....................................................................50
12.03 Expense ....................................................................51
12.04 Time of the Essence ........................................................51
12.05 Governing Law ..............................................................51
12.06 Severability ...............................................................51
12.07 Further Assurances .........................................................52
12.08 Counterparts. ..............................................................52
12.09 Enurement ..................................................................52
12.10 Time Periods ...............................................................52
12.11 Language of Agreement ......................................................52
</TABLE>
<PAGE> 4
SHARE PURCHASE AGREEMENT
THIS AGREEMENT made the 4th day of August, 1998
A M O N G:
FUTURELINK DISTRIBUTION CORP., a corporation incorporated pursuant to
the laws of the State of Colorado, (the "Buyer")
OF THE FIRST PART;
- and -
DONALD A. BIALIK., of the City of Calgary in the Province of Alberta
("Donald")
OF THE SECOND PART;
- and -
OLIVIA B. BIALIK of the City of Calgary, in the Province of Alberta
("Olivia") OF THE THIRD PART; - and -
BIALIK FAMILY TRUST (the "Trust")
OF THE FOURTH PART;
- and -
RIVERVIEW MANAGEMENT CORPORATION, a corporation incorporated under the
laws of the Province of Alberta ( "RMC")
OF THE FIFTH PART;
- and -
SYSGOLD LTD., a corporation incorporated under the laws of the Province
of Alberta ( "SysGold")
OF THE SIXTH;
<PAGE> 5
2
- and -
FUTURELINK DISTRIBUTION CORP., a corporation incorporated pursuant to
the laws of the Province of Alberta; (the "FutureLink Alberta")
OF THE FIRST PART;
RECITALS
WHEREAS:
A. The Buyer and the Sellers have agreed that it would be in the best
interests of the Buyer and SysGold to merge their operations;
B. RMC is the sole registered and beneficial owner of record of all of the
issued and outstanding shares in the capital of SysGold (the "SysGold
Shares")
C. Donald, Olivia and the Trust (collectively referred to as the "Sellers")
are the sole registered and beneficial owner of record of all of the
issued and outstanding shares in the capital of RMC (the "Purchased
Shares");
D. The Sellers have agreed to sell the Purchased Shares to the Buyer, and
the Buyer has agreed to buy such Purchased Shares from the Sellers, upon
and subject to the terms and conditions set out in this Agreement;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the
sum of Two Dollars ($2.00) now paid by the Buyer to each of the Sellers, SysGold
and RMC (the receipt and sufficiency of which is hereby acknowledged) and of the
mutual covenants and agreements contained in this Agreement, the parties
covenant and agree with each other as follows:
ARTICLE 1.00 - INTERPRETATION
1.01 DEFINITIONS. In addition to any other defined terms contained in this
Agreement, the following words and phrases have the following meanings:
(a) "Agreement", "this Agreement", "hereto", "hereof", "herein", "hereunder"
and similar expressions refer to this Agreement including its Schedules
and not to any particular article, section or other portion of this
Agreement and include every amendment or instrument supplementary hereto
or in implementation hereof;
(b) "Arm's length" shall have the same meaning as those words are defined in
the Income Tax Act (Canada) from time to time;
<PAGE> 6
3
(c) "Assets" means all the assets, interests, undertakings, rights and
properties of the Corporation of every kind and description, real or
personal, tangible or intangible and wherever they are located as of the
date of this Agreement including, without limitation:
(i) all machinery, equipment, furniture, furnishings and
accessories, spare parts, manuals and supplies of all kinds;
(ii) all inventory;
(iii) all accounts receivable, trade accounts, notes receivable and
other debts due or accruing due and the full benefit of all
securities for such accounts, notes or debts;
(iv) the full benefit of all contracts, engagements or commitments,
whether written or oral, including, without limitation, all
forward commitments by the Corporation for equipment, inventory,
supplies and materials entered into in the ordinary course of
business except for two vehicle leases for a 1998 Chevrolet
Tahoe and a 1998 Chevrolet Suburban the obligations of which
will be assumed by the Sellers;
(v) prepaid expenses including, without limitation, prepaid rent,
insurance premiums, utility deposits and any other kind of
payment or amount that could be considered a prepaid expense
under generally accepted accounting principles;
(vi) all registered or unregistered trade marks, trade names, trade
or brand names, service marks, copyrights, designs, inventions,
patents, patent applications, patent rights (including any
patents issuing on such applications or rights), licences,
telephone numbers, customer lists, sub-licences, franchises,
formulae, trade secrets, processes, technology and other
industrial property and intangibles including, without
limitation, all restrictive agreements or negative covenant
agreements the Corporation may have;
(vii) the goodwill of the Business including, without limitation, any
rights which the Sellers or the Corporation possesses with
respect to the use the name "SysGold", or any variation thereof,
as part of the name of, or in connection with the business
carried on or to be carried on by, the Corporation; and
(viii) all other property, assets and rights, real or personal,
tangible or intangible, owned by the Corporation or to which it
is entitled;
(d) "Break-up Fee" has the meaning set out in Section 8.01;
(e) "Business" means the business presently carried on by the Corporation
including any business carried on under the name and style, "SysGold";
<PAGE> 7
4
(f) "Business Day" means a day which is not a Saturday, a Sunday or a
statutory holiday;
(g) "Buyer's Accountants" means Ernst & Young or such other firm of
chartered accountants as may be designated by the Buyer;
(h) "Buyer's Counsel" means Morrison, Brown, Sosnovitch or such other firm
of lawyers as may be designated by the Buyer;
(i) "Buyer's Employee Benefit Plan" has the meaning set out in subsection
3.02 (kk);
(j) "Closing Date" means August 20, 1998, or such other date as may be
agreed upon by the Buyer and the Sellers;
(k) "Corporation" means SysGold, SysGold Inc. and RMC together;
(l) "Confidential Information" means, with respect to the Sellers
obligations the following pertaining to the Buyer and FutureLink Alberta
and with respect to the Buyers obligations the following pertaining to
the Corporation: all information relating to the business of the other
party or any of its associated, related or affiliated companies,
including, but not limited to, material contracts, customer lists,
financial statements or information, reports, employee information,
banking information, and any information whether written or verbal which
the other receives through due diligence or otherwise in the preparation
of the transactions contemplated herein that is not generally available
to the public;
(m) "Deposit" has the meaning set out in section 2.03;
(n) "Employee Benefit Plans" has the meaning set out in subsection 3.01
(ll);
(o) "Encumbrances" means any claim, lien, security interest, right,
privilege, restriction, demand or other encumbrance whatsoever affecting
the property in question, or any right capable of becoming such an
encumbrance;
(p) "Financial Statements" means:
(i) the unaudited financial statements of SysGold, for the fiscal
years ended October 31, 1993 through 1997, and the interim
financial statements for the period ending May 31, 1998, each
consisting of a balance sheet as at the end of each fiscal
period, a statement of profit and loss, and a statement of
changes in financial position with accompanying notes, in
respect of each fiscal period, in each case prepared in
accordance with generally accepted accounting principles,
consistently applied from period to period; and
<PAGE> 8
5
(ii) the unaudited financial statements of RMC, for the fiscal year
ended September 30, 1993 through 1997, and the interim financial
statements for the period ending July 31, 1998 each consisting
of a balance sheet as at the end of each fiscal period, a
statement of profit and loss, and a statement of changes in
financial position with accompanying notes, in respect of each
fiscal period, in each case prepared in accordance with
generally accepted accounting principles, consistently applied
from period to period;
(iii) the unaudited financial statements of SysGold Inc., for the
fiscal year ended _________, 1993 through 1997, and the interim
financial statements for the period ending __________,1998 each
consisting of a balance sheet as at the end of each fiscal
period, a statement of profit and loss, and a statement of
changes in financial position with accompanying notes, in
respect of each fiscal period, in each case prepared in
accordance with generally accepted accounting principles,
consistently applied from period to period; a copy of each of
which are attached as the Financial Statements Schedule;
(q) "FutureLink Financial Statements" means:
(i) the audited financial statements of FutureLink Alberta,
for the fiscal years ended December 31, 1996 and 1997
each consisting of a balance sheet as at the end of each
fiscal period, a statement of profit and loss, and a
statement of changes in financial position with
accompanying notes, in respect of each fiscal period, in
each case prepared in accordance with Canadian generally
accepted accounting principles, consistently applied
from period to period; and
(ii) the audited financial statements of the Buyer for the
fiscal periods ending December 31, 1997 and May 31,
1998, each consisting of a balance sheet as at the end
of each fiscal period, a statement of profit and loss,
and a statement of changes in financial position with
accompanying notes, in respect of each fiscal period, in
each case prepared in accordance with Canadian generally
accepted accounting principles, except for the
non-consolidation of the FutureLink Alberta financial
statements, consistently applied from period to period;
a copy of each of which are attached as the FutureLink
Financial Statements Schedule;
(r) "FutureLink Shares" has the meaning set out in subsection 2.02(b);
(s) "Interim Period" means the period of time between the date of this
Agreement and the Time of Closing;
<PAGE> 9
6
(t) "Leased Property" means the premises leased by SysGold pursuant to a
lease or written agreement to lease, and used in the conduct of the
Business, as described in the Leased Property Schedule;
(u) "Permitted Encumbrance" has the meaning set out in section 5.01(m);
(v) "Purchase Price" means the aggregate consideration, as set out in this
Agreement, payable by the Buyer to the Sellers for the Purchased Shares;
(w) "Purchased Shares" means all of the issued and outstanding shares in the
capital of RMC;
(x) "Real Property" means each direct or indirect interest in real property
described in the Real Property Schedule, and, where the context
requires, means all of such real properties and real property interests;
(y) "Sellers" means Don, Olivia and the Trust;
(z) "Sellers' Counsel" means Howard, Mackie or such other firm of lawyers as
may be designated by the Sellers;
(aa) "Shareholder Loans" has the meaning set out in subsection 2.04 (b);
(bb) "SysGold Inc. Shares" has the meaning set out in subsection 3.01(d);
(cc) "SysGold Shares" has the meaning set out in subsection 3.01(d);
(dd) "Taxes" means all federal, provincial, municipal or other taxes,
imposts, rates, levies, assessments and government fees, charges or dues
lawfully levied, assessed or imposed against the relevant party or in
respect of the business of such party including, without limitation, all
income, capital gains, sales, excise, use, property, payroll, capital,
goods and services, business, transfer, withholding and value added
taxes, and all customs and import duties, together with all interest,
fines and penalties with respect thereto;
(ee) "Tax Returns" means all reports, returns and other documents filed or
required to be filed by the relevant party in respect of Taxes or in
respect of, or pursuant to, any federal, provincial, municipal or other
taxing statute applicable to the relevant party;
(ff) "Time of Closing" means 10:00 o' clock a.m. (Calgary time) on the
Closing Date or such other time on the Closing Date at which the
transaction is completed.
1.02 CANADIAN DOLLARS. All dollar amounts referred to in this Agreement are in
Canadian funds unless otherwise provided.
<PAGE> 10
7
1.03 EXTENDED MEANINGS. In this Agreement, where the context requires, the
singular number includes the plural and vice versa, the masculine gender
includes the feminine and neuter genders and vice versa and the word "person" is
not limited to an individual but includes any entity recognized by law.
1.04 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement among the
parties pertaining to the subject matter of this Agreement and supersedes all
prior agreements, understandings, negotiations and discussions, whether oral or
written, of the parties, and there are no warranties, representations or other
agreements between the parties in connection with the subject matter of this
Agreement except as specifically set out in this Agreement. No supplement,
modification, waiver or termination of this Agreement shall be binding, unless
executed in writing by the party or parties to be bound thereby.
1.05 HEADINGS. All headings are included solely for convenience of reference and
are not intended to be full or accurate descriptions of the contents of any
Article or section in this Agreement.
1.06 ACCOUNTING TERMS. All accounting terms not specifically defined in this
Agreement are to be construed in accordance with Canadian generally accepted
accounting principles, consistently applied.
1.07 SCHEDULES. The following are the Schedules attached to and incorporated in
this Agreement by reference and deemed to be part hereof when attached to this
Agreement and initialled by the party required to produce such Schedule:
<TABLE>
<CAPTION>
Time Period for Delivery
------------------------
<S> <C>
Buyer's Contracts Schedule 6 days
Buyer's Counsel's Opinion Schedule 6 days
Buyer's Directors and Officers Schedule upon execution
Buyer's Employee Benefit Schedule 6 days
Buyer's Employee Schedule 6 days
Buyer's Employment and Consulting Agreements Schedule 6 days
Buyer's Equipment Lease Schedule 6 days
Buyer's Insurance Schedule 6 days
Buyer's Leased Property Schedule 6 days
Buyer's Options and Calls Schedule upon execution
Contracts Schedule 6 days
Debenture Schedule 6 days
Employee Benefit Schedule upon execution
Employee Schedule upon execution
Employment and Consulting Agreements Schedule upon execution
Employment Contract with Don Bialik Schedule 6 days
Encumbrances Schedule upon execution
Equipment Lease Schedule 6 days
</TABLE>
<PAGE> 11
8
<TABLE>
<S> <C>
FutureLink Financial Statements Schedule upon execution
FutureLink Alberta Capital Schedule upon execution
Financial Statements Schedule upon execution
Insurance Schedule 6 days
Intellectual Property Schedule 6 days
Leased Property Schedule 6 days
License and Permits Schedule 6 days
Litigation Schedule upon execution
Permitted Transactions Schedule upon execution
Promissory Notes Schedule upon execution
Real Property Schedule 6 days
Release Schedule upon execution
Sellers' Counsel's Opinion Schedule 6 days
</TABLE>
The parties hereto agree that all schedules will be attached by no later than
the time period set out next to each schedule.
1.08 RECITALS. Each of the parties acknowledges that the recitals of this
Agreement, so far as they relate to such party, are true and correct in
substance and in fact.
ARTICLE 2.00 - PURCHASE AND SALE OF SHARES
2.01 PURCHASE AND SALE. Based upon the warranties, representations and
covenants, and subject to the terms and conditions, set out in this Agreement,
the Buyer agrees to purchase the Purchased Shares from the Sellers and the
Sellers agree to sell the Purchased Shares to the Buyer.
2.02 PURCHASE PRICE. The total Purchase Price payable by the Buyer to the
Sellers for the Purchased Shares shall be the sum of:
(a) Three Million Six Hundred and Eighty-five Thousand Dollars
($3,685,000); and
(b) Four million, two hundred and fifty thousand (4,250,000) common
shares in the capital of the Buyer (the "FutureLink Shares").
The Buyer and Sellers each agree that the value of the
FutureLink Shares is Five Million Dollars ($5,000,000) or
Eighty-five Cents American (U.S.$.85) per share and that such
value was determined by the approximate average daily trading
price of the FutureLink Shares on the Over The Counter Bulletin
Board on the NASDAQ exchange during the period thirty (30) day
period ending July 22, 1998;
and such Purchase Price, and the payment thereof, shall be allocated between the
Sellers in the proportions agreed to by the parties hereto following the
transactions contemplated in Article 7.00.
<PAGE> 12
9
2.03 DEPOSIT. The Sellers acknowledge receipt of a deposit (the "Deposit") in
the amount of One Hundred Thousand Dollars ($100,000), to be applied to the
Purchase Price at the Time of Closing or otherwise dealt with in accordance with
Article 8.00.
2.04 PAYMENT OF PURCHASE PRICE. The Purchase Price payable to the Sellers shall
be paid as follows at the Time of Closing:
(a) payment of the sum of Three Million Dollars ($3,000,000) by certified
cheque or bank draft;
(b) the delivery to the Sellers of promissory notes from the Buyer in the
aggregate amount of Six Hundred and Eighty-five Thousand Dollars
($685,000) payable within ninety (90) days of the Closing Date and such
notes shall contain such other terms as are set out in the promissory
note in the Promissory Notes Schedule. The said promissory notes amount
shall be reduced by the amount of the Deposit;
(c) the allotment and issuance to the Sellers of the FutureLink Shares or
non-voting shares of RMC convertible into the FutureLink Shares. The
Sellers hereby agree that all offers and sales of the FutureLink Shares
or such other shares, from the Date of Closing and prior to the
expiration of a period commencing on the Date of Closing and ending one
year thereafter (the "Distribution Compliance Period") shall not be made
to U.S. persons or for the account or benefit of U.S. persons and shall
otherwise be made in compliance with the provisions of Regulation S (i)
unless registration has taken place prior to the expiry of the
Distribution Compliance Period. The certificates representing any such
shares shall bear the following legend unless registration has taken
place:
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION
OF ANY STATE. THE SECURITIES ARE BEING SOLD PURSUANT TO A SAFE
HARBOR FROM REGISTRATION UNDER REGULATION S PROMULGATED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE
SECURITIES ARE "RESTRICTED" AND MAY NOT BE SOLD IN THE UNITED
STATES OR TO U.S. PERSONS (AS SUCH TERM IS DEFINED IN REGULATION
S PROMULGATED UNDER THE ACT) UNLESS THE SECURITIES ARE
REGISTERED UNDER THE ACT, PURSUANT TO REGULATION S OR PURSUANT
TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF
THE ACT AND THE SELLER IS PROVIDED WITH OPINION OF COUNSEL OR
OTHER SUCH INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM
THAT SUCH EXEMPTIONS ARE AVAILABLE. FURTHER, HEDGING
TRANSACTIONS INVOLVING THE SECURITIES MAY BE MADE ONLY IN
COMPLIANCE WITH THE ACT.
<PAGE> 13
10
THE SELLERS UNDERSTAND AND AGREE THAT IN THE ABSENCE OF THE REGISTRATION OF THE
FUTURELINK SHARES OR THE RMC SHARES UNDER THE ACT, SUCH SHARES MAY ONLY BE
RESOLD AS PROVIDED FOR IN REGULATION S, PURSUANT TO A VALID EXEMPTION FROM
REGISTRATION UNDER THE ACT, INCLUDING SALES UNDER RULE 144. Sales of FutureLink
Shares or the RMC shares may be made in reliance upon Rule 144 but ONLY (i) in
limited quantities by affiliates after the completion of the Distribution
Compliance Period, or (ii) in limited quantities by non-affiliates after the
completion of the Distribution Compliance Period, or (iii) in unlimited
quantities by non-affiliates after the first yearly anniversary after the
completion of the Distribution Compliance Period; in each case in accordance
with the conditions of the Rule, all of which must be met (including the
requirement, if applicable, that adequate information concerning the Buyer is
then available to the public).
The Sellers understands that the FutureLink Shares or the RMC shares have not
been registered under the Act and are being offered and sold pursuant to a "safe
harbor" from registration contained in Regulation S promulgated under the Act
based in part upon the representations of the Sellers contained herein.
ARTICLE 3.00 - REPRESENTATIONS AND WARRANTIES
3.01 REPRESENTATIONS AND WARRANTIES OF THE SELLERS. The Sellers represent and
warrant to the Buyer as follows and acknowledge that the Buyer is relying upon
such representations and warranties in connection with the purchase by the Buyer
of the Purchased Shares:
(a) Schedules. The Schedules reference complete and accurate information
regarding those matters to which such Schedules pertain.
(b) Corporate Existence. The Corporation is duly incorporated, organized and
validly existing under the laws of the Province of Alberta. The Province
of Alberta is the only jurisdiction in which the Corporation carries on
business or owns or leases properties. The Corporation has the corporate
power and authority and does now possess all governmental and other
permits, licences and other authorizations required to own or lease its
properties, and to carry on its business as it was carried on at the
applicable time.
(c) Authority. This Agreement, when executed and delivered by the parties
hereto, will constitute a valid and binding agreement of the Corporation
and the Sellers enforceable in accordance with its terms. None of the
execution and delivery of this Agreement, the consummation of the
transactions contemplated by this Agreement and the compliance with or
fulfilment of the terms and provisions of this Agreement, will conflict
with or result in a breach of the terms, conditions or provisions of or
constitute a default under any of the Corporation's constating documents
or by-laws, or a default under any instrument, agreement, mortgage,
judgment, order, award, decree or other restriction to which the
Corporation or the Sellers are a party or by which either are bound or
any regulatory provisions affecting either of them. Neither the
Corporation nor the Sellers are a party to or bound by any commitment,
agreement or document containing any covenant which limits
<PAGE> 14
the freedom of the Corporation to compete or solicit any line of
business, transfer or move any of its assets or operations or which
materially or adversely affects the business practices, operation or
conditions of the Corporation or the continued operation of the Business
after closing.
(d) Authorized and Issued Capital. The current issued and outstanding shares
in the capital of RMC, all of which are fully paid and non-assessable to
the Sellers and which do not exceed the authorized capital of RMC, are
as follows:
Don - 100 Class "A" Shares and 5 Class "D" shares
Olivia - 100 Class "B" Shares and 5 Class "D" shares
Trust - 100 Class "C" Shares
The only issue and outstanding share capital of SysGold are three
thousand (3,000) Class "A" Common Voting Shares, which do not exceed the
authorized capital of SysGold, are issued and outstanding as fully paid
and non-assessable to RMC (the "SysGold Shares") and there are no other
shareholders.
The only issued and outstanding share capital of SysGold Inc. are 100
Class "A" Common Voting Shares, which do not exceed the authorized
capital of SysGold Inc., are issued and outstanding as fully paid and
non-assessable to RMC (the "SysGold Inc. Shares") and there are no other
shareholders.
(e) Title to Purchased Shares. RMC is the registered and beneficial owner of
all of the SysGold Inc. Shares and subject to Encumbrances listed in the
Encumbrances Schedule has good and marketable title to such shares, free
and clear of all Encumbrances of any kind and SysGold has not received
any notice of any adverse claim with respect to such shares. RMC is the
registered and beneficial owner of all of the SysGold Shares and subject
to Encumbrances listed in the Encumbrances Schedule has good and
marketable title to such shares, free and clear of all Encumbrances of
any kind and RMC has not received any notice of any adverse claim with
respect to such shares. The Sellers are the registered and beneficial
owner of all of the Purchased Shares and subject to Encumbrances listed
in the Encumbrances Schedule have good and marketable title to such
shares, free and clear of all Encumbrances of any kind and the Sellers
have not received any notice of any adverse claim with respect to such
shares.
(f) Options and Calls. There are no outstanding agreements, calls,
commitments, options, subscriptions, warrants or other rights or
privileges to acquire the Purchased Shares or the SysGold Shares or to
require the Corporation to issue additional shares, whether upon the
conversion of other securities or otherwise except in accordance with
Article 7.00.
(g) Subsidiaries. Except for SysGold and SysGold Inc. in the case of RMC,
the Corporation does not own any interest in or control, directly or
indirectly, any corporation, business trust, partnership, limited
partnership, joint venture or other person ;
<PAGE> 15
12
(h) Financial Assistance. The Corporation has not, directly or indirectly,
made any loans, provided financial assistance in any form, or given any
guarantees, to or in respect of the obligations of any person, other
than loans, financial assistance or guarantees which are no longer
outstanding. The Corporation will not, as of the Time of Closing, be a
party to or bound by any agreement of indemnification, assumption or
endorsement or any other like commitment of the obligations, liabilities
(contingent or otherwise) or indebtedness of any other party;
(i) No Joint Venture Interests, etc. The Corporation is not a partner,
co-tenant, joint venturer or otherwise a participant in any partnership,
joint venture, co-tenancy or other similarly jointly owned business
undertaking and the Corporation has no other significant investment
interests in any business owned or controlled by any third party except
for a joint bid with IBM for work at Canadian Natural Resources Ltd.
which is listed on the Contracts Schedule.
(j) No Distributions on Shares. The Corporation has not, since its most
recently completed fiscal year for which Financial Statements are
contained in the Financial Statements Schedule, purchased or redeemed
any shares in the capital of the Corporation, paid or declared any
dividend, made or agreed to make any other distribution in respect of
its capital or passed any resolution authorizing any of such actions
except with respect to the transactions planned in Article 7.00;
(k) Financial Statements and Financial Books and Records. The books and
records of the Corporation and the Financial Statements fairly and
correctly set out and disclose in all material respects, in accordance
with Canadian generally accepted accounting principles consistently
applied from year to year, the assets, liabilities, and financial
position of the Corporation as at the date of the Financial Statements,
at the date hereof and will continue to do so at the Time of Closing.
All financial transactions of the Corporation relating to the
Corporation business have been and will be accurately recorded in its
books and records and, without limiting the generality of the foregoing,
all monies set aside or held in trust by the Corporation for the benefit
of another person are properly accrued or so held and are completely and
accurately recorded in the books and records of the Corporation and no
claim can be made against the Corporation in respect thereof in excess
of the amounts so set aside or held.
(l) Disclosure to Accountants. The Corporation and the Sellers have made
known, or caused to be made known, to the accountants or auditors who
have prepared the Financial Statements all material facts and
circumstances which could affect the preparation of the Financial
Statements.
(m) Corporate Books and Records. The corporate records and minute books of
the Corporation are complete, accurate and up to date, and contain and
will contain at the Time of Closing complete and accurate copies of all
articles (as amended) and by-laws (as amended), minutes of all meetings
and/or written resolutions of the directors and/or Shareholders of the
<PAGE> 16
13
Corporation from incorporation to the Closing Date and all such by-laws
were duly enacted and passed, all such meetings were duly held, and all
such resolutions were duly enacted and passed and all matters and
transactions contained or reflected in the minute books are in
accordance with applicable corporation law requirements. The share
certificate books, registers of shareholders and directors and registers
of transfers are and will be accurate and complete on the Closing. No
resolutions or by-laws have been passed, enacted, consented to or
adopted by the directors or shareholders of the Corporation, except
those contained in the minute books;
(n) Directors and Officers . The directors and officers of RMC are as
follows:
Don Bialik - Director and President
Olivia Bialik - Director and Vice-President
The directors and officers of SysGold are as follows:
Don Bialik - Director and President
Olivia Bialik - Director and Secretary
The directors and officers of SysGold Inc. are as follows:
Don Bialik - Director and President
Kevin J. Sebastian - General Manager
Harold Hogg - Secretary and Controller
(o) Outstanding Indebtedness. Except as set out in the Financial Statements
contained in the Financial Statements Schedule, the Corporation has no
outstanding, nor is it under any obligation to create or issue, any
bonds, debentures, mortgages, notes, security agreements or any other
Encumbrances except as set out in the Encumbrances Schedule.
(p) Availability of Assets. The Assets constitute all of the assets which
are now being used, and which are necessary, in the conduct of the
Business. The Assets are in good operating condition and repair,
reasonable wear and tear excepted.
(q) Title to Assets. The Corporation is the legal and beneficial owner of
all of the Assets having good and marketable legal and beneficial title
thereto, free and clear of all Encumbrances except as set out on the
Encumbrances Schedule. Except in the ordinary course of business, there
is no agreement, option or other right to sell, assign or otherwise
dispose of any Assets.
(r) Accounts Receivable. Other than as reserved against in the Financial
Statements, all accounts receivable have arisen from valid arm's length
transactions in the ordinary course of business. The accounts receivable
are not subject to any valid set-offs or counterclaims and are, subject
to the debtor's willingness and ability to pay, collectable in full
within 120
<PAGE> 17
14
days of the Closing Date, and the Sellers have received no notice of the
unwillingness or inability of any debtor to pay any of the accounts
receivable. Adequate provision has been made for bad debts and doubtful
accounts, in accordance with generally accepted accounting principals.
(s) Inventories. All inventories of the Corporation consist of items of a
quality usable in the ordinary course of business. On the Closing Date,
Inventories will be sufficient to meet the needs of the Business in the
ordinary course.
(t) Forward Commitments. All forward commitments which have been entered
into by the Corporation and which remain unfulfilled have been entered
into in the ordinary course of the Business.
(u) Real Estate. At the Time of Closing, the Corporation will not own any
real property other than the Real Property described in the Real
Property Schedule.
(v) Leases. All Leased Property is listed in the Leased Property Schedule.
Each lease and/or agreement to lease:
(i) is in full force and effect and in good standing and constitutes
a legal, valid and binding obligation of SysGold and, without
limiting the generality of the foregoing, there has been no
default thereunder by SysGold, or to the best of the knowledge
of the Sellers, by the landlord, and SysGold has not received
notice of termination or threat by the landlord to terminate
such lease or agreement to lease; and
(ii) except where consent, approval or act of any party is required
pursuant to the terms of leases or agreements to lease, copies
of which have been delivered to Buyer's Counsel, will continue
in full force and effect notwithstanding the closing of the
transactions contemplated by this Agreement without the consent,
approval or act of any party under such lease or agreement to
lease; for greater certainty, the Sellers will obtain any
required consents identified by the Buyer in the copies of the
leases or agreements to lease provided to Buyer's Counsel and
the Sellers shall be responsible for the costs of any consent,
approval or other act of any party which is required under any
leases or agreements to lease;
With respect to all Leased Property:
(iii) to the best of the Sellers' knowledge, the premises and
improvements thereto and the purposes for which any of them are
used, comply in all respects with the relevant zoning, building,
environmental and other governmental or municipal by-laws, laws,
requirements, regulations and ordinances (including municipal
and provincial fire regulations and pollution control
regulations) and with Fire Underwriters' regulations;
<PAGE> 18
15
(iv) there has not been received by SysGold or anyone on behalf of
SysGold, any notice with respect to any by-law change affecting
the premises or relating to any threatened or pending
condemnation or expropriation of such premises;
(v) neither SysGold nor anyone on behalf of it has received any
notice from any insurance carrier of defects or inadequacies in
any of the premises, which, if not corrected, could result in
termination of insurance coverage or an increase in the cost of
coverage;
(w) Environmental Matters and Occupational Health and Safety. To the best of
the Sellers' knowledge, after due inquiry the Corporation has in
connection with the carrying on of the Business complied with and will
be in compliance with all federal, provincial and municipal statutes,
orders, regulations and by-laws relating to environmental and
occupational health and safety matters, including the disposal of
hazardous substances;
(x) Equipment Leases. A complete list of all equipment leases to which the
Corporation is a party is listed in the Equipment Lease Schedule. A full
and complete copy of each equipment lease has been produced to the
Buyer. Each of such equipment leases:
(i) is in full force and effect and in good standing and constitutes
a legal, valid and binding obligation of the Corporation; and
(ii) will continue in effect notwithstanding the closing of the
transactions contemplated by this Agreement without the consent,
approval or act of any party under such equipment lease, except
as may be provided for in the copy of such equipment leases
provided to Buyer's Counsel. The Sellers will assist the Buyer
to obtain any required consents identified by the Buyer in the
copies of the equipment leases provided to Buyer's Counsel, and
the Sellers shall be responsible for any costs associated with
any consent, approval or other act of any party which is
required under any equipment leases.
(y) Insurance. All policies of fire and other insurance against casualty and
other losses and public liability insurance carried by the Corporation
are described in the Insurance Schedule (including the risks covered and
limits of such policies) and are in full force and effect. A full and
complete copy of each such insurance policy has been provided to the
Buyer, and such policies are summarized in the Insurance Schedule
attached hereto. All premiums in respect of such policies for which
premium notices have been received have been paid in full as the same
become due and payable. The Corporation has not failed to give any
notice or present any claim under any insurance policy in due and timely
fashion. There are no actual claims or claims threatened in writing
against the Corporation which would come within the scope of such
coverage nor are any such policies currently threatened with
cancellation. There are no outstanding requirements or recommendations
by any insurance company that issued a
<PAGE> 19
16
policy with respect to any of the Assets or the Business or by any Board
of Fire Underwriters or other body exercising similar functions or by
any governmental authority requiring or recommending any repairs or
other work to be done on, or with respect to, any of the Assets or
requiring or recommending any equipment or facilities to be installed on
any premises from which the Business is conducted or in connection with
any of the Assets. The Corporation does not have any knowledge of any
material proposed increase in applicable insurance rates or of any
conditions or circumstances applicable to the Business which might
result in such increases. No such policy is terminable by virtue of the
transactions contemplated by this Agreement.
(z) Proprietary Rights. Other than the trade name "SysGold" the Corporation
does not own any copyrights, uncopyrighted works, registered and
unregistered trade marks, certification marks, trade names, industrial
designs, patents, patent applications, unpatented inventions, trade
secrets, know-how and other proprietary rights (collectively, the
"Proprietary Rights") and no such Proprietary Rights are necessary or
desirable in the conduct of the Business as now conducted. The conduct
of the Business by the Corporation as now conducted does not infringe or
violate any Proprietary Rights belonging to third parties nor are the
Sellers aware of any threatened potential claim with respect to such,
including Proprietary Rights owned by a third party to any computer
software programs now used in the conduct of the Business, all of which
computer software programs are properly licensed by the Corporation.
(aa) Business Conducted in No Other Name. All business of the Corporation has
been conducted in the name of the Corporation and for the benefit of the
Corporation and there are no parties related, either directly or
indirectly, which are competing for the business of the Corporation.
There are no trademarks or trade names other than those set out in
section 3.01(aa) which are required to properly conduct the business of
the Corporation;
(bb) Absence of Certain Changes or Events. Since the date of the most recent
fiscal year end of the Corporation, the Corporation has not:
(i) incurred any fixed or contingent obligation, liability or
commitment except trade or business obligations incurred in the
ordinary course of business, none of which is materially adverse
or was entered into for inadequate consideration;
(ii) discharged or satisfied any Encumbrance or paid or satisfied any
fixed or contingent obligation or liability, except for current
obligations or liabilities incurred in the ordinary course of
business and except as otherwise provided for in this Agreement;
(iii) mortgaged, pledged or subjected any of the Assets to any
Encumbrance, other than liens, if any, for current Taxes not yet
due and payable;
(iv) entered into any lease or rental agreement or transferred,
leased, licensed or disposed of any of the Assets other than in
the ordinary course of business and other than new
<PAGE> 20
17
leases or renewals of any of the leases and/or agreements to lease
listed on the Leased Property Schedule in accordance with the renewal
rights contained therein;
(v) waived, released, cancelled, forgiven or compromised any debt,
claim or right, other than in the ordinary course of business;
(vi) transferred or granted any right under any lease, license or
other agreement or with respect to any intangible asset other
than in the ordinary course of business;
(vii) paid or agreed to pay any bonus, except the payment of bonuses
of up to $30,000 to Doug Evans;
(viii) suffered any material casualty loss (whether or not covered by
insurance) or any material operating or other loss;
(ix) suffered any adverse change in, or any event or events which
have had or will have a material adverse effect on the Assets or
the liabilities of any of the Corporation, the conduct of the
Business or the condition (financial or otherwise) or prospects
of the Corporation, taken as a whole;
(x) made any loan to or entered into any other transaction with any
of its officers, directors, employees or shareholders giving
rise to any claim or right of, by, or against any such person.
The Corporation is not indebted to any of its officers,
directors, employees or shareholders or any other person not
dealing at arms' length with the Corporation except for the
Shareholder Loans;
(xi) made or entered into any contract or commitment to make any
capital expenditures;
(xii) declared or paid any dividend or made or agreed to make any
payment or distribution to any shareholder (including purchases
and redemptions of issued and outstanding shares or any other
securities) except in accordance with Article 7.00;
(xiii) issued, sold or granted any options, rights or warrants to
purchase, or subscribe for, any shares of any corporation;
(xiv) sold or otherwise disposed of any fixed or capital assets except
in the ordinary course of business;
(xv) amended or terminated any contract or agreement which is
material to the Business; or
(xvi) entered into any agreement or commitment to do or cause any of
the matters described above to occur.
<PAGE> 21
18
(cc) No Finder. The Corporation is not obliged to pay any finder's fee or any
type of commission in connection with the transactions contemplated by
this Agreement.
(dd) No Defaults under Agreements; No Violation of Laws. The Corporation has
not received notice of, nor has knowledge of, the existence of any
material default or event of default or the occurrence of any event
which with notice or lapse of time, or both, would constitute a material
default, and which is continuing, under the terms or provisions, express
or implied, of any agreement to which any of the Assets, the Purchased
Shares, or the conduct of the Business are subject. The Corporation has
not received notice of, nor has any knowledge of, a violation of any
applicable federal, provincial or municipal law, ordinance, regulation,
order or requirement relating to the Assets, the Purchased Shares or the
conduct of the Business which may have a material adverse effect on the
Assets, the Purchased Shares, or the conduct of the Business. The
Corporation is conducting the Business in compliance with all applicable
laws, regulations, by-laws and ordinances of each jurisdiction in which
the Business is carried on including any required extra provincial
registrations;
(ee) Litigation. No claim, action, suit, proceeding, litigation, arbitration
or investigation has been commenced or threatened in writing against the
Corporation, the Assets, the Purchased Shares, or the Business
(including the properties of others used in the conduct of the
Business), or the transactions contemplated by this Agreement, except as
set out in the Litigation Schedule, and no basis therefor is known to
the Sellers. No matter which is set out in the Litigation Schedule
would, if decided adversely against the Corporation, have a material
adverse effect on the conduct of the Business or upon the Assets or the
Purchased Shares. Neither the Corporation, the Assets, nor the conduct
of the Business is subject to any continuing injunction, judgment or
other order of any court, arbitrator, mediator or governmental agency.
The Corporation is not in material default under any order, licence,
regulation, nor in any default of any demand of any federal, provincial,
municipal or other governmental agency or regulatory body or with
respect to any order, writ, injunction or decree of any court.
(ff) Tax Matters. Subject to any requirement to file arising from, or in
connection with, the transactions contemplated in this Agreement, the
Corporation has:
(i) prepared and filed with the appropriate governmental authorities
by the required filing date all Tax Returns required to be filed
by it under all applicable laws or regulations, which Tax
Returns, were prepared in conformity with such applicable laws
and regulations and properly reflect, and do not understate
(including that all deductions taken and to be taken are
reasonable and fully deductible for tax purposes in the manner
claimed or to be claimed by the Corporation) the taxable income
and the liability for Taxes of such corporation in the relevant
taxation year;
(ii) duly and timely paid all Taxes as they have become due and
payable; and
<PAGE> 22
19
(iii) made sufficient provision in the Financial Statements for all
accrued but unpaid Taxes, if any, whether or not disputed, for
all relevant periods.
Income tax assessments have been issued to RMC covering all past periods
up to and including the fiscal year ended September 30, 1997, to SysGold
covering all past periods up to and including the fiscal year ended
October 31, 1997 and to SysGold Inc. covering all past periods up to and
including the fiscal year ended _________________, 1997 and such
assessments, if any for amounts owing in respect thereof, have been paid
in full. There are no actions, suits, tax audits or other proceedings or
investigations or claims in progress, pending or threatened in writing
against the Corporation in respect of any Taxes and, in particular,
there are no currently outstanding reassessments or written inquiries
which have been issued or raised by any governmental authority relating
to Taxes. The Corporation is not aware of any contingent liabilities for
Taxes or any reasonable grounds for an assessment or reassessment of any
Tax Return filed by the Corporation, and has not received any indication
from any taxing authorities that an assessment or reassessment is
proposed in respect of any Taxes, regardless of the merits. The
Corporation has not executed or filed with any taxing authority any
agreement extending the period for assessment, reassessment or
collection of Taxes, or any waiver or agreement regarding statutes of
limitations relating to Taxes. All Taxes which are required to be
withheld or collected by the Corporation from payments made to its
present and former employees, officers and directors, and to all persons
who are not residents of Canada for purposes of the Income Tax Act have
been duly withheld or collected and, to the extent required, have been
duly remitted to the proper taxing authorities. The Corporation has
properly withheld all Canada Pension Plan contributions, Employment
Insurance premiums, and other Taxes payable by it in respect of its
employees and has remitted, or will remit such amounts to the proper
taxing authorities within the time required by the applicable
legislation if such time is prior to the Closing Date. Copies of all Tax
Returns and all schedules and other supporting documents thereto filed
by the Corporation with all taxing authorities for each of the last
three (3) completed fiscal years and all communications relating thereto
will have been delivered to the Buyer prior to Closing.
(gg) GST. SysGold Ltd. and RMC are properly registered under the Excise Tax
Act (Canada) for the purposes of the goods and services tax (GST), if
required pursuant to the provisions of the Excise Tax Act (Canada), and
the Corporation has charged, collected and remitted, in the time and
manner required under the said Act, all Taxes required to be charged,
collected and remitted pursuant to Part IX of the Excise Tax Act
(Canada) in respect of any "taxable supply" (as such term is defined
under the applicable sections of the said Act) made by the Corporation.
(hh) Potential Conflicts of Interest. No officer, director or shareholder of
the Corporation, and no person directly or indirectly controlling or
controlled by, or under the direct or indirect control of, any of the
foregoing persons:
<PAGE> 23
20
(i) owns, directly or indirectly, any interest in, or is an officer,
director, employee or consultant of, any person which is a
competitor, lessor, lessee, customer or supplier of the
Corporation;
(ii) holds a beneficial interest in any contract or other agreement
to which the Corporation is a party or by which it is obligated
or bound or to which any of the Assets may be subject;
(iii) owns, directly or indirectly, in whole or in part, any tangible
or intangible property (including, without limitation, any
Proprietary Rights) which the Corporation are using or the use
of which is necessary for the Business; or
(iv) has any cause of action or other claim whatsoever against the
Corporation.
All purchases and sales or other transactions, if any, between the
Corporation and any such persons have been made on the basis of
prevailing market rates and all such transactions have been made on
terms no less favourable to the Corporation than those which would have
been available from unrelated third parties.
(ii) Agreements. Save and except for contracts otherwise referred to in this
Agreement or in the Schedules hereto, the Contracts Schedule sets out a
true and complete list of all contracts and agreements to which the
Corporation is a party or by which the Corporation or any of the Assets
are bound or subject and which (i) pursuant to their provisions,
performance by one or more of the parties thereto may extend beyond the
first anniversary of this Agreement, or (ii) are material contracts to
the conduct of the Business. Each such contract is valid, binding,
enforceable and in full force and effect. There is no default or event
in the performance of such contracts which, with notice or lapse of time
or both, would constitute a material default thereunder entitling one or
more parties to such contract to terminate same.
(jj) Customers and Suppliers. The relationship of the Corporation with its
customers, suppliers, and landlord is good. There has been no
termination or cancellation of any relationship between the Corporation
and any material supplier, or any customer or group of customers which
individually or in the aggregate provided more than five percent (5%) of
the combined gross revenues of the Business during the fiscal years
ended September 30, 1997 with respect to RMC and October 31, 1997 with
respect to SysGold, nor is there reason to believe that any such
terminations or cancellations are threatened. The Corporation is not a
party to any agreement which provides that any supplier will have the
exclusive right to supply any materials or services to the Business.
(kk) Employment Agreements; No Union or Collective Bargaining Agreements. The
Corporation is not a party to nor bound by any collective bargaining
agreement nor has the Corporation conducted negotiations with respect to
any such future agreement. No employees of the Corporation are
represented by any trade union or association which might qualify as a
trade
<PAGE> 24
21
union and there are no applications in progress or threatened which
could result in the certification of a bargaining agent for any
employees of the Corporation. There has been no strike, grievance,
dispute, representation, arbitration, proceedings or other labour
trouble against the Corporation and there is no such action or
proceeding in progress or threatened in writing, and the Corporation
does not know of any basis for any such action or proceeding. The
Corporation has not received notice of, nor does it have any knowledge
of, non-compliance with any laws concerning occupational safety,
employment practices, terms and conditions of employment, wages and
hours, and unfair labour practices, the enforcement of which would have
a material adverse effect on the conduct of the Business. The Employee
Schedule sets out a true and complete schedule, listing the names, total
annual compensation, and period of employment of each person presently
employed by the Corporation. There are no written employment contracts
with any employee or independent contractor or any oral contracts of
employment which are not terminable on the giving of reasonable notice
other than as set out on the Employment and Consulting Agreements
Schedule. All bonuses and vacation pay are properly accrued on the books
and records of the Corporation.
(ll) Employee Benefit Matters. The Employee Benefit Schedule sets out a
complete list of all employee benefit plans, including, without
limitation, life insurance, hospitalization, medical and dental plans,
executive compensation, bonus, deferred compensation, pension,
retirement, profit sharing, stock purchase and option plans, and all
other plans, arrangements or practices providing benefits for employees,
officers, or directors of the Corporation (collectively the "Employee
Benefit Plans"). The Corporation has no unfunded liability in respect of
any of the Employee Benefit Plans other than as disclosed on the
Employee Benefit Schedule. Each of the Employee Benefit Plans has been
operated in accordance with its provisions and is in substantial
compliance in all respects with all laws, rules and regulations
governing each such plan. None of the Employee Benefit Plans or the
related trusts thereunder is subject to any pending investigation,
examination or other proceeding initiated by any court, arbitrator,
governmental agency or regulating body.
(mm) Payments to Directors, Officers and Employees. Since June 30, 1998, no
payments have been made or authorized by the Corporation to its
officers, directors, shareholders or employees, except in the ordinary
course of the business and at the regular rates or salary or
remuneration payable to such persons, or as otherwise specifically
disclosed or contemplated by this Agreement.
(nn) Sellers Claims; Amounts Due from Officers. As of this date, there are no
accounts receivable, notes receivable or any other amounts due to the
Corporation from officers, directors or shareholders of the Corporation.
The Sellers do not have any claims against the Corporation other than
the Shareholder Loans and any current salary or remuneration payable in
the ordinary course.
(oo) Insolvency. The Corporation and the Sellers are not insolvent, have not
committed an act of bankruptcy, proposed a compromise or arrangement of
their creditors generally, had any
<PAGE> 25
22
petition or receiving order in bankruptcy filed against them, taken any
proceedings with respect to a compromise or arrangement or to have a
receiver appointed over any part of their assets, had an encumbrancer
take possession of any of their property, nor had an execution or
distress become enforceable or levied upon any of their property.
(pp) Sellers Resident of Canada. None of the Sellers are non-residents of
Canada for the purposes of the Income Tax Act (Canada).
(qq) The Corporation is a private corporation within the meaning of the
Securities Act (Alberta) and the sale of the Purchased Shares by the
Sellers to the Purchaser is made in compliance with all applicable
securities legislation.
(rr) The Sellers represent and warrant to the Buyer that (i) the Sellers are
not "U.S. persons" as that term is defined in Rule 902(o) of Regulation
S promulgated under the United States Securities Act of 1933, as amended
(the"Act"): (ii) the FutureLink Shares or the shares otherwise issuable
under subsection 2.04(e) were not sold to the Sellers in the United
States and at the time of execution of this Agreement and of any offer
to buy the FutureLink Shares or the shares otherwise issuable under
subsection 2.04(e) hereunder the Sellers were physically outside the
United States; (iii) each Seller is purchasing the FutureLink Shares or
the shares otherwise issuable under subsection 2.04(e) for his own
account and not on behalf of or for the benefit of any U.S. person and
the sale of the FutureLink Shares or the shares otherwise issuable under
subsection 2.04(e) has not been prearranged with or on behalf of any
person in the United States;and (iv) the Sellers are not dealers with
respect to the transactions contemplated herein and consequently a
"distributor" as defined in Regulation S of the Act.
(ss) To the best of the knowledge of the Sellers neither the Sellers nor any
person acting for the Sellers has conducted any "directed selling
efforts" as that term is defined in Rule 902 of Regulation S under the
United States Securities Act of 1933 in the offer and sale of the
FutureLink Shares or such other shares to be issued in accordance with
subsection 2.04(e).
(tt) The Sellers knows of no public solicitation or advertisement of an offer
in connection with the proposed issuance and sale of the FutureLink
Shares or such other shares to be issued pursuant subsection 2.04(e).
(uu) The Sellers are acquiring the FutureLink Shares or such other shares to
be issued pursuant subsection 2.04(e) for their own accounts for
investment and not as a nominee and not with a view to the distribution
thereof. The Sellers understand that they must bear the economic risk of
this investment indefinitely unless sale of such FutureLink Shares or
such other shares to be issued pursuant subsection 2.04(e) is registered
pursuant to the Act, or an exemption from such registration is
available, and that the Buyer has no present intention of registering
any such sale of the FutureLink Shares or such other shares to be issued
pursuant subsection 2.04(e) except as otherwise may be provided herein.
The Sellers
<PAGE> 26
23
represent and warrant to the Buyer that they have no present plan or
intention to sell any of such FutureLink Shares or such other shares to
be issued pursuant subsection 2.04(e) in the United States or to a
United States person pursuant to any predetermined arrangements. The
Sellers covenant that neither they not their affiliates nor any person
acting on their behalf has the intention of entering or will enter
during the Distribution Compliance Period, into any put option, short
position, hedging transactions, equity swaps or other similar instrument
or position with respect to any of such FutureLink Shares or such other
shares to be issued pursuant subsection 2.04(e) or any shares of the
Buyer and neither the Sellers nor any of their affiliates or any person
acting on their behalf will use at any time any of such acquired
pursuant to this Agreement to settle any put option, short position,
hedging transactions, equity swaps or other similar instrument or
position that may have been entered into prior to the execution of this
Agreement.
(vv) To the best of the knowledge of the Sellers neither the Sellers nor any
person acting for the Sellers has conducted any "directed selling
efforts", as that term is defined in Rule 902 of Regulation S under the
United States Securities Act of 1933, in the offer and sale of the
FutureLink Shares.
(ww) The Sellers knows of no public solicitation or advertisement of an offer
in connection with the proposed issuance and sale of the FutureLink
Shares or such other shares to be issued pursuant subsection 2.04(e).
(xx) The Sellers are acquiring the FutureLink Shares or such other shares to
be issued pursuant subsection 2.04(e) for their own accounts for
investment and not as a nominee and not with a view to the distribution
thereof. The Sellers understand that they must bear the economic risk of
this investment indefinitely unless sale of such FutureLink Shares or
such other shares to be issued pursuant subsection 2.04(e) are
registered pursuant to the Act, or an exemption from such registration
is available, and that the Buyer has no present intention of registering
any such sale of the FutureLink Shares or such other shares to be issued
pursuant subsection 2.04(e) except as otherwise may be provided herein.
The Sellers represent and warrant to the Buyer that they have no present
plan or intention to sell any of such FutureLink Shares or such other
shares to be issued pursuant subsection 2.04(e) in the United States or
to a United States person pursuant to any predetermined arrangements.
The Sellers covenant that neither they not their affiliates nor any
person acting on their behalf has the intention of entering or will
enter during the Distribution Compliance Period, into any put option,
short position, hedging transactions, equity swaps or other similar
instrument or position with respect to any of such FutureLink Shares or
such other shares to be issued pursuant subsection 2.04(e) or any shares
of the Buyer and neither the Sellers nor any of their affiliates or any
person acting on their behalf will use at any time any of such acquired
pursuant to this Agreement to settle any put option, short position,
hedging transactions, equity swaps or other similar instrument or
position that may have been entered into prior to the execution of this
Agreement.
<PAGE> 27
24
(yy) Residence. The Sellers are all residents of Alberta, Canada.
(zz) Full Disclosure. The Corporation or the Sellers have or will have
delivered to the Buyer prior to Closing true and current copies or, if
not available, photocopies of all agreements, documents and other
instruments referred to in this Agreement. None of the foregoing
representations and warranties and no other written statement furnished
by the Sellers to the Purchaser in connection with the transactions
contemplated hereby contain any untrue statement of a material fact or
omit to state any material fact necessary to make any such statement or
representation not misleading to a prospective purchase of the Purchased
Shares seeking full information as to the Corporation.
3.02 REPRESENTATIONS AND WARRANTIES OF THE BUYER. For the purposes of this
section 3.02 only, unless otherwise specified by referring to the Buyer as
FutureLink Colorado, all representations and warranties of the Buyer shall apply
to the Buyer and FutureLink Alberta. The Buyer represents and warrants to the
Sellers as follows and acknowledges that the Sellers are relying upon such
representations and warranties in connection with the sale by the Sellers of the
Purchased Shares:
(a) Corporate Existence. FutureLink Colorado is a public company and is duly
incorporated, organized and validly existing under the laws of the State
of Colorado. FutureLink Alberta is duly incorporated, organized and
validly existing under the laws of the Province of Alberta. The State of
Colorado and the Province of Alberta are the only jurisdictions in which
the Buyer carries on business or owns or leases properties. The Buyer
has the corporate power and authority and does now possess all
governmental and other permits, licences and other authorizations
required to own or lease its properties, and to carry on its business as
it was carried on at the applicable time.
(b) Authority. This Agreement, when executed and delivered by the parties
hereto, will constitute a valid and binding agreement of the Buyer
enforceable in accordance with its terms. None of the execution and
delivery of this Agreement, the consummation of the transactions
contemplated by this Agreement and the compliance with or fulfilment of
the terms and provisions of this Agreement, will conflict with or result
in a breach of the terms, conditions or provisions of or constitute a
default under any of the Buyer's constating documents or by-laws, or a
default under any instrument, agreement, mortgage, judgment, order,
award, decree or other restriction to which the Buyer is a party or by
which either are bound or any regulatory provisions affecting either of
them. The Buyer is not a party to or bound by any commitment, agreement
or document containing any covenant which limits the freedom of the
Buyer to compete or solicit any line of business, transfer or move any
of its assets or operations or which materially or adversely affects the
business practices, operation or conditions of the Buyer or the
continued operation of the Buyer's business after closing.
<PAGE> 28
25
(c) Authorized and Issued Capital. The authorized capital of FutureLink
Colorado consists of 5,000,000 preferred shares without par value and
100,000,000 common shares with par value of One-One hundredth of One
Cent ($.0001) of which 16,623,553 common shares are issued and
outstanding as fully paid and non-assessable. The authorized capital of
FutureLink Alberta consists of an unlimited number of Class A common
voting shares, an unlimited number of Class B common non-voting shares
and an unlimited number of first preferred share of which approximately
3,380,275 Class A common shares are issued and outstanding as fully paid
and non-assessable as set out in the FutureLink Alberta Capital
Schedule. The authorized capital of the Buyer may change prior to
closing due to planned transactions including the purchase of shares of
FutureLink Alberta from the shareholders other than FutureLink Colorado.
It may also change in the event of additional financing provided that
any issuance will not exceed ten percent (10%) of the outstanding shares
of the Buyer without the prior approval of the Sellers. With respect to
the conversion of debt to equity, the total indebtedness to Linear
Strategies Ltd., and its assignee with respect to debt of $US 350,000,
was $US 732,706 as of June 30, 1998 and such was converted at the rate
of $US 0.65 per common share of FutureLink Colorado.
(d) Options and Calls. There are no outstanding agreements, calls,
commitments, options, subscriptions, warrants or other rights or
privileges to acquire the shares of the Buyer other than as disclosed in
note 5 of the FutureLink Colorado financial statements dated May 31,
1998 contained in the FutureLink Financial Statements Schedule, except
as set out in the Buyer's Options and Calls Schedule and except for
warrants issued to Linear Strategies Inc. and Hampton Park Ltd. to
acquire 1,127,240 common shares of FutureLink Colorado for US$1.00 per
share until June 30, 1999 or for $US1.25 per share from July 1, 1999 to
June 30, 2000.
(e) Subsidiaries. Except for FutureLink Alberta, the Buyer does not own any
interest in or control, directly or indirectly, any corporation,
business trust, partnership, limited partnership, joint venture or other
person. The Buyer is contemplating other purchase transactions which may
take effect prior to the Time of Closing but shall not do so without the
consent of the Sellers;
(f) Financial Assistance. The Buyer has not, directly or indirectly, made
any loans, provided financial assistance in any form, or given any
guarantees, to or in respect of the obligations of any person, other
than loans, financial assistance or guarantees which are no longer
outstanding or which were made from FutureLink Colorado to FutureLink
Alberta. The Buyer will not, as of the Time of Closing, be a party to or
bound by any agreement of indemnification, assumption or endorsement or
any other like commitment of the obligations, liabilities (contingent or
otherwise) or indebtedness of any other party;
(g) No Joint Venture Interests, etc. The Buyer is not a partner, co-tenant,
joint venturer or otherwise a participant in any partnership, joint
venture, co-tenancy or other similarly jointly
<PAGE> 29
26
owned business undertaking and the Buyer has no other significant
investment interests in any business owned or controlled by any third
party.
(h) No Distributions on Shares. The Buyer has not, since May 31, 1998,
purchased or redeemed any shares in the capital of the Buyer, paid or
declared any dividend, made or agreed to make any other distribution in
respect of its capital or passed any resolution authorizing any of such
actions;
(i) Financial Statements and Financial Books and Records. The books and
records of the Buyer and the financial statements contained in the
FutureLink Financial Statement Schedule fairly and correctly set out and
disclose in all material respects, in accordance with Canadian generally
accepted accounting principals (except for the non- consolidation of the
financial statements of FutureLink Alberta), consistently applied from
year to year, the assets, liabilities, and financial position of the
Buyer as at the date of such financial statements, at the date hereof
and will continue to do so at the Time of Closing. All financial
transactions of the Buyer relating to the Buyer's business have been and
will be accurately recorded in its books and records and, without
limiting the generality of the foregoing, all monies set aside or held
in trust by the Buyer for the benefit of another person are properly
accrued or so held and are completely and accurately recorded in the
books and records of the Buyer and no claim can be made against the
Buyer in respect thereof in excess of the amounts so set aside or held.
(j) Corporate Books and Records. To the best of the knowledge of the Buyer
the corporate records and minute books of the Buyer are complete,
accurate and up to date, and contain and will contain at the Time of
Closing complete and accurate copies of all articles (as amended) and
by-laws (as amended), minutes of all meetings and/or written resolutions
of the directors and/or shareholders of the Buyer from incorporation to
the Closing Date and all such by-laws were duly enacted and passed, all
such meetings were duly held, and all such resolutions were duly enacted
and passed and all matters and transactions contained or reflected in
the minute books are in accordance with applicable corporation law
requirements. The registers of shareholders and directors and registers
of transfers are and will be accurate and complete on the Closing. The
transfer agent for FutureLink Colorado is General Securities Transfer
Agency Inc., 3614 Calle De Sole NE, Albuquerque, NM, 87110-6112. No
resolutions or by-laws have been passed, enacted, consented to or
adopted by the directors or shareholders of the Buyer, except those
contained in the minute books;
(k) Disclosure to Accountants. The Buyer has made known, or caused to be
made known, to the accountants or auditors who have prepared the
FutureLink Financial Statements all material facts and circumstances
which could affect the preparation of the FutureLink Financial
Statements.
(l) Directors and Officers . The directors and officers of the Buyer are as
set out in the Buyers Directors and Officers Schedule.
<PAGE> 30
27
(m) Outstanding Indebtedness. Except as set out in the FutureLink Financial
Statements and as contemplated by the terms of this Agreement and a term
sheet dated July 13, 1998 with Thomson Kernaghan & Co. Limited attached
hereto as the Debenture Schedule, the Buyer has no outstanding, nor is
it under any obligation to create or issue, any bonds, debentures,
mortgages, notes, security agreements or any other Encumbrances.
(n) Availability of Assets. The assets currently owned by the Buyer
constitute all of the assets which are now being used, and which are
necessary, in the conduct of the business of the Buyer. Such assets are
in good operating condition and repair, reasonable wear and tear
excepted.
(o) Title to Assets. The Buyer is the legal and beneficial owner of all of
its assets accounted for in the preparation of the FutureLink Financial
Statements having good and marketable legal and beneficial title
thereto, free and clear of all Encumbrances. Except in the ordinary
course of business, there is no agreement, option or other right to
sell, assign or otherwise dispose of any of such assets.
(p) Accounts Receivable. Other than as reserved in the FutureLink Financial
Statements, all accounts receivable have arisen from valid arm's length
transactions in the ordinary course of business. The accounts receivable
are not subject to any valid set-offs or counterclaims and are, subject
to the debtor's willingness and ability to pay, collectable in full
within 120 days of the Closing Date, and the Sellers have received no
notice of the unwillingness or inability of any debtor to pay any of the
accounts receivable. Adequate provision has been made for bad debts and
doubtful accounts, in accordance with generally accepted accounting
principals.
(q) Inventories. All inventories of the Buyer consist of items of a quality
usable in the ordinary course of business. On the Closing Date,
Inventories will be sufficient to meet the needs of the business in the
ordinary course.
(r) Forward Commitments. All forward commitments which have been entered
into by the Buyer and which remain unfulfilled have been entered into in
the ordinary course of the business of the Buyer.
(s) Real Estate. At the Time of Closing, the Buyer will not own any real
property.
(t) Leases. All leased property of the Buyer is listed in the Buyer's Leased
Property Schedule. Each lease and/or agreement to lease:
(i) is in full force and effect and in good standing and constitutes
a legal, valid and binding obligation of FutureLink Alberta or
FutureLink Colorado as the case may be and, without limiting the
generality of the foregoing, there has been no default
thereunder by FutureLink Alberta or FutureLink Colorado as the
case may be, or to
<PAGE> 31
28
the best of the knowledge of FutureLink Alberta or FutureLink
Colorado as the case may be, by the landlord, and FutureLink
Alberta or FutureLink Colorado as the case may be has not
received notice of termination or threat by the landlord to
terminate such lease or agreement to lease; and
(ii) will continue in full force and effect notwithstanding the
closing of the transactions contemplated by this Agreement
without the consent, approval or act of any party under such
lease or agreement to lease;
With respect to all leased property:
(iii) to the best of the FutureLink Alberta's or FutureLink Colorado's
knowledge as the case may be, the premises and improvements
thereto and the purposes for which any of them are used, comply
in all respects with the relevant zoning, building,
environmental and other governmental or municipal by-laws, laws,
requirements, regulations and ordinances (including municipal
and provincial fire regulations and pollution control
regulations) and with Fire Underwriters' regulations;
(iv) there has not been received by FutureLink Alberta or FutureLink
Colorado as the case may be or anyone on behalf of FutureLink
Alberta or FutureLink Colorado as the case may be, any notice
with respect to any by-law change affecting the premises or
relating to any threatened or pending condemnation or
expropriation of such premises;
(v) neither FutureLink Alberta or FutureLink Colorado as the case
may be nor anyone on behalf of it has received any notice from
any insurance carrier of defects or inadequacies in any of the
premises, which, if not corrected, could result in termination
of insurance coverage or an increase in the cost of coverage;
(u) Environmental Matters and Occupational Health and Safety. To the best of
the Buyer's knowledge, after due inquiry the Buyer has in connection
with the carrying on of its business complied with and will be in
compliance with all federal, provincial, state and municipal orders,
regulations and by-laws relating to environmental and occupational
health and safety matters, including the disposal of hazardous
substances;
(v) Equipment Leases. A complete list of all equipment leases to which the
Corporation is a party is listed in the Buyer's Equipment Lease
Schedule. A full and complete copy of each equipment lease has been
produced to the Buyer. Each of such equipment leases:
(i) is in full force and effect and in good standing and constitutes
a legal, valid and binding obligation of the Buyer; and
<PAGE> 32
29
(ii) will continue in effect notwithstanding the closing of the
transactions contemplated by this Agreement without the consent,
approval or act of any party under such equipment lease.
(w) Insurance. All policies of fire and other insurance against casualty and
other losses and public liability insurance carried by the Buyer are
described in the Buyer's Insurance Schedule (including the risks covered
and limits of such policies) and are in full force and effect. A full
and complete copy of each such insurance policy has been provided to the
Sellers, and such policies are summarized in the Buyer's Insurance
Schedule attached hereto. All premiums in respect of such policies for
which premium notices have been received have been paid in full as the
same become due and payable. The Buyer has not failed to give any notice
or present any claim under any insurance policy in due and timely
fashion. There are no actual claims or claims threatened in writing
against the Buyer which would come within the scope of such coverage nor
are any such policies currently threatened with cancellation. There are
no outstanding requirements or recommendations by any insurance company
that issued a policy with respect to any of the assets of the Buyer or
the business of the Buyer or by any Board of Fire Underwriters or other
body exercising similar functions or by any governmental authority
requiring or recommending any repairs or other work to be done on, or
with respect to, any of the assets of the buyer or requiring or
recommending any equipment or facilities to be installed on any premises
from which the Buyer's business is conducted or in connection with any
of the assets. The Buyer does not have any knowledge of any material
proposed increase in applicable insurance rates or of any conditions or
circumstances applicable to the Buyer's business which might result in
such increases. No such policy is terminable by virtue of the
transactions contemplated by this Agreement.
(x) Proprietary Rights. Other than the trade name "FutureLink", the Buyer
does not own any copyrights, uncopyrighted works, registered and
unregistered trade marks, certification marks, trade names, industrial
designs, patents, patent applications, unpatented inventions, trade
secrets, know-how and other proprietary rights (collectively, the
"Proprietary Rights") and no such Proprietary Rights are necessary or
desirable in the conduct of the Buyer's business as now conducted. The
conduct of the Buyer's business by the Buyer as now conducted does not
infringe or violate any Proprietary Rights belonging to third parties,
including Proprietary Rights owned by a third party to any computer
software programs now used in the conduct of the Buyer's business, all
of which computer software programs are properly licensed by the Buyer.
Except as set out below, all of the computer programs now used in the
conduct of the Buyer's business, and which are material to the conduct
of the Buyer's business, are "Year 2000 Compliant", meaning that such
programs are able to accept and accurately process and tabulate dates
and date data regardless of the century to which such dates and date
data relate.
(y) Business Conducted in No Other Name. All business of the Buyer has been
conducted in the name of the Buyer or in the prior names of the Buyer
for business conducted prior to such name changes and for the benefit of
the Buyer and there are no parties related, either directly
<PAGE> 33
30
or indirectly, which are competing for the business of the Buyer. There
are no trademarks or trade names other than those set out in section
3.02(aa) which are required to properly conduct the business of the
Buyer;
(z) Absence of Certain Changes or Events. Since May 31, 1998, the Buyer has
not:
(i) incurred any fixed or contingent obligation, liability or
commitment except trade or business obligations incurred in the
ordinary course of business, none of which is materially adverse
or was entered into for inadequate consideration;
(ii) discharged or satisfied any Encumbrance or paid or satisfied any
fixed or contingent obligation or liability, except for current
obligations or liabilities incurred in the ordinary course of
business and except as otherwise provided for in this Agreement;
(iii) mortgaged, pledged or subjected any of the Buyer's assets to any
Encumbrance, other than liens, if any, for current Taxes not yet
due and payable except as contemplated in the Debenture
Schedule;
(iv) entered into any lease or rental agreement or transferred,
leased, licensed or disposed of any of the Buyer's assets other
than in the ordinary course of business and other than new
leases or renewals of any of the leases and/or agreements to
lease listed on the Buyer's Leased Property Schedule in
accordance with the renewal rights contained therein;
(v) waived, released, cancelled, forgiven or compromised any debt,
claim or right, other than in the ordinary course of business;
(vi) transferred or granted any right under any lease, license or
other agreement or with respect to any intangible asset other
than in the ordinary course of business;
(vii) paid or agreed to pay any bonus;
(viii) suffered any material casualty loss (whether or not covered by
insurance) or any material operating or other loss;
(ix) suffered any adverse change in, or any event or events which
have had or will have a material adverse effect on, the Buyer's
assets or the liabilities of the Buyer, the conduct of the
Buyer's business or the condition (financial or otherwise) or
prospects of the Buyer, taken as a whole;
(x) made any loan to or entered into any other transaction with any
of its officers, directors, employees or shareholders giving
rise to any claim or right of, by, or against any such person.
The Buyer is not indebted to any of its officers, directors,
<PAGE> 34
31
employees or shareholders or any other person not dealing at
arms' length with the Corporation except in the ordinary course
of business;
(xi) made or entered into any contract or commitment to make any
capital expenditures (not including leasehold improvements) with
an aggregate cost in excess of One Hundred Thousand Dollars
($100,000.00) in the aggregate;
(xii) declared or paid any dividend or made or agreed to make any
payment or distribution to any shareholder (including purchases
and redemptions of issued and outstanding shares or any other
securities);
(xiii) issued, sold or granted any options, rights or warrants to
purchase, or subscribe for, any shares of any corporation other
than those listed in the Buyer's Options and Calls Schedule;
(xiv) sold or otherwise disposed of any fixed or capital assets except
in the ordinary course of business other than the sale of the
assets of FutureServe effective July 1, 1998;
(xv) amended or terminated any contract or agreement which is
material to the Buyer's business; or
(xvi) entered into any agreement or commitment to do or cause any of
the matters described above to occur.
(aa) No Finder. The Buyer is not obliged to pay any finder's fee or any type
of commission in connection with the transactions contemplated by this
Agreement.
(bb) No Defaults under Agreements; No Violation of Laws. The Buyer has not
received notice of, nor has knowledge of, the existence of any material
default or event of default or the occurrence of any event which with
notice or lapse of time, or both, would constitute a material default,
and which is continuing, under the terms or provisions, express or
implied, of any agreement to which any of the Buyer's assets, the
trading of the Buyer's shares on the OTCBB on the NASDAQ Exchange, or
the conduct of the Buyer's business are subject. The Corporation has not
received notice of, nor has any knowledge of, a violation of any
applicable federal, provincial, state or municipal law, ordinance,
regulation, order or requirement relating to the Buyer's assets, the
Buyer's shares or the conduct of the Buyer's business which may have a
material adverse effect on the Buyer's assets, the Buyer's shares, or
the conduct of the Buyer's business. The Buyer is conducting the Buyer's
business in compliance with all applicable laws, regulations, by-laws
and ordinances of each jurisdiction in which such business is carried on
including any required extra provincial registrations;
(cc) Litigation. Except for:
<PAGE> 35
32
(i) a claim in the Court of Queen's Bench of Alberta, Action No.
9801-07637 between Palmer Jarvis Inc. and FutureLink Alberta;
(ii) a claim in the Court of Queen's Bench of Alberta, Action
No. #97- CV-134063 between Midland Walwyn and Core Ventures,
Inc. (predecessor of FutureLink Colorado), Raymond Kompani,
Abecorn Enterprises Limited, Alixe Cormick and Venture Law
Corporation; and
(iii) a claim in the Court of Queen's Bench of Alberta, Action
No. #9701-15514 between 554495 Alberta Ltd. and Coffee.com
Interactive Cafe Corp. (predecessor to FutureLink Alberta);
no claim, action, suit, proceeding, litigation, arbitration or
investigation has been commenced or threatened in writing against the
Buyer, the Buyer's assets, the Buyer's Shares, or the Buyer's business
(including the properties of others used in the conduct of the
Business), or the transactions contemplated by this Agreement and no
basis therefor is known to the Buyer. Neither the Buyer, the Buyer's
assets, nor the conduct of the Buyer's business is subject to any
continuing injunction, judgment or other order of any court, arbitrator,
mediator or governmental agency. The Buyer is not in material default
under any order, licence, regulation, nor in any default of any demand
of any federal, provincial, municipal or other governmental agency or
regulatory body or with respect to any order, writ, injunction or decree
of any court.
(dd) Tax Matters. Subject to any requirement to file arising from, or in
connection with, the transactions contemplated in this Agreement,
FutureLink Alberta has:
(i) prepared and filed with the appropriate governmental authorities
by the required filing date all Tax Returns required to be filed
by it under all applicable laws or regulations, which Tax
Returns, were prepared in conformity with such applicable laws
and regulations and properly reflect, and do not understate
(including that all deductions taken and to be taken are
reasonable and fully deductible for tax purposes in the manner
claimed or to be claimed by the Buyer) the taxable income and
the liability for Taxes of such corporation in the relevant
taxation year;
(ii) duly and timely paid all Taxes as they have become due and
payable; and
(iii) made sufficient provision in the FutureLink Financial Statements
for all accrued but unpaid Taxes, if any, whether or not
disputed, for all relevant periods.
Income tax assessments have been issued to FutureLink Alberta covering
all past periods up to and including the fiscal year ended December 31,
1996 and such assessments, if any amounts were owing in respect thereof,
have been paid in full. There are no actions, suits, tax audits or other
proceedings or investigations or claims in progress, pending or
threatened
<PAGE> 36
33
in writing against FutureLink Alberta in respect of any Taxes and, in
particular, there are no currently outstanding reassessments or written
inquiries which have been issued or raised by any governmental authority
relating to Taxes. The Buyer is not aware of any contingent liabilities
for Taxes or any reasonable grounds for an assessment or reassessment of
any Tax Return filed by FutureLink Alberta, and has not received any
indication from any taxing authorities that an assessment or
reassessment is proposed in respect of any Taxes, regardless of the
merits. FutureLink Alberta has not executed or filed with any taxing
authority any agreement extending the period for assessment,
reassessment or collection of Taxes, or any waiver or agreement
regarding statutes of limitations relating to Taxes. All Taxes which are
required to be withheld or collected by FutureLink Alberta from payments
made to its present and former employees, officers and directors, and to
all persons who are not residents of Canada for purposes of the Income
Tax Act have been duly withheld or collected and, to the extent
required, have been duly remitted to the proper taxing authorities.
FutureLink Alberta has properly withheld all Canada Pension Plan
contributions, Employment Insurance premiums, and other Taxes payable by
it in respect of its employees and has remitted, or will remit such
amounts to the proper taxing authorities within the time required by the
applicable legislation if such time is prior to the Closing Date. Copies
of all Tax Returns and all schedules and other supporting documents
thereto filed by the Buyer with all taxing authorities for each of the
last two (2) completed fiscal years and all communications relating
thereto will have been delivered to the Sellers prior to Closing.
Subject to any requirement to file arising from, or in connection with, the
transactions contemplated in this Agreement, FutureLink Colorado has or will
have by the Time of Closing:
(iv) prepared and filed with the appropriate governmental authorities
by the required filing date all Tax Returns required to be filed
by it under all applicable laws or regulations, which Tax
Returns, were prepared in conformity with such applicable laws
and regulations and properly reflect, and do not understate
(including that all deductions taken and to be taken are
reasonable and fully deductible for tax purposes in the manner
claimed or to be claimed by the Buyer) the taxable income and
the liability for Taxes of such corporation in the relevant
taxation year;
(v) duly and timely paid all Taxes as they have become due and
payable; and
(vi) made sufficient provision in the FutureLink Financial Statements
for all accrued but unpaid Taxes, if any, whether or not
disputed, for all relevant periods.
Income tax assessments covering all past periods up to and including the
most recent fiscal year end where filings have been made for FutureLink
Colorado shall be provided to the Sellers and pursuant such assessments,
if any amounts were owing in respect thereof, the Sellers shall have
been paid such assessments in full except fort a dispute with the
Internal Revenue Service with respect to $US 22,000 of taxes which may
be payable . Except as set out herein, there are no actions, suits, tax
audits or other proceedings or investigations or
<PAGE> 37
34
claims in progress, pending or threatened in writing against FutureLink
Colorado in respect of any Taxes and, in particular, there are no
currently outstanding reassessments or written inquiries which have been
issued or raised by any governmental authority relating to Taxes. Except
as set out herein, the Buyer is not aware of any contingent liabilities
for Taxes or any reasonable grounds for an assessment or reassessment of
any Tax Return filed by the Buyer, and has not received any indication
from any taxing authorities that an assessment or reassessment is
proposed in respect of any Taxes, regardless of the merits. FutureLink
Colorado has not executed or filed with any taxing authority any
agreement extending the period for assessment, reassessment or
collection of Taxes, or any waiver or agreement regarding statutes of
limitations relating to Taxes. All Taxes which are required to be
withheld or collected by the Buyer from payments made to its present and
former employees, officers and directors, and to all persons who are not
residents of the United States have been duly withheld or collected and,
to the extent required, have been duly remitted to the proper taxing
authorities. FutureLink Colorado has properly withheld all Taxes payable
by it in respect of its employees and has remitted, or will remit such
amounts to the proper taxing authorities within the time required by the
applicable legislation if such time is prior to the Closing Date. Copies
of all Tax Returns and all schedules and other supporting documents
thereto filed by the Buyer with all taxing authorities for each of the
last two completed fiscal years and all communications relating thereto
will have been delivered to the Sellers prior to Closing.
(ee) GST. FutureLink Alberta is properly registered under the Excise Tax Act
(Canada) for the purposes of the goods and services tax (GST), and the
FutureLink Alberta has charged, collected and remitted, in the time and
manner required under the said Act, all Taxes required to be charged,
collected and remitted pursuant to Part IX of the Excise Tax Act
(Canada) in respect of any "taxable supply" (as such term is defined
under the applicable sections of the said Act) made by the Buyer.
(ff) Potential Conflicts of Interest. No officer, director or shareholder of
the Buyer, and no person directly or indirectly controlling or
controlled by, or under the direct or indirect control of, any of the
foregoing persons:
(i) owns, directly or indirectly, any interest in, or is an officer,
director, employee or consultant of, any person which is a
competitor, lessor, lessee, customer or supplier of the Buyer
except for:
(A) Cameron Chell who is President of and will be a shareholder
of Willson Stationary and who is President and Shareholder of
Jaws Technology, both companies of which are customers of
FutureLink Alberta;
(B) Cameron Chell who is a shareholder of Chell McNeill which
has a sublease for office space from FutureLink Alberta; and
<PAGE> 38
35
(C) Sheraton Business Forms, a customer whose majority
shareholder owns shares in FutureLink Alberta.
all of which were entered into in the ordinary course of
business and at competitive rates.
(ii) holds a beneficial interest in any contract or other agreement
to which the Buyer is a party or by which it is obligated or
bound or to which any of the Assets may be subject;
(iii) owns, directly or indirectly, in whole or in part, any tangible
or intangible property (including, without limitation, any
Proprietary Rights) which the Buyer is using or the use of which
is necessary for the Buyer's business; or
(iv) has any cause of action or other claim whatsoever against the
Buyer.
All purchases and sales or other transactions, if any, between the Buyer
and any such persons have been made on the basis of prevailing market
rates and all such transactions have been made on terms no less
favourable to the Buyer than those which would have been available from
unrelated third parties.
(gg) Agreements. Save and except for contracts otherwise referred to in this
Agreement or in the Schedules hereto, the Buyer's Contracts Schedule
sets out a true and complete list of all contracts and agreements to
which the Buyer is a party or by which the Buyer or any of the Buyer's
Assets are bound or subject and which (i) pursuant to their provisions,
performance by one or more of the parties thereto may extend beyond the
first anniversary of this Agreement, or (ii) are material contracts to
the conduct of the Buyer's business. Each such contract is valid,
binding, enforceable and in full force and effect. There is no default
or event in the performance of such contracts which, with notice or
lapse of time or both, would constitute a material default thereunder
entitling one or more parties to such contract to terminate same.
(hh) Customers and Suppliers. The relationship of the Buyer with its
customers, suppliers, and landlord is good. There has been no
termination or cancellation of any relationship between the Buyer and
any material supplier, or any customer or group of customers which
individually or in the aggregate provided more than five percent (5%) of
the combined gross revenues of the Buyer's business during the fiscal
years ended December 31, 1997 with respect to FutureLink Alberta and May
31, 1998 with respect to FutureLink Colorado, nor is there reason to
believe that any such terminations or cancellations are threatened. The
Buyer is not a party to any agreement which provides that any supplier
will have the exclusive right to supply any materials or services to the
Buyer's business.
<PAGE> 39
36
(ii) Employment Agreements; No Union or Collective Bargaining Agreements. The
Buyer is not a party to nor bound by any collective bargaining agreement
nor has the Buyer conducted negotiations with respect to any such future
agreement. No employees of the Buyer are represented by any trade union
or association which might qualify as a trade union and there are no
applications in progress or threatened which could result in the
certification of a bargaining agent for any employees of the Buyer.
There has been no strike, grievance, dispute, representation,
arbitration, proceedings or other labour trouble against the Buyer and
there is no such action or proceeding in progress or threatened in
writing, and the Buyer does not know of any basis for any such action or
proceeding. The Buyer has not received notice of, nor does it have any
knowledge of, non-compliance with any laws concerning occupational
safety, employment practices, terms and conditions of employment, wages
and hours, and unfair labour practices, the enforcement of which would
have a material adverse effect on the conduct of the Buyer's business.
The Buyer's Employee Schedule sets out a true and complete schedule,
listing the names, total annual compensation, and period of employment
of each person presently employed by the Buyer. There are no written
employment contracts with any employee or independent contractor or any
oral contracts of employment which are not terminable on the giving of
reasonable notice other than as set out on the Buyer's Employment and
Consulting Agreements Schedule. All bonuses and vacation pay are
properly accrued on the books and records of the Buyer.
(jj) Employee Benefit Matters. The Buyer's Employee Benefit Schedule sets out
a complete list of all employee benefit plans, including, without
limitation, life insurance, hospitalization, medical and dental plans,
executive compensation, bonus, deferred compensation, pension,
retirement, profit sharing, stock purchase and option plans, and all
other plans, arrangements or practices providing benefits for employees,
officers, or directors of the Buyer (collectively the "Buyer's Employee
Benefit Plans"). The Buyer has no unfunded liability in respect of any
of the Buyer' Employee Benefit Plans other than as disclosed on the
Buyer's Employee Benefit Schedule. Each of the Buyer's Employee Benefit
Plans has been operated in accordance with its provisions and is in
substantial compliance in all respects with all laws, rules and
regulations governing each such plan. None of the Buyer's Employee
Benefit Plans or the related trusts thereunder is subject to any pending
investigation, examination or other proceeding initiated by any court,
arbitrator, governmental agency or regulating body.
(kk) Payments to Directors, Officers and Employees. Since May 31, 1998, no
payments have been made or authorized by the Buyer to its officers,
directors, shareholders or employees, except in the ordinary course of
the business and at the regular rates or salary or remuneration payable
to such persons, or as otherwise specifically disclosed or contemplated
by this Agreement and except for the repayment of a shareholder loan to
Cameron Chell which appeared on the December 31 FutureLink Financial
Statements for FutureLink Alberta.
(ll) Sellers Claims; Amounts Due from Officers. As of this date, there are no
accounts receivable, notes receivable or any other amounts due to the
Buyer from officers, directors or shareholders of the Buyer.
<PAGE> 40
37
(mm) Insolvency. The Buyer is not insolvent, has not committed an act of
bankruptcy, proposed a compromise or arrangement of their creditors
generally, had any petition or receiving order in bankruptcy filed
against them, taken any proceedings with respect to a compromise or
arrangement or to have a receiver appointed over any part of its assets,
had an encumbrancer take possession of any of its property, nor had an
execution or distress become enforceable or levied upon any of its
property except for a voluntary petition for Chapter 11 protection in
the United States Bankruptcy Court filed April 4, 1995 and which was
dismissed by said court.
(nn) Regulatory Approval. All approvals, permits, consents, orders and
authorizations required in connection with the issuance of the
FutureLink Shares or the shares issuable upon exercise of the conversion
rights referred to in subsection 2.04(c) have been obtained, or if not
obtained, will be obtained prior to Closing and all documents, if any,
to be filed with the U.S. Securities and Exchange Commission and the
NASD have been filed, or if not filed, will be filed prior to closing.
(oo) Corporate Action. All necessary corporate action has been taken by the
Buyer to authorize the issuance of the FutureLink Shares or the shares
issuable upon exercise of the conversion rights referred to in
subsection 2.04(c) and such shares, when issued and paid for, will be
issued as fully paid and non-assessable.
(pp) Trading of FutureLink Colorado Shares. The common shares of FutureLink
Colorado are approved for trading on the NASD Electronic Bulletin Board.
FutureLink Colorado is not in default of any of its obligations to the
SEC or the NASD Electronic Bulletin Board.
(qq) Full Disclosure. The Buyers have or will have delivered to the Sellers
prior to Closing true and current copies or, if not available,
photocopies of all agreements, documents and other instruments referred
to in this Agreement. None of the foregoing representations and
warranties and no other written statement furnished by the Buyer to the
Sellers in connection with the transactions contemplated hereby contain
any untrue statement of a material fact or omit to state any material
fact necessary to make any such statement or representation not
misleading to a prospective seller of the Purchased Shares seeking full
information as to the Buyer.
ARTICLE 4.00 - COVENANTS
4.01 COVENANTS OF THE SELLERS AND THE CORPORATION DURING INTERIM PERIOD. The
Sellers hereby covenant that, during the Interim Period, it shall and shall
cause the Corporation to and the Corporation hereby agrees to:
<PAGE> 41
38
(a) carry on the Business in the ordinary course and use its reasonable best
efforts to preserve the Assets, the Business and the clients and
suppliers associated with the Business;
(b) give the Buyer, the Buyer's Counsel, the Buyer's Accountants and other
representatives of the Buyer, reasonable access during normal business
hours to the properties, books, contracts, commitments and records of
the Corporation;
(c) treat in confidence all Confidential Information and other information
and findings which it or any of its authorized representatives, the
Sellers' Accountants or the Sellers' Counsel has obtained concerning the
Buyer and/or the Buyer's business during the Interim Period in the
course of its investigations;
(d) furnish the Buyer with all information concerning the affairs of the
Corporation as the Buyer may reasonably request;
(e) instruct and authorize the accountants of the Corporation and the
Sellers' Counsel to co-operate with the Buyer's Accountants and the
Buyer's Counsel and instruct such auditors to give the Buyer's
Accountants full access during such period to their files and working
papers with respect to the Corporation;
(f) permit the Buyer and its representatives to observe all operations of
the Corporation and to meet with such members of the management of the
Corporation as the Buyer may designate for such purposes as the Buyer
may deem to be appropriate;
(g) do all things and cause all things to be done to ensure that all the
warranties and representations of the Sellers contained in this
Agreement remain true and correct throughout the Interim Period as if
such representations and warranties were continuously made throughout
such period;
(h) not acquire or agree to acquire additional assets (or make leasehold
improvements), except in the ordinary course of business and provided
that the cost of such additional assets does not, in the aggregate,
exceed $30,000.00 from July 31, 1998 to the Closing Date, without the
prior written approval of the Buyer;
(i) not enter into or terminate any material contracts or any forward
commitments for inventories or supplies, in writing or otherwise, other
than material contracts or commitments made in the ordinary course of
business not exceeding $100,000 without the prior written, approval of
the Buyer;
(j) not enter into any leases or agreements to lease, except with the prior
written approval of the Buyer;
<PAGE> 42
39
(k) consult with, and comply with the Buyer's reasonable wishes in
connection with any decision to renew, or not renew, any lease or
agreement to lease where such decision is required on or before the
Closing Date;
(l) keep in full force and effect all licenses and governmental approvals
required in the conduct of the Business;
(m) provide the Buyer promptly with such interim financial statements and
any other financial reports as are customarily produced by the
Corporation as and when they are available;
(n) not incur any other indebtedness, obligations or liabilities out of the
ordinary course of business without the prior written approval of the
Buyer;
(o) not sell, agree to sell or otherwise dispose of any of the Assets (other
than operating supplies consumed in the ordinary course of business)
except in accordance with Article 7.00;
(p) pay, satisfy and discharge its obligations and liabilities in the
ordinary course of business;
(q) not incur any capital expenditures out of the ordinary course of
business without the prior written approval of the Buyer;
(r) assist the Corporation to retain the services of all employees and not
terminate any employees or contractors, unless otherwise instructed by
the Buyer;
(s) not declare, pay or authorize any dividends or other distributions on
any shares in the capital of the Corporation or declare any bonuses
payable to the Sellers or any person not at Arm's Length with the
Sellers or, except as set out in this Agreement, pay or authorize the
repayment of any moneys owing to the Sellers or any person not at
Arm's-Length with the Sellers except in accordance with Article 7.00;
(t) keep in full force and effect all insurance set out in the Insurance
Schedule;
(u) obtain all consents and approvals reasonably required by the Buyer
pursuant to the terms of any leases, contracts or rights of the
Corporation; and
(v) promptly advise the Buyer in writing of any material adverse change in
the condition, financial or otherwise, of the Corporation, the Assets or
the Business.
4.02 COVENANTS OF THE BUYER DURING INTERIM PERIOD. The Buyer hereby covenants
that, during the Interim Period, it shall:
<PAGE> 43
40
(a) carry on the Business in the ordinary course and use its reasonable best
efforts to preserve the Buyer's assets, the Buyer's business and the
clients and suppliers associated with the Buyer's business;
(b) give the Sellers, the Sellers' Counsel, the Sellers' Accountants and
other representatives of the Sellers, reasonable access during normal
business hours to the properties, books, contracts, commitments and
records of the Buyer;
(c) treat in confidence all Confidential Information and other information
and findings which it or any of its authorized representatives, the
Buyer's Accountants or the Buyer's Counsel has obtained concerning the
Corporation and/or the Business during the Interim Period in the course
of its investigations;
(d) furnish the Sellers with all information concerning the affairs of the
Buyer as the Sellers may reasonably request;
(e) instruct and authorize the auditors of the Buyer and the Buyer's Counsel
to co-operate with the Sellers' Accountants and the Sellers' Counsel and
instruct such auditors to give the Sellers' Accountants full access
during such period to their files and working papers with respect to the
Buyer;
(f) permit the Sellers and their representatives to observe all operations
of the Buyer and to meet with such members of the management of the
Buyer as the Sellers may designate for such purposes as the Sellers may
deem to be appropriate;
(g) do all things and cause all things to be done to ensure that all the
warranties and representations of the Buyer contained in this Agreement
remain true and correct throughout the Interim Period as if such
representations and warranties were continuously made throughout such
period;
(h) keep in full force and effect all licenses and governmental approvals
required in the conduct of the Business;
(i) provide the Sellers promptly with such interim financial statements and
any other financial reports as are customarily produced by the Buyer as
and when they are available;
(j) not incur any other indebtedness, obligations or liabilities out of the
ordinary course of business without the prior written approval of the
Sellers;
(k) not sell, agree to sell or otherwise dispose of any of the Buyer's
assets (other than operating supplies consumed in the ordinary course of
business);
(l) pay, satisfy and discharge its obligations and liabilities in the
ordinary course of business;
<PAGE> 44
41
(m) not incur any capital expenditures out of the ordinary course of
business without the prior written approval of the Sellers;
(n) attempt to retain the services of all directors and officers;
(o) not declare, pay or authorize any dividends or other distributions on
any shares in the capital of the Buyer or declare any bonuses to any
person not at Arm's Length with the Buyer, except as set out in this
Buyer's Employment and Consulting Agreements Schedule , pay or authorize
the repayment of any moneys owing from FutureLink Alberta to FutureLink
Colorado or any person not at Arm's-Length with the Sellers except
pursuant to the terms of any obligations to such persons;
(p) keep in full force and effect all insurance set out in the Buyer's
Insurance Schedule; and
(q) promptly advise the Sellers in writing of any material adverse change in
the condition, financial or otherwise, of the Buyer, the Assets or the
Business. (r) The Buyer covenants and agrees that it will either amend
its current registration statement filed with the SEC to include the
FutureLink Shares or the shares issuable upon exercise of the conversion
right referred to in subsection 2.04(c) or file a new registration
statement covering the FutureLink Shares or the shares issuable upon
exercise of the conversion right referred to in subsection 2.04(c) and
use its best efforts to cause a registration statement to be declared
effective by the U.S. Securities and Exchange Commission as soon as
possible, in any event, not later than the effective date of the
registration statement covering the debenture and common stock issued to
Thomson Kernaghan & Co. Ltd. The Buyer agrees to use its reasonable
commercial efforts to secure the approval for the OTCBB trading on the
NASDAQ Exchange of the shares of FutureLink Colorado and the shares
issuable upon exercise of the conversion right referred to in subsection
2.04(c).
4.03 COVENANTS CONCERNING CONFIDENTIALITY. The parties hereto acknowledge that
in order to facilitate the completion of the transactions contemplated herein
that each will be afforded access to and be entrusted with Confidential
Information that is not a matter of public record and has not been disclosed to
any person who does not owe a duty of non-disclosure to the other pursuant to a
written or oral agreement, at common law or under the terms of applicable
legislation. The parties hereto acknowledges that the Confidential Information
is proprietary and confidential and disclosure thereof to competitors of the
other or to the general public would be detrimental to the best interests of the
other and could cause irreparable harm to the business of the such party. The
parties therefore agrees that they will not, except for the benefit of and with
the written consent of the other, their successors or assigns, prior to the
completion of the transactions contemplated herein or at any time, if the
transactions contemplated herein are not completed for any reason whatsoever:
(a) disclose or divulge any Confidential Information to any person,
unless that person is also bound by a duty of confidentiality;
or
<PAGE> 45
42
(b) use, directly or indirectly, any Confidential Information for
any purpose other than to complete its due diligence in
connection with the transactions contemplated herein, or
disclose or use for any purpose other than that set out above,
knowledge of the private affairs of the others business and in
particular shall not solicit or attempt to solicit any client,
customer, supplier or employee of the other away from the other;
unless such party can establish beyond any reasonable doubt that the
Confidential Information:
(c) was previously known to the disclosing party, as evidenced by
written records, which the Buyer can prove predate this
Agreement or any letters of understanding leading to this
agreement; or
(d) hereafter, and prior to disclosure or use as set out above,
becomes generally known to the public through no act or omission
of the disclosing party.
4.04 COVENANTS ON CLOSING.
(a) To the extent that such are within the Sellers' power and control, the
Sellers covenant that at the Time of Closing they will satisfy, or cause
to be satisfied, the conditions precedent to the obligations of the
Buyer set out in subsections 5.01(e),(f),(g),(i),(k),(l) and (p) of this
Agreement.
(b) To the extent that such are within the Buyer's power and control, the
Buyer covenants that at the Time of Closing it will satisfy, or cause to
be satisfied, all conditions precedent to the obligations of the Sellers
set out in subsections 5.02(b),(e) and (f) this Agreement.
4.05 POST-CLOSING COVENANTS.
(a) The Sellers agrees that, subsequent to the Time of Closing, they will:
(i) at the request and expense of the Buyer, execute and deliver
such additional conveyances, transfers and other assurances as,
in the opinion of the Buyer's Counsel, are reasonably required
to carry out the intent of this Agreement and to transfer the
Purchased Shares to the Buyer;
(ii) take all steps reasonably required by the Buyer to assist the
Buyer in retaining the goodwill of the Corporation and the
Business and in particular to retain all employees in the
Employee Schedule unless the Buyer requests otherwise;
(iii) perform all of their obligations to be performed under this
Agreement after the Time of Closing.
<PAGE> 46
43
(iv) not make any sale, transfer or other disposition of the
FutureLink Shares or such other shares issued in accordance with
subsection 2.04 (c) in violation of the Act, the Securities and
Exchange Act of 1934, as amended (the "Exchange Act") or the
rules and regulations of the Securities and Exchange Commission
(the "Commission") promulgated thereunder.
(v) The Sellers will cause a "distributor" as defined in Regulation
S to send to any broker/dealer or other person receiving a
commission on the sale of the FutureLink Shares or such other
shares issued pursuant subsection 2.04(c), a confirmation or
other notice stating that the transferee is subject to the same
restrictions on transfer to U.S. Persons or for the account of
or benefit of U.S. Persons during the Distribution Compliance
Period as provided herein. Further, any transferee of the
FutureLink Shares or such other shares issued pursuant
subsection 2.04(c) during the Distribution Compliance Period
will have to enter into an agreement with the Buyer covering the
matters set forth herein.
(b) The Buyer agrees that, subsequent to the Time of Closing, it will, at
the request of and expense of the Sellers, execute and deliver such
additional conveyances, transfers and other assurances as, in the
opinion of the Seller's Counsel, are reasonably required to carry out
the intent of this Agreement and to use its best efforts to have its
registration statement declared effective by the U.S. Securities and
Exchange Commission no later than the effective date of the registration
statement covering the debentures and common stock issued to Thomson
Kernaghan & Co. Ltd and to provide to the Sellers at the request
therefor by the Sellers such information that it may request regarding
the status of its registration with the SEC;
The Buyer agrees to use its reasonable commercial efforts to meet all of
its obligations under the terms of its convertible debenture financing
with Thomson Kernaghan & Co. Ltd. so that the funds, or so much thereof
as may be required, will be released to pay the promissory notes
attached hereto in the Promissory Notes Schedule within 90 days of the
Closing Date.
The Buyer agrees to use its reasonable commercial efforts to become a
reporting issuer in the United States by no later than December 1, 1998.
ARTICLE 5.00 - CONDITIONS PRECEDENT TO OBLIGATIONS OF THE BUYER
5.01 CONDITIONS PRECEDENT. The obligations of the Buyer under this Agreement are
subject to the fulfilment, at or before the Time of Closing, of the following
conditions. All of the following conditions have been included for the sole
benefit of the Buyer and each is a condition of the closing of the transactions
provided for in this Agreement. Any of the following conditions may be waived by
the Buyer, in whole or in part, at or at any time prior to the Time of Closing,
provided that no such waiver shall constitute a waiver by the Buyer of any of
its other rights or remedies in connection
<PAGE> 47
44
with any other condition or conditions, and any waiver will only be binding upon
the Buyer if made by the Buyer in writing:
(a) No Misrepresentations or Breach of Covenants and Warranties. All of the
representations and warranties of the Sellers contained in this
Agreement are true and correct in all respects at the Time of Closing
with the same effect as though such representations and warranties had
been made at and as of such time and there has been compliance by the
Sellers with, and no breach by the Sellers of, any of its covenants in
this Agreement.
(b) No Changes in Operations. During the Interim Period, there has been no
material adverse change in the Assets or in the Business or in the
affairs, liabilities, or condition (financial or otherwise), or
prospects of the Corporation or the Business, or other event or
development which would, in the sole discretion of the Buyer, affect the
decision of a prudent purchaser in similar circumstances to complete the
purchase of the Purchased Shares. In the event that the Sellers do not
prevent the Corporation from entering into or terminating any material
contracts with a value of over One Hundred Thousand Dollars ($100,000)
without the consent of FutureLink during the interim period, such
entering into or termination of contracts will be deemed to be a
material adverse change.
(c) Retention of Key Contracts. The Buyer shall be satisfied that
arrangements have been made to ensure the continued employment of all
employees in the Employee Schedule and the continued relationship with
all agents, suppliers, subcontractors and customers who the Buyer, in
its sole discretion, acting reasonably, determines to be essential for
the continued operation of the Business.
(d) No Undisclosed Material Liabilities. No material liabilities of the
Corporation, being liabilities in aggregate of more than One Hundred
Thousand Dollars ($100,000), contingent or otherwise shall exist which
have not been recorded on the Financial Statements of the Corporation
nor shall there be any actions, causes of action, suits, damages,
judgments, claims or demands pending, threatened or otherwise against
the Corporation which have not been disclosed to the Buyer in writing
prior to the date hereof. This clause will not apply if, after the
determination of such unrecorded liabilities and the satisfaction of the
Buyer with the quantification of such, the Sellers agree to a decrease
in the Purchase Price by an amount equivalent to such unrecorded
liabilities.
(e) Employment Contract with Don Bialik. Don shall have entered into an
employment agreement for a term of three (3) years with the Buyer in the
form attached hereto in the Employment Contract with Don Bialik Schedule
agreeing to act as President and a director of the Buyer and FutureLink
Alberta and such agreement shall include a first year annual salary of
One Hundred and Eighty Thousand Dollars ($180,000), a performance based
bonus of up to Thirty-six Thousand Dollars ($36,000), options to
purchase approximately 250,000 common shares of the Buyer and which will
contain a non-competition and non-solicitation covenant during the term
thereof and for two (2) years thereafter notwithstanding the reason
<PAGE> 48
45
for termination of such employment agreement. Compensation for the
second and third year of the term shall be as set by the board of
directors but shall not be less than the first year compensation
formula.
(f) Officer's Declaration of the Corporation. The Buyer shall have received
a statutory declaration of a senior executive officer of the Corporation
that:
(i) there are not any applications or filings outstanding which
would in any way alter the constating documents or corporate
status of the Corporation;
(ii) no resolutions or by-laws have been passed, enacted, consented
to or adopted by the directors or the shareholders of the
Corporation, except those contained in the minute books of such
corporation;
(iii) there is no unanimous shareholders' agreement in place which
restricts, in whole or in part, the powers of the directors of
the Corporation to manage or supervise the management of the
Business and affairs of the Corporation;
(iv) the persons listed as directors of the Corporation on such
declaration are all of the directors of the Corporation and the
persons listed as officers of the Corporation on such
declaration are all of the officers of the Corporation, and hold
the offices set out opposite their respective names on the
declaration; and
(v) such persons have no knowledge of any action, suit or proceeding
by any governmental body or authority, or by any private third
party, seeking to restrain the transactions contemplated by this
Agreement or its consummation which has been threatened or
instituted against the Corporation and remains pending at the
Time of Closing.
(g) Declaration of the Sellers. The Buyer shall have received a statutory
declaration of the Sellers that:
(i) all representations and warranties of the Sellers contained in
this Agreement are true and correct at the Time of Closing as
though then made;
(ii) there has been compliance with each of the covenants and
obligations on the part of the Sellers required to be complied
with at or before the Time of Closing; and
(iii) the sale of the Purchased Shares has been authorized by all
necessary actions including all necessary shareholders'
authorizations and any required consents of the trustees of the
Trust.
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(h) Restraint of Transactions. No order of any court of competent
jurisdiction is effective restraining the transactions contemplated by
this Agreement.
(i) Agreements and Consents. All consents of any persons, which are
necessary to be obtained by the Buyer, the Corporation or the Sellers
for the consummation of the transactions contemplated by this Agreement
and for the continuance of all contracts, agreements, licenses, permits
and authorizations material to the Business and operations of the
Corporation have been obtained by the Buyer, the Corporation or the
Sellers as the case may be at the Sellers's sole cost and expense,
except for any such Buyer consents, and shall have been delivered to the
Buyer at, or before, the Time of Closing.
(j) TAP Consulting Ltd. Litigation. The Sellers shall have obtained and
delivered to the buyer on or before the Time of Closing, at their
expense, a release from TAP Consulting Ltd. of any and all claims for
debts, liabilities, damages, or any amount claimed to be owing to TAP
Consulting Ltd. by SysGold or RMC or failing such shall deliver an
indemnity to the Buyer with respect to such in a form satisfactory to
the Buyer's Counsel. There shall, at the Time of Closing, be no new
claims from TAP Consulting Ltd.
(k) Opinion Letter of Sellers's Counsel. The Buyer and the Buyer's Counsel
have received from the Sellers's Counsel an opinion, dated the Closing
Date, in the form attached in the Seller's Counsel Opinion Letter
Schedule. In giving such opinion, the Sellers's Counsel may rely, as to
matters of fact, upon certificates of senior executive officers of the
Corporation and a certificate of an official of the jurisdiction
governing the status of the Corporation as to the corporate status of
the Corporation, provided that the Sellers's Counsel state that they
believe that they are justified in relying upon such certificate and
deliver copies of all certificates relied upon to the Buyer and the
Buyer's Counsel prior to, or at, the Time of Closing. Sellers' Counsel
shall also deliver an opinion prior to closing to the Buyer with respect
to the relevant date of valuation in an oppression remedy case and
verifying that the proper date for calculation of a purchase price in
the case referred to in section 5.01(j) was the date of commencement of
the action; and Sellers' Counsel shall conduct a reasonable review of
Canadian authorities and report on such authorities if any which deal
with the status of a shareholder following commencement of an oppression
action under the Alberta Business Corporations Act.
(l) Additional Closing Deliveries. In addition to any other instruments and
documents required to be delivered by the Sellers to the Buyer pursuant
to this Agreement, the Sellers have delivered to the Buyer, at or before
the Time of Closing, the following:
(i) certificates representing the Purchased Shares registered in the
name of the Sellers duly endorsed for transfer to the Buyer;
<PAGE> 50
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(ii) the resignation of each of the directors and officers of the
Corporation except Don and a release from each of such persons
in the form of the release set out in the Release Schedule; and
(iii) all other indemnities, agreements, instruments, consents and
documentation as are required in the opinion of Buyer's Counsel
to complete the transactions as contemplated herein.
(m) Release of Encumbrances. Except for security granted to CIBC with
respect to a line of credit in the amount of Five Hundred Thousand
Dollars ($500,000) (the "Permitted Encumbrance"), all encumbrances,
other than as permitted by the Buyer with respect to the Corporation,
with respect to the Purchased Shares and the Corporation shall have been
released and discharged on or before the Closing Date, or the Sellers
shall provide satisfactory evidence that the amount required to obtain
such releases and discharges, as stated in writing by the holder of the
encumbrance, has been paid to such holder or directed from the proceeds
of closing to be paid to such holder and the holder has given an
undertaking in writing to release and discharge the Sellers from such
encumbrance.
(n) Financing. The Buyer shall have obtained financing for the transactions
contemplated herein either pursuant to the terms set out in the
Debenture Schedule or similar terms satisfactory to the Buyer and all
conditions of such financing set by the financing party shall have been
met.
(o) SysGold Inc. - The Sellers shall have caused SysGold Inc., a wholly
owned subsidiary of SysGold, to wind up its business and assets into
SysGold at the cost of the Sellers.
(p) Consents of Encumbrancers. The Sellers shall have obtained, at their
expense, the consent to the transactions contemplated herein from the
CIBC, if required by the terms of the Permitted Encumbrance.
(q) Interim Transactions. The Buyer must be satisfied that the transactions
contemplated in Article 7.00 do not cause any adverse tax consequences
to the Buyer, RMC or SysGold which would not have occurred had the Buyer
purchased the shares of SysGold directly from RMC. The Buyers and the
Sellers shall have agreed on the concept and the structure of the
Permitted Transactions including all ancillary documentation. This
clause will not apply if, after the determination of such adverse
consequences, the Sellers agree to cause RMC to sell its shares of
SysGold to the Buyer on the same terms and conditions, mutatis mutandis,
as contained herein or if the Sellers agree to a reduction in that part
of the Purchase Price set out in Section 2.02 (a) by an amount equal to
such adverse tax consequences as determined by the Buyer's Accountant.
<PAGE> 51
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(r) Schedules. The Buyer must be satisfied, acting reasonably, with all
information and supporting documentation provided with respect to all
schedules whether attached on the date hereof or hereafter.
5.02 RESULT OF FAILURE TO SATISFY CONDITION PRECEDENT. If any of the foregoing
conditions precedent to the obligations of the Buyer have not been satisfied at
the Time of Closing, and have not be waived by the Buyer at, or at any time
prior to, the Time of Closing, the Buyer may:
(a) refuse to complete the transactions contemplated in this Agreement by
giving written notice to the Sellers or the Sellers's Counsel and, in
such event, all parties shall be released from their obligations under
this Agreement except as set out in Section 4.03 and Article 8.00; or
(b) complete the transactions provided for in this Agreement, it being
expressly understood and agreed that the completion of such transactions
shall not constitute a waiver of any rights or remedies the buyer may
have in connection with any misrepresentation or breach of warranty or
covenant herein.
ARTICLE 6.00- CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLERS
6.01 CONDITIONS PRECEDENT. The obligations of the Sellers under this Agreement
are subject to the fulfilment, at or before the Time of Closing, of the
following conditions. All of the following conditions have been included for the
sole benefit of the Sellers and each is a condition of the closing of the
transactions provided for in this Agreement. Any of the following conditions may
be waived by the Sellers, in whole or in part, at or at any time prior to the
Time of Closing, by a waiver in writing signed by the Sellers, provided that no
such waiver shall constitute a waiver by the Sellers of any of his rights or
remedies in connection with any other condition or conditions, and any waiver
will only be binding upon the Sellers if made in writing by the Sellers.
(a) No Misrepresentations or Breach of Covenants and Warranties. All of the
representations and warranties of the Buyer contained in this Agreement
are true and correct in all respects at the Time of Closing with the
same effect as though such representations and warranties had been made
at and as of such time and there has been compliance by the Buyer with,
and no breach by the Buyer of, any of its covenants in this Agreement.
(b) Officer's Declaration. The Sellers shall have received a statutory
declaration of a senior executive officer of the Buyer that:
(i) all representations and warranties of the Buyer contained in
this Agreement are true and correct at the Time of Closing as
though then made;
(ii) there has been compliance with each of the covenants and
obligations on the part of the Buyer required to be complied
with at or before the Time of Closing;
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(iii) the purchase of the Purchased Shares has been authorized by all
necessary actions including actions of the directors and
shareholders of the Buyer and any required actions with the U.S.
securities regulators; and
(iv) such person has no knowledge of any action, suit or proceeding
by any governmental body or authority, or by any private third
party, seeking to restrain the transactions contemplated by this
Agreement or its consummation which has been threatened or
instituted against the Buyer and remains pending at the Time of
Closing.
(c) Restraint of Transactions. No order of any court of competent
jurisdiction is effective restraining the transactions contemplated by
this Agreement.
(d) Agreements and Consents. All consents of any persons, which are
necessary to be obtained by the Buyer for the consummation of the
transactions contemplated by this Agreement have been obtained by the
Buyer at its sole cost and expense, and all consents of any persons
which are necessary to be obtained by the Sellers or the Corporation for
the consummation of the transaction contemplated by this Agreement and
for the continuance of all contracts, agreements, licenses, permits and
authorizations material to the Business and operations of the
Corporation have been obtained, provided that the Sellers uses their
best efforts to obtain all such consents.
(e) Additional Closing Deliveries. In addition to any other instruments and
documents required to be delivered by the Buyer to the Sellers pursuant
to this Agreement, the Buyer has delivered to the Sellers, at or before
the Time of Closing, the following:
(i) an opinion from the Buyer's U.S. counsel satisfactory to the
Sellers and Sellers' Counsel with respect to resale restrictions
affecting the FutureLink Shares pursuant to any U.S. securities
laws;
(ii) an opinion from the Buyer's U.S. Counsel as to the number of
options which can be issued by the Buyer and the rights of the
board of directors to issue further options subject to
ratification by the shareholders of the Buyer;
The Sellers shall further be satisfied that the FutureLink Shares are
not subject to any hold period pursuant to the Securities Act (Alberta),
or that the hold period, if any, is identical and runs concurrently with
the hold period prescribed by the US Securities Act, 1933.
(f) Opinion Letter of Counsel for Buyer. The Sellers and the Sellers'
Counsel have received from the Buyer's Counsel an opinion, dated the
Closing Date, in the form set out in the Buyer's Counsel's Opinion
Letter. In giving such opinion the Buyer's Counsel may rely, as to
matters of fact, upon certificates of senior executive officers of the
Corporation and a certificate of an official of the jurisdiction
governing the status of the Buyer as to the corporate status of the
Buyer, provided that the Buyer's Counsel state that they believe that
<PAGE> 53
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they are justified in relying upon such certificate and deliver copies
of all certificates relied upon to the Sellers and the Sellers's Counsel
prior to, or at, the Time of Closing. Buyer's Counsel may also rely upon
the opinions of other counsel in each jurisdiction relevant to the
transactions contemplated herein.
(g) Evidence of Financing. The Buyer shall have provided the Sellers with
the confirmation of available financing in an amount of not less than
Five Million ($5,000,000.00) Dollars U.S. prior to the Time of Closing
and at the Time of Closing shall provide an executed copy of an
irrevocable subscription agreement to the Sellers with respect to such
financing. The Sellers, acting reasonably, shall be satisfied with the
terms of such subscription agreement.
(h) Release of Guarantee. Don shall have obtained a release of his personal
guarantee of the line of credit of the Corporation with CIBC.
(i) Closing Funds. The Buyer shall have delivered to the Sellers a certified
cheque or bank draft in an amount not less than Three Million
($3,000,000.00) Dollars together with a share certificate to the Sellers
for the FutureLink Shares or the convertible shares referred to in
subsection 2.04(c).
(j) Registration Statement. The Buyer shall have provided to the Sellers a
copy of the registration statement (both in respect of becoming a
reporting issuer and for the registration of the FutureLink Shares or
the shares issuable upon exercise of the conversion rights referred to
in subsection 2.04(c)) filed with the SEC and the Sellers acting
reasonably shall be satisfied that such statement will be declared
effective by the SEC as soon as possible, in any event not more than
ninety (90) days after the Closing Date. The Sellers, acting reasonably
shall be satisfied that the FutureLink Shares or the shares issuable
upon exercise of the conversion rights referred to in subsection 2.04(c)
have been or will within 90 days be approved for trading on the OTCBB.
(k) Schedules. The Seller must be satisfied, acting reasonably, with all
information and supporting documentation provided with respect to all
schedules whether attached on the date hereof or hereafter.
(l) The Seller shall be satisfied as to the tax effect resulting from the
sale.
6.02 RESULT OF FAILURE TO SATISFY CONDITION PRECEDENT. If any of the foregoing
conditions precedent to the obligations of the Sellers have not been satisfied
at the Time of Closing, and have not been waived by the Sellers at, or at any
time prior to, the Time of Closing, the Sellers may:
(a) refuse to complete the transactions contemplated in this Agreement by
giving written notice to the Buyer or the Buyer's Counsel and, in such
event, all parties shall be released from their obligations under this
Agreement except as set out in section 4.03 and Article 8.00; or
(b) complete the transactions provided for in this Agreement, it being
expressly understood and agreed that the completion of such transactions
shall not constitute a waiver of any of the
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Sellers's rights or remedies in connection with any misrepresentation or breach
of warranty or covenant herein.
ARTICLE 7.00 - PRIOR TRANSACTIONS
7.01 INTERIM PERIOD TRANSACTIONS. During the Interim Period, the Sellers and the
Corporation shall be permitted to complete a reorganization of the Corporation
which may, subject to the consent of the Buyer, be similar to the reorganization
outlined in the Permitted Transactions Schedule or in any amended form which
will permit the Sellers to reduce their taxes otherwise payable as a result of
the transactions contemplated by this Agreement subject to the consent of the
Buyer. The Sellers shall only be permitted to complete the transactions in the
Permitted Transactions Schedule if the condition in subsection 5.01(r) has been
complied with. The Sellers agree that they shall pay any costs associated with
the planning of, giving effect to or resulting from any of the transactions set
out in the Permitted Transactions Schedule or any amendment thereto whether such
costs are on the account of the Buyer, the Seller or the Corporation except that
the Buyers shall be responsible for costs associated only with respect to the
creation of any shares of RMC which are exchangeable for FutureLink Shares. The
parties hereto agree to execute all such further documents and agreements, give
such further assurances and undertake such further action as may be necessary to
give effect thereto.
The Buyer shall be permitted, during the Interim Period, to provide a take-over
bid circular to the shareholders of FutureLink Alberta, other than the Buyer,
offering to purchase all of their shares in FutureLink Alberta.
ARTICLE 8.00 - BREAK-UP FEE AND DEPOSIT
8.01 BREAK-UP FEE. The parties hereto acknowledge that the other will be
expending resources and time and will be foregoing other potential transactions
during the Interim Period. The parties hereto have agreed that a fee (the
"Break-up Fee") shall be paid by the Sellers to the Buyer in the event that the
Sellers, RMC or SysGold directly or indirectly:
(a) accept any offer or enter into any agreement with any other party
with respect to any sale or other disposition of the Purchased Shares,
Business or Assets prior to the Time of Closing; or
(b) solicit, initiate, entertain or encourage enquiries, submissions,
discussions, proposals or offers from any other person for the sale or
other disposition of the Purchased Shares, Business or Assets prior to
the Time of Closing.
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The Break-up Fee payable by the Sellers shall be One Hundred Thousand Dollars
($100,000) and in the event that such is payable, the Deposit shall also be
returned to the Buyer without interest or deduction.
8.02 DEPOSIT NON-REFUNDABLE. In the event that the Buyer decides not to proceed
with the transactions contemplated herein, the Deposit shall not be refundable
to the Buyer unless the Buyer decides not to proceed based on the non-fulfilment
of the conditions set out in subsections 5.01(b),(d), (j), (r) or if the Sellers
are not able to deliver or cause to be delivered all of the Purchased Shares or
all of the outstanding shares of SysGold at the Time of Closing.
8.03 SELLER TERMINATION OF THE AGREEMENT. Notwithstanding section 8.02, the
Deposit shall be returned to the Buyer without interest or deduction in the
event that the Sellers discover material liabilities (contingent or otherwise)
of the Buyer which are less than One Hundred Thousand Dollars ($100,000) other
than those recorded on the FutureLink Financial Statements Schedule or as
disclosed in section 3.02(dd) and other than liabilities incurred in the
ordinary course since the date of the financial statements. The Sellers agree to
act in good faith in determining such material liabilities.
8.04 NOTIFICATION OF TERMINATION. If any party decides not to proceed with the
Proposed transaction, such party shall provide the other party with written
notice setting forth the reasons that the other party is not so proceeding. If
the Deposit is refundable to the Buyer, it shall be paid by the Seller within
forty-eight (48) hours of the Buyer advising the Seller in writing that it does
not wish to proceed and the basis for not proceeding in the case of section 8.02
or the Sellers advising the Buyers that they do not wish to proceed in the case
of section 8.03.
ARTICLE 9.00 - RISK OF LOSS
9.01 RISK OF TOTAL LOSS. If, at or before the Time of Closing, all or
substantially all of the Assets are destroyed or damaged by fire, or any other
casualty, or are expropriated or otherwise seized by governmental or other
lawful authority, the Sellers shall immediately advise the Buyer in writing and
the Buyer shall have the option, exercisable by notice in writing:
(a) to complete the transactions provided for in this Agreement, provided
that the Purchase Price shall be reduced by an amount equal to the
replacement cost of the Assets destroyed, damaged, expropriated or
seized minus the amount of all insurance proceeds and other compensation
payable to the Corporation in connection with, or as a result of, such
destruction, damage, expropriation or seizure; or
(b) to refuse to complete the transaction contemplated herein by notice to
the Sellers and, in such event, all parties hereto shall be released
from all obligations hereunder except the obligations of such party to
maintain the confidentiality of Confidential Information obtained in the
course of the negotiation of this Agreement and the due diligence
leading up to the Time of Closing.
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9.02 RISK OF PARTIAL LOSS. If, at or before the Time of Closing, a material part
of the Assets, but less than all or substantially all of the Assets, are
destroyed or damaged by fire, or any other casualty, or are expropriated or
otherwise seized by governmental or other lawful authority, the Sellers shall
immediately advise the Buyer in writing and the Buyer shall have the option,
exercisable by notice in writing:
(a) to complete the transactions provided for in this Agreement, without
reduction of the Purchase Price provided that the amount of all
insurance proceeds and other compensation payable to the Corporation in
connection with, or as a result of, such destruction, damage,
expropriation or seizure is paid to the Corporation; or
(b) to refuse to complete the transaction contemplated herein by notice to
the Sellers and, in such event, all parties hereto shall be released
from all obligations hereunder except the obligations of such party to
maintain the confidentiality of Confidential Information obtained in the
course of the negotiation of this Agreement and the due diligence
leading up to the Time of Closing.
ARTICLE 10.00 - SURVIVAL OF REPRESENTATIONS AND WARRANTIES
10.01 SURVIVAL OF THE SELLERS'S REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations, warranties and covenants of the Sellers contained in this
Agreement shall, unless otherwise expressly provided in this Agreement, survive
the closing of the transactions provided for in this Agreement and,
notwithstanding such closing and notwithstanding any investigations made by or
on behalf of the Buyer, shall continue in full force and effect:
(a) with respect to those representations and warranties relating to Taxes,
for so long as the Corporation may be assessed or reassessed, or any
action or proceeding may be brought against the Corporation in
connection with Taxes;
(b) with respect to all representations and warranties with respect to the
Sellers' title to the Purchased Shares and the Corporation's title to
the Assets, for five (5) years; and
(c) with respect to all other representations and warranties of the Sellers,
for a period of two (2) years after the Time of Closing.
10.02 SURVIVAL OF THE BUYER'S REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations, warranties and covenants of the Buyer contained in this
Agreement shall survive the closing of the transactions provided for in this
Agreement and, notwithstanding such closing and notwithstanding any
investigations made by or on behalf of the Sellers, shall, unless otherwise
expressly provided in this Agreement, continue in full force and effect:
(a) with respect to those representations and warranties relating to Taxes,
for so long as the Corporation may be assessed or reassessed, or any
action or proceeding may be brought against the Corporation in
connection with Taxes; and
(b) with respect to all other representations and warranties of the Sellers,
for a period of two (2) for a period of two (2) years after the Time of
Closing.
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ARTICLE 11.00 - INDEMNIFICATION BY SELLERS
11.01 SCOPE OF INDEMNIFICATION. In the event that the transactions provided for
in this Agreement are completed and it is subsequently determined that the
Corporation or the Buyer or any agent, employee, affiliate, successor or nominee
of the Corporation or the Buyer, or any of the officers, directors,
shareholders, subsidiaries, affiliates, employees and agents of any of the
aforesaid (collectively the "Indemnified Parties") has or is subject to any
loss, damage, liability, deficiency, claim, cost, recovery, expense (including
interest, penalties and reasonable legal fees), assessment or re-assessment
(collectively the "Claims") arising out of or from, the incorrectness, failure,
non-compliance or other breach of any representation, warranty or covenant made
by the Sellers pursuant to this Agreement, notwithstanding any investigations
made by the Buyer or its representatives, and including any accounts receivables
of the Corporation existing as of the Time of Closing which have not been
collected within 120 days from the Time of Closing, the Sellers unconditionally
agree to indemnify and save harmless the Indemnified Parties for the amount of
such Claims and accounts receivables. The obligation of the Sellers to indemnify
the Indemnified Parties pursuant to the foregoing is limited, in the case of
accounts receivables of the Corporation, to the amount of accounts receivable
which have not been collected in full within 120 days of the Closing Date and
which, in the aggregate, exceed fifteen percent (15%) of the aggregate amount
(before deduction of any reserve or allowance for doubtful accounts) of all
accounts receivable of the Corporation on the Closing Date. The Sellers shall
further indemnify the Buyer with respect to any Claims arising from SysGold Inc.
not complying with the Excise Tax Act. Any claim against the Sellers under this
section shall be in writing and shall be made within one hundred and twenty
(120) days of the date on which such representation or warranty ceases to
survive according to the provisions of this Agreement.
The Indemnified Parties shall forthwith notify the Sellers of any liability or
claim for which the Sellers may be liable hereunder promptly after the
Indemnified Parties receive notice thereof and the Sellers shall have the right
to participate in any negotiations with respect thereto. The Sellers shall at
all times have the right, at its joint sole expense, to dispute and contest any
liability to, or claim asserted by, any person other than the Indemnified
Parties for which the Sellers may be liable hereunder, provided that the Sellers
first admits to the Buyer that if there is a liability in respect of such claim,
the Sellers is responsible for such liability. The Indemnified Parties shall,
and shall cause the Corporation to, fully co-operate with the Sellers and its
counsel in any proceedings with respect to any such liability.
11.02 LITIGATION. The Sellers hereby, irrevocably and unconditionally, agrees to
indemnify and save harmless each of the Indemnified Parties from and against any
and all Claims incurred in connection with existing, pending and threatened
litigation and in particular, without limiting the foregoing, shall indemnify
and save harmless the Indemnified Parties from any Claims from TAP Consulting
Ltd. The Sellers agrees to defend diligently such litigation through counsel to
be agreed upon by both the Buyer and the Sellers, and to advise and keep the
Buyer informed of all material developments relating thereto and that they will
not settle or otherwise compromise any such action without the consent of the
Buyer.
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11.03 SET OFF AND SIMILAR RIGHTS OF THE BUYER. In the event that the Sellers
fail to make any payment required to be made pursuant to this Agreement,
including without limitation, payments required pursuant to the indemnification
provisions of this Article, then the Buyer shall be entitled, in addition to any
other remedies in this Agreement, or at law or in equity, to set off the amount
of such payment against any other amount which may be or become due from the
Buyer or the Corporation to the Sellers, however arising, notwithstanding that
such indebtedness might have arisen from a different transaction.
11.04 REIMBURSEMENT. If any claim is made by any of the Indemnified Parties
under this Article and such claim is shown to be wrongfully made, then the
Indemnified Party to whom payment had been made under this Article shall
reimburse the Sellers for the amount paid by the Sellers or by the Buyer on the
Sellers's behalf on account of such claim.
ARTICLE 12.00 - INDEMNIFICATION BY BUYERS
12.01 SCOPE OF INDEMNIFICATION. In the event that the transactions provided for
in this Agreement are completed and it is subsequently determined that the
Sellers or any agent, employee, affiliate, successor or nominee of the Sellers
(collectively the "Indemnified Parties") has or is subject to any loss, damage,
liability, deficiency, claim, cost, recovery, expense (including interest,
penalties and reasonable legal fees), assessment or re-assessment (collectively
the "Claims") arising out of or from, the incorrectness, failure, non-compliance
or other breach of any representation, warranty or covenant made by the Buyer
pursuant to this Agreement, notwithstanding any investigations made by the
Sellers or its representatives, the Buyer unconditionally agree to indemnify and
save harmless the Indemnified Parties for the amount of such Claims.
The Indemnified Parties shall forthwith notify the Buyer of any liability or
claim for which the Buyer may be liable hereunder promptly after the Indemnified
Parties receive notice thereof and the Buyer shall have the right to participate
in any negotiations with respect thereto. The Buyer shall at all times have the
right, at its joint sole expense, to dispute and contest any liability to, or
claim asserted by, any person other than the Indemnified Parties for which the
Buyer may be liable hereunder, provided that the Buyer first admits to the
Sellers that if there is a liability in respect of such claim, the Buyer is
responsible for such liability.
ARTICLE 13.00 - GENERAL MATTERS
13.01 PUBLIC ANNOUNCEMENT. The parties to this Agreement agree that a public
announcement of this Agreement and the transactions herein contemplated shall be
made upon execution of this Agreement in a form and at a time agreed to by the
parties hereto prior to execution of this agreement except that it shall be done
on a basis so as not to violate any securities regulations or laws. The parties
agree that the Purchase price shall not be made public unless required by such
securities laws.
<PAGE> 59
56
13.02 NOTWITHSTANDING ANY OTHER PROVISIONS OF THIS AGREEMENT, THE BUYER DOES NOT
HAVE TO AND WILL NOT RECOGNIZE AND WILL TREAT AS NULL AND VOID ANY ATTEMPT TO
TRANSFER THE FUTURELINK SHARES OR SUCH OTHER SHARES ISSUED PURSUANT SUBSECTION
2.04(E) MADE IN VIOLATION OF THE PROVISIONS OF THIS AGREEMENT.
13.03 NOTICES. All notices, requests, demands or other communications required
or desired to be given or made by one party to another shall be given in writing
by personal delivery or prepaid registered mail or by facsimile transmission or
other means of instantaneous transmission in regular commercial usage at such
time, verified by a transmission report, as follows:
(a) to the Sellers: 3911 Crestview Road S.W.
Calgary, Alberta
T2T 2L5
with a copy to: Howard, Mackie
1000 Canterra Tower
400 Third Avenue S.W.
Calgary, Alberta
T2P 4H2
Attention: Jeff Vallis
(b) to the Buyer: FutureLink Distribution Corp
No. 550, 603 - 7 Avenue SW
Calgary, Alberta
T2P 2T5
Attention: Raghu Kilambi
with a copy to: Morrison, Brown, Sosnovitch
1 Toronto Street
Suite 910
Toronto, Ontario
M5C 2V6
Attention: Kevin Gallagher
or at such other address as may be given by any of them to the others. Any
notice or other communication so given or made shall be conclusively deemed to
have been given and received when delivered personally, if delivered personally,
or when transmitted, if given by facsimile transmission, provided that if it is
delivered or transmitted on a day which is not a Business Day then
<PAGE> 60
57
the notice or communication shall be deemed to have been given and received on
the next Business Day following such date, or on the fifth (5th) Business Day
following the date of mailing, if mailed by prepaid registered mail, except in
the event of disruption of mail services in which event any notice shall be
delivered personally or by facsimile transmission.
13.04 EXPENSES. The expenses incurred by each of the parties in connection with
the negotiation of this Agreement and the completion of the transactions
provided for in this Agreement, including, except as otherwise provided in this
Agreement, the fees of their respective accountants and solicitors in connection
with such transactions, shall be borne by such party.
13.05 TIME OF THE ESSENCE. Time is of the essence of this Agreement and every
part of this Agreement and no extension or variation of this Agreement shall
operate as a waiver of this provision. Notwithstanding such, the parties hereto
agree that where the fulfilment of any condition relies on the action of a third
party, that such reasonable extensions as are necessary to ensure the fulfilment
of such conditions shall be granted by the parties hereto, it being understood
that Closing shall take place, in any event, not later than the 20th day of
October, 1998.
13.06 GOVERNING LAW. This Agreement and any of the agreements required to be
executed pursuant to the provisions of this Agreement shall be construed and
enforced in accordance with, and the rights of the parties shall be governed by,
the laws of the Province of Alberta and of Canada applicable thereto and the
parties submit to the jurisdiction of the courts of the Province of Alberta.
13.07 SEVERABILITY. If any of the provisions contained in this Agreement are,
for any reason, held to be invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provision of this Agreement, but this Agreement shall be construed as if such
invalid, illegal or unenforceable provision or provisions had never been
contained in this Agreement unless the deletion of such provision or provisions
would result in such a material change as to cause the completion of the
transactions contemplated in this Agreement to be unreasonable.
13.08 FURTHER ASSURANCES. The parties covenant and agree to execute such further
and other documents and undertake such other actions as may be reasonably
required to give effect to the terms and intent of the transactions contemplated
in this Agreement.
13.09 COUNTERPARTS. This Agreement may be executed in one or more counterparts,
all of which shall be considered one and the same agreement, and shall become a
binding agreement when one or more counterparts have been signed by each of the
parties and delivered to each of the other parties.
13.10 ENUREMENT. This Agreement shall be binding upon and enure to the benefit
of the parties hereto and their respective heirs, administrators, executors,
successors and permitted assigns, provided that the rights of any party hereto
may not be assigned without the prior written consent of all other parties
hereto.
<PAGE> 61
58
13.11 TIME PERIODS. When calculating the period of time within which or
following which any act is to be done or step taken pursuant to this Agreement,
the date which is the reference day in calculating such period shall be
excluded.
13.12 LANGUAGE OF AGREEMENT. It is the express wish of the parties that this
document and any related documents be drawn up and executed in English. Les
parties aux presentes ont expressement demande que ce document et tous les
documents s'y rattachant soient rediges et signes en anglais.
IN WITNESS WHEREOF the parties hereto have executed this Agreement on
the date first above written.
FUTURELINK DISTRIBUTION CORP.
(Colorado)
Per: /s/ Raghu Kilambi - A.S.O.
--------------------------------
Raghu Kilambi - A.S.O.
)
)
) /s/ DONALD A. BIALIK
- -------------------------------- ) ------------------------------------
Witness ) DONALD A. BIALIK
)
)
) /s/ OLIVIA B. BIALIK
- -------------------------------- ) ------------------------------------
Witness ) OLIVIA B. BIALIK
------------------------------------
BIALIK FAMILY TRUST
Per: /s/ DONALD A. BIALIK
--------------------------------
- Trustee
Per: /s/ OLIVIA B. BIALIK
--------------------------------
- Trustee
RIVERVIEW MANAGEMENT CORPORATION
Per: /s/ DONALD A. BIALIK
--------------------------------
A.S.O.
<PAGE> 62
59
SYSGOLD LTD
Per: /s/ DONALD A. BIALIK
--------------------------------
A.S.O.
FUTURELINK DISTRIBUTION CORP.
(Alberta)
Per: /s/ Raghu Kilambi
--------------------------------
Raghu Kilambi -A.S.O.
<PAGE> 63
BUYER'S DIRECTORS AND OFFICERS SCHEDULES
FUTURELINK DISTRIBUTION CORP. (ALBERTA)
<TABLE>
<CAPTION>
Name Address Position
- ---- ------- --------
<S> <C> <C>
Cameron Chell 306-20 Street N.W. Chairman of the Board,
Calgary, Alberta President & CEO
Raghu Kilambi 286 Briar Hill Avenue Director, CFO,
Toronto, Ontario VP-Corporate Finance,
M4R 1J2 Corporate Secretary
Robert Kubbernus 300 Waterstone Crescent Director
Airdrie, Alberta
T4B 1H4
Bryson Farrill 305 Old Oaks Road Director
Fairfield, CT
U.S.A. 06432
Linda M. Murray 302-1711-11 Street S.W. Assistant Corporate
Calgary, Alberta Secretary
T2T 3L7
Philip R. Ladouceur 119 Valley Ridge Green NW Director
Calgary, Alberta
T3B 5L5
</TABLE>
FUTURELINK DISTRIBUTION CORP. (COLORADO)
<TABLE>
<CAPTION>
Name Address Position
- ---- ------- --------
<S> <C> <C>
Cameron Chell 306-20 Street N.W. Chairman of the Board,
Calgary, Alberta President & CEO
Raghu Kilambi 286 Briar Hill Avenue Director, CFO,
Toronto, Ontario VP-Corporate Finance,
M4R 1J2 Corporate Secretary
Robert Kubbernus 300 Waterstone Crescent Director
Airdrie, Alberta
T4B 1H4
</TABLE>
<PAGE> 64
<TABLE>
<CAPTION>
Name Address Position
- ---- ------- --------
<S> <C> <C>
Bryson Farrill 305 Old Oaks Road Director
Fairfield, CT
U.S.A. 06432
Linda M. Murray 302-1711-11 Street S.W. Assistant Corporate
Calgary, Alberta Secretary
T2T 3L7
Robert H. Kohn One Arbor Lane Director
Pebble Beach, CA
U.S.A. 93953
Philip R. Ladouceur 119 Valley Ridge Green NW Director
Calgary, Alberta
T3B 5L5
</TABLE>
<PAGE> 65
PROMISSORY NOTES SCHEDULE
CDN$685,000 August, 1998
FOR VALUE RECEIVED THE UNDERSIGNED PROMISES TO PAY to at 3911 Crestview
Road S.W., Calgary Alberta, T2T 2L5, in ninety (90) days from the date hereof
the principal sum of Six Hundred and Eighty-five Thousand Dollars ($685,000) in
lawful money of Canada together with interest on all amounts of the said
principal sum remaining unpaid hereunder from time to time from the date hereof
until paid, both before and after default, at a rate per annum equal to Seven
Percent (7%). Such interest shall be calculated and compounded monthly and shall
be paid at the same time as the principal amount is paid.
THE UNDERSIGNED FURTHER AGREES TO PAY all costs and expenses
(including without limitation, lawyer fees as between a solicitor and his own
client on a full indemnity basis) incurred by it in enforcing payment in the
event of default hereunder, together with interest as aforesaid on all such
costs until paid by the undersigned.
Presentment, demand, protest and notice of dishonour and non-payment
are hereby waived by the undersigned.
The undersigned shall be entitled to prepay any or all of the
indebtedness evidenced by this promissory note without notice, bonus or penalty.
This promissory note shall be governed by and construed in accordance
with the laws of the Province of Alberta and the laws of Canada applicable
therein.
DATED the day of , 19 .
SIGNED, SEALED AND DELIVERED ) FUTURELINK DISTRIBUTION CORP
)
)
) per:_______________________c/s
) Authorized Signing Officer
THIS IS A FORM OF NOTE ONLY AND THE ISSUE OF MORE THAN ONE NOTE MAY BE REQUIRED
BASED ON THE ALLOCATION OF THE PURCHASE PRICE
<PAGE> 66
RELEASE SCHEDULE
WHEREAS (hereinafter referred to as the "Releasor") has acted as a
director/officer/employee of RMC/SysGold Inc./SysGold Ltd.(the "Corporation");
AND WHEREAS the controlling shareholder of the Corporation has agreed
to allow for a change of control and has agreed to cause directors and officers
appointed by it to resign;
In consideration of the payment by the Corporation to the undersigned
of the sum of Ten Dollars ($10.00) and for other good and valuable consideration
(the receipt and sufficiency of which is hereby acknowledged by the
undersigned), the undersigned hereby remise, release and forever discharge the
Corporation its directors, officers, employees and shareholders (the
"Releasees") of and from all actions, causes of action, suits, debts, dues,
covenants, accounts, contracts, rights, damages, costs, judgments, expenses,
claims or demands which the undersigned may now have, whether in law or in
equity, against the Releasees including those arising out of or relating to the
Agreements.
The undersigned further covenants and agrees not to make any claim,
demand or to maintain or to bring, or take any steps for the bringing of, any
proceeding against any person, firm, corporation or other entity who/which might
claim damages from the Releasees, and/or contribution and indemnity, and/or
other relief under the common law and/or any other statute of this or any other
jurisdiction or otherwise from the Releasees.
The provisions hereof shall enure to the benefit of the successors and
assigns of the Releasors and shall be binding upon the heirs, executors,
administrators, legal personal representatives and assigns of the undersigned.
IN WITNESS WHEREOF the undersigned have signed these presents this day
of August, 1998.
SIGNED, SEALED AND DELIVERED
in the presence of )
)
)
- ------------------------------------ )
Witness )
)
<PAGE> 67
BUYER'S OPTIONS AND CALLS SCHEDULE
<TABLE>
<CAPTION>
Vesting
Grant # Name of Optionee Total # of Shares Type of Option Amount Vest Date Expiration Date
- ------- ---------------- ----------------- -------------- ------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
1 Cameron Chell 500,000 Nonqualified 250,000 29-Jun-98 29-Jun-01
250,000 29-Jun-99 29-Jun-01
2 Raghunath Kilambi 500,000 Nonqualified 250,000 29-Jun-98 29-Jun-01
250,000 29-Jun-99 29-Jun-01
3 Gayle Howard 175,000 Nonqualified 87,500 29-Jun-98 29-Jun-01
87,500 29-Jun-99 29-Jun-01
4 James Brecht 100,000 Nonqualified 50,000 29-Dec-98 29-Jun-01
50,000 29-Jun-99 29-Jun-01
5 Dave Bolink 100,000 Nonqualified 50,000 29-Dec-98 29-Jun-01
50,000 29-Jun-99 29-Jun-01
6 Linda M. Murray 75,000 Nonqualified 25,000 29-Jun-98 29-Jun-01
25,000 29-Dec-98 29-Jun-01
25,000 29-Jun-99 29-Jun-01
7 Jason Cornick 75,000 Nonqualified 25,000 29-Jun-98 29-Jun-01
25,000 29-Dec-98 29-Jun-01
25,000 29-Jun-99 29-Jun-01
8 Jeff Doepker 50,000 Nonqualified 25,000 29-Dec-98 29-Jun-01
25,000 29-Jun-99 29-Jun-01
9 Scott Lambert 75,000 Nonqualified 25,000 29-Jun-98 29-Jun-01
25,000 29-Dec-98 29-Jun-01
25,000 29-Jun-99 29-Jun-01
10 Marjorie Martin 50,000 Nonqualified 25,000 29-Dec-98 29-Jun-01
25,000 29-Jun-99 29-Jun-01
11 Connie Turnbull 30,000 Nonqualified 15,000 29-Dec-98 29-Jun-01
15,000 29-Jun-99 29-Jun-01
12 Bryson Farrill 250,000 Nonqualified 125,000 29-Jun-98 29-Jun-01
125,000 29-Jun-99 29-Jun-01
13 Robert H. Kohn 200,000 Nonqualified 100,000 29-Jun-98 29-Jun-01
100,000 29-Jun-99 29-Jun-01
14 Robert Kubbernus 250,000 Nonqualified 125,000 29-Jun-98 29-Jun-01
125,000 29-Jun-99 29-Jun-01
15 Phillip Ladouceur 500,000 Nonqualified 250,000 Upon signing 16-Jul-98
agreement
with FLNK
250,000 One year 16-Jul-99
anniversary from
signing date
2,930,000
</TABLE>
<PAGE> 68
INDEMNITY
TO: FutureLink Distribution Corporation ("FC") a Colorado Corporation,
FutureLink Distribution Corporation ("FA") an Alberta Corporation, FutureLink
Acquisition Corp. ("FAC") and SysGold Ltd. ("SL") and Riverview Management
Corporation ("RMC") (the "Buyer").
WHEREAS the undersigned, FC, FA, SL and RMC entered into a Share Purchase
Agreement dated August 4, 1998 (the "Share Purchase Agreement");
AND WHEREAS the Share Purchase Agreement contained conditions precedent to
the obligations of FC to complete the transaction in section 5.01 of the Share
Purchase Agreement which FC has agreed to waive in consideration of this
indemnity;
IN CONSIDERATION of Ten Dollars ($10.00) now paid by the Buyer on its own behalf
and on behalf of its agents, employees, affiliates, successors or nominees, or
any of their officers, directors, shareholders, subsidiaries, affiliates,
employees and agents of any of the aforesaid (collectively the "Indemnified
Parties"), the waiver of conditions referred to above, and other good and
valuable consideration, the receipt of which is hereby acknowledged, the
undersigned hereby jointly and severally covenant and agree to indemnify and
save the Indemnified Parties from any loss, damage, liability, deficiency,
claim, cost recovery, expense (including interest, penalties and reasonable
legal fees on a solicitor-client basis), assessment or re-assessment
(collectively the "Claims") arising out of or from:
Any Claims by TAP Consulting Ltd. against the indemnified parties, including
without limitation, the statement of claim filed by TAP Consulting Ltd. Against
SysGold Ltd. Dated August 19, 1998;
Any Claims by Kevin Sebastian or other employees of SysGold Inc. or SysGold Ltd.
With respect to any claim for options, warrants or other similar rights in any
of the Indemnified Parties; and
Any Claims with respect to any other encumbrance of the Sellers, SysGold Ltd.,
SysGold Inc., and Riverview Management Corporation which have not been
discharged prior to closing and are not listed on the Permitted Encumbrance
Schedule.
<PAGE> 69
This indemnity is binding on the undersigned and its successors and assigns and
is in addition to and not in replacement of the indemnity in Article 11.00 of
the Share Purchase Agreement.
DATED the ______ day of ______________________, 1998.
)
)
- ------------------------ ) ---------------------------------
WITNESS ) DONALD A. BIALIK
)
)
)
)
)
- ------------------------ ) ---------------------------------
WITNESS ) OLIVIA B. BIALIK
BIALIK FAMILY TRUST
Per: ____________________________
- Trustee
Per: ____________________________
- Trustee
<PAGE> 70
BOW VALLEY SQUARE
OFFER TO LEASE
BV SQUARE MANAGEMENT LTD.
(AGENT FOR OMERS REALTY CORPORATION, THE "LANDLORD")
AND
SYSGOLD LTD.
(THE "TENANT")
August 24, 1998
BOW VALLEY SQUARE
August 24, 1998
CONFIDENTIAL HAND DELIVERED
Mr. Don Bailik, President
SysGold Ltd.
Suite 450, Bow Valley Square 4
250 Sixth Avenue S. W.
Calgary, Alberta T2P
Dear Don:
RE: SUITES 340 AND 560, BOW VALLEY SQUARE 4
Further to our recent conversations, we are pleased to submit the following
Offer to Lease with respect to your proposed expansion onto a portion of the
Third and Fifth Floors, Bow Valley Square 4. This Offer to Lease will be held
open for the acceptance of SysGold Ltd. (the "Tenant") until 4:00 PM on Tuesday,
September 8th, 1998,
Leased Premises:
(a) approximately 7,972 rentable square feet (subject to final measurement) as
outlined in red on the attached floorplan, being a portion of the third floor
(the "Leased Premises"), of Bow Valley Square 4, 250 Sixth Avenue S.W., Calgary
(the "Building").
(b) approximately 5,779 rentable square feet (subject to final measurement) as
outlined in blue on the attached floorplan, being a portion of the fifth floor
(the "Leased Premises"), of Bow Valley Square 4, 250 Sixth Avenue S.W., Calgary
(the "Building").
The purpose of such plans is solely to indicate the approximate location of the
Leased Premises.
Term:
(a) on third floor premises (7,972 rentable square feet), Three (3) years, Four
(4) months, commencing October 1st, 1998 (the "Commencement Date") and running
concurrent with your lease dated February 21st, 1997 (the "Lease"), expiring
January 31st, 2002, (the "Term");
(b) on fifth floor premises (5,779 rentable square feet), Three (3) years, One
(1) month, commencing January 1st, 1999, expiring January 31st, 2002.
<PAGE> 71
Basic Rent:
(a) on 7,972 square feet: $22.00 per rentable square foot, per annum, on a net
basis, (the "Basic Rent"), being an annual total of One Hundred and Seventy-Five
Thousand, Three Hundred and Eighty-Three-----96/100 ($175,383.96) Dollars, to be
paid to OMERS Realty Corporation (the "Landlord") by the Tenant in twelve equal
monthly installments of Fourteen Thousand, Six Hundred and Fifteen-----33/100
($14,615.33) Dollars in advance, throughout the Term, without any deduction,
abatement or set-off;
(b) on 5,779 square feet: $22.00 per rentable square foot, per annum, on a net
basis, (the "Basic Rent"), being an annual total of One Hundred and Twenty-Seven
Thousand, One Hundred and Thirty-Seven-----96/100 ($127,137.96) Dollars, to be
paid to the Landlord by the Tenant in twelve equal monthly installments of Ten
Thousand, Five Hundred and Ninety-Four-----83/100 ($10,594.83) Dollars in
advance, throughout the latter 37 months of the Term (January 1, 1999- January
31, 2002) without any deduction, abatement or set-off.
TERMS APPLICABLE TO BOTH THE 3RD AND 5TH FLOORS, BOW VALLEY SQUARE 4
Acceptance of Leased Premises:
The Leased Premises would be accepted as returned to the Landlord by the
existing tenants. The Tenant shall remain responsible for all work necessary to
the Leased Premises.
Additional Rent:
The Tenant agrees to pay, as Additional Rent, its Proportionate Share of
Occupancy Costs for the Building, estimated by the Landlord, acting reasonably,
to total $8.94 per rentable square foot of the Leased Premises during the 1998
calendar year. As with the annual Basic Rent, Occupancy Costs are payable by the
Tenant in twelve equal monthly installments in advance, throughout the Term,
without any deduction, abatement or set-off. The Tenant understands and agrees
that the Landlord shall not be liable for any loss or damage as a result of the
Tenant or any subtenant or assignee relying upon this estimate. The Landlord
shall make a final determination of the Tenant's Proportionate Share of
Occupancy Costs as set out in Section 4.4 of the Lease. The Tenant shall remain
responsible for the payment of all other items of Additional Rent as defined in
the Lease.
Early Occupancy:
During any period prior to the Commencement Date in which the Tenant is
permitted to have occupancy of the Leased Premises, whether exclusively or in
common with the Landlord and its contractors and employees for the purpose of
fixturing the Leased Premises, the Tenant shall be deemed in possession of the
Leased Premises and shall be bound by all of the provisions of the Lease except
those requiring the payment of Rent and those dealing with the conduct of the
Tenant's business. Any work to the Leased Premises must be completed in the
manner prescribed in Section 15.2 of the Lease and the Landlord's Design
Criteria Manual and be subject to review and approval by the Landlord.
Should the Tenant conduct any business in and from any part of the Leased
Premises prior to the Commencement Date, Rent would be invoiced for that period
of time prior to the Commencement Date.
Brokerage Fees:
The Tenant warrants that it has not dealt with any agent or broker representing
or purporting to represent the Landlord in connection with the leasing of the
Leased Premises and the Tenant shall be responsible for and indemnify the
Landlord from any brokerage fees or commissions relating to this Offer to Lease
or any resultant agreement.
<PAGE> 72
Parking:
Provided the Tenant is not in default, space for one (1) motor vehicle per 2,000
rentable square feet of space leased (total of seven additional spaces), in
those levels of the Development designated as unassigned Tenant parking will be
made available to the Tenant throughout the Term at the prevailing monthly
rental rate from time to time in effect. The Tenant understands and agrees the
use of any parking spaces shall be subject to the terms and conditions contained
in the Landlord's standard Parking Privileges Contract Terms. The current
monthly parking rental rate is $210.00 per unassigned space. Parking charges are
payable in advance on the first day of each month as Additional Rent.
Permitted Use:
The Tenant shall use the Leased Premises solely for the purpose of conducting
the business of a computer consulting and development firm, and its related
activities (the "Permitted Use").
Taxes:
(a) Property Taxes form a part of Occupancy Costs, however, Business Taxes do
not and the Tenant shall remain entirely responsible for all taxes, rates,
duties, levies and assessments whatsoever, including Business Taxes, in respect
of the Leased Premises.
(b) Amounts payable as outlined in this Offer to Lease do not include G.S.T.,
however G.S.T. is payable on all amounts due to the Landlord.
No Smoking:
The Tenant shall not suffer or permit any smoking to occur within the Leased
Premises, unless it installs, at its expense, separate exhaust fans in the
Leased Premises, approved by the Landlord, to dissipate the smoke.
Insurance Requirements:
Before entering the Leased Premises for any purpose, the Tenant shall provide to
the Landlord certificates of insurance for all policies required to be effected
and maintained by it pursuant to Section 8.3 of the Lease, including, without
limitation, "all risks" insurance upon the property of the Tenant located in the
Leased Premises, comprehensive general liability insurance in an amount not less
than $5,000,000, business interruption insurance and "all risks" tenant legal
liability insurance.
Documentation of Offer:
This Offer to Lease would be documented by way of a Lease Amending Agreement and
the Tenant agrees to observe and perform all of the conditions, covenants and
restrictions required under the Lease. Upon unconditional acceptance of this
Offer to Lease, BV Square Management Ltd. will prepare and forward the Lease
Amending Agreement to the Tenant, which shall incorporate the terms of this
Offer to Lease. The Tenant agrees to execute and return the Lease Amending
Agreement within fifteen (15) Business Days of receiving it. In no event shall
the Tenant be allowed occupancy for the purpose of conducting the Permitted Use
if the Lease Amending Agreement has not been executed by both parties.
Termination by Landlord:
In the event the Tenant is in default of any of the terms, covenants, conditions
or provisos of this Offer to Lease, the Landlord shall have the right to
terminate this Offer to Lease upon written notice to the Tenant. If such notice
is given pursuant to this or any other provision of this Offer to Lease or the
Lease, this Offer to Lease and the Term and all of the rights of the Tenant
hereunder shall terminate; Basic Rent and all other payments for which the
Tenant is liable under this Offer to Lease shall be computed, apportioned and
paid in full to the date of such termination, and the Tenant shall immediately
deliver up possession of the Leased
<PAGE> 73
Premises to the Landlord. If the Landlord terminates this Offer to Lease for any
breach by the Tenant, in addition to other remedies the Landlord may have, the
Landlord may recover from the Tenant all damages it incurs by reason of the
breach, including cost of recovering the Leased Premises, legal fees (on a
solicitor and client basis) and the worth at the time of the termination of the
excess, if any, of the amount of Rent and charges equivalent to the rent
reserved in this Offer to Lease for the remainder of the Term, over the then
reasonable rental value of the Leased Premises for the remainder of the Term,
all of which amounts shall be immediately due and payable by the Tenant to the
Landlord.
Confidentiality:
SysGold Ltd. hereby agrees that the terms and conditions of this Offer to Lease
are sensitive and confidential in nature and that the disclosure of this
information to any third party may be expected to cause substantial loss and
damage to the Landlord. For this reason, SysGold Ltd. agrees that, except for
disclosure on the same confidential basis as provided herein, and only to
officers and/or employees of SysGold Ltd. who have a bona fide and actual need
to know the confidential terms on behalf of SysGold Ltd., it and its officers
and/or employees to whom disclosure is made as aforesaid, will hold in strict
confidence, and will not disclose the same to any third party.
Undefined Terms:
Any capitalized words used in this Offer to Lease but not defined herein, shall
have the meaning attributed to them in Sections 1.1 and 1.2 of the Lease.
Time of the Essence:
Time shall be of the essence of this Offer to Lease and every part thereof.
Entire Agreement:
The Tenant acknowledges that there are no agreements, representations,
warranties or conditions relating to this Offer to Lease, the Leased Premises or
the Building (express or implied) made by the Landlord or any of its agents
except those contained in this Offer to Lease.
Governing Law:
This Offer to Lease shall be interpreted and is governed by the laws of the
Province of Alberta.
Successors and Assigns:
This Offer to Lease and everything herein contained shall enure to the benefit
of and be binding upon the successors and assigns of the Landlord and Tenant.
Conditions:
This Offer to Lease is subject to:
(a) the Landlord reaching a satisfactory agreement with the existing tenant and
regaining control of the Third Floor Leased Premises;
(b) prior leasing; and
(c) approval by an Officer of OMERS Realty Corporation, which would require an
understanding and acceptance of the financial standing and corporate
organization of the proposed Futurelink/Sysgold merged entity.
<PAGE> 74
Trusting the foregoing meets with your approval, we would ask if you could
signify your acceptance by countersigning in the space provided below, returning
one (1) counterpart for our files along with the information required in
paragraph (c) above. BV Square Management Ltd. will then work to remove the
conditions to allow us to proceed with this Offer to Lease, and will advise of
our progress. In the event the foregoing conditions are not removed by BV Square
Management Ltd. in writing on or before Friday, September(18th, 1998, this Offer
to Lease shall become null and void and be of no further force or effect. Once
BV Square Management Ltd. has notified the Tenant in writing of the removal of
the above conditions, this Offer to Lease shall be binding upon both parties.
Yours very truly,
BV SQUARE MANAGEMENT LTD.
Gerry S. Jobagy
Leasing Manager
Accepted For and On Behalf Of:
SYSGOLD LTD.
Per: Don Bailik
Dated this 8th day of September, 1998.
<PAGE> 75
BOW VALLEY SQUARE
OFFER TO LEASE
BETWEEN
BV SQUARE MANAGEMENT LTD.
(AGENT FOR OMERS REALTY CORPORATION, THE "LANDLORD")
AND
SYSGOLD LTD.
(THE "TENANT")
February 23rd, 1998
BOW VALLEY SQUARE
February 23, 1998
CONFIDENTIAL HAND DELIVERED
Mr. Bill Arnett
SysGold Ltd.
Suite 450, Bow Valley Square 4
250 Sixth Avenue S. W.
Calgary, Alberta
Dear Bill:
RE: EXPANSION: 4TH FLOOR, BOW VALLEY SQUARE 4
Further to our recent conversations, we are pleased to submit the following
Offer to Lease with respect to your proposed expansion on the 4th Floor, Bow
Valley Square 4. This Offer to Lease will be held open for the acceptance of
SysGold Ltd. (the "Tenant") until 4:00 PM on Friday, February 27th, 1998.
Leased Premises:
Approximately 1,618 rentable square feet as outlined in red on the attached
floorplan, being a portion of the 4th floor (the "Leased Premises"), of Bow
Valley Square 4, 250 Sixth Avenue S.W., Calgary (the "Building"). The purpose of
such plan is solely to indicate the approximate location of the Leased Premises.
Term:
Three (3) years, Nine (9) months, commencing May 1st, 1998 (the "Commencement
Date") and running concurrent with your lease dated February 21st, 1997 (the
"Lease") expiring January 31st, 2002, (the "Term").
Basic Rent:
$20.00 per rentable square foot of the Leased Premises, per annum, on a net
basis, (the "Basic Rent"), being an annual total of Thirty-Two Thousand, Three
Hundred and Sixty-----04/100 ($32,360.04) Dollars, to be paid to OMERS Realty
Corporation (the "Landlord") by the Tenant in twelve equal monthly installments
of
<PAGE> 76
Two Thousand, Six Hundred and Ninety-Six-----67/100 ($2,696.67) Dollars in
advance, throughout the Term, without any deduction, abatement or set-off.
Acceptance of Leased Premises:
The Leased Premises would be accepted by the Tenant on an "as is, where is"
basis.
Additional Rent:
The Tenant agrees to pay, as Additional Rent, its Proportionate Share of
Occupancy Costs for the Building, estimated to total $8.94 per rentable square
foot of the Leased Premises during the 1998 calendar year. As with the annual
Basic Rent, Occupancy Costs are payable by the Tenant in twelve equal monthly
installments in advance, throughout the Term, without any deduction, abatement
or set-off. The Tenant shall remain responsible for the payment of all other
items of Additional Rent, as defined in the Lease.
Brokerage Fees:
The Tenant warrants that it has not dealt with any agent or broker representing
or purporting to represent the Landlord in connection with the leasing of the
Leased Premises and the Tenant shall be responsible for and indemnify the
Landlord from any brokerage fees or commissions relating to this Offer to Lease
or any resultant agreement.
Parking:
Provided the Tenant is not in default, space for one motor vehicle in those
levels of the Development designated as unassigned Tenant parking will be made
available to the Tenant throughout the Term at the prevailing monthly rental
rate from time to time in effect. The Tenant understands and agrees the use of
any parking spaces shall be subject to the terms and conditions contained in the
Landlord's standard Parking Privileges Contract Terms. Effective April 1st,
1998, current monthly parking rental rate is $210.00 per unassigned space.
Parking charges are payable in advance on the first day of each month as
Additional Rent.
Permitted Use:
The Tenant shall use the Leased Premises solely for the purpose of conducting
the business of a computer consulting and development firm, and its related
activities (the "Permitted Use").
Taxes:
(a) Property Taxes form a part of Occupancy Costs, however, Business Taxes do
not and the Tenant shall remain entirely responsible for all taxes, rates,
duties, levies and assessments whatsoever, including Business Taxes, in respect
of the Leased Premises.
(b) Amounts payable as outlined in this Offer to Lease do not include G.S.T.,
however G.S.T. is payable on all amounts due to the Landlord.
No Smoking:
The Tenant shall not suffer or permit any smoking to occur within the Leased
Premises, unless it installs, at its expense, separate exhaust fans in the
Leased Premises, approved by the Landlord, to dissipate the smoke.
Insurance Requirements:
Before entering the Leased Premises for any purpose, the Tenant shall provide to
the Landlord certificates of insurance for all policies required to be effected
and maintained by it pursuant to Section 8.3 of the
<PAGE> 77
Lease, including, without limitation, "all risks" insurance upon the property of
the Tenant located in the Leased Premises, comprehensive general liability
insurance in an amount not less than $5,000,000, business interruption insurance
and "all risks" tenant legal liability insurance.
Documentation of Offer:
This Offer to Lease would be documented by way of an amendment to the Lease, and
the Tenant agrees to observe and perform all of the conditions, covenants and
restrictions required under the Lease. Upon unconditional acceptance of this
Offer to Lease, BV Square Management Ltd. will prepare and forward the Lease
Amending Agreement to the Tenant, which shall incorporate the terms of this
Offer to Lease. The Tenant agrees to execute and return the Lease Amending
Agreement within fifteen (15) Business Days of receiving it. In no event shall
the Tenant be allowed occupancy for the purpose of conducting the Permitted Use
if the Lease Amending Agreement has not been executed by both parties.
Termination by Landlord:
In the event the Tenant is in default of any of the terms, covenants, conditions
or provisos of this Offer to Lease, the Landlord shall have the right to
terminate this Offer to Lease upon written notice to the Tenant. If such notice
is given pursuant to this or any other provision of this Offer to Lease or the
Lease, this Offer to Lease and the Term and all of the rights of the Tenant
hereunder shall terminate; Basic Rent and all other payments for which the
Tenant is liable under this Offer to Lease shall be computed, apportioned and
paid in fall to the date of such termination, and the Tenant shall immediately
deliver up possession of the Leased Premises to the Landlord. If the Landlord
terminates this Offer to Lease for any breach by the Tenant, in addition to
other remedies the Landlord may have, the Landlord may recover from the Tenant
all damages it incurs by reason of the breach, including cost of recovering the
Leased Premises, legal fees (on a solicitor and client basis) and the worth at
the time of the termination of the excess, if any, of the amount of Rent and
charges equivalent to the rent reserved in this Offer to Lease for the remainder
of the Term, over the then reasonable rental value of the Leased Premises for
the remainder of the Term, all of which amounts shall be immediately due and
payable by the Tenant to the Landlord.
Confidentiality:
SysGold Ltd. hereby agrees that the terms and conditions of this Offer to Lease
are sensitive and confidential in nature and that the disclosure of this
information to any third party may be expected to cause substantial loss and
damage to the Landlord. For this reason, SysGold Ltd. agrees that, except for
disclosure on the same confidential basis as provided herein, and only to
officers and/or employees of SysGold Ltd. who have a bona fide and actual need
to know the confidential terms on behalf of SysGold Ltd., it and its officers
and/or employees to whom disclosure is made as aforesaid, will hold in strict
confidence, and will not disclose the same to any third party.
Undefined Terms:
Any capitalized words used in this Offer to Lease but not defined herein, shall
have the meaning attributed to them in Sections 1.1 and 1.2 of the Lease.
Time of the Essence:
Time shall be of the essence of this Offer to Lease and every part thereof.
Entire Agreement:
The Tenant acknowledges that there are no agreements, representations,
warranties or conditions relating to this Offer to Lease, the Leased Premises or
the Building (express or implied) made by the Landlord or any of its agents
except those contained in this Offer to Lease.
<PAGE> 78
Governing Law:
This Offer to Lease shall be interpreted and is governed by the laws of the
Province of Alberta.
Successors and Assigns:
This Offer to Lease and everything herein contained shall enure to the benefit
of and be binding upon the successors and assigns of the Landlord and Tenant.
Conditions:
This Offer to Lease is subject to approval by an Officer of OMERS Realty
Corporation.
Trusting the foregoing meets with your approval, we would ask if you could
signify your acceptance by countersigning in the space provided below, returning
one (1) counterpart for our files. BV Square Management Ltd. will then work to
remove the condition to allow us to proceed with this Offer to Lease, and will
advise of our progress. In the event the foregoing condition is not removed by
BV Square Management Ltd. in writing on or before March 6th, 1998, this Offer to
Lease shall become null and void and have no farther force or effect. Once BV
Square Management Ltd. has notified the Tenant in writing of the removal of the
above condition, this Offer to Lease shall be binding upon both parties.
Yours very truly,
BV SQUARE MANAGEMENT LTD.
Gerry S. Jobagy
Leasing Manager
Accepted For and On Behalf Of:
SYSGOLD LTD.
Per:
Dated this day of February, 1998.
<PAGE> 79
BOW VALLEY SQUARE
June 2, 1998
HAND DELIVERED
Mr. Don Bialik, P. Eng., M.B.A.
SysGold Ltd.
Suite 450, Bow Valley Square 4
250 Sixth Avenue S. W.
Calgary, Alberta
T2P 3H7O
Dear Don:
RE: EXPANSION - 4Th FLOOR, BOW VALLEY SQUARE 4
The Offer to Lease between our two firms dated March 24th, 1998 was subject to
approval by an officer of OMERS Realty Corporation. We are pleased to confirm we
now have that approval and therefore remove this condition. In the coming weeks,
we will prepare the Lease Amending Agreement for execution by SysGold Ltd.
Yours very truly,
BV SQUARE MANAGEMENT LTD.
Gerry S. Jobagy
Leasing Manager
BOW VALLEY SQUARE
March 24, 1998
CONFIDENTIAL HAND DELIVERED
Mr. Bill Arnett
SysGold Ltd.
Suite 450, Bow Valley Square 4
250 Sixth Avenue S. W.
Calgary, Alberta T2P 3H7
Dear Bill:
RE: EXPANSION: 4TH FLOOR, BOW VALLEY SQUARE 4
Further to our recent conversations, we are pleased to submit the following
revised Offer to Lease with respect to your proposed expansion on the 4th and
5th Floors, Bow Valley Square 4. This Offer to Lease will be held open for the
acceptance of SysGold Ltd. (the "Tenant") until 4:00 PM on Tuesday, March 31st,
1998.
Leased Premises:
Approximately 1,618 rentable square feet as outlined in red on the attached
floorplan, being a portion of the 4th floor (the "Leased Premises"), of Bow
Valley Square 4, 250 Sixth Avenue S.W., Calgary (the "Building"). The purpose of
such plan is solely to indicate the approximate location of the Leased Premises.
<PAGE> 80
Term:
Three (3) years, Four (4) months, commencing September 1st, 1998 (the
"Commencement Date") and running concurrent with your lease dated February 21st,
1997 (the "Lease") expiring January 31st, 2002, (the "Term").
Basic Rent:
$20.00 per rentable square foot of the Leased Premises, per annum, on a net
basis, (the "Basic Rent"), being an annual total of Thirty-Two Thousand, Three
Hundred and Sixty-----04/100 ($32,360.04) Dollars, to be paid to OMERS Realty
Corporation (the "Landlord") by the Tenant in twelve equal monthly installments
of Two Thousand, Six Hundred and Ninety-Six-----67/100 ($2,696.67) Dollars in
advance, throughout the Term, without any deduction, abatement or set-off.
Acceptance of Leased Premises:
The Leased Premises would be accepted by the Tenant on an "as is, where is"
basis.
Additional Rent:
The Tenant agrees to pay, as Additional Rent, its Proportionate Share of
Occupancy Costs for the Building, estimated by the Landlord, acting reasonably,
to total $8.94 per rentable square foot of the Leased Premises during the 1998
calendar year. As with the annual Basic Rent, Occupancy Costs are payable by the
Tenant in twelve equal monthly installments in advance, throughout the Term,
without any deduction, abatement or set-off. The Tenant understands and agrees
that the Landlord shall not be liable for any loss or damage as a result of the
Tenant or any permitted subtenant or assignee relying upon this estimate. The
Landlord shall make a final determination of the Tenant's Proportionate Share of
Occupancy Costs as set out in Section 4.4 of the Lease. The Tenant shall remain
responsible for the payment of all other items of Additional Rent as defined in
the Lease.
Brokerage Fees:
The Tenant warrants that it has not dealt with any agent or broker representing
or purporting to represent the Landlord in connection with the leasing of the
Leased Premises and the Tenant shall be responsible for and indemnify the
Landlord from any brokerage fees or commissions relating to this Offer to Lease
or any resultant agreement.
Parking:
Provided the Tenant is not in default, space for one motor vehicle in those
levels of the Development designated as unassigned Tenant parking will be made
available to the Tenant throughout the Term at the prevailing monthly rental
rate from time to time in effect. The Tenant understands and agrees the use of
any parking spaces shall be subject to the terms and conditions contained in the
Landlord's standard Parking Privileges Contract Terms. Effective April 1st,
1998, current monthly parking rental rate is $210.00 per unassigned space.
Parking charges are payable in advance on the first day of each month as
Additional Rent.
Permitted Use:
The Tenant shall use the Leased Premises solely for the purpose of conducting
the business of a computer consulting and development firm, and its related
activities (the "Permitted Use").
Taxes:
<PAGE> 81
(a) Property Taxes form a part of Occupancy Costs, however, Business Taxes do
not and the Tenant shall remain entirely responsible for all taxes, rates,
duties, levies and assessments whatsoever, including Business Taxes, in respect
of the Leased Premises.
(b) Amounts payable as outlined in this Offer to Lease do not include G.S.T.,
however G.S.T. is payable on all amounts due to the Landlord.
No Smoking:
The Tenant shall not suffer or permit any smoking to occur within the Leased
Premises, unless it installs, at its expense, separate exhaust fans in the
Leased Premises, approved by the Landlord, to dissipate the smoke.
Insurance Requirements:
Before entering the Leased Premises for any purpose, the Tenant shall provide to
the Landlord certificates of insurance for all policies required to be effected
and maintained by it pursuant to Section 8.3 of the Lease, including, without
limitation, "all risks" insurance upon the property of the Tenant located in the
Leased Premises, comprehensive general liability insurance in an amount not less
than $5,000,000, business interruption insurance and "all risks" tenant legal
liability insurance.
Documentation of Offer:
This Offer to Lease would be documented by way of an amendment to the Lease, and
the Tenant agrees to observe and perform all of the conditions, covenants and
restrictions required under the Lease. Upon unconditional acceptance of this
Offer to Lease, BV Square Management Ltd. will prepare and forward the Lease
Amending Agreement to the Tenant, which shall incorporate the terms of this
Offer to Lease. The Tenant agrees to execute and return the Lease Amending
Agreement within fifteen (15) Business Days of receiving it. In no event shall
the Tenant be allowed occupancy for the purpose of conducting the Permitted Use
if the Lease Amending Agreement has not been executed by both parties.
Termination by Landlord:
In the event the Tenant is in default of any of the terms, covenants, conditions
or provisos of this Offer to Lease, the Landlord shall have the right to
terminate this Offer to Lease upon written notice to the Tenant. If such notice
is given pursuant to this or any other provision of this Offer to Lease or the
Lease, this Offer to Lease and the Term and all of the rights of the Tenant
hereunder shall terminate; Basic Rent and all other payments for which the
Tenant is liable under this Offer to Lease shall be computed, apportioned and
paid in full to the date of such termination, and the Tenant shall immediately
deliver up possession of the Leased Premises to the Landlord. If the Landlord
terminates this Offer to Lease for any breach by the Tenant, in addition to
other remedies the Landlord may have, the Landlord may recover from the Tenant
all damages it incurs by reason of the breach, including cost of recovering the
Leased Premises, legal fees (on a solicitor and client basis) and the worth at
the time of the termination of the excess, if any, of the amount of Rent and
charges equivalent to the rent reserved in this Offer to Lease for the remainder
of the Term, over the then reasonable rental value of the Leased Premises for
the remainder of the Term, all of which amounts shall be immediately due and
payable by the Tenant to the Landlord.
Confidentiality:
SysGold Ltd. hereby agrees that the terms and conditions of this Offer to Lease
are sensitive and confidential in nature and that the disclosure of this
information to any third party may be expected to cause substantial loss and
damage to the Landlord. For this reason, SysGold Ltd. agrees that, except for
disclosure on the same confidential basis as provided herein, and only to
officers and/or employees of SysGold Ltd. who have a bona fide and actual need
to know the confidential terms on behalf of SysGold Ltd., it and its officers
and/or employees to whom disclosure is made as aforesaid, will hold in strict
confidence, and will not disclose the same to any third party.
<PAGE> 82
Undefined Terms:
Any capitalized words used in this Offer to Lease but not defined herein, shall
have the meaning attributed to them in Sections 1.1 and 1.2 of the Lease.
Time of the Essence:
Time shall be of the essence of this Offer to Lease and every part thereof.
Entire Agreement:
The Tenant acknowledges that there are no agreements, representations,
warranties or conditions relating to this Offer to Lease, the Leased Premises or
the Building (express or implied) made by the Landlord or any of its agents
except those contained in this Offer to Lease.
Governing Law:
This Offer to Lease shall be interpreted and is governed by the laws of the
Province of Alberta.
Successors and Assigns:
This Offer to Lease and everything herein contained shall enure to the benefit
of and be binding upon the successors and assigns of the Landlord and Tenant.
Conditions:
This Offer to Lease is subject to approval by an Officer of OMERS Realty
Corporation.
Trusting the foregoing meets with your approval, we would ask if you could
signify your acceptance by countersigning in the space provided below, returning
one (1) counterpart for our files. BV Square Management Ltd. will then work to
remove the condition to allow us to proceed with this Offer to Lease, and will
advise of our progress. In the event the foregoing condition is not removed by
BV Square Management Ltd. in writing on or before April 7th, 1998, this Offer to
Lease shall become null and void and have no further force or effect. Once BV
Square Management Ltd. has notified the Tenant in writing of the removal of the
above condition, this Offer to Lease shall be binding upon both parties.
Yours very truly,
BV SQUARE MANAGEMENT LTD.
Gerry S. Jobagy
Leasing Manager
Accepted For and On Behalf Of:
SYSGOLD LTD.
Per: Don Bialik
Dated this 15 day of May, 1998.
<PAGE> 1
EXHIBIT 4.1.4
- --------------------------------------------------------------------------------
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. IF YOU ARE IN
DOUBT AS TO HOW TO DEAL WITH IT, YOU SHOULD CONSULT YOUR INVESTMENT DEALER,
LAWYER OR OTHER ADVISOR. NO SECURITIES COMMISSION OR SIMILAR AUTHORITY IN CANADA
HAS IN ANY WAY PASSED UPON THE MERITS OF THE SECURITIES OFFERED HEREUNDER AND
ANY REPRESENTATION TO THE CONTRARY IS AN OFFENCE. THESE SECURITIES HAVE NOT BEEN
REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE. THE SECURITIES ARE BEING OFFERED PURSUANT TO
A SAFE HARBOR FROM REGISTRATION UNDER REGULATION S PROMULGATED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "US SECURITIES ACT"). THE SECURITIES ARE
"RESTRICTED" AND MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES OR TO U.S.
PERSONS (AS SUCH TERM IS DEFINED IN REGULATION S PROMULGATED UNDER THE US
SECURITIES ACT) UNLESS THE SECURITIES ARE REGISTERED UNDER THE US SECURITIES
ACT, PURSUANT TO REGULATION S OR PURSUANT TO AVAILABLE EXEMPTIONS FROM THE
REGISTRATION REQUIREMENTS OF THE US SECURITIES ACT AND THE SELLER IS PROVIDED
WITH OPINION OF COUNSEL OR OTHER SUCH INFORMATION AS IT MAY REASONABLY REQUIRE
TO CONFIRM THAT SUCH EXEMPTIONS ARE AVAILABLE. FURTHER, HEDGING TRANSACTIONS
INVOLVING THE SECURITIES MAY BE MADE ONLY IN COMPLIANCE WITH THE US SECURITIES
ACT.
September 28, 1998
TAKE-OVER BID CIRCULAR
FUTURELINK DISTRIBUTION CORP. (A COLORADO CORPORATION)
OFFERS TO PURCHASE ALL OF THE OUTSTANDING SECURITIES OF
FUTURELINK DISTRIBUTION CORP. (AN ALBERTA CORPORATION)
- --------------------------------------------------------------------------------
On The Basis Of
One FutureLink USA Common Share for each
FutureLink Alberta Class "A" Common Voting Share
- --------------------------------------------------------------------------------
This offer (the "Offer") by FutureLink Distribution Corp. (a Colorado
corporation)("FutureLink USA" or the "Corporation") is for all of the issued and
outstanding Class "A" Common Voting Shares as of the Expiry Date (other than
Class "A" Common Voting Shares which may be issued prior to the Expiry Date upon
exercise of any warrants) (the "TargetCo Securities") of FutureLink Distribution
Corp. (an Alberta Corporation) ("TargetCo" or "FutureLink Alberta"). The Offer
is open for acceptance until 4:30 p.m. (Calgary time) on October 23, 1998 unless
withdrawn or extended, and is conditional upon, among other things, at least 90%
of the TargetCo Securities being validly deposited under the Offer and not
withdrawn. This and the other conditions to the Offer are described in Section 4
of the Offer (See "Offer - Conditions of the Offer"). The common shares of
FutureLink USA ("FutureLink USA Common Shares") are not listed and posted for
trading on any stock exchange. The FutureLink USA Common Shares are quoted on
the National Association of Security Dealers Over the Counter Bulletin Board
(Symbol - FLNK). The closing trading price of the FutureLink USA Common Shares
on September 25, 1998 was $0.40 USD. The shares acquired in the Offer may not be
resold in the United States or to a United States person except as described in
"Distribution, Resale and Liquidity of FutureLink USA Common Shares".
Securityholders of TargetCo who wish to accept the Offer must properly complete
and execute the accompanying Letter of Transmittal or a manually executed
facsimile thereof and deposit it, together with certificates representing their
TargetCo Securities in accordance with the instructions in the Letter of
Transmittal.
Questions and requests for assistance may be directed to FutureLink USA, #550,
603 - 7th Avenue, S.W., Calgary, Alberta, T2P 2T5 (Phone Number (403) 543-5511)
and additional copies of this document and the Letter of Transmittal may be
obtained from FutureLink USA on request without charge. Persons whose TargetCo
Securities are registered in the name of a nominee should contact their broker,
investment dealer, bank, trust company, appropriate TargetCo official, or other
nominee for assistance. Investors should be aware that FutureLink USA or its
affiliates, directly or indirectly, may bid for or make purchases of TargetCo
Securities subject to the Offer during the Offer Period (as defined herein) as
permitted by applicable Canadian laws or regulations.
This document does not constitute an offer or a solicitation to any person in
any jurisdiction other than Alberta. The Offer is not being made to, nor will
deposits be accepted from or on behalf of, holders of TargetCo
<PAGE> 2
Securities in any jurisdiction in which the making or acceptance thereof would
not be in compliance with the laws of such jurisdiction. However, FutureLink USA
may, in its sole discretion, take such action, as it may deem necessary to
extend the Offer to holders of TargetCo Securities in such jurisdiction.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DEFINITIONS..................................................................3
SUMMARY......................................................................4
OFFER........................................................................7
CIRCULAR....................................................................15
Purpose of the Offer and FutureLink USA's Plans for TargetCo...........15
Distribution, Resale and Liquidity of
FutureLink USA's Common Shares.........................................15
TargetCo Acquisition Agreement.........................................17
FUTURELINK USA..............................................................18
Business of FutureLink USA..................................................19
Description of the Share Capital of FutureLink USA..........................20
Consolidated Capitalization.................................................21
Principal Holders of FutureLink USA Common Shares...........................23
Directors and Officers of FutureLink USA....................................24
Management and Directors of FutureLink USA..................................26
Executive Compensation by FutureLink USA....................................28
FutureLink USA Stock Options................................................29
Indebtedness of FutureLink USA's Directors and Senior Officers..............30
Escrowed Shares of FutureLink USA...........................................30
FutureLink USA Material Contracts...........................................30
Interests of FutureLink USA's Management and
Others in Material Transactions...........................................34
Promoters of FutureLink USA.................................................34
Risk Factors Related to the Business of FutureLink USA.....................34
Prior Sales of FutureLink USA...............................................37
Dividend Record and Policy of FutureLink USA................................38
Auditors, Transfer Agent and Registrar of FutureLink USA....................38
Trading of FutureLink USA Common Shares.....................................39
Lawsuits Against FutureLink USA.............................................39
FUTURELINK ACQUISITION CORP.................................................40
FUTURELINK/SYSGOLD LTD......................................................40
FUTURELINK ALBERTA
Business and Properties of FutureLink Alberta...............................43
Description of the Share Capital of FutureLink Alberta......................44
Capitalization of FutureLink Alberta........................................45
Trading in the Securities of FutureLink Alberta.............................45
Valuation of the Class "A" Common Voting Shares.............................46
Principal Holders of TargetCo Securities....................................48
Trading in Securities of the Offeree Issuer.................................49
Ownership of Securities of Offeree Issuer...................................49
Commitments to Acquire Shares...............................................49
Arrangements, Agreements or Understandings..................................49
Prior Sales of FutureLink Alberta...........................................50
Directors and Officers of FutureLink Alberta................................50
Executive Compensation by FutureLink Alberta................................50
FutureLink Alberta Stock Options............................................51
Indebtedness of FutureLink Alberta Directors and Senior Officers............51
Interest of FutureLink Alberta Management and
Others in Material Transactions...........................................51
Promoters of FutureLink Alberta.............................................52
Dividend Record and Policy of FutureLink Alberta............................52
Conflicts - Insiders of FutureLink Alberta..................................52
Material Contracts of FutureLink Alberta....................................52
Lawsuits Against FutureLink Alberta.........................................54
Auditors of FutureLink Alberta..............................................54
Risk Factors Related to the Business of FutureLink Alberta..................54
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.....................................................56
ACQUISITION OF SECURITIES NOT DEPOSITED.....................................60
MATERIAL CHANGES AND OTHER INFORMATION......................................62
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS..................................63
LEGAL MATTERS...............................................................65
STATUTORY RIGHTS............................................................65
CONSENTS....................................................................66
APPROVAL AND CERTIFICATE....................................................70
EXHIBIT "A" - Consolidated Proforma FutureLink USA Financial Statement......71
EXHIBIT "B" - FutureLink USA Financial Statements...........................80
EXHIBIT "C" - FutureLink Alberta Financial Statements.......................90
EXHIBIT "D" - Riverview Management Corporation Financial Statements
October 31, 1997.........................................................100
EXHIBIT "E" - Riverview Management Corporation Financial Statements
June 30, 1998............................................................107
EXHIBIT "F" - SECTION 184 OF THE ABCA......................................113
ADDRESS OF DEPOSITARY......................................................117
</TABLE>
<PAGE> 4
-3-
DEFINITIONS
In the Offer and this Circular, unless the subject matter or context is
inconsistent therewith, the following terms shall have the meaning set forth
below:
"ABCA" means the Business Corporations Act (Alberta);
"CIRCULAR" means the take-over bid circular accompanying the Offer and forming a
part hereof;
"CLOSING" means the date which FutureLink USA pays for the TargetCo Securities
by issuing the FutureLink USA Common Shares as consideration therefor as set
forth in the Offer;
"CST REPORT" means the report dated September 24, 1998 effective June 30, 1998
which provides a valuation of the Class "A" Common Voting Shares of FutureLink
Alberta;
"DEPOSITARY" means the offices of Beaumont Church at 2200 Telus Tower, 411 - 1st
Street, S.E., Calgary, Alberta, T2G 5E7;
"ESCROW AGREEMENTS (JANUARY 20)" means the Agreement dated January 20, 1998
between FutureLink USA, FutureLink Alberta, General Securities Transfer Agency,
Inc., Cameron Chell, Linda Carling, Colleen Rudolph, Bernie March and Gerald
Albert;
"EXPIRY TIME" OR "EXPIRY DATE" means 4:30 p.m. (Calgary time) on October 23,
1998, or such later time and date or times and dates as may be fixed by
FutureLink USA from time to time pursuant to Section 5 of the Offer, entitled
"Extension and Variation of the Offer";
"FUTURELINK ALBERTA" means FutureLink Distribution Corp., an Alberta
Corporation, the issuer of the TargetCo Securities, which are the subject of the
Offer, set forth herein;
"FUTURELINK USA" means FutureLink Distribution Corp., a Colorado Corporation,
(formerly Core Ventures, Inc.), the Offeror making the Offer set forth herein;
"FUTURELINK USA COMMON SHARES" means the common shares in the capital of
FutureLink USA;
"LETTER OF TRANSMITTAL" means the letter of transmittal in the form accompanying
the Offer and the Circular;
"OFFER" means the offer to purchase made hereby to TargetCo Securityholders;
"OFFEROR" means FutureLink USA;
"OFFEREE ISSUER" means FutureLink Alberta;
"OFFER PERIOD" means the period commencing on the date hereof and ending at the
Expiry Time;
"TARGETCO SECURITIES" means all of the issued and outstanding Class "A" Common
Voting Shares of FutureLink Alberta (other than any Class "A" Common Voting
Shares which may be issued after the date of this Offer but before the Expiry
Date upon the exercise of any warrants) not already owned by FutureLink USA;
"TARGETCO SECURITYHOLDER(S)" means a holder or all of the holders of the
TargetCo Securities; All dollar references in the Offer and the Circular are in
US dollars.
"THOMPSON KERNAGHAN" means Thompson Kernaghan & Co. Ltd.
<PAGE> 5
-4-
SUMMARY
The following is a summary of more detailed information appearing elsewhere in
the Offer and the Circular and is qualified in all respects of such information.
THE OFFER
The offer is made by FutureLink USA for all of the issued and outstanding
TargetCo Securities. This Offer is made to all TargetCo Securityholders as shown
on the books and records of FutureLink Alberta. The basis of the Offer is the
issuance of 1 FutureLink USA Common Share for each issued and outstanding
TargetCo Security.
BACKGROUND AND BENEFITS OF THE OFFER
FutureLink USA owns 46% of the Class "A" Common Voting Shares of FutureLink
Alberta. The acquisition of a controlling interest will be beneficial to
FutureLink USA when FutureLink USA seeks to raise additional capital to expand
its business. The TargetCo Securityholders have no market to re-sell their
shares. The acquisition by FutureLink USA provides the opportunity for enhanced
liquidity and capital appreciation.
RESALE RESTRICTIONS
FutureLink USA will be entitled to rely on the exemptions from registration and
prospectus requirements afforded by sections 65(1) and subsection 107(1)(j) of
the Securities Act (Alberta). Securityholders who are Alberta residents can rely
on other statutory provisions in the Securities Act (Alberta) to permit them to
resell the FutureLink USA Common Shares without the necessity of meeting the
registration and prospectus requirements of the Securities Act (Alberta). The
FutureLink USA Common Shares acquired pursuant to this Offer may not be resold
in the United States of America or to a United States person except as described
in "Distribution, Resale and Liquidity of FutureLink USA Common Shares". THE
FUTURELINK USA COMMON SHARES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE.
THE SECURITIES ARE BEING OFFERED PURSUANT TO A SAFE HARBOR FROM REGISTRATION S
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "US SECURITIES
ACT"). THE SECURITIES ARE "RESTRICTED" AND MAY NOT BE OFFERED OR SOLD IN THE
UNITED STATES OR TO U.S. PERSONS (AS SUCH TERM IS DEFINED IN REGULATION S
PROMULGATED UNDER THE US SECURITIES ACT) UNLESS THE SECURITIES ARE REGISTERED
UNDER THE US SECURITIES ACT, PURSUANT TO REGULATION S OR PURSUANT TO AVAILABLE
EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE US SECURITIES ACT AND THE
SELLER IS PROVIDED WITH OPINION OF COUNSEL OR OTHER SUCH INFORMATION AS IT MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH EXEMPTIONS ARE AVAILABLE. FURTHER,
HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY BE MADE ONLY IN COMPLIANCE
WITH THE US SECURITIES ACT.
VALUATION BY CST FINANCIAL SERVICES INC.
The CST Report states that the 3,286,275 Class "A" Common Voting Shares of
FutureLink Alberta were worth between $2,952,000 CDN and $4,554,000 CDN (between
$0.90 - $1.39 per share CDN) as of June 30, 1998.
METHOD OF DETERMINATION OF SHARE EXCHANGE RATIO
<PAGE> 6
-5-
The share exchange ratio was determined arbitrarily by the Board of Directors of
FutureLink USA who (with the exception of Robert Kohn) are also the directors of
FutureLink Alberta.
TIMING FOR ACCEPTANCE
The Offer commences September 28, 1998 and terminates at 4:30 p.m. (Calgary
time) on October 23, 1998 (the Expiry Time) unless extended by FutureLink USA.
MANNER OF ACCEPTANCE/CONDITIONS OF THE OFFER
This Offer may be accepted by depositing certificates representing the TargetCo
Securities together with a properly completed Letter of Transmittal or a
manually signed facsimile thereof at the office of the Depositary specified in
the Letter of Transmittal at or prior to the Expiry Time. FutureLink USA
reserves the right to withdraw the Offer and not take up and pay for any
TargetCo Securities deposited under the Offer unless the conditions described in
Section 4 of the Offer, entitled "Conditions of the Offer", are satisfied or
waived prior to the Expiry Time. The Offer is conditional upon, among other
things:
(a) there being validly deposited under the Offer and not
withdrawn 90% of the issued and outstanding TargetCo Securities
(including the TargetCo Securities already owned by FutureLink
USA);
(b) FutureLink USA having determined in its sole judgment that there
has not occurred, after the date of the Offer, any change in the
business, operations, assets, capitalization, financial
condition, prospects, licenses, permits, rights, privileges or
liabilities, whether contractual or otherwise of FutureLink
Alberta which would be materially adverse to a purchaser of
TargetCo Securities;
(c) all requisite regulatory approvals in connection with the matters
contemplated in the TargetCo Acquisition Agreement shall have
been obtained on terms satisfactory to FutureLink USA in its sole
judgment, acting reasonably; and
(d) there shall not exist any prohibition at law against FutureLink
USA making the Offer or taking up and paying for all of the
TargetCo Securities under the Offer.
PAYMENT
If all of the conditions of the Offer are satisfied or waived, FutureLink USA
will be obligated to take up all TargetCo Securities validly deposited and not
withdrawn pursuant to the Offer not later than 10 days after the Expiry Date and
to issue FutureLink USA Common Shares in payment for the TargetCo Securities as
soon as possible but in any event, not later than 3 days after taking up the
TargetCo Securities, provided that the TargetCo Securities will not be taken up
or paid for prior to October 23, 1998.
ACQUISITION OF SECURITIES NOT DEPOSITED
If FutureLink USA takes and pays for all of the TargetCo Securities deposited
under the Offer and acquires not less than 90% of the issued and outstanding
TargetCo Securities, FutureLink USA intends, to the extent possible, to acquire
the remaining TargetCo Securities pursuant to the compulsory provisions of the
ABCA.
<PAGE> 7
-6-
DEPOSITARY
Beaumont Church, Barristers and Solicitors, 2200 - 1st Street S.E., Calgary,
Alberta, T2G 5E7 (Attention: Riaz Mamdani) have agreed to act as Depositary.
SUMMARY OF SELECTED CONSOLIDATED FINANCIAL INFORMATION OF FUTURELINK USA
The summary financial data in the table are derived from the consolidated
financial statements and related notes thereto of FutureLink USA. The data
should be read in conjunction with the consolidated financial statements and the
related notice contained elsewhere herein.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Six Months
Ended June 30, Years Ended December 31,
(Unaudited) (Audited) (Unaudited)
- ----------------------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
- ----------------------------------------------------------------------------------------
Revenues $ 0 $ 0 $ 0
- ----------------------------------------------------------------------------------------
Total operating expenses $ 71,076 $ 122,049 $ 6,864
- ----------------------------------------------------------------------------------------
Loss from operations $ (71,076) $ (122,049) $ (6,864)
- ----------------------------------------------------------------------------------------
Net loss $ (482,392) $ (737,049) $ (6,864)
- ----------------------------------------------------------------------------------------
Net loss per common share $ (0.25) $ (1.65) $ (2.75)
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
As at As at As at
BALANCE SHEET DATA: June 30 December 31 December 31
- ----------------------------------------------------------------------------------------
Current assets $ 0 $ 0 $ 0
- ----------------------------------------------------------------------------------------
Working capital (deficiency) $ (24,981) $ (23,932) $ (6,873)
- ----------------------------------------------------------------------------------------
Total assets $ 1,269,259 $ 0 $ 515,000
- ----------------------------------------------------------------------------------------
Total liabilities $ 529,783 $ 23,932 $ 11,377
- ----------------------------------------------------------------------------------------
Stockholders' equity (deficiency) $ 739,476 $ (23,932) $ 503,623
- ----------------------------------------------------------------------------------------
</TABLE>
SUMMARY OF SELECTED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION OF FUTURELINK
USA(1)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Six Months Ended Year Ended
June 30, December 31
(Unaudited) (Unaudited)
- --------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------
<S> <C> <C>
STATEMENT OF INCOME DATA:
- --------------------------------------------------------------------------
Revenues $ 5,360,575 $ 6,665,460
- --------------------------------------------------------------------------
Total operating expenses $ 6,604,312 $ 8,178,644
- --------------------------------------------------------------------------
Loss from operations $ (1,243,737) $ (1,513,184)
- --------------------------------------------------------------------------
Net loss $ (1,414,161) $ (2,257,958)
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
As at As at
BALANCE SHEET DATA: June 30 December 31
- --------------------------------------------------------------------------
Current assets $ 1,079,449 $ 774,411
- --------------------------------------------------------------------------
Working capital (deficiency) $ (567,035) $ (1,035,555)
- --------------------------------------------------------------------------
Total assets $ 10,175,345 $ 9,175,563
- --------------------------------------------------------------------------
Total liabilities $ 4,449,549 $ 4,944,114
- --------------------------------------------------------------------------
Stockholders' equity (deficiency) $ 5,725,796 $ 4,231,449
- --------------------------------------------------------------------------
</TABLE>
<PAGE> 8
-7-
Note:
(1) The pro forma financial statements as at June 30, 1998, as at December 31,
1997, for the six months ended June 30, 1998 and for the year ended December 31,
1997 give effect to the acquisition of all the outstanding shares in FutureLink
Alberta and all the outstanding shares of FutureLink/Sysgold Ltd. (formerly
Riverview Management Corporation) as if the effective dates of these
transactions were December 31, 1997 and June 30, 1998 in respect of the Pro
Forma Balance Sheets, and January 1, 1997 and January 1, 1998 in respect of the
Pro Forma Statements of Income, respectively.
<PAGE> 9
-8-
OFFER TO THE HOLDERS OF TARGETCO SECURITIES
1. THE OFFER
FutureLink USA hereby offers to purchase, on and subject to the terms and
conditions hereinafter specified, all of the issued and outstanding Class "A"
Common Voting Shares of FutureLink Alberta (other than any Class "A" Common
Voting Shares which may be issued after the date of this Offer but before the
Expiry Date upon the exercise of any warrants) on the basis of 1 FutureLink USA
Common Share for each Class "A" Common Voting Share of FutureLink Alberta. The
securities subject to the Offer are referred to as the "TargetCo Security" or
"TargetCo Securities".
THE ACCOMPANYING CIRCULAR AND LETTER OF TRANSMITTAL ARE INCORPORATED INTO AND
FORM A PART OF THE OFFER AND CONTAIN IMPORTANT INFORMATION, WHICH SHOULD BE READ
CAREFULLY BEFORE MAKING A DECISION WITH RESPECT TO THE OFFER.
2. TIME FOR ACCEPTANCE
The Offer is open for acceptance until 4:30 p.m. (Calgary time) on October 23,
1998, the Expiry Time, or until such later time and date to which the Offer may
be extended, unless withdrawn by FutureLink USA.
3. MANNER OF ACCEPTANCE
The Offer may be accepted by delivering to the Depositary so as to arrive there
not later than the Expiry Time:
(a) the certificate or certificates representing the TargetCo Securities in
respect of which the Offer is being accepted;
(b) a Letter of Transmittal in the form accompanying the Offer, properly
completed and duly executed as required by the instructions set out
therein; and
(c) any other relevant documents required by the instructions set out in the
Letter of Transmittal.
In all cases, payment for the FutureLink Alberta Deposited Securities and taken
up by FutureLink USA will be made only after timely receipt by the Depositary of
certificates representing the TargetCo Securities, together with a properly
completed and duly executed Letter of Transmittal in the form accompanying the
Offer and any other required documents.
THE METHOD OF DELIVERY OF CERTIFICATES REPRESENTING THE TARGETCO SECURITIES AND
ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE PERSON DEPOSITING
THEM. FUTURELINK USA RECOMMENDS THAT SUCH DOCUMENTS BE DELIVERED BY HAND TO THE
DEPOSITARY OR IF MAILED, THAT REGISTERED MAIL WITH RETURN RECEIPT REQUESTED BE
USED AND THE APPROPRIATE INSURANCE OBTAINED.
The execution of a Letter of Transmittal irrevocably appoints any officer of
FutureLink USA as a true and lawful agent and attorney of the TargetCo
Securityholder who signed the Letter of Transmittal, with respect to the
TargetCo Securities, registered in the name of such holder and deposited under
the Offer, with full power of substitution, in the name and on behalf of such
<PAGE> 10
-9-
holder to register or record, transfer and enter the transfer of the TargetCo
Securities on the appropriate register of shareholders maintained by FutureLink
Alberta. A holder of TargetCo Securities who executes a Letter of Transmittal
covenants to execute, upon request, any additional documents necessary or
desirable to complete the sale, assignment and transfer of the TargetCo
Securities to FutureLink USA and acknowledges that all authority therein
conferred or agreed to be conferred shall survive the death or incapacity,
bankruptcy or insolvency of the holder and all obligations of the holder therein
shall be binding upon the heirs, personal representatives, successors and
assigns of the holder.
The deposit of TargetCo Securities pursuant to the procedures herein set forth
will constitute a binding agreement between the depositing Securityholders and
FutureLink USA upon the terms and subject to the conditions of the Offer,
including the depositing TargetCo Securityholder's representations and
warranties, that:
(a) such person has full power and authority to deposit, sell,
assign and transfer the TargetCo Securities being deposited;
(b) such person owns the TargetCo Securities being deposited within
the meaning of application securities laws;
(c) the deposit of such TargetCo Securities complies with the
applicable securities laws; and
(d) when such TargetCo Securities are taken up and paid for by
FutureLink USA, FutureLink USA will acquire good title thereto
free and clear of all liens, restrictions, charges, encumbrances,
claims and equities whatsoever.
All questions as to the validity, form, eligibility (including timely receipt)
and acceptance of any TargetCo Securities pursuant to the Offer will be
determined by FutureLink USA in its sole discretion. Depositing securityholders
agree that determination shall be final and binding. FutureLink USA reserves the
absolute right to reject any and all deposits which FutureLink USA determines
not to be in proper form or which may be unlawful to accept under the laws of
any jurisdiction. FutureLink USA reserves the absolute right to waive any defect
or irregularity in a deposit of any TargetCo Securities. FutureLink USA's
interpretation of the terms and conditions of the Offer (including the Circular)
and the Letter of Transmittal shall be final and binding. FutureLink USA
reserves the right to accept the Offer in a manner other than as set forth
above.
4. CONDITIONS OF THE OFFER
FutureLink USA reserves the right to withdraw the Offer and not to take up and
pay for TargetCo Securities deposited under the Offer unless all of the
following conditions are satisfied or waived prior to the Expiry Time:
(a) there being validly deposited under the Offer and not withdrawn
90% of the TargetCo Securities (including the TargetCo Securities
already owned by FutureLink USA);
(b) FutureLink USA having determined in its sole judgment that there
has not occurred, after the date of the Offer, any change in the
business, operations, assets, capitalization, financial
condition, prospects, licenses, permits, rights,
<PAGE> 11
-10-
privileges or liabilities, whether contractual or otherwise, of
FutureLink Alberta which would be materially adverse to a
purchaser of TargetCo Securities;
(c) all requisite regulatory approvals in connection with the matters
contemplated in the TargetCo Acquisition Agreement shall have
been obtained on terms satisfactory to FutureLink USA in its sole
judgment, acting reasonably; and
(d) there shall not exist any prohibition at law against FutureLink
USA making the offer or taking up and paying for all of the
TargetCo Securities under the Offer.
The foregoing conditions are for the sole benefit of FutureLink USA and may be
asserted by FutureLink USA regardless of the circumstances giving rise to any
such condition or may be waived by FutureLink USA in whole or in part at any
time and from time to time in its sole discretion, without prejudice to any
other rights which FutureLink USA may have. The failure by FutureLink USA at any
time to exercise any rights shall not be deemed a waiver of such rights and each
such right shall be deemed an ongoing right which may be asserted at any time
and from time to time.
Any waiver of a condition or the withdrawal of the Offer shall be effective upon
written notice or other communication given in writing by FutureLink USA to that
effect to the Depositary. FutureLink USA, forthwith after giving such notice,
shall make a public announcement of such waiver or withdrawal, and shall cause
the Depositary, if required by law, as soon as practicable thereafter to notify
the TargetCo Securityholders. If the Offer is withdrawn, FutureLink USA shall
not be obligated to take up or pay for any TargetCo Securities deposited under
the Offer and the Depositary will promptly return all certificates for deposited
TargetCo Securities, Letters of Transmittal and related documents to the parties
by whom they were deposited.
5. EXTENSION AND VARIATION OF THE OFFER
The Offer is open for acceptance until, but not after, the Expiry Time.
FutureLink USA reserves the right, in its sole discretion, at any time and from
time to time during the Offer Period to extend the Expiry Time or to vary the
Offer by giving written notice or other communication confirmed in writing of
such extension or variation to the Depositary, and by causing the Depositary to
provide as soon as practicable thereafter notification of such extension or
variation in the manner set forth in Section 11 of the Offer, entitled "Notice",
to all TargetCo Securityholders. FutureLink USA shall, as soon as practicable
after giving notice of an extension or variation to the Depositary, make a
public announcement of the extension or variation. Any notice of extension or
variation will be deemed to have been given and effective on the day on which it
was delivered or otherwise communicated to the Depositary.
Where the terms of the Offer are varied, other than the variation in the terms
of the Offer consisting solely of a waiver of a condition, the Offer shall not
expire before 10 days after the notice of variation in respect of such variation
has been sent to TargetCo Securityholders unless otherwise permitted by
applicable law.
During any such extension or in the event of any variation, all TargetCo
Securities previously deposited and not taken upon or withdrawn will remain
subject to the Offer and may be accepted for purchase by FutureLink USA in
accordance with the terms hereof, subject to Section 7 of the Offer, entitled
"Withdrawal of Deposited Securities". An extension of the Expiry Time or a
variation of the Offer does not constitute a waiver by FutureLink USA of its
rights under Section 4 of the Offer, entitled "Conditions of the Offer". If the
consideration being
<PAGE> 12
-11-
offered for the TargetCo Securities under the Offer is increased, the increased
consideration will be paid to all depositing securityholders whose TargetCo
Securities are taken up under the Offer.
6. PAYMENT FOR DEPOSITED SECURITIES
If all of the conditions referred to under Section 4 of the Offer, entitled
"Conditions of the Offer", have been fulfilled or waived at the Expiry Time,
FutureLink USA will become obligated to take up the TargetCo Securities
deposited under the Offer and not withdrawn not later than 10 days from the
Expiry Time and to pay for TargetCo Securities taken up as soon as possible, but
in any event not later than three days after the taking up of the TargetCo
Securities. In accordance with applicable law, FutureLink USA will take up and
pay for TargetCo Securities deposited under the Offer after the date on which
FutureLink USA first takes up TargetCo Securities deposited under the Offer
within 10 days of the deposit of such TargetCo Securities.
Subject to applicable law, FutureLink USA expressly reserves the right in its
sole discretion to delay taking up or paying for any TargetCo Securities or to
terminate the Offer and not to take up or pay for any TargetCo Securities if any
condition specified in section 4 of the Offer, entitled "Conditions of the
Offer", is not satisfied or waived, in whole or in part, by giving written
notice thereof or other communication confirmed in writing to the Depositary.
FutureLink USA also expressly reserves the right, in its sole discretion and
notwithstanding any other condition of the Offer, to delay taking up and paying
for TargetCo Securities in order to comply, in whole or in part, with the
applicable law, including without limitation, to take such period of time as may
be necessary to obtain any required regulatory approval. FutureLink USA will be
deemed to have taken up and accepted for payment TargetCo Securities validly
deposited and not withdrawn pursuant to the Offer if, as and when FutureLink USA
gives written notice or other communication confirmed in writing to the
Depositary of its acceptance for payment of the TargetCo Securities pursuant to
the Offer.
FutureLink USA will pay for the TargetCo Securities validly deposited pursuant
to the Offer and not withdrawn by providing the Depositary with certificates
representing the FutureLink USA Common Shares for transmittal to the holders of
the TargetCo Securities.
The Depositary will act as the agent of persons who have deposited TargetCo
Securities in acceptance of the Offer for the purposes of receiving payment from
FutureLink USA and transmitting payment to such persons, and receipt of payment
by the Depositary from FutureLink USA will be deemed to constitute receipt of
payment by persons depositing TargetCo Securities for purposes of the Offer.
Settlement will be made by the Depositary forwarding, or causing to be
forwarded, to the address indicated in the Letter of Transmittal, certificates
representing the FutureLink USA Common Shares to which a person depositing
TargetCo Securities is entitled. Unless the person depositing the TargetCo
Securities upon acceptance of the Offer otherwise instructs the Depositary,
certificates representing the FutureLink USA Common Shares to which such person
is entitled will be forwarded by the Depositary by first class insured mail to
such persons at the address specified in the Letter of Transmittal. If no
address is specified, certificates representing the FutureLink USA Common Shares
will be forwarded to the address of the holder as shown on the registers
maintained by FutureLink Alberta.
7. WITHDRAWAL OF DEPOSITED SECURITIES
<PAGE> 13
-12-
All deposits of TargetCo Securities pursuant to the Offer are irrevocable,
provided that any TargetCo Securities deposited in acceptance of the Offer may
be withdrawn by or on behalf of the depositing TargetCo Securityholder at any
time before October 23, 1998 and at any time after November 15, 1998, provided
that the TargetCo Securities have not been taken up and paid for by FutureLink
USA prior to the receipt by the Depositary of the notice of withdrawal of such
TargetCo Securities.
In addition, if:
(a) there is a variation of the terms of the Offer before the Expiry
Time (including any extension of the period during which TargetCo
Securities may be deposited hereunder or the modification of a
term or condition of the offer, but excluding, unless otherwise
required by law, (i) a variation consisting solely of an increase
in the consideration offered where the time for deposit is not
extended for more than 10 days after the notice of variation has
been delivered, or (ii) a variation consisting solely of the
waiver of a condition of the Offer; or
(b) on or before the Expiry Time or after the Expiry Time but before
the expiry of all rights of withdrawal in respect of the Offer, a
change occurs in the information contained in the Offer or the
Circular, as amended from time to time, that would reasonably be
expected to affect the decision of a TargetCo Securityholder to
accept or reject the Offer, unless such change is not within the
control of FutureLink USA,
any TargetCo Securities deposited under the Offer and not taken up and paid for
by FutureLink USA at such time may be withdrawn by or on behalf of the
depositing TargetCo Securityholder at the place of deposit at any time until the
expiration of 10 days after the date upon which the notice of such variation or
change is mailed, delivered or otherwise communicated, subject to an abridgment
of that period pursuant to such order as may be granted by Canadian courts or
securities regulatory authorities.
In order for any withdrawal to be made, notice of the withdrawal must be in
writing (which includes a telegraphic communication or notice by electronic
means that produces a printed copy) and must be actually received by the
Depositary within the period permitted for withdrawal. Any such notice of
withdrawal must be (i) signed by or on behalf of the person who signed the
Letter of Transmittal that accompanied the TargetCo Securities to be withdrawn,
and (ii) specify such person's name, the number of TargetCo Securities to be
withdrawn, the name of the registered holder and the certificate number shown on
each certificate representing the TargetCo Securities to be withdrawn. The
withdrawal shall take effect upon receipt of the written notice by the
Depositary.
All questions as to the validity (including timely receipt) and form of notices
of withdrawal shall be determined by FutureLink USA, in its sole discretion, and
such determination shall be final and binding. There shall be no duty or
obligation on FutureLink USA, the Depositary or any other person to give notice
of any defect or irregularity in any notice of withdrawal and no liability shall
be incurred by any of them for failure to give such notice.
If FutureLink USA extends the Offer, is delayed in taking up or paying for
TargetCo Securities Shares, or is unable to take up or pay for TargetCo
Securities for any reason, then, without prejudice to FutureLink USA's other
rights, TargetCo Securities may not be withdrawn except to the extend that the
depositing holders thereof are entitled to withdrawal rights as set forth in
this Section 7 or pursuant to applicable law. In addition to the foregoing
rights of withdrawal,
<PAGE> 14
-13-
holders of TargetCo Securities in Alberta are entitled to statutory rights of
rescission in certain circumstances. (See the disclosure in the Circular
entitled "Statutory Rights")
<PAGE> 15
-14-
8. RETURN OF TARGETCO SECURITIES
Any deposited TargetCo Securities not taken up and paid for by FutureLink USA
for any reason will be returned (together with other relevant documents) to the
depositing parties. The certificates (and other relevant documents) will be
forwarded by first class insured mail in the name of and to the address
specified by the TargetCo Securityholder in the Letter of Transmittal or, if
such name or address is not so specified, in such name and to such address as is
shown in the registers maintained by FutureLink Alberta, as soon as practicable
following the Expiry Time or withdrawal or termination of the Offer.
9. DIVIDENDS AND DISTRIBUTIONS
If, on or after September 28, 1998 FutureLink Alberta should split, combine or
otherwise change any of the TargetCo Securities or its capitalization, or shall
disclose that it has taken or intends to take any such action, FutureLink USA
may, in its sole discretion, make such adjustments as it considers appropriate
to the purchase price and other terms of the Offer including, without
limitation, the type of securities offered as consideration for the TargetCo
Securities to reflect such split, combination or other change. TargetCo
Securities acquired pursuant to the Offer shall be transferred by the TargetCo
Securityholder and acquired by FutureLink USA free and clear of all liens,
restrictions, charges, encumbrances, claims and equities and together with all
rights and benefits arising therefrom including the right to any and all
dividends, distributions, payments, securities, rights, assets or other
interests which may be declared, paid, issued, distributed, made or transferred
on or in respect to the TargetCo Securities on or after September 28, 1998. If
FutureLink Alberta should declare or pay any cash dividend, stock dividend or
make any other distribution on or issue any rights with respect to any of the
TargetCo Securities which is or are payable or distributable to the TargetCo
Securityholder of record on a record date which is prior to the date of transfer
into the name of FutureLink USA on the registers maintained by FutureLink
Alberta of such TargetCo Securities following acceptance thereof for purchase
pursuant to the Offer, then the whole of such dividend, distribution or rights,
will be received and held by the depositing TargetCo Securityholder for the
account of FutureLink USA and shall be promptly remitted and transferred by the
depositing Securityholder to the Depositary for the account of FutureLink USA,
accompanied by appropriate documentation of transfer. Pending such remittance,
FutureLink USA will be entitled to all rights and privileges as the owner of any
such dividend, distribution or right and may withhold the entire consideration
payable by FutureLink USA pursuant to the Offer or deduct from the consideration
payable by FutureLink USA pursuant to the Offer the amount or value thereof, as
determined by FutureLink USA in its sole discretion.
10. MAIL SERVICE INTERRUPTION
Notwithstanding the provisions of the Offer, the Circular or the Letter of
Transmittal, certificates representing the FutureLink USA Common Shares in
payment for the TargetCo Securities pursuant to the Offer and any certificates
representing TargetCo Securities to be returned will not be mailed if FutureLink
USA determines that delivery thereof by mail may be delayed. Persons entitled to
all such certificates, which are not mailed for the foregoing reasons, may take
delivery thereof at the offices of the Depositary until such time as FutureLink
USA has determined that delivery by mail will no longer be delayed. FutureLink
USA shall provide notice of any determination not to mail made under this
Section 10 as soon as reasonably practicable after the making of such
determination and in accordance with the requirements of Section 11 of the
Offer, entitled "Notice". Notwithstanding Section 6 of the Offer, entitled
"Payment for Deposited Securities", the deposit of certificates representing the
FutureLink USA Common Shares with the Depositary for delivery to the depositing
holders of TargetCo Securities in such
<PAGE> 16
-15-
circumstances shall constitute delivery to the persons entitled thereto and the
TargetCo Securities shall be deemed to have been paid for immediately upon such
deposit.
11. NOTICE
Without limiting any other lawful means of giving notice, any notice FutureLink
USA or the Depositary may give or may cause to be given under the Offer will be
deemed to have been properly given if it is mailed by first class mail, postage
prepaid, to the registered holders of TargetCo Securities at their addresses
shown on the registers maintained by FutureLink Alberta and will be deemed to
have been received on the first day following the date of mailing which is not a
Saturday, Sunday or statutory holiday. These provisions apply notwithstanding
any accidental omission to give notice to any one or more holders of the
TargetCo Securities and notwithstanding any interruption of postal service in
Canada following mailing. In the event of any interruption of postal service
following mailing, FutureLink USA intends to make reasonable efforts to
disseminate the notice by other means. Except as otherwise required or permitted
by law, if post offices in Canada are not open for the deposit of mail or there
is reason to believe that there is or could be a disruption in all or part of
the postal service, any notice which FutureLink USA or the Depositary may give
or cause to be given under the Offer, except as otherwise herein provided, will
be deemed to have been properly given to and have been received by holders of
TargetCo Securities if it is provided by facsimile to FutureLink Alberta which
has agreed, in turn to ensure that it is delivered to each holder of TargetCo
Securities. Wherever the Offer calls for documents to be delivered to the
Depositary, such documents will not be considered delivered unless and until
they have been physically received by the Depositary.
12. ACQUISITION OF SECURITIES NOT DEPOSITED
If FutureLink USA takes up and pays for all TargetCo Securities validly
deposited under the Offer and acquires not less than 90% of the issued and
outstanding TargetCo Securities (other than such TargetCo Securities held by
FutureLink USA), FutureLink USA intends, to the extent possible, to acquire the
remaining TargetCo Securities pursuant to the compulsory acquisition provisions
of the ABCA. If FutureLink USA takes up and pays for TargetCo Securities validly
deposited under the Offer and acquires less then such number thereof or the
compulsory provisions of the ABCA are otherwise unavailable or if FutureLink USA
elects not to proceed by way of the compulsory acquisition provisions of the
ABCA, FutureLink USA intends to consider other means of acquiring, directly or
indirectly, all of the TargetCo Securities available in accordance with
applicable law.
13. MARKET PURCHASES
FutureLink USA has no current intention of acquiring beneficial ownership of any
TargetCo Securities while this Offer is outstanding other than pursuant to this
Offer. FutureLink Alberta is not a publicly traded company and there is no
market for the TargetCo Securities.
14. OTHER TERMS OF THE OFFER
The Offer and all contracts resulting from the acceptance hereof shall be
governed by and construed in accordance with the laws of the Province of Alberta
and the laws of Canada applicable therein. Each party to an agreement resulting
from the acceptance of the Offer unconditionally and irrevocably attorn to the
jurisdiction of the Courts of the Province of Alberta and the courts of appeal
therefrom.
<PAGE> 17
-16-
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION
ON BEHALF OF FUTURELINK USA NOT CONTAINED HEREIN OR IN THE CIRCULAR, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. NO PERSON SHALL BE DEEMED TO BE THE AGENT OF FUTURELINK
USA OR THE DEPOSITARY FOR THE PURPOSES OF THE OFFER. The provisions of the
Circular and the Letter of Transmittal accompanying the Offer, including the
instructions contained therein as applicable, for part of the terms and
conditions of the Offer. FutureLink USA shall, in its sole discretion, be
entitled to make a final and binding determination of all questions relating to
the interpretation of the Offer, the Circular and the Letter of Transmittal, the
validity of any acceptance of the Offer, the validity of any elections and the
validity of any withdrawals of TargetCo Securities. The Offer is not being made
to, nor will deposits be accepted from or on behalf of holders of TargetCo
Securities in any jurisdiction in which the making or acceptance thereof would
not be in compliance with the laws of such jurisdiction. However, FutureLink USA
may, in its sole discretion, take such action as it may deem necessary to extend
the Offer to holders of TargetCo Securities in any such jurisdiction. The
accompanying Circular, together with the Offer, constitutes the take-over bid
circular required under the relevant Canadian provincial securities legislation
applicable to the Offer.
Dated at Calgary, Alberta, as of September 28, 1998.
FUTURELINK DISTRIBUTION CORP.
(a Colorado Corporation)
PER: signed "Cameron Chell"
--------------------------------
CAMERON CHELL
Chief Executive Officer
Director
<PAGE> 18
-17-
CIRCULAR
The following information is supplied with respect to the accompanying Offer
dated September 28, 1998 by FutureLink USA to purchase all of the issued and
outstanding TargetCo Securities.
THE INFORMATION CONCERNING TARGETCO CONTAINED IN THE OFFER AND THIS CIRCULAR HAS
BEEN TAKEN FROM OR BASED UPON AVAILABLE DOCUMENTS AND SECURITYHOLDER LISTS
PROVIDED BY TARGETCO TO FUTURELINK USA. FUTURELINK USA HAS NO KNOWLEDGE THAT
WOULD INDICATE THAT ANY STATEMENTS CONTAINED HEREIN TAKEN FROM OR BASED ON SUCH
DOCUMENTS AND RECORDS ARE UNTRUE OR INCOMPLETE.
The terms and provisions of the Offer are incorporated into and form part of
this Circular and TargetCo Securityholders should refer to the Offer for details
of the terms and conditions of the Offer, including details as to payment and
withdrawal rights. Terms defined in the Offer but not defined in this Circular
have the same meaning herein as in the Offer unless the context otherwise
requires.
PURPOSE OF THE OFFER AND FUTURELINK USA'S PLANS FOR TARGETCO
The purpose of the Offer is to enable FutureLink USA to acquire all of the
issued and outstanding TargetCo Securities. If FutureLink USA takes up and pays
for securities validly deposited under the Offer and acquires not less than 90%
of the issued and outstanding securities of any class which is the subject of
the Offer, FutureLink USA intends, to the extent possible, to acquire the
remaining securities of any such class pursuant to the compulsory acquisition
provisions of the ABCA. If FutureLink USA takes up and pays for securities
validly deposited under the Offer and acquires less than such number thereof or
the compulsory acquisition provisions of the ABCA are otherwise unavailable,
FutureLink USA intends to consider other means of acquiring, directly or
indirectly, all of the outstanding TargetCo Securities available in accordance
with applicable law, including a subsequent acquisition transaction. If the
conditions precedent are satisfied, subject to the exercise of certain warrants.
FutureLink USA will own sufficient TargetCo Securities to effect such subsequent
acquisition transaction. See "Acquisition of Securities Not Deposited".
DISTRIBUTION, RESALE AND LIQUIDITY OF FUTURELINK USA COMMON SHARES
The FutureLink USA Common Shares to be issued to TargetCo Securityholders will
be issued pursuant to subsection 107(1)(j) of the Securities Act (Alberta). Such
statutory provisions exempt FutureLink USA from the Securities Act (Alberta) to
file a prospectus with respect to the FutureLink USA Common Shares issued by
FutureLink USA pursuant to this Offer. A TargetCo Securityholder will not
receive the benefits associated with the subscription for securities issued
pursuant to a prospectus, including, without limiting the generality of the
foregoing, the review of the materials by the Alberta Securities Commission or
any other regulatory authority in any province of Canada.
<PAGE> 19
-18-
Other statutory provisions in the Securities Act (Alberta) provide an exemption
from the prospectus requirements on the resale of the FutureLink USA Common
Shares based upon the filing of this Offer and Circular in accordance with the
requirements of the Securities Act (Alberta), except with respect to any person,
company or combination of persons or companies holding a sufficient number of
securities of FutureLink USA to affect materially the control of FutureLink USA
(a "control person" as defined by the Securities Act (Alberta)). FutureLink USA
Common Shares held by a control person will be subject to restriction on resale
until such time as the appropriate "hold period" has been satisfied and the
holder otherwise complies with other applicable requirements, or a further
statutory exemption may be relied upon or an appropriate discretionary order is
obtained.
THE FUTURELINK USA COMMON SHARES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE.
THE SECURITIES ARE BEING OFFERED PURSUANT TO A SAFE HARBOR FROM REGISTRATION
UNDER REGULATION S PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("US
SECURITIES ACT"). THE SECURITIES ARE "RESTRICTED" AND MAY NOT BE OFFERED OR SOLD
IN THE UNITED STATES OR TO U.S. PERSONS (AS SUCH TERM IS DEFINED IN REGULATION S
PROMULGATED UNDER THE US SECURITIES ACT) UNLESS THE SECURITIES ARE REGISTERED
UNDER THE US SECURITIES ACT, PURSUANT TO REGULATION S OR PURSUANT TO AVAILABLE
EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE US SECURITIES ACT AND THE
SELLER IS PROVIDED WITH OPINION OF COUNSEL OR OTHER SUCH INFORMATION AS IT MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH EXEMPTIONS ARE AVAILABLE. FURTHER,
HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY BE MADE ONLY IN COMPLIANCE
WITH THE US SECURITIES ACT.
Under the US Securities Act, the sale of shares in the United States must either
be of shares registered with the United States Securities and Exchange
Commission (the "SEC") or an exemption for such sale must be available under the
US Securities Act. The FutureLink USA Common Shares issued in the Offer were
issued pursuant to a safe harbour from registration under the US Securities Act
under Regulation S, promulgated under the US Securities Act. Under Regulation S,
the FutureLink USA Common Shares may not be sold in the United States or to a
United States person as those terms are defined in Regulation S. Further for the
"distribution compliance period" (as defined below) the holder of such
FutureLink USA Common Shares may not sell them into the United States or to a
United States person unless such FutureLink USA Common Shares are subject to a
current and effective registration statement under the US Securities Act or an
exemption from registration is available. Further the original recipients and
any transferee of the FutureLink USA Common Shares must also give certain
representations and warranties and enter into certain agreements with FutureLink
USA as set forth in the Letter of Transmittal accompanying the Offer, including:
(a) not engaging in hedging transactions in FutureLink USA Common Shares during
the distribution compliance period in violation of the US Securities Act; (b)
placing on the certificates for the FutureLink USA Common Shares the legend
under Regulation S appearing on the cover page of the Offer; (c) certify that
they are not U.S. persons and are not acquiring the securities for the account
or benefit of a U.S. person and; (d) agreeing that FutureLink USA may refuse to
register any transfer of FutureLink USA Common Shares unless made in accordance
with the registration under the US Securities Act, or pursuant to an exemption
under the US Securities Act, or in accordance with Regulation S.
Under Regulation S, the distribution compliance period begins when the last of
the FutureLink USA Common Shares are issued under the Offer and terminates one
year thereafter. Once the
<PAGE> 20
-19-
distribution compliance period has terminated, sales of the FutureLink USA
Common Shares may be made in the United States and to United States persons
under the exemption provided for in Section 4(1) of the US Securities Act for
sales by one who is neither the issuer, an underwriter nor a dealer. Rule 144
promulgated by the SEC under the US Securities Act sets forth certain
nonexclusive rules for defining when one is not an underwriter for purposes of
Section 4(1). Therefore, after the end of the distribution compliance period,
the FutureLink USA Common Shares may be resold into the United States or to a
United States person, in accordance with Rule 144 restrictions.
Sales under Rule 144 beginning after the end of the distribution compliance
period may be made provided: (a) FutureLink USA is either a SEC reporting
company and is current in filing all its periodic reports with the SEC or if not
such a reporting company, FutureLink USA must make available to the brokerage
community, to its shareholders and other interested parties the information
required by the SEC under Rule 15c-2(11) under the Securities Exchange Act of
1934, as amended ("US Exchange Act"); (b) an individual, certain related persons
or entities and anyone acting in concert with him may not sell in any three
month period more than the greater of 1% of the outstanding FutureLink USA
Common Stock or the average weekly trading volume for such FutureLink USA Common
Stock for the four weeks prior to filing a Rule 144 Notice; (c) the FutureLink
USA Common Shares is not sold with any special selling efforts and are sold in a
brokerage transaction as defined in Rule 144 or directly to a market maker for
the FutureLink USA Common Stock; and (d) a Rule 144 Notice is filed with the SEC
at the time the order is given to the broker to sell the shares or the sale to
the market maker is effected.
Beginning one year after the end of the distribution compliance period, the
FutureLink USA Common Shares held by non-affiliates of FutureLink USA may be
sold under Rule 144 without any restrictions set forth in the prior paragraph.
An affiliate of FutureLink USA is an officer, director and more than 10%
shareholder of FutureLink USA.
ALL TARGETCO SECURITYHOLDERS SHOULD CONSULT WITH THEIR LEGAL ADVISORS TO
DETERMINE THE APPLICABLE RESTRICTIONS GOVERNING RESALE OF FUTURELINK USA COMMON
SHARES THAT THEY WILL RECEIVE UNDER THIS OFFER, INCLUDING THE EXTENT OF THE
APPLICABLE HOLD PERIOD AND THE POSSIBILITY OF UTILIZING ANY FURTHER STATUTORY
EXEMPTION OR OBTAINING A DISCRETIONARY ORDER.
TARGETCO ACQUISITION AGREEMENT
On September 26, 1998, FutureLink USA entered into the TargetCo Acquisition
Agreement with TargetCo, which provides that, subject to regulatory approval,
FutureLink USA will acquire all of the TargetCo Securities in consideration of
the issuance of FutureLink USA Common Shares to the TargetCo Securityholders on
a one-for-one basis for each such security. Management of TargetCo is identical
to that of FutureLink USA (with the exception of Robert Kohn who is not a
director of FutureLink Alberta) and certain securityholders of TargetCo are also
securityholders of FutureLink USA.
FutureLink USA's shareholders have approved the transactions contemplated
thereby, including, subject to regulatory approval, the acquisition of all of
the TargetCo Securities by FutureLink USA in consideration for the FutureLink
USA Common Shares, as may be adjusted in certain events. The obligations of
FutureLink USA to complete the transaction are conditional upon, among other
things, the following:
(a) no action, suit or proceeding shall have been threatened or taken
before or by any federal, provincial, municipal or other
governmental department,
<PAGE> 21
-20-
commission, bureau, agency or instrumentality in Canada or
elsewhere outstanding, pending or threatened by or against
TargetCo at law or in equity;
(b) there shall not have occurred any material change, change of
material fact or any development that could result in a material
or change of a material fact in the business, operations or
affairs of TargetCo;
(c) TargetCo shall have no liabilities (absolute, contingent, accrued
or otherwise) at the time of closing of the Offer other than
those disclosed in the most recent financial statements of
TargetCo presented to FutureLink USA and as otherwise disclosed
to FutureLink USA in writing; and
(d) all necessary steps and proceedings shall have been taken to
allow the TargetCo Securities to be transferred from the TargetCo
Securityholders to FutureLink USA and vest in FutureLink USA good
and marketable title to the TargetCo Securities free and clear of
all liens, claims, charges, security interests, mortgages and
encumbrances.
FutureLink USA has not retained any agent to make solicitations with respect to
the Offer.
FUTURELINK DISTRIBUTION CORP. (A COLORADO CORPORATION) ("FUTURELINK USA")
FutureLink USA was incorporated under the Colorado Corporation Code on April 4,
1955 under the name of Cortez Uranium and Mining Co. The Corporation has
undergone a number of name changes. On February 25, 1957, the Corporation
changed its name to Core Oil, Inc. On June 16, 1983, the Corporation changed its
name to Core Mineral Recoveries, Inc. On July 20, 1997, the Corporation changed
its name to Core Ventures, Inc. On February 17, 1998, the Corporation changed
its name to FutureLink Distribution Corp. In conjunction with these name
changes, the Corporation has undertaken a number of changes to its authorized
capital. Upon incorporation, the authorized capital was 10,000,000 shares with a
par value of $0.01 USD. On June 16, 1983, the authorized capital was altered to
authorize the issuance of 15,000,000 shares with a par value of $0.01/share USD.
On October 7, 1986, the authorized capital was altered to authorize the issuance
of 30,000,000 shares with a par value of $0.01/share USD. On July 20, 1997, the
articles were amended to provide for a par value of $0.001/share USD. On July
20, 1997, the Corporation effected a 200:1 reverse split. On December 2, 1997,
the Corporation effected a 30:1 reverse split. On January 20, 1998, the articles
were amended to authorize the issuance of 100,000,000 common shares with a par
value of $0.0001/share USD and 5,000,000 preferred shares with no par value.
At present FutureLink USA is not a reporting issuer in any jurisdiction. Its
shares are not listed or posted for trading on any stock exchange. FutureLink
USA Common Shares trade on the National Association of Securities Dealers Over
the Counter-Bulletin Board ("NASD-OTC-BB" or "OTC-BB"). FutureLink USA filed a
Form SB-2 Registration Statement with the SEC on August 24, 1998 to register
14,865,385 shares under the US Securities Act. The shares being registered are:
(a) 4,250,000 FutureLink USA Common Shares which may be issued upon conversion
of the FutureLink/Sysgold Ltd. Exchangeable Shares (See "FutureLink/Sysgold
Ltd."); (b) 9,615,385 of the 11,000,000 FutureLink USA Common Shares which have
been issued to Thompson Kernaghan under the terms of the Thompson Kernaghan Loan
Agreement but which are held in escrow (see "FutureLink USA Material
Contracts"); and (c) an additional 1,000,000 of the 11,000,000 FutureLink USA
Common Shares which have been issued to Thompson Kernaghan pursuant to the
Thompson Kernaghan Warrant #1 Agreement and Thompson Kernaghan Warrant #2
Agreement but which are being held in escrow (See
<PAGE> 22
-21-
"FutureLink USA Material Contracts"). Upon filing of this takeover bid circular
with the Alberta Securities Commission, FutureLink USA shall become a reporting
issuer in Alberta.
The principal executive office of FutureLink USA is located at Suite 550 - 603 -
7th Avenue S.W. Calgary, Alberta, T2P 2T5. The contact telephone number is (403)
543 - 5511. The registered and records office of the Company is located at 1675
Broadway, Denver, Colorado 80202.
BUSINESS OF FUTURELINK USA
FutureLink USA is a holding/investment company with the following interests: (a)
100% interest in FutureLink Acquisition Corp. (See "FutureLink Acquisition
Corp.") which in turn owns 100% of FutureLink/Sysgold Ltd. (formerly Riverview
Management Corporation) (excluding the interest of the holders of the
FutureLink/Sysgold Ltd. Exchangeable Shares) (See "FutureLink/Sysgold Ltd.");
and (b) a 46% interest in FutureLink Alberta. Pursuant to this Offer, FutureLink
USA is seeking to acquire 100% of FutureLink Alberta (other than rights granted
by certain warrants). FutureLink USA's business plan contemplates additional
strategic acquisitions. It is the intention at some point in the future to
amalgamate FutureLink/Sysgold Ltd., FutureLink Alberta and FutureLink
Acquisitions Corp. and that the resulting corporation will be the operating
entity.
FutureLink Acquisition Corp. is a holding corporation and was incorporated on
August 21, 1998 for the purpose of acquiring FutureLink/Sysgold Ltd. It does not
carry on any active business. FutureLink/Sysgold Ltd. is an operating entity
with over 70 staff members and sales exceeding $9.5 million CDN for the fiscal
period ended October 31, 1997. FutureLink/Sysgold Ltd. specializes in providing
technical computing services to companies with diverse and complex technology
requirements. FutureLink/Sysgold Ltd. is a total solution provider that supplies
integrated business and IT solutions in the areas of management consulting, land
and land systems, accounting, software development and infrastructure
management. FutureLink Alberta seeks to become the world's first computer
utility company. It is dedicated to providing small to medium sized businesses
(50-1,000 desktop computers) with the most efficient and cost effective system
for the delivery of computer hardware, software and electronic content at an
attractive cost for installation, administration and maintenance.
FutureLink USA has conducted several businesses prior to December 1997. Present
management have very little knowledge of the affairs of the Corporation during
this period of time. The Corporation was inactive for most of the period from
1983 to 1997. In 1995, the Corporation under the name Core Mineral Recoveries,
Inc sought bankruptcy protection from the United States Bankruptcy Court (Case #
95-70091) and sought to reorganize under Chapter 11 of the US Bankruptcy Code.
The petition filed by Core Mineral Recoveries, Inc. was dismissed, and the
Corporation's debts were not discharged in bankruptcy. Previous management chose
to compromise debts by way of agreement rather than use the court process.
Present management have no knowledge of the affairs of the Corporation other
than what is disclosed on the public records of the registrar of corporations in
Colorado and as disclosed in the bankruptcy proceedings. From June 1997 to
December 1997, the Corporation sought to acquire certain rights to "Printscan
Technology" from Printscan Technology Inc. The Corporation could not fund the
acquisition of these technology rights and forfeited any interest therein.
<PAGE> 23
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DESCRIPTION OF SHARE CAPITAL OF FUTURELINK USA
As of the date of this Circular, FutureLink USA is authorized to issue: (a)
100,000,000 FutureLink USA Common Shares with par value of $.0001/share USD; and
(b) 5,000,000 FutureLink USA Preferred Shares with no par value. There are
26,449,313 FutureLink USA Common Shares issued and outstanding. All but
10,300,000 shares are fully paid and non-assessable. Thompson Kernaghan holds
10,300,000 shares in escrow as part of the Thompson Kernaghan Loan Agreement
(See "Prior Sales of FutureLink USA", "Material Contracts of FutureLink USA").
As of the date hereof, FutureLink USA is obliged to issue certain FutureLink USA
Common Shares (but has not done so for various corporate reasons), including:
(a) 588,728 FutureLink USA Common Shares to Linear Strategies Inc. and 538,462
FutureLink USA Common Shares to Hampton Park Ltd. pursuant to the Linear/Hampton
Debt/Share Agreement (See "FutureLink USA Material Contracts"); (b) 4,250,000
FutureLink USA Common Shares upon the conversion of 4,250,000 FutureLink/Sysgold
Ltd. Exchangeable Shares (See "FutureLink/Sysgold Ltd."); (c) 65,000 FutureLink
USA Common Shares to Cameron Chell pursuant to a Subscription Agreement dated
August 11, 1998; and (d) 65,000 FutureLink USA Common Shares to Linda Carling
pursuant to a Subscription Agreement dated August 11, 1998. As at the date
hereof, FutureLink USA has reserved for issuance: (a) 3,730,000 FutureLink USA
Common Shares pursuant to the corporate stock option plan (See "FutureLink USA
Stock Options"); (b) 255,813 FutureLink USA Common Shares pursuant to warrant
agreements (See "FutureLink USA Prior Sales"); and (c) 1,127,240 FutureLink USA
Common Shares pursuant to the Linear Warrant Agreement and the Hampton Warrant
Agreement (See "FutureLink USA Material Contracts"); (e) 65,000 FutureLink USA
Common Shares pursuant to the provisions of the Chell August 11, 1998 Warrant
Agreement; (f) 65,000 FutureLink USA Common Shares pursuant to the provisions of
the Carling August 11, 1998 Warrant Agreement (See "FutureLink USA Prior
Sales"); (g) 78,000 FutureLink USA Common Shares which may be issued upon
conversion of the debt owing to Cameron Chell pursuant to the provisions of the
Chell August 11, 1998 Loan Agreement (See "FutureLink USA Material Contracts");
and (h) 78,000 FutureLink USA Common Shares which may be issued upon conversion
of the debt owing to Linda Carling pursuant to the provisions of the Carling
August 11, 1998 Loan Agreement (See "FutureLink USA Material Contracts"). In
addition, further FutureLink USA Common Shares may be required to be reserved in
excess of the 11,000,000 shares issued to Thompson Kernaghan and held in escrow
pursuant to the Thompson Kernaghan Loan Agreement and Thompson Kernaghan Escrow
Agreement if additional advances are made pursuant to the provisions of the
Thompson Kernaghan Loan Agreement (See "FutureLink USA Material Contracts").
There are no issued and outstanding FutureLink USA Preferred Shares.
The following is a general description of the material rights, privileges,
restrictions and conditions attaching to each class of shares:
COMMON SHARES OF FUTURELINK USA
Subject to the provisions of the Colorado Corporations Code, the holders of the
FutureLink USA Common Shares are entitled to receive notice of, to attend and
vote at all meetings of the shareholders of FutureLink USA (other than meetings
of a class or series of shares other than the FutureLink USA Common Shares as
such) and are entitled to one vote for each FutureLink USA Common Share held,
except as required by law.
Subject to the payment of preferred rights attaching to any other class or
series of shares of FutureLink USA, the holders of the FutureLink USA Common
Shares are entitled to receive, if, as and when declared by the directors of
FutureLink USA, dividends in such amount and
<PAGE> 24
-23-
payable on such date as may be determined from time to time by the directors of
FutureLink USA. Subject to the preferential rights attaching to any other class
or series of shares of FutureLink USA, if any, on the liquidation, dissolution
or winding-up of FutureLink USA, or any other distribution of the assets of
FutureLink USA among its shareholders for the purpose of winding-up its affairs,
the holders of the FutureLink USA Common Shares shall be entitled to share, on a
per share basis, the remaining property and assets of FutureLink USA.
PREFERRED SHARES OF FUTURELINK USA
The FutureLink USA Preferred Shares may be issued from time to time in one or
more series in the number and with the designation, rights, privileges,
restrictions and conditions as determined by the directors of FutureLink USA in
their sole discretion. The FutureLink USA Preferred Shares are not necessarily
entitled to preference, as to the payment of dividends and the distribution of
the remaining property of FutureLink USA on dissolution, over the FutureLink USA
Common Shares.
FutureLink USA will be seeking shareholder approval at a meeting scheduled for
November 6, 1998 to amend the articles of FutureLink USA relating to the
Preferred Voting Shares of FutureLink USA. A series of Preferred Shares
consisting of one share of such series is to be designated as "Special Preferred
Voting Shares". The outstanding share of Special Preferred Voting Share shall be
entitled at any relevant date to the number of votes determined in accordance
with the terms and conditions of the "Exchangeable Shares" and the "Share
Purchase Agreement" as such terms are defined in the Sysgold Acquisition
Agreement on all matters presented to the holders of Common Shares of FutureLink
USA, with the Special Preferred Voting Shares and the Common Shares voting
together as a single class. The Special Preferred Voting Shares is to have no
other voting rights except as required by law. No dividend shall be paid to the
holder of the Special Preferred Share. The share of Special Preferred Share
shall be entitled to $1.00 on liquidation of FutureLink USA in preference to any
shares of Common Shares of FutureLink USA, but only after the liquidation
preference of any other shares of Preferred Shares of FutureLink USA has been
paid in full. The Special Voting Share provisions cannot be amended without the
unanimous approval of the holders of the Special Preferred Shares. (See
"FutureLink USA Material Contracts").
CONSOLIDATED CAPITALIZATION
The following table sets out the capitalization of FutureLink USA as at December
31, 1997 (as per audited financial statements) and the pro forma consolidated
capitalization of FutureLink USA as at September 28, 1998 assuming the
completion by FutureLink USA of the acquisition (the "TargetCo Acquisition") by
FutureLink USA of all of the issued and outstanding TargetCo Securities pursuant
to the Offer.
<TABLE>
<CAPTION>
Capital Authorized Outstanding as Outstanding as of Outstanding as at
at December Sept. 28, 1998 Sept. 28, 1998 after
31, 1997 (unaudited) giving effect to
(audited) TargetCo Acquisition
(unaudited)
- ---------------- ---------------- --------------- ------------------- ----------------------
<S> <C> <C> <C> <C>
Long Term Debt Not Applicable NIL NIL $2,025,000(11)
</TABLE>
<PAGE> 25
-24-
<TABLE>
<S> <C> <C> <C> <C>
Common Stock 100,000,000 $1,426,231 USD $2,675,531 USD $8,066,785(12) USD
(10,203,500 (26,499,313 (33,797,828
shares) shares) shares)
Preferred (1)(2)(3)(4)(5)(6) (1)(2)(3)(4)(5)(7)
Shares (7)(8)(9)(10)(11) (8)(11)(13)
5,000,000 NIL NIL(14) NIL(14)
</TABLE>
Notes:
(1) Includes 11,000,000 FutureLink USA Common Shares issued to Thompson
Kernaghan pursuant to the Thompson Kernaghan Loan Agreement, the
Thompson Kernaghan $2,250,000 Debenture Agreement, Thompson Kernaghan
Warrant #1 Agreement, Thompson Kernaghan Warrant #2 Agreement and the
Thompson Kernaghan Escrow Agreement. (See "FutureLink USA Material
Contracts").
(2) Does not include 3,730,000 FutureLink USA Common Shares reserved for
issuance pursuant to the FutureLink USA stock option plan (See
"FutureLink USA Stock Option Plan").
(3) Does not include 255,813 FutureLink USA Common Shares reserved for
issuance on exercise of FutureLink USA warrants granted between January
1, 1998 and May 31, 1998 (See "Prior Sales of FutureLink USA").
(4) Does not include 1,127,240 FutureLink USA Common Shares which have been
reserved for issuance to Linear Strategies Inc. and Hampton Park Ltd.
upon the exercise of the warrants pursuant to the Linear Warrant
Agreement and Hampton Warrant Agreement (See "FutureLink USA Material
Contracts").
(5) Does not include the 500,000 FutureLink Alberta Class "A" Common Voting
Shares reserved for issuance to FutureLink Alberta warrantholders (See
"Material Contracts of FutureLink Alberta").
(6) Does not include the 4,250,000 FutureLink USA Common Shares which may be
reserved for issuance pursuant to the Sysgold Acquisition Agreement.
(See "FutureLink USA Material Contracts")
(7) Does not include 65,000 FutureLink USA Common Shares reserved for
issuance upon exercise of the Chell August 11, 1998 Warrant Agreement
and 65,000 FutureLink USA Common Shares reserved for issuance upon
exercise of the Carling August 11, 1998 Warrant Agreement;
(8) Does not include 78,000 FutureLink USA Common Shares reserved for
issuance to Cameron Chell upon conversion of a $78,000 USD debt owing to
Cameron Chell pursuant to the Chell August 11, 1998 Loan Agreement and
78,000 FutureLink USA Common Shares reserved for issuance to Linda
Carling upon the conversion of a $78,000 USD debt owing to Linda Carling
pursuant to the Carling August 11, 1998 Loan Agreements. This is to be
converted to FutureLink USA Common Shares at the rate of $1.11 USD of
debt per share.
(9) Does not include the 588,728 FutureLink USA Common Shares to be issued
to Linear Strategies Inc. and the 538,462 FutureLink USA Common Shares
to be issued to Hampton Park Ltd. pursuant to the provisions of the
Linear/Hampton Debt/Share Agreement.
(10) Does not include the 65,000 FutureLink USA Common Shares to be issued to
Linda Carling pursuant to an August 11, 1998 Subscription Agreement and
the 65,000 FutureLink USA Common Shares to be issued to Cameron Chell
pursuant to an August 11, 1998 Subscription Agreement.
(11) The debt is owing by FutureLink USA to Thompson Kernaghan pursuant to
the terms of the Thompson Kernaghan $2,250,000 Debenture Agreement. The
sum of $200,000 USD has been converted into FutureLink USA Common Shares
on September 21, 1998 at the rate of 1 FutureLink USA Common Share for
each $0.3106 USD of debt resulting in Thompson Kernaghan becoming the
beneficial owner of 700,000 of the 11,000,000 shares held in escrow.
(12) To the capitalization of September 28, 1998 has been added: (a) the
value of the 1,127,240 FutureLink USA Common Shares to be issued to
Linear Strategies Inc/Hampton Park Ltd. totalling the amount of $732,706
USD. The debt to Linear Strategies Inc. was $504,802 USD on May 31,
1998. The sum of $225,000 USD was advanced effective June 30,1998. The
sum of $350,000 USD was assigned by Linear Strategies Inc. to Hampton
Park Ltd. effective July 1, 1998. Interest from June 1, 1998 to June 30,
1998 was $2,903.61 USD; (b) The value of $130,000 USD representing the
proceeds from the August 11, 1998 Subscription Agreements from the sale
of 130,000 FutureLink USA Common Shares; (c) value of $3,612,500 USD
(4,250,000 FutureLink USA Common Shares at $0.85/share) for shares which
will be issued to Donald A. Bialik and Olivia B. Bialik upon conversion
of the FutureLink/Sysgold Ltd. Exchangeable Shares; and (d) value of
$200,000 USD representing the payment for the 700,000 FutureLink USA
Common Shares acquired by Thompson Kernaghan upon the conversion of debt
on September 21, 1998; and (e) the sum of $716,510 USD representing the
value of 1,791,275 FutureLink USA Common Shares which would be issued
(assuming that all of the TargetCo Securityholders accept this Offer) at
a deemed price of $0.40/share USD).
<PAGE> 26
-25-
(13) To the issued and outstanding shares would be added: (a) the 1,127,240
FutureLink USA Common Shares issued to Linear Strategies Inc./Hampton
Park Ltd.; (b) the 130,000 FutureLink USA Common Shares to be issued
pursuant to the August 11, 1998 Subscription Agreements with Cameron
Chell and Linda Carling; (c) 4,250,000 FutureLink USA Common Shares
which will be issued to Donald A. Bialik and Olivia B. Bialik upon the
conversion of the FutureLink/Sysgold Ltd. Exchangeable Shares; (d) the
1,791,275 FutureLink USA Common Shares which will be issued to TargetCo
Securityholders (assuming all of the TargetCo Securityholders accept
this Offer).
(14) At present, there are no outstanding preferred shares. Immediately after
giving effect to this Offer, there will not be any preferred shares
outstanding. However, FutureLink USA is obliged to amend its articles to
provide for a series of Special Preferred Voting Shares and to issue 1
Special Preferred Voting Share to Howard Mackie as Trustee under the
Voting Trust and Exchange Agreement (See "FutureLink/Sysgold Ltd.").
PRINCIPAL HOLDERS OF FUTURELINK USA COMMON SHARES
To the knowledge of management, the parties or entity which owns 10% or more of
the issued and outstanding FutureLink USA Common Shares, as at September 28,
1998:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
BEFORE GIVING EFFECT AFTER GIVING FULLY DILUTED
TO TARGETCO EFFECT TO TARGETCO
ACQUISITION ACQUISITION
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Donald A. Bialik/Olivia B. Bialik(1) 4,250,000 4,250,000 4,500,000
Number of Shares Held 19.6% 18.1% 12.36%
Percentage of Ownership
- -----------------------------------------------------------------------------------------------
Thompson Kernaghan(2)
Number of Shares Held Approx. 9,190,000
Percentage of Ownership N/A N/A Approx. 25%
- -----------------------------------------------------------------------------------------------
</TABLE>
Notes:
(1) Technically, Donald A. Bialik and Olivia B. Bialik do not own any shares
of FutureLink USA. However, Donald A. Bialik owns 1,418,084
FutureLink/Sysgold Ltd. Exchangeable Shares and Olivia B. Bialik owns
2,831,916 FutureLink/Sysgold Ltd. Exchangeable Shares. Because the
FutureLink/Sysgold Ltd. Exchangeable Shares may be converted into
FutureLink USA Common Shares by Donald A. Bialik and Olivia B. Bialik
without the payment of any further consideration FutureLink USA has
deemed these shares to be issued for the purpose of this calculation.
(2) Share certificates totalling 11,000,000 FutureLink USA Common Shares
have been issued in the name of Thompson Kernaghan pursuant to the
Thompson Kernaghan Loan Agreement (See "FutureLink USA Material
Contracts"). As of August 20, 1998, the agreements contemplated: (a)
$5.0 million USD being advanced over time; (b) a share price of
$0.93/share USD; and (c) a conversion rate of 78% of the 3 day trading
price. As of September 28, 1998, only $2,250,000 USD had been advanced.
Of the $2,250,000 USD advanced only $200,000 USD has been converted as
at September 28, 1998. On September 21, 1998, Thompson Kernaghan
converted $200,000 USD of debt into 700,000 shares at $0.3016/share (3
day trading average $0.3866 USD) resulting in 700,000 of the 11,000,000
FutureLink USA Common Shares held in escrow becoming fully paid and non
assessable. Management takes the position that because 10,300,000 of the
11,000,000 shares issued to Thompson Kernaghan are not fully paid and
are assessable that Thompson Kernaghan will not be considered the
beneficial owner of the 10,300,000 shares for the purposes of this
calculation. If Thompson Kernaghan converted all remaining debt, based
on a current stock price of $0.40/share USD, and a conversion price of
$0.312/share USD, FutureLink USA would be obliged to confirm that an
additional 6,490,000 FutureLink USA Common Shares would be fully paid
and non assessable resulting in 2,810,000 shares being returned to
treasury. The sum of 1,000,000 shares would remain in escrow pursuant to
the Thompson Kernaghan #1 Warrant Agreement and Thompson Kernaghan #2
Warrant Agreement.
<PAGE> 27
-26-
The directors and officers of FutureLink USA, and their associates and
affiliates, as a group, beneficially own, directly or indirectly 6,432,750
FutureLink USA Common Shares or 29.6% of the outstanding FutureLink USA Common
Shares. In addition to the foregoing, if the directors and officers of
FutureLink USA were to exercise the options to purchase 2,200,000 FutureLink USA
Common Shares issuable on exercise all outstanding stock options, such
individuals, as a group, would beneficially own, directly or indirectly,
8,632,750 FutureLink USA Common Shares, representing approximately 18.0% of the
outstanding FutureLink USA Common Shares on a fully diluted basis.
After giving effect to the TargetCo Acquisition, the directors and officers of
FutureLink USA, and their associates and affiliates, as a group, will
beneficially own, directly or indirectly, 6,432,750 FutureLink USA Common Shares
or 27.3% of the outstanding FutureLink USA Common Shares. In addition to the
foregoing, if the directors and officers of FutureLink USA exercise all
outstanding stock options, such individuals as a group, would be owners,
directly or indirectly, 6,432,750 FutureLink USA Common Shares, representing
approximately 23.72% of the FutureLink USA Common Shares on a fully diluted
basis.
DIRECTORS AND OFFICERS OF FUTURELINK USA
The following are the names and municipalities of residence of the directors and
officers of FutureLink USA, their positions and offices with FutureLink USA and
their principal occupations during the last five years.
<PAGE> 28
-27-
<TABLE>
<CAPTION>
Name and
Municipality of Residence Office Held Principal Occupation
- ------------------------- ----------- --------------------
<S> <C> <C>
Cameron Chell Chairman of the Board, From January 1998 Mr. Chell
Calgary, Alberta Chief Executive Officer has acted as Chief
Executive Officer of
FutureLink USA. From
January 1998 to September
1998, he had been
President. From September
1998, Mr. Chell has been
Chief Executive Officer of
FutureLink/Sysgold Ltd.
From April 1997 Mr. Chell
has acted as Chief
Executive Officer of
FutureLink Alberta. From
November 1997, Mr. Chell
has been a Vice President
of JAWS Technologies Inc.
From May 1997, Mr. Chell
has been a principal in the
investment-banking firm of
Chell McNeill Inc. From
1997 to 1997, Mr. Chell
worked as a registered
representative of a
brokerage firm in Calgary.
From 1998 - 1997, Mr. Chell
was self-employed in
computer sales and other
non-related ventures.
Donald A. Bialik, President, Director From September 1998, Mr.
Calgary, Alberta Bialik has acted as
President of FutureLink
USA, FutureLink Alberta and
FutureLink/Sysgold Ltd.
From 1987 to September
1998, he was President of
Sysgold Ltd., Sysgold Inc.
and Riverview Management
Corporation.
Raghu Kilambi Director From March 1998 to present
Toronto, Ontario Vice President, CFO Mr. Kilambi has been a
Vice-President of Corporate
Finance, with FutureLink
Alberta and FutureLink USA.
From September 1998, Mr.
Kilambi has been Chief
Financial Officer of
FutureLink/Sysgold Ltd.
From 1995 to present he has
been the President of New
Economy Capital Inc. From
1993 to 1995 he was a
corporate finance
consultant.
</TABLE>
<PAGE> 29
-28-
<TABLE>
<CAPTION>
Name and
Municipality of Residence Office Held Principal Occupation
- ------------------------- ----------- --------------------
<S> <C> <C>
Philip Ladouceur, Director From April 1998 to present
Calgary, Alberta Mr. Ladouceur has been
Executive Chairman of
MetroNet Communications
Corporation. From October
1997 to April 1998, Mr.
Ladouceur had been Chairman
and Chief Executive
Officer. From October 1996
to October 1997, Mr.
Ladouceur was President.
From February 1995 to
October 1996, he was
Executive Vice President,
Operations, Bell Canada
International Inc. From
October 1992 to February
1995, Mr. Ladouceur was
President of ISM
Information Systems
Management (Alberta) Ltd.
F. Bryson Farrill(1)(2) Director From 1993 to present Mr.
Connecticut, USA Farrill has acted as a
self-employed investment
consultant. At present Mr.
Farrill is President of
Solar Pharmaceutical Ltd.
Robert Kubbernus(1)(2) Director Since October 1997 Mr.
Airdrie, Alberta Kubbernus has been
President of JAWS
Technology Inc. Since 1992,
Mr. Kubbernus has been the
President of Bankton
Financial Corporation.
Robert Kohn (1) (2) Director From December 1997 to
Pebble Beach, California present Mr. Kohn has been
the chairman of the Board
of GoodNoise Corp. From
October 1996 to December
1997, he was the Vice
President of Business
Development and General
Counsel for Pretty Good
Privacy, Inc. From 1987 to
September 1996, Mr. Kohn
was a Vice President of
Borland International, Inc.
(known as Inprise Corp).
</TABLE>
Notes: (1) Member of the audit committee.
(2) Member of the Compensation Committee
MANAGEMENT AND DIRECTORS OF FUTURELINK USA
The following is a brief description of the background of the key management and
directors of FutureLink USA:
<PAGE> 30
-29-
CAMERON CHELL - CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER - Mr. Chell's
primary responsibility has been to assemble a leading edge professional
technology and business team to implement the business plans of FutureLink USA,
FutureLink Alberta and FutureLink/Sysgold Ltd. His secondary responsibility is
to seek financing for FutureLink USA, FutureLink Alberta and FutureLink/Sysgold
Ltd. Mr. Chell has helped build several technology companies over the past 10
years. He is a Vice President of JAWS Technology Inc., an internet based
encryption technology company. (NASD OTC-BB. JAWZ) He is also a principal of the
investment-banking firm of Chell McNeill Inc. From 1994 to May 1997 Mr. Chell
was employed as a registered representative of a brokerage firm in Calgary,
Alberta. Prior to 1994, Mr. Chell was self-employed in computer sales and other
non-related positions.
DONALD A. BIALIK - B.SC, P.Eng, MBA, DIRECTOR, PRESIDENT. Mr. Bialik is a
successful entrepreneur and founder of FutureLink/Sysgold Ltd. (formerly
Riverview Management Corporation, Sysgold Inc. and Sysgold Ltd.) He has had 15
years in the information systems business (and in particular, is a pioneer in
the private sector IT outsourcing market).
RAGHU KILAMBI - C.A., DIRECTOR, VICE PRESIDENT OF CORPORATE FINANCE, CHIEF
FINANCIAL OFFICER AND CORPORATE SECRETARY. Mr. Kilambi graduated from McGill
University with a Bachelor of Finance and Accounting. Mr. Kilambi is a Chartered
Accountant. Previously, Mr. Kilambi was the director, Financial Services and
Taxation and Corporate Secretary for Canada Starch Company Inc., a $400 million
subsidiary in the US multinational Bestfoods group of companies. As President of
New Economy Capital Inc., Mr. Kilambi has raised significant equity and debt
financing for Canadian and US public and private high technology corporations.
Mr. Kilambi is a director of Advance Vision Systems Corp. (ASE.AVD).
PHILIP LADOUCEUR - DIRECTOR, Mr. Ladouceur has been a director of MetroNet
Communications Corporation (TSE, MSE, NASDAQ) since 1996. MetroNet
Communications Corporation is the largest competitive local exchange carrier in
Canada. He was President of MetroNet Communications Corporation from October
1996 to October 1997. He was Chief Executive Officer from October 1997 to April
1998. He is presently Executive Chairman. Mr. Ladouceur guided MetroNet
Communications Corporation through equity and debt financings of more than $2
Billion CDN. Mr. Ladouceur guided the company through its 1997 acquisition of
Rogers Communication Telecom business ($1 Billion CDN). From February 1995 to
October 1996, Mr. Ladouceur was Executive Vice President Operations at Bell
Canada International Inc. where he led key restructuring efforts and the
formation of a major joint venture with IBM Canada. From October 1992 to
February 1995, Mr. Ladouceur was the founding President and CEO of ISM
Information Systems Management (Alberta) Ltd. ("ISM") a Canadian computer and
network management outsourcing company. Under Mr. Ladouceur's direction, ISM
grew to $75 Million CDN in revenue on an annual basis, and over 700 employees in
a two year period from start up. From June 1990 to October 1992, Mr. Ladouceur
founded and was the Managing Director of HDL Capital Corporation, a Toronto
based merchant bank that specializes in business turnarounds, management
buyouts, and financing for medium and small business in the telecommunications,
technology, software and retail sectors. From 1986 to 1989, Mr. Ladouceur was
Senior Vice President, Finance, Chief Financial Officer and director of Rogers
Communications Inc., one of the largest cable, cellular, and broadcasting
companies in North America. While there, he oversaw the completion of over $3
Billion CDN in public and private financings. Mr. Ladouceur is the Chairman of
the Competitive Telecommunications Association of Canada.
<PAGE> 31
-30-
F. BRYSON FARRILL - DIRECTOR -Until 1989 Mr. Farrill had various positions with
Scotia McLeod and McLeod Young, Weir including acting in the capacity as the
former Chairman of Scotia McLeod (USA) Inc. and McLeod Young Weir Ltd. Mr.
Farrill brings to FutureLink USA more than 30 years of equity, fixed income and
corporate finance experience in North America and Europe. He is the President
and Chairman of Solar Pharmaceuticals Ltd. (VSE.SLR) and Director of Panther
Resources Ltd. (OTC-BB.PATHR), Devine Entertainment Inc. (TSE.BBD), and Home
Life Inc (OTC-BB.HLMF).
ROBERT KUBBERNUS - DIRECTOR - Prior to 1992, Mr. Kubbernus was the Chief
Financial Officer of Bankers Capital Group. His responsibilities included the
development of new products and markets as well as overseeing the financial
controls of the corporation. Since 1992, Mr. Kubbernus has been the President of
Bankton Financial Corporation which specializes in the placement of debt
instruments with institutional and private lenders. Bankton Financial
Corporation is also involved in corporate restructuring and planning. Mr.
Kubbernus is the President of JAWS Technologies Inc. (OTC -BB.JAWZ).
ROBERT KOHN - DIRECTOR - Mr. Kohn has a bachelor's degree in business
administration from California State University in Northridge. Mr. Kohn has a
law degree from Loyola Law School in Los Angeles. From 1983 to 1985 he worked as
corporate counsel to Ashton-Tate Corporation, a developer and marketer of
personal computer software. From October 1985 to March 1987 Mr. Kohn was
associate general counsel for Candel Corporation, a developer of software for
IBM mainframes. From March of 1987 to September 1996, Mr. Kohn was a Senior
Vice-President of Borland International, Inc. (now Inprise Corp), a developer
and marketer of personal computer software. (Inprise Corp. trades on
NASDAQ-National Board INPR) From October 1996 to December 1997, Mr. Kohn was
Vice President of Business Development and General Counsel of Pretty Good
Privacy, Inc. a data encryption company. From January 1998 to present Mr. Kohn
has been the Chairman of GoodNoise Corporation (OTC-BB.GDNO), an internet record
company. Mr. Kohn is also an Adjunct Professor of Law and Business Organisations
of the Monterey College of Law.
EXECUTIVE COMPENSATION BY FUTURELINK USA
CASH
The following table sets forth compensation in respect of the only two senior
officers of FutureLink USA for the fiscal year ended December 31, 1997 and the
fiscal period from January 1, 1998 to June 30, 1998:
<TABLE>
<CAPTION>
================================================================================================
Annual Compensation Long Term
Compensation
- ------------------------------------------------------------------------------------------------
Securities
Name and Period Other Under
Principal Ended Annual Options All Other
Position Salary Bonus Compensation Granted(2) Compensation
($) ($) ($) (#) ($)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CEO, President 1997 Nil Nil Nil Nil Nil
(Mr. Chell) 1998 Nil Nil Nil 500,000 Nil
1997 Nil Nil Nil Nil Nil
1998 Nil Nil Nil 500,000 Nil
================================================================================================
</TABLE>
<PAGE> 32
-31-
<TABLE>
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Vice President
(Mr. Kilambi)
================================================================================================
</TABLE>
Note:
(1) Present management acquired control on January 20, 1998.
(2) See "FutureLink USA Stock Options" Options were approved June 29, 1998
FutureLink USA pays its non-employee directors an honorarium of $250 per board
meeting at which they are in physical attendance. FutureLink USA may reimburse
expenses incurred due to their attendance at such meetings. Excepting funds paid
under employment or consulting contracts, no other payments are made to
directors. In 1998, Mr. Kohn received a $6,000 USD consulting fee. The directors
are eligible to receive stock options under the FutureLink USA's stock option
plan. See "FutureLink USA Stock Options" and "Material Contracts of FutureLink
USA".
FutureLink USA has adopted a stock option plan (the "FutureLink USA's Stock
Option Plan") for senior officers, directors and full-time employees of the
Corporation, which does not restrict the number of options which may be granted.
The number of options and the exercise price of all options is set by the board
of directors of FutureLink USA, or a committee thereof, at the time of grant.
There is no employment contract with Cameron Chell. At present, he is being paid
$150,000/year CDN. Mr. Chell has been granted 500,000 options to acquire
FutureLink USA Common Shares. (See "FutureLink USA Stock Options"). There is an
employment contract between FutureLink USA, FutureLink/Sysgold Ltd. and Donald
A. Bialik. The terms are: (a) $180,000/year CDN salary; (b) performance bonus
equal to 20% of annual salary; (c) 250,000 options to acquire FutureLink USA
Common Shares. There is a consulting agreement with Philip Ladouceur. The terms
are: (a) $100,000 CDN initial fee; (b) 500,000 options to acquire FutureLink USA
Common Shares.
FUTURELINK USA STOCK OPTIONS
The following table sets forth options to purchase FutureLink USA Common Shares
which are outstanding under the Plan as of the date hereof:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
OPTION GRANTS
- ---------------------------------------------------------------------------------------------------
NAME OF OPTIONEE EXERCISE AMOUNT VEST DATE EXPIRATION DATE
PRICE
===================================================================================================
<S> <C> <C> <C> <C>
Cameron Chell $0.76 US 250,000 June 29, 1998 June 29, 2001
250,000 June 29, 1999 June 29, 2001
- ---------------------------------------------------------------------------------------------------
Raghunath Kilambi $0.76 US 250,000 June 29, 1998 June 29, 2001
250,000 June 29, 1999 June 29, 2001
- ---------------------------------------------------------------------------------------------------
Gayle Howard $0.76 US 87,500 June 29, 1998 June 29, 2001
87,500 June 29, 1999 June 29, 2001
- ---------------------------------------------------------------------------------------------------
James Brecht $0.76 US 50,000 December 29, 1998 June 29, 2001
50,000 June 29,1999 June 29, 2001
- ---------------------------------------------------------------------------------------------------
Dave Bolink $0.76 US 50,000 December 29, 1998 June 29, 2001
50,000 June 29, 1999 June 29, 2001
- ---------------------------------------------------------------------------------------------------
Linda M. Murray $0.76 US 25,000 June 29, 1998 June 29, 2001
25,000 December 29, 1998 June 29, 2001
</TABLE>
<PAGE> 33
-32-
<TABLE>
<S> <C> <C> <C> <C>
25,000 June 29, 1999 June 29, 2001
- ---------------------------------------------------------------------------------------------------
Jason Cornick $0.76 US 25,000 June 29, 1998 June 29, 2001
25,000 December 29, 1998 June 29, 2001
25,000 June 29, 1999 June 29, 2001
- ---------------------------------------------------------------------------------------------------
Jeff Deopker $0.76 US 25,000 December 29, 1998 June 29, 2001
25,000 June 29, 1999 June 29, 2001
- ---------------------------------------------------------------------------------------------------
Scott Lambert $0.76 US 25,000 June 29, 1998 June 29, 2001
25,000 December 29, 1998 June 29, 2001
25,000 June 29, 1999 June 29, 2001
- ---------------------------------------------------------------------------------------------------
Marjorie Martin $0.76 US 25,000 December 29, 1998 June 29, 2001
25,000 June 29, 1999 June 29, 2001
- ---------------------------------------------------------------------------------------------------
Connie Turnbull $0.76 US 15,000 December 29, 1998 June 29, 2001
15,000 June 29, 1999 June 29, 2001
- ---------------------------------------------------------------------------------------------------
F. Bryson Farrill $0.76 US 125,000 June 29, 1998 June 29, 2001
125,000 June 29, 1999 June 29, 2001
- ---------------------------------------------------------------------------------------------------
Robert H. Kohn $0.76 US 100,000 June 29, 1998 June 29, 2001
100,000 June 29, 1999 June 29, 2001
- ---------------------------------------------------------------------------------------------------
Robert Kubbernus $0.76 US 125,000 June 29, 1998 June 29, 2001
125,000 June 29, 1999 June 29, 2001
- ---------------------------------------------------------------------------------------------------
Philip Ladouceur $0.76 US 250,000 August 4, 1998 June 29, 2001
250,000 August 4, 1999 June 29, 2001
- ---------------------------------------------------------------------------------------------------
Donald A. Bialik $1.17 US 125,000 August 5, 1998 August 5, 2001
125,000 August 5, 1999 August 5, 2001
- ---------------------------------------------------------------------------------------------------
Henry Bilideau $1.17 US 25,000 January 5, 1999 August 5, 2001
25,000 August 5, 1999 August 5, 2001
- ---------------------------------------------------------------------------------------------------
Carl Fransen $1.17 US 12,500 January 5, 1999 August 5, 2001
12,500 August 5, 1999 August 5, 2001
- ---------------------------------------------------------------------------------------------------
Colin Curren $1.17 US 37,500 August 5, 1999 August 5, 2001
37,500 August 5, 1999 August 5, 2001
- ---------------------------------------------------------------------------------------------------
Christopher NcNeill $1.17 US 37,500 January 5, 1999 August 5, 2001
37,500 August 5, 1999 August 5, 2001
- ---------------------------------------------------------------------------------------------------
Glen Lachowiez $1.17 US 12,500 January 5, 1999 August 5, 2001
12,500 August 5, 1999 August 5, 2001
- ---------------------------------------------------------------------------------------------------
Troy Cleland $1.17 US 12,500 January 5, 1999 August 5, 2001
12,500 August 5, 1999 August 5, 2001
- ---------------------------------------------------------------------------------------------------
Doug Evans $1.17 US 62,500 January 5, 1999 August 5, 2001
62,500 August 5, 1999 August 5, 2001
- ---------------------------------------------------------------------------------------------------
Bill Arnett $1.17 US 75,000 January 5, 1999 August 5, 2001
75,000 August 5, 1999 August 5, 2001
- ---------------------------------------------------------------------------------------------------
TOTAL: 3,730,000
- ---------------------------------------------------------------------------------------------------
</TABLE>
INDEBTEDNESS OF FUTURELINK USA'S DIRECTORS AND SENIOR OFFICERS
Since incorporation there has not existed, and there currently does not exist,
any indebtedness of the directors or officers of FutureLink USA or any of their
associates or affiliates to FutureLink USA.
ESCROWED SHARES OF FUTURELINK USA
Pursuant to an agreement dated January 20, 1998, 1,540,000 FutureLink USA Common
Shares were deposited with General Securities Transfer Agency Inc. (the "Escrow
Agreements (January 20,1998)"). The agreement provided that one half of the
shares would be released on July 20, 1998 and the other half on January 20,
1999.
<PAGE> 34
-33-
FUTURELINK USA MATERIAL CONTRACTS
The only material contracts entered into by FutureLink USA since incorporation
which can reasonably be regarded as presently material to FutureLink USA are as
follows:
1. The TargetCo Acquisition Agreement dated September 26, 1998 between
FutureLink USA and TargetCo. (See "TargetCo Acquisition Agreement").
2. Option Agreements dated various dated with various employees. (See
"FutureLink USA Stock Options"). Formal agreements have not been
executed.
3. An Escrow Agreement dated January 20, 1998 among the General Securities
Transfer Agency, Inc., FutureLink USA, Cameron Chell (as to 500,000
FutureLink USA Common Shares), Linda Carling (as to 490,000 FutureLink
USA Common Shares), Bernie March (as to 200,000 FutureLink USA Common
Shares), Colleen Rudolph (as to 250,000 FutureLink USA Common Shares)
and Gerald Albert (as to 100,000 FutureLink USA Common Shares) pursuant
to which an aggregate of 1,540,000 FutureLink USA Common Shares were
deposited in escrow. This agreement stated that one half of the
FutureLink USA Common Shares would be released on July 20, 1998 and one
half would be released on January 20, 1999.
4. A share acquisition agreement dated January 20, 1998, between FutureLink
USA, FutureLink Alberta, Cameron Chell, Linda Carling, Colleen Rudolph,
Bernie March, and Gerald Albert whereby FutureLink USA agreed to acquire
1,540,000 Class "A" Common Voting Shares of FutureLink Alberta in
consideration of the issuance of 1,540,000 FutureLink USA Common Shares.
The shares were issued subject to an escrow agreement. The agreement
provided that 3,500,000 FutureLink USA Common Shares would be issued to
various employees for the consideration of $3,500 USD. FutureLink
Alberta was added as a party for the purpose of making representations
and warranties to induce FutureLink USA to enter into the agreement.
5. Indemnity agreement dated January 19, 1998 between John Anastasios Xinos
and Core Ventures, Inc. hereby John Anastasios Xinos agreed to indemnify
Core Ventures, Inc. for any losses suffered by FutureLink USA arising
from the Midland Walwyn Capital Inc. lawsuit (See "Lawsuits Against
FutureLink USA").
6. Pursuant to a loan agreement dated April 29, 1998 between Linear
Strategies Inc. and FutureLink USA ("Linear/FutureLink USA Loan
Agreement") Linear Strategies Inc. agreed to advance funds to FutureLink
USA from time to time. The loan was unsecured. Interest was payable at
the rate of 7% per annum from June 1, 1998. Linear Strategies Inc. had
advanced $504,802 USD as of May 31, 1998. Interest from June 1-30 was
$2,903.61 USD. A further sum of $225,000 USD was advanced on June 30,
1998. On or effective July 1, 1998, pursuant to the terms of an
agreement amongst FutureLink USA, Linear Strategies Inc. and Hampton
Park Ltd. ("Linear/Hampton Assignment Agreement") Linear Strategies Inc.
assigned $350,000 USD of the indebtedness to Hampton Park Ltd. On or
effective July 1, 1998, pursuant to an agreement amongst FutureLink USA,
Linear Strategies Inc and Hampton Park Ltd. ("Linear/Hampton Debt/Share
Agreement") Linear Strategies Inc. and Hampton Park Ltd. agreed to
convert their indebtedness into 588,778 FutureLink USA Common Shares for
Linear Strategies Inc. and 538,462 FutureLink USA Common Shares for
Hampton Park Ltd. As a term of the Linear/Hampton Debt/Share Agreement,
FutureLink USA entered into an agreement with Linear Strategies Inc.
dated July 2, 1998 ("Linear
<PAGE> 35
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Warrant Agreement") wherein FutureLink USA granted a right to acquire
588,778 FutureLink USA Common Shares at the price of $1.00/share USD if
exercised prior to June 30, 1999 and $1.25/share USD if exercised prior
to June 30, 2000. As a term of the Linear/Hampton Debt/Share Agreement,
FutureLink USA entered into an agreement with Hampton Park Ltd. dated
July 2, 1998 ("Hampton Warrant Agreement") wherein FutureLink USA agreed
to grant a right to acquire 538,462 FutureLink USA Common Shares at a
price of $1.00/share USD if exercised prior to June 30, 1999 and
$1.25/share USD if exercised prior to June 30, 2,000.
7. Consulting Contract with Philip Ladouceur. The terms are: (a) $100,000
CDN initial fee; (b) 500,000 options to acquire FutureLink USA Common
Shares. (See "FutureLink USA Stock Options); and (c) expenses.
8. Agreement amongst FutureLink Alberta, FutureLink USA, Donald A. Bialik,
Olivia B. Bialik, Bialik Family Trust, Riverview Management Corporation
and Sysgold Ltd. dated August 4, 1998 as amended August 21, 1998
("Sysgold Acquisition Agreement") wherein FutureLink USA through its
wholly owned subsidiary FutureLink Acquisition Corp. acquired all of the
issued and outstanding shares of Riverview Management Corp which in turn
owned all of the issued and outstanding shares of Sysgold Ltd. and
Sysgold Inc. The consideration was $8,685,000 CDN payable by $3,100,000
CDN cash on closing, $585,000 CDN by two promissory notes payable within
90 days (Donald A. Bialik $500,000 CDN and Olivia B. Bialik $85,000
CDN), and partly by the issuance of 4,250,000 Riverview Management Corp
Exchangeable Shares which could be converted into 4,250,000 FutureLink
USA Common Shares (attributed value $0.85 USD/share). (See
"FutureLink/Sysgold Ltd." for description of rights relating to
redemption/retraction of the Exchangeable Shares.
9. Voting Trust and Exchange Agreement. This is an agreement amongst
FutureLink USA, Riverview Management Corporation (now FutureLink/Sysgold
Ltd.) and Howard Mackie, Barristers & Solicitors, Calgary, Alberta, (as
Trustee) dated August 21, 1998 which describes the voting trust
arrangements with respect to the Exchangeable Shares.
10. Support Agreement. This is an agreement between FutureLink USA and
Riverview Management Corporation (now FutureLink/Sysgold Ltd.) dated
August 21, 1998 which provides that FutureLink/Sysgold Ltd. and
FutureLink USA agree to take all necessary legal steps to enforce
compliance with the Exchangeable Share provisions as set out in the
Sysgold Acquisition Agreement.
11. An employment agreement amongst FutureLink USA, FutureLink/Sysgold Ltd.
and Donald A. Bialik which would pay him a salary of $180,000/year, plus
a performance bonus and stock options totalling 250,000 FutureLink USA
Common Shares at a price. (See "FutureLink USA Stock Options").
12. An agreement between Thompson Kernaghan and FutureLink USA dated August
14, 1998 ("Thompson Kernaghan Loan Agreement") wherein Thompson
Kernaghan agreed to lend FutureLink USA up to $5,000,000 US to finance
potential acquisitions. Each advance was to be evidenced by a separate
debenture agreement. Interest would be at the rate of 10% per annum. The
loans would be unsecured. The loan would be convertible to FutureLink
USA Common Shares at the lower price of $0.75 USD or 78% of the average
bid price of FutureLink USA quoted on the NASD OTC-BB for the 3 days
trading prior to the Closing Date or the Date of Conversion. Pursuant to
an agreement
<PAGE> 36
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between FutureLink USA and Thompson Kernaghan dated August 21, 1998
("Thompson Kernaghan $2,250,000 Debenture Agreement"), Thompson
Kernaghan advanced to FutureLink USA $2,250,000 USD to complete the
Sysgold Acquisition Agreement on August 21, 1998.
13. FutureLink USA granted to Thompson Kernaghan a warrant to subscribe for
781,250 Common Shares at a price of $0.96/share USD at any time prior to
August 20, 2001 ("Thompson Kernaghan #1 Warrant").
14. FutureLink USA granted to Thompson Kernaghan a warrant to subscribe for
260,417 Common Shares at a price of $0.96/share USD at any time prior to
August 20, 2001 ("Thompson Kernaghan #2 Warrant").
15. An agreement between FutureLink USA and Thompson Kernaghan (as "Escrow
Agent") ("Thompson Kernaghan Escrow Agreement"). Pursuant to the terms
of this agreement, FutureLink USA was required to place with the Escrow
Agent share certificate #3531 totalling 11,000,000 FutureLink USA Common
Shares. The shares shall be released: (a) upon any conversion of the
Thompson Kernaghan $2,250,000 Debenture; (b) upon exercise of the
Thompson Kernaghan #1 Warrant; (c) upon exercise of the Thompson
Kernaghan #2 Warrant; (d) if prior to the conversion of a Debenture or
the exercise of the Warrants, such securities have been transferred,
then the transferee shall become a party to the escrow agreement and
shall comply with the terms of the respective security and with the
terms and conditions of any debenture granted pursuant to the terms of
the Thompson Kernaghan Loan Agreement, Thompson Kernaghan #1 Warrant and
Thompson Kernaghan #2 Warrant. There shall be no dividends paid. There
shall be no voting rights. If the warrants expire unexercised, the
Escrow Agent is to deliver all non-converted stock to FutureLink USA.
16. Pursuant to a loan agreement between FutureLink USA and Cameron Chell
dated August 11, 1998 ("Chell August 11, 1998 Loan Agreement") the sum
of $78,000 USD was advanced by way of loan to FutureLink USA. The loan
is unsecured. The interest rate is 10% per annum. The debt is due on
demand. The debt may be converted to FutureLink USA Common Shares after
November 1, 1998 at the rate of 1 FutureLink USA Common Shares for every
$1.11 USD of indebtedness.
17. As part of the August 11, 1998 Subscription Agreement, FutureLink USA
agreed to grant Cameron Chell a warrant to purchase up to 65,000
FutureLink USA Common Shares at an exercise price equal to $1.00 USD
from August 11, 1998 to August 11, 1999; at $1.25 USD from August 12,
1999 to August 11, 2000 and $1.50 USD from August 12, 2000 to August 11,
1998 ("Chell Warrant Agreement")
18. Pursuant to a loan agreement between FutureLink USA and Linda Carling
dated August 11, 1998 ("Carling August 11, 1998 Loan Agreement") the sum
of $78,000 USD was advanced by way of loan to FutureLink USA. The loan
is unsecured. The interest rate is 10% per annum. The debt is due on
demand. The debt may be converted to FutureLink USA Common Shares after
November 1, 1998 at the rate of 1 FutureLink USA Common Shares for every
$1.11 USD of indebtedness.
19. As part of the August 11, 1998 Subscription Agreement, FutureLink USA
agreed to grant Linda Carling a warrant to purchase up to 65,000
FutureLink USA Common Shares at an exercise price equal to $1.00 USD
from August 11, 1998 to August 11,
<PAGE> 37
-36-
1999; at $1.25 USD from August 12, 1999 to August 11, 2000 and $1.50 USD
from August 12, 2000 to August 11, 1998 ("Carling Warrant Agreement").
20. Unlimited Guarantee Agreement dated September 25, 1998 ("FutureLink USA
CIBC Guarantee") between FutureLink USA and Canadian Imperial Bank of
Commerce ("CIBC"), FutureLink USA agreed to guarantee the indebtedness
of FutureLink/Sysgold Ltd. The CIBC agreed to lend FutureLink/Sysgold
Ltd. up to $1,000,000 CDN. The loan is a demand loan and is secured by
the assets of FutureLink/Sysgold Ltd. The rate of interest fluctuates
based on the debt/equity ratio and whether nor not FutureLink/Sysgold
Ltd. is in default. The CIBC has also obtained unlimited guarantees from
FutureLink Alberta and FutureLink Acquisition Corp.
INTERESTS OF FUTURELINK USA'S
MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
There are no material interests, direct or indirect, of directors, senior
officers or any shareholders who beneficially own, directly or indirectly, more
than 10% of the outstanding FutureLink USA Common Shares or any known associates
or affiliates of such persons, in any transaction since incorporation or in any
proposed transaction which has materially affected or would materially affect
FutureLink USA except as disclosed herein. See "TargetCo Acquisition Agreement"
and "Business and Properties of FutureLink Alberta". FutureLink USA is indebted
to Cameron Chell in the amount of $78,000 USD as of August 11, 1998 pursuant to
the terms of the Chell August 11, 1998 Loan Agreement. (See "Material Contracts
of FutureLink USA"). FutureLink/Sysgold Ltd. and FutureLink USA are indebted to
Donald A. Bialik in the amount of $500,000 CDN and Olivia B. Bialik in the
amount of $85,000 CDN. The debts are due on November 21, 1998.
PROMOTER OF FUTURELINK USA
CameronChell may be considered to be the promoter of FutureLink USA from January
20, 1998.
RISK FACTORS RELATED TO BUSINESS OF FUTURELINK USA
DEPENDENCE ON KEY PERSONNEL. The success of FutureLink USA is highly dependent
on the efforts and abilities of its directors, officers and employees. The
unexpected loss or departure of any of FutureLink USA's key directors, officers
or employees could be detrimental to the future operations of FutureLink USA.
The success of FutureLink USA's business will depend, in part, upon FutureLink
USA's ability to attract and retain qualified personnel as they are needed.
There can be no assurance that FutureLink USA will be able to engage the
services of such personnel or retain its current personnel.
ADDITIONAL FINANCINGS. FutureLink USA may require additional financing in order
to carry on its business. There can be no assurance that such financing will be
available or, if available, will be upon terms satisfactory to FutureLink USA.
RESALE RESTRICTIONS. The FutureLink USA Common Shares issued pursuant to this
Offer may be subject to certain resale restrictions under applicable securities
legislation. (See "Distribution, Resale and Liquidity of FutureLink USA Common
Shares").
<PAGE> 38
-37-
DIVIDENDS AND CASH FLOW. FutureLink USA has a limited history and currently does
not have any operating business. FutureLink USA has no present intention to pay
dividends to the holders of its FutureLink USA Common Shares. (See "Dividend
Record and Policy of FutureLink USA").
RISK FACTORS RELATING TO TARGETCO. If the Offer is accepted by the required
number of TargetCo Securityholders, FutureLink USA will be subject to all of the
risk factors applicable to the business of TargetCo. (See "Risk Factors Related
to the Business of FutureLink Alberta" and "Lawsuits of FutureLink Alberta").
RISKS RELATED TO POSSIBLE ACQUISITIONS. FutureLink USA may expand its operations
through the acquisition of additional businesses. There can be no assurance that
FutureLink USA will be able to identify, acquire or profitably manage additional
businesses or successfully integrate any acquired businesses into FutureLink USA
without substantial expenses, delays or other operational or financial problems.
Further, acquisitions may involve a number of special risks or effects,
including diversion of management's attention, failure to retain key acquired
personnel, unanticipated events or circumstances, legal liabilities and
amortization of acquired intangible assets and other one-time or ongoing
acquisition related expenses, some or all of which could have a material adverse
effect on FutureLink USA's business, operating results and financial condition.
Client satisfaction or performance problems of a single acquired firm could have
a material adverse impact on the reputation FutureLink USA as a whole. In
addition, there can be no assurance that the acquired businesses, if any, will
achieve anticipated revenues and earnings. The failure of FutureLink USA to
arrange its acquisition strategy successfully could have a material adverse
effect upon FutureLink USA's business, operating results and financial
condition.
LIMITED TRADING HISTORY OF FUTURELINK USA COMMON SHARES; STOCK PRICE VOLATILITY.
Between January 1, 1998 and September 25, 1998, the closing sale price has
ranged from a low of $0.34 per share USD to a high of $4.34 per share USD. The
market price of the FutureLink USA Common Shares could continue to fluctuate
substantially due to a variety of factors, including quarterly fluctuations in
results of operations, adverse circumstances affecting the introduction of
market acceptance of new products and services offered by FutureLink USA,
announcements of new products and services by competitors, changes in the IT
environment, changes in earnings estimates by analysts, changes in accounting
principles, sales of FutureLink USA Common Shares by existing holders, loss of
key personnel and other factors. The market price for the FutureLink USA Common
Shares may also be affected by FutureLink USA's ability to meet analysts'
expectations, and any failure to meet such expectations, even if minor, could
have a material adverse effect on the market price of FutureLink USA Common
Shares. In addition, the stock market is subject to extreme price and volume
fluctuations. This volatility has had a significant effect on the market prices
of securities issued by many companies for reasons unrelated to the operating
performance of these companies. In the past, following periods of volatility in
the market price of a company's securities, securities class action litigation
has often been instituted against such a company. Any such litigation instigated
against FutureLink USA could result in substantial costs and a diversion of
management's attention and resources, which could have a material adverse effect
upon FutureLink USA's business, operating results and financial condition.
RISK OF LOW PRICE ON PENNY STOCKS. The common shares of FutureLink USA are
traded on the NASD OTC-BB. As such, it is subject to Rule 15(g)-(9) under the
Securities and Exchange Act and such rule adversely affects the liquidity of
FutureLink USA Common Shares. Rule 15(g)-(9) requires additional disclosure,
relating to the market for penny stocks, in connection with trades in any stock
defined as a penny stock. The SEC defines a penny stock to be any
<PAGE> 39
-38-
equity security that has a market price of less than $5.00 per share (exclusive
of commissions), subject to certain exceptions. Such exceptions include any
equity security listed on NASDAQ and any security issued by an issuer that has:
(i) net tangible assets of at least $2,000,000, if such issuer has been in
continuous business for three years; (ii) net tangible assets of at least
$5,000,000 of the issuer has been in continuous operations for less than three
years; or (iii) average annual revenue of at least $6,000,000 if such issuer has
been in continuous operation for less than three years. Unless an exemption is
available, the regulations require the delivery, prior to any transaction
involving a penny stock, of a disclosure schedule explaining the penny stock
market and the risks associated therewith. There are proposed amendments to Rule
15c2-11. The SEC published a rule filing in February 1998 which proposes
amendments to Rule 15c2-11 which if enacted will have adverse ramifications on
the NASD OTC-BB. The proposals have 3 major components: (a) there will be a
requirement that all brokers review information about the issuer when they first
publish or resume publishing a quotation for a security subject to Rule 15c2-11,
document that review, annually update that information if they publish priced
quotations, and make that information available to others upon request; (b) the
proposals will eliminate the existing piggy-back provisions which permits
broker-dealers to publish quotations for a security without filing a Form 211 if
any other broker-dealer has published regular and frequent quotations for that
security; and (c) the proposals will change the information requirements for
quotations for the securities of non-reporting issuers and record keeping
requirements when broker-dealers have electronic access to information about
reporting issuers. Upon FutureLink USA becoming a reporting issuer in the United
States the information required by these proposed amendments will be
electronically available to all broker dealers and therefore this proposed
amendment should not have any adverse effect on FutureLink USA.
SOLVENCY OF FUTURELINK USA. FutureLink USA has incurred significant losses. In
addition, Midland Walwyn Capital Inc. may obtain a judgement against FutureLink
USA which may serious effect the financial solvency of FutureLink USA.
FutureLink USA may not be able to collect on its indemnity agreement. FutureLink
USA may also be subject to the claims of creditors of Core Ventures, Inc. and
liabilities related to relating to the Printscan Technology Inc. investment.
FutureLink USA is subject to the claims of creditors of Core Mineral Recoveries,
Inc. which were not compromised by the US bankruptcy proceedings. These real or
contingent liabilities have not been reflected in the audited financial
statements. (See "Lawsuits of FutureLink USA")
<PAGE> 40
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PRIOR SALES OF FUTURELINK USA
Since December 2, 1997 the following FutureLink USA Common Shares have been
issued and remain outstanding (adjusted for all consolidations):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
DATE NUMBER ISSUE PRICE AGGREGATE CONSIDERATION
OF SHARES PER SHARE ISSUE PRICE RECEIVED
USD USD
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 2, 1997 (post 203,500 Unknown $1,326,231 Unknown
200:1 consolidation) and
post 30:1 consolidation
- --------------------------------------------------------------------------------------------------
December 18, 1997 10,000,000 $ 0.01 $ 100,000 Cash
SUB-TOTAL-DEC 31, 1997 10,203,500(9) $1,426,231
- --------------------------------------------------------------------------------------------------
January 20, 1998 83,334(1) $ 3.00 $ 250,000 Cash
- --------------------------------------------------------------------------------------------------
January 20, 1998 1,540,000(2) $ 0.22 $ 338,000 Shares
- --------------------------------------------------------------------------------------------------
April 3, 1998 68,480(3) $ 3.75 $ 256,800 Cash
- --------------------------------------------------------------------------------------------------
April 3, 1998 37,333(4) $ 3.75 $ 140,000 Cash
- --------------------------------------------------------------------------------------------------
April 22, 1998 46,666(5) $ 3.00 $ 140,000 Cash
- --------------------------------------------------------------------------------------------------
April 22, 1998 20,000(6) $ 3.00 $ 60,000 Cash
- --------------------------------------------------------------------------------------------------
$ 60,200 Forgiveness of
Debt
- --------------------------------------------------------------------------------------------------
June 30, 1998 11,999,313 $ 2,672,031
- --------------------------------------------------------------------------------------------------
July 7, 1998 3,500,000(7) $ 0.001 $ 3,500 Services
- --------------------------------------------------------------------------------------------------
August 20, 1998 11,000,000(8) $ NIL(8)
- --------------------------------------------------------------------------------------------------
SEPTEMBER 28, 1998 26,499,313(9) $ 2,675,531
- --------------------------------------------------------------------------------------------------
PAID FOR BUT NOT ISSUED:
- --------------------------------------------------------------------------------------------------
(a) Linear Strategies Inc. 588,728(10) $ 382,706 Cash
- --------------------------------------------------------------------------------------------------
(b) Hampton Park Ltd. 538,462(10) $ 350,000 Cash
- --------------------------------------------------------------------------------------------------
(c) Cameron Chell 65,000(11) $ 65,000 Cash
- --------------------------------------------------------------------------------------------------
(d) Linda Carling 65,000(12) $ 65,000 Cash
- --------------------------------------------------------------------------------------------------
(e) Don/Olivia Bialik 4,250,000(13) $3,612,500 Shares
- --------------------------------------------------------------------------------------------------
Thompson Kernaghan
700,000 shares at $0.3016 NIL(14) $ 200,000(8) Cash
- --------------------------------------------------------------------------------------------------
SEPT 28, 1998 ADJUSTED 32,006,553(15) $7,350,737
- --------------------------------------------------------------------------------------------------
</TABLE>
Notes:
(1) The shares were issued pursuant to the provisions of Regulation D, Rule
504 of US Securities Act and registration and prospectus exemptions in
Canada. FutureLink USA also granted a warrant which entitles the warrant
holder to purchase 83,334 FutureLink USA Common Shares at any time prior
to January 20, 1999 for $3.00 USD or at any time prior to January 20,
2000 for $3.10/share USD.
(2) The shares were issued in exchange for 1,540,000 Class "A" Common Voting
Shares of FutureLink Alberta were acquired by FutureLink USA relying on
the provisions of Regulation D, Rule 506 of the US Securities Act and
the registration, prospectus and takeover bid exemptions in the
Securities Act (Alberta). (See "FutureLink USA Material Contracts")
(3) The shares were issued pursuant to the provisions of Regulation D, Rule
504 of the US Securities Act and pursuant to the registration and
prospectus exemptions contained in Canadian securities legislation.
FutureLink USA granted a warrant which entitles the holder to purchase
68,480 FutureLink USA Common Shares at any time prior to April 3, 1999
for $3.75/share USD and prior to April 3, 2000 for $4.00/share USD.
<PAGE> 41
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(4) The shares were issued pursuant to the provisions of Regulation D, Rule
504 of the US Securities Act and pursuant to the registration and
prospectus exemptions contained in Canadian securities legislation.
FutureLink USA granted a warrant which entitles the holder to purchase
37,333 FutureLink USA Common Shares at any time prior to April 3, 1999
for $3.75/share USD or prior to April 3, 2000 for $4.00/share USD.
(5) The shares were issued pursuant to the provisions of Regulation D, Rule
504 of the US Securities Act and pursuant to the registration and
prospectus exemptions contained in Canadian securities legislation.
FutureLink USA granted a warrant which entitles the holder to purchase
46,666 FutureLink USA Common Shares at any time prior to May 4, 2000 for
$3.25/share USD.
(6) The shares were issued pursuant to the provisions of Regulation D, Rule
504 of the US Securities Act and pursuant to the registration and
prospectus exemptions contained in Canadian securities legislation.
FutureLink USA granted a warrant which entitles the holder to purchase
20,000 FutureLink USA Common Shares at any time prior to May 4, 2000 for
$3.25/share USD.
(7) The 3,500,000 FutureLink USA Common Shares were issued pursuant to
registration and prospectus exemptions of the Securities Act (Alberta).
(See "FutureLink USA Material Contracts").
(8) The issued and outstanding shares reflect the fact that 11,000,000
FutureLink USA Common Shares were issued in the name of Thompson
Kernaghan as part of the Thompson Kernaghan Loan Agreement. These shares
have not been paid for and are assessable. FutureLink USA has filed a
registration statement in the United States on August 24, 1998 to
qualify these shares.
(9) The figures in this schedule reconcile to the audited financial
statements and the records of the Corporation. The records of the
transfer agent vary and are shown as the following as issued and
outstanding: December 31, 1997 - 10,231,025; 11,999,303 as of June 30,
1998 and September 20, 1998 - 25,499,303. The difference of 10 shares
cannot be reconciled.
(10) 1,127,240 shares will be issued pursuant to Regulation D, Rule 506 of
the US Securities Act. FutureLink USA granted a warrant to Linear
Strategies Inc. which entitles Linear Strategies Inc. to purchase
588,778 shares at any time prior to June 30, 1999 for $1.00/share USD or
June 30, 2000 for $1.25/share USD and to Hampton Park Ltd. which
entitles Hampton Park Ltd. to purchase 538,462 shares at any time prior
to June 30, 1999 for $1.00/share USD or prior to June 30, 2000 for
$1.25/share USD.
(11) The figures do not reflect the sale of 65,000 FutureLink USA Common
Shares to Cameron Chell on August 11, 1998. These shares will be issued
pursuant to the provisions of Regulation D, Rule 506 of the US
Securities Act and pursuant to the prospectus and registrations
requirements contain in Canadian securities legislation. FutureLink USA
granted a warrant granted as part of the August 11, 1998 Subscription
Agreement. (See "Material Contracts of FutureLink USA").
(12) The figures do not reflect the sale of 65,000 FutureLink USA Common
Shares to Linda Carling on August 11, 1998. These shares will be issued
pursuant to the provisions of Regulation D, Rule 506 of the US
Securities Act and pursuant to the prospectus and registrations
requirements contain in Canadian securities legislation. FutureLink USA
granted a warrant granted as part of the August 11, 1998 Subscription
Agreement.
(See "Material Contracts of FutureLink USA").
(13) 4,250,000 shares will be issued pursuant to a prospectus offering in the
United States.
(14) 700,000 shares have been issued pursuant to the provisions of Regulation
D, Rule 506 of the US Securities Act and the prospectus and registration
exemptions contained in the Canadian securities legislation. FutureLink
USA is seeking to qualify these shares in the United States as part of
its prospectus filing.
(15) This figure includes 10,300,000 shares which are not paid for and are
assessable. (See "FutureLink USA Material Contracts")
DIVIDEND RECORD AND POLICY OF FUTURELINK USA
No dividends have been paid on any shares of FutureLink USA since January 1,
1998 (nor likely prior to January 1, 1998). The future payment of dividends will
be dependent upon the financial requirements of FutureLink USA to fund further
growth, the financial condition of FutureLink USA and other factors which the
board of directors of FutureLink USA may consider in the circumstances. It is
not contemplated that FutureLink USA will declare any dividends in the immediate
or foreseeable future.
<PAGE> 42
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AUDITORS, TRANSFER AGENT AND REGISTRAR OF FUTURELINK USA
The auditors of the Corporation are Ernst & Young, #1300, 707 - 7th Street,
S.W., Calgary, Alberta, T2P 0H6.
The transfer agent and registrar of the Corporation is General Securities
Transfer Agency, Inc. 3614 Calle del Sole NE, Albuquerque, New Mexico,
87110-8112.
TRADING OF FUTURELINK USA COMMON SHARES
The following table summarizes the trading activity of FutureLink USA from
January 1998.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Price USD Trading Volume Share Value
Range NOTE 1
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
USD
High Low
January, 1998 3.56 1.75 1,294,400 $ 3,849,893
February, 1998 3.50 2.90 714,100 2,241,748
March, 1998 4.12 2.75 1,834,300 6,253,275
April, 1998 4.34 3.06 5,333,400 14,219,948
May, 1998 4.00 1.37 7,575,200 19,470,561
June 1-5, 1998 1.31 1.00 1,001,300 1,044,374
June 8-12, 1998 1.25 1.03 572,000 632,511
June 15-19, 1998 1.02 0.73 1,763,500 1,407,873
June 22-26, 1998 1.03 0.08 688,200 583,900
June 28-July 3, 1998 0.81 0.66 744,000 518,001
July 6-10, 1998 0.64 0.57 978,700 599,967
July 13-17, 1998 1.68 0.72 2,724,100 3,510,358
July 20-29, 1998 1.25 1.00 1,033,000 2,092,682
August 3-7, 1998 1.20 1.04 959,600 1,117,851
August 10-14, 1998 1.21 1.02 702,500 784,019
August 17-21, 1998 1.01 0.96 423,700 415,750
August 24-28, 1998 0.89 0.83 326,200 283,398
August 31-Sep 4, 1998 0.92 0.71 510,100 409,243
September 7-11, 1998 0.69 0.61 606,500 389,026
September 14-18, 1998 0.56 0.43 1,385,400 633,132
September 21-25, 1998 0.47 0.38 1,845,600 778,063
---------- -----------
Totals 33,015,800 $61,235,573
========== ===========
- ---------------------------------------------------------------------------------------
</TABLE>
Note 1) Calculated by multiplying the average daily price reported by
Bloomberg by the daily volume. This is only an estimate of the true
share values traded. This method would tend to overstate the true share
value.
LAWSUITS AGAINST FUTURELINK USA
The Corporation is aware of the following lawsuits:
1. Midland Walwyn Capital Inc. is suing Core Ventures, Inc. (now known as
FutureLink USA), Abecorn Enterprises Limited, Alixe Cormick, Venture Law
Corporation, and Raymond Kompani. Midland Walwyn Capital Inc. is
claiming judgement in the amount of $500,000 CDN against all defendants.
The action against Core Ventures, Inc. alleges fraudulent
misrepresentation, negligent misrepresentation, intentional or negligent
interference with contractual relations. The action was commenced in
October 1997.
<PAGE> 43
-42-
Core Ventures, Inc. has filed a defence. The action relates to a share
sale transaction between Abecorn Enterprises Limited and Raymond
Kompani. Raymond Kompani apparently failed to pay Abecorn Enterprises
Limited for 50,000 FutureLink USA Common Shares. Alixe Cormick acted as
solicitor for Abecorn Enterprises Limited and Core Ventures, Inc. Alixe
Cormick requested the General Securities Transfer Agency, Inc. to stop
the transfer of share certificate #3190 in the amount of 50,000
FutureLink USA Common Shares standing in the name of Abecorn Enterprises
Limited. The General Securities Transfer Agency, Inc. stopped the
transfer of share certificate #3190. Raymond Kompani deposited share
certificate #3190 with Midland Walwyn Capital Inc. Midland Walwyn
Capital Inc. proceeded to sell 50,000 FutureLink Common Shares on behalf
of Raymond Kompani. When Midland Walwyn Capital Inc. sent share
certificate #3190 to the Depository Trust Company (clearing house), the
clearing house advised Midland Walwyn Capital Inc. that the transfer of
the shares had been stopped by the transfer agent for Core Ventures,
Inc. Midland Walwyn Capital Inc. had paid the net sale proceeds to
Raymond Kompani before they were advised by Depository Trust Company of
the problem. Midland Walwyn Capital Inc. was required to repurchase
50,000 FutureLink USA Common Shares on the market. The cost was $325,000
US. Midland Walwyn Capital Inc. demanded the repayment of the funds from
Raymond Kompani. Raymond Kompani has not repaid the monies to Midland
Walwyn Capital Inc. Midland Walwyn Capital Inc. is suing to recover its
losses.
2. US Bankruptcy Proceedings. FutureLink USA is aware that on April 4,
1995, Core Mineral Recoveries, Inc. voluntarily filed a petition under
Chapter 11 of the US Bankruptcy Code (95-70091) seeking protection from
its creditors. FutureLink USA was not bankrupt. The petition was
dismissed thereby not compromising any of the creditors. The outstanding
debts should not exceed $100,000 (US) and therefore should not be
considered material. FutureLink USA is investigating the extent of the
obligations and whether or not any lawsuits or judgements against
FutureLink USA exist. It was a term of the January 20, 1998 share
acquisition agreement that there were no debts in FutureLink USA.
FutureLink USA is investigating what recourse it may have relating to
this representation.
FUTURELINK ACQUISITION CORP.
FutureLink Acquisition Corp. was incorporated on August 21, 1998 under the
provisions of the ABCA. The head office is Suite 550, 603 7th Avenue SW,
Calgary, Alberta, T2P 2T5. The registered office is Suite 550, 603 7th Avenue
SW, Calgary, Alberta, T2P 2T5. The directors are Cameron Chell, Raghu Kilambi,
Donald A. Bialik, F. Bryson Farrill, Robert Kubbernus and Philip Ladouceur. The
officers are Cameron Chell, (Chief Executive Officer), Donald A. Bialik
(President) and Raghu Kilambi (Chief Financial Officer). The authorized capital
consists of an unlimited number of common shares and an unlimited number of
preferred shares. The preferred shares are non-voting and the directors may
issue any preferred shares in one or more series, each series to consist of such
number of shares as determined by the directors. The directors are authorized to
determine at the time of issuance the designation, rights, privileges,
restrictions, and conditions attaching to the shares of each series.
The issued and outstanding shares consist of 3,000,000 common shares in the name
of FutureLink USA at a price of $1.00/share CDN. FutureLink USA borrowed
$2,250,000 USD (approximately $3,000,000 CDN) from Thompson Kernaghan.
FutureLink USA subscribed for 3,000,000 common shares for an aggregate
acquisition cost of $3,000,000 CDN. FutureLink Acquisition Corp. borrowed
$100,000 CDN from FutureLink USA. Then FutureLink Acquisition Corp. purchased
2,000,000 Class "J" Shares and 1,685,000 Class "K" Shares in Riverview
<PAGE> 44
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Management Corporation (now FutureLink/Sysgold Ltd.) for $3,685,000 ($3,100,000
CDN cash and two notes totalling $585,000 CDN). FutureLink Acquisitions Corp is
a private corporation. There is no market for its shares. The corporation has
not carried on business. It has no material contracts other than those related
to the acquisition of shares in FutureLink/Sysgold Ltd. and is not involved in
any lawsuits. Its auditors will be Ernst & Young.
FUTURELINK/SYSGOLD LTD.
FutureLink/Sysgold Ltd. (formerly Riverview Management Corporation) was
incorporated on September 9, 1987 pursuant to the ABCA. Prior to August 24,
1998, it was a holding corporation with two subsidiaries, Sysgold Ltd. and
Sysgold Inc. Sysgold Ltd. was an active operating corporation. Sysgold Inc. was
another holding corporation. On August 24, 1998 Sysgold Ltd. and Sysgold Inc.
were wound up into Riverview Management Corporation under the provisions of the
ABCA. Riverview Management Corporation then changed its name to
FutureLink/Sysgold Ltd. The share capital of FutureLink/Sysgold Ltd. consists of
the following:
(a) an unlimited number of Class "A" Voting Common Shares;
(b) an unlimited number of Class "B" Voting Common Shares;
(c) an unlimited number of Class "C" Non-Voting Common Shares;
(d) an unlimited number of Class "D" Non-Voting Common Shares;
(e) an unlimited number of Class "E" Non-Voting Common Shares;
(f) an unlimited number of Class "F" Non-Voting Common Shares;
(g) an unlimited number of Class "G" Non-Voting Common Shares;
(h) an unlimited number of Class "H" Non-Voting Common Shares;
(i) an unlimited number of Class "I" Non-Voting Common Shares;
(j) an unlimited number of Class "J" Voting Redeemable
Preferred Shares;
(k) an unlimited number of Class "K" Non-Voting Redeemable Shares;
(l) an unlimited number of Class "L" Non-Voting Redeemable Shares;
(m) an unlimited number of Exchangeable Shares.
The issued and outstanding shares consists of:
<TABLE>
<CAPTION>
# OF SHARES CLASS OF SHARE SHAREHOLDER
<S> <C> <C> <C>
(a) 100 Class "B" Shares FutureLink Acquisition Corp.
(b) 2,000,000 Class "J" Shares FutureLink Acquisition Corp.
(c) 1,685,000 Class "K" Shares FutureLink Acquisition Corp.
(d) 1,418,084 Exchangeable Shares Donald A. Bialik
(e) 2,831,916 Exchangeable Shares Olivia B. Bialik
</TABLE>
The following is a general description of the material rights, privileges and
restrictions and conditions attaching to the Class "B", Class "J", Class "K" and
the Exchangeable Shares.
The holder of the Class "A", Class "B" and "J" Shares shall be entitled to
receive notice of and to vote at all meetings of FutureLink/Sysgold Ltd. except
meetings at which only holders of a specified class of shares as provided by the
ABCA. In the event of a liquidation the holders of Class "J" and "K" Shares
shall rank equally amongst themselves as to each share held and shall be
entitled to receive before distribution of any other part of the assets of
FutureLink/Sysgold Ltd., an amount equal to 100% of the redemption amount and
any dividends declared thereon and unpaid. The redemption amount for the Class
J" Shares is $1.00/share CDN. Class "J" Shares are entitled to a non-cumulative
preferential dividend at a rate per annum equal to the prescribed rate of
interest for the purposes of Section 256(11) of
<PAGE> 45
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the Income Tax Act (Canada). The redemption amount for the Class "K" Shares is
$1.00/share CDN. Class "K" Shares are entitled to a non-cumulative preferential
dividend at a rate per annum equal to the prescribed rate of interest for the
purposes of Section 256(11) of the Income Tax Act (Canada).
The share provisions attaching to the Exchangeable Shares are structured so that
the Exchangeable Shares are at all times, as nearly as possible, the economic
equivalence of FutureLink USA Common Shares and have the same voting rights as
to FutureLink USA Common Shares.
Economic Equivalence is accomplished in several ways: (a) by virtue of the
protections found in the Colorado Corporations Code for a separate class of
shares; (b) the terms of the Support Agreement (See "Material Contracts of
FutureLink USA"), including through covenants of FutureLink USA that:
(a) FutureLink USA will not declare or pay dividends on the
FutureLink USA Common Stock unless FutureLink/Sysgold Ltd.
immediately thereafter declares or pays, as the case may be, an
equivalent dividend on the Exchangeable Shares and
FutureLink/Sysgold Ltd. has resources available to pay equivalent
dividends on the Exchangeable Shares;
(b) FutureLink USA will ensure that FutureLink/Sysgold Ltd. will be
able to honor the redemption and retraction rights and the
entitlement upon liquidation pursuant to the terms of the
Exchangeable Shares;
(c) Without the prior written approval of FutureLink/Sysgold Ltd. or
the holders of Exchangeable Shares, FutureLink USA will not:
(i) issue or distribute shares of FutureLink USA Common Shares
(or securities exchangeable or convertible into or
carrying rights to acquire shares of FutureLink USA) by
way of stock dividend or other distribution; issue or
distribute rights, options or warrants; or issue or
distribute securities of any class other than FutureLink
USA Common Shares) rights, options, warrants or evidences
of FutureLink USA or assets of FutureLink USA unless
FutureLink/Sysgold Ltd. is permitted under the applicable
law to issue or distribute the economic equivalent on a
per share basis such rights, options, securities, shares
evidences of indebtedness or other assets simultaneously
to the holders of Exchangeable Shares; and
FutureLink/Sysgold Ltd. does in fact issue or distribute
such economic equivalent;
(ii) subdivide, divide or change the then outstanding shares of
FutureLink Common Shares into a greater number of
FutureLink Common Shares; or reduce, combine or
consolidate into a lessor number of shares of FutureLink
Common Shares; or reclassify or otherwise change the
shares of FutureLink Common Shares or affect an
amalgamation, merger, reorganization or other transaction
affecting the shares of FutureLink USA Common Shares
unless FutureLink/Sysgold Ltd. is permitted under the
applicable law to simultaneously make the same or
equivalent change to, or in the rights of holders of, the
Exchangeable Shares and the same or an equivalent change
is in fact made.
<PAGE> 46
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Voting Equivalence is provided by the terms of the Articles of FutureLink USA
relating to voting rights of the Trustee pursuant to the FutureLink USA Special
Voting Preferred Share and the Voting Trust and Exchange Agreement (See
"Material Contracts of FutureLink USA") which entitles the Trustee to a number
of votes (in the calculation of FutureLink USA Common Share votes) equal to the
number of Exchangeable Shares outstanding from time to time that are not being
held by FutureLink USA or its affiliates. Each holder of an Exchangeable Share
will have the right to instruct the Trustee as to the manner of voting
thereupon.
The directors are Cameron Chell, Raghu Kilambi, Donald A. Bialik, F. Bryson
Farrill, Philip Ladouceur and Robert Kubbernus. The officers are Cameron Chell
(Chief Executive Officer), Donald A. Bialik, (President) and Raghu Kilambi
(Chief Financial Officer).
The corporate is a private corporation. There is no market for the shares. The
auditors were Buchanan Barry & Co, Chartered Accountants, #800, 840 - 6th
Avenue, S.W., Calgary, Alberta, T2P 3E5, for the period ended October 31, 1997.
The auditors will be Ernst & Young, Chartered Accountants, 1300, 707 - 7th
Avenue, S.W., Calgary, Alberta, T2P 0H6, for the present fiscal period.
FutureLink/Sysgold Ltd. and FutureLink USA are indebted to Donald A. Bialik in
the amount of $500,000 CDN and Olivia B. Bialik in the amount of $85,000 CDN.
The debts are due November 21, 1998. FutureLink/Sysgold Ltd. is also indebted to
the CIBC. The CIBC has a first charge over all of the assets and undertakings of
FutureLink/Sysgold Ltd. On September 21, 1998, FutureLink/Sysgold Ltd. entered
into a loan facility which would allow FutureLink/Sysgold Ltd. to borrow up to
$1,000,000 CDN from the CIBC (See "FutureLink USA Material Contracts").
There is one known lawsuit. TAP Consulting Ltd. commenced an action on August
19, 1998 in Court of Queen's Bench of Alberta, Action No. 9801 11187 against
Sysgold Ltd. claiming $150,000 for wrongful termination of a consulting
contract. FutureLink/Sysgold Ltd. management do not believe there is any merit
to the lawsuit and it will be vigorously defended.
The operating results are described in "Management Discussion and Analysis of
Financial Condition and Results of Operation".
FUTURELINK DISTRIBUTION CORP. (AN ALBERTA CORPORATION)
("FUTURELINK ALBERTA" OR "TARGETCO")
FutureLink Alberta was incorporated under the Alberta Business Corporations Act
on March 28, 1996 as 689936 Alberta Ltd. On June 13, 1996, the private company
share restrictions were removed. On June 20, 1996, the name was changed to
Coffee.com Interactive Cafe Corp and on November 17, 1997 the name was changed
to FutureLink Distribution Corp.
The head office of the Corporation is located at #550, 603 - 7 Avenue, S.W.,
Calgary, Alberta, T2P 2T5. The contact telephone number is (403) 543-5511. The
registered and records office of FutureLink Alberta is located at #550, 603 -
7th Avenue, S.W., Calgary, Alberta, T2P 2T5.
BUSINESS AND PROPERTIES OF FUTURELINK ALBERTA
FutureLink Alberta is the world's first computer utility company. It is
dedicated to providing small to medium sized businesses with the most efficient
ands cost effective system for the delivery of computer hardware, software and
electronic content at an attractive cost for
<PAGE> 47
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installation and maintenance. It's FutureLink Alberta's objective to make
computer use as affordable and convenient to use as the telephone.
FutureLink Alberta's key technology platform to deliver its computing model is
thin client computing. A thin client is a computer that has a central processing
unit (CPU), a minimum of 8 MB of memory, a keyboard, a mouse and a monitor that
is connected to a network. Thin clients have no hard drive, floppy disks, or
CD-ROM drives nor any moving parts thus greatly reducing the operating and
maintenance costs. The thin client is connected to a network that delivers any
software application to any desktop from a server. The thin client is designed
to eliminate the need for constant upgrades, reduce the initial capital
investment of buying PC's and reduce the time and money spent on computer
maintenance.
Since 1995, FutureLink Alberta has been engaged in the development of its
own thin client service; Wide Area Thin Client Hook-up (WATCH(TM)). For a
monthly fee of approximately US$200 per desktop (depending on the number of
desktops and applications required) FutureLink Alberta's customers will receive:
1) access to common business software applications including Microsoft
Office;
2) access to secured internet or intranet connections and all the necessary
software;
3) the ability to use existing proprietary applications and databases;
4) security enabled workstations for each employee including monitor,
mouse, keyboard and thin client network computer; and
5) system support including installations, software upgrades, help desk and
technical support.
FutureLink Alberta is offering its WATCH service as an integrated information
technology outsourcing service to the mid-market (companies with 50-500 seats,
jargon for "desktop computers").
DESCRIPTION OF SHARE CAPITAL OF FUTURELINK ALBERTA
The authorized share capital of FutureLink Alberta consists of an unlimited
number of: (a) Class "A" Common Voting Shares; (b) Class "B" Common Shares; and
(c) First Preferred Shares. There are 3,331,275 issued and outstanding Class "A"
Common Voting Shares as of September 28, 1998. There are no Class "B" Common
Shares issued and outstanding. There are no First Preferred Shares issued and
outstanding. All of the Class "A" Common Voting Shares issued and outstanding
are fully paid and non-assessable.
The following is a general description of the material rights, privileges,
restrictions and conditions attaching to each class of shares.
CLASS "A" COMMON VOTING SHARES OF FUTURELINK ALBERTA
Subject to the provisions of the ABCA, the holders of the Class "A" Common
Voting Shares are entitled to receive notice of, to attend and vote at all
meetings of the shareholders of FutureLink Alberta (other than meetings of a
class or series of shares other than the Class "A" Common Voting Shares as such)
and are entitled to one vote for each Class "A" Common Voting Share held, except
as required by law.
Subject to the payment of preferred rights attaching to any other class or
series of shares of the corporation, the holders of the Class "A" Common Voting
Shares are entitled to receive, if, as and when declared by the directors of
FutureLink Alberta, dividends in such amount and
<PAGE> 48
-47-
payable on such date as may be determined from time to time by the directors of
FutureLink Alberta. No dividend may be declared or paid on the Class "A" Common
Voting Shares if payment of the dividend would cause the realizable value of the
corporations assets to be less than the aggregate of its liabilities and the
amount required to redeem all shares of the corporation then outstanding having
attached thereto a redemption or retraction right.
Subject to the preferential rights attaching to any other class or series of
shares of the corporation, if any, on the liquidation, dissolution or winding-up
of FutureLink Alberta, or any other distribution of the assets of FutureLink
Alberta among its shareholders for the purpose of winding-up its affairs, the
holders of the Class "A" Common Voting Shares shall be entitled to share, on a
per share basis, the remaining property and assets of FutureLink Alberta.
<PAGE> 49
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CLASS "B" COMMON SHARES OF FUTURELINK ALBERTA
Subject to the provisions of the ABCA, the holders of the Class "B" Common
Shares are not entitled to receive notice of, to attend and/or vote at meetings
of the shareholders of FutureLink Alberta (other than meetings of a class or
series of shares other than the Class "B" Common Shares as such).
Subject to the payment of preferred rights attaching to any other class or
series of shares of the corporation, the holders of the Class "B" Common Shares
are entitled to receive, if, as and when declared by the directors of FutureLink
Alberta, dividends in such amount and payable on such date as may be determined
from time to time by the directors of FutureLink Alberta. No dividend may be
declared or paid on the Class "B" Common Shares if payment of the dividend would
cause the realizable value of the corporations assets to be less than the
aggregate of its liabilities and the amount required to redeem all shares of the
corporation then outstanding having attached thereto a redemption or retraction
right.
Subject to the preferential rights attaching to any other class or series of
shares of the corporation, if any, on the liquidation, dissolution or winding-up
of FutureLink Alberta, or any other distribution of the assets of FutureLink
Alberta among its shareholders for the purpose of winding-up its affairs, the
holders of the Class "A" Common Voting Shares shall be entitled to share, on a
per share basis, the remaining property and assets of FutureLink Alberta.
FIRST PREFERRED SHARES OF FUTURELINK ALBERTA
The First Preferred Shares may be issued from time to time in one or more series
in the number and with the designation, rights, privileges, restrictions and
conditions as determined by the directors of FutureLink Alberta in their sole
discretion. The First Preferred Shares will be entitled to preference, as to the
payment of dividends and the distribution of the remaining property of
FutureLink Alberta on dissolution, over the Class "A" Common Voting Shares and
the Class "B" Common Shares.
CAPITALIZATION OF FUTURELINK ALBERTA
The following table sets forth the capitalization of FutureLink Alberta as at
December 31, 1997 and September 28, 1998.
<TABLE>
<CAPTION>
Capital Authorized Outstanding as at Outstanding as at
December 31, 1997 September 28, 1998
(audited) (unaudited)
<S> <C> <C> <C>
Long Term debt $ NIL(1) $ NIL(1)
Class "A" Common Voting Shares Unlimited $732,689 CDN 1,066,464 CDN
(2,952,500)(2) Shares (3,331,275)(2) Shares
Class "B" Common Shares Unlimited NIL NIL
Preferred Shares Unlimited NIL NIL
</TABLE>
NOTES: (1) Excludes debts owed to FutureLink USA. For details see attached
financial statements.
(2) Excludes the 500,000 Class "A" Common Voting Shares reserved for
issuance pursuant to warrant agreements. (See "FutureLink Alberta
Material Contracts").
TRADING IN THE SECURITIES OF FUTURELINK ALBERTA
<PAGE> 50
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There is no market for the securities of FutureLink Alberta to be acquired
pursuant to this Takeover Bid Circular.
VALUATION OF THE CLASS "A" COMMON VOTING SHARES OF FUTURELINK ALBERTA
The share exchange ratio was determined by agreement between the directors of
FutureLink USA and FutureLink Alberta. In doing so the board of directors relied
on the valuation prepared by Mr. C.S. (Juneyt) Tirmandi C.A., C.B.V. of CST
Financial Services Inc. ("CST") of Calgary, Alberta dated September 24, 1998 but
effective June 30, 1998 ("CST Report" or the "September 1998 Report"). There
were 3,286,275 Class "A" Common Shares outstanding at the date of the September
1998 Report. The CST Report uses both the going concern and the liquidation
approaches to valuation. CST valued the 3,286,275 Class "A" Common Shares on a
going concern basis as at June 30, 1998 at between $2,952,000 CDN and $4,554,000
CDN (between $0.90/share and $1.39/share CDN). CST had prepared an earlier
valuation dated March 9, 1998 effective January 31, 1998. In that report, CST
stated that the value of the 3,052,500 FutureLink Alberta Class "A" Common
Shares on a going concern basis were worth between $903,000 CDN and $1,051,000
CDN (between $0.31 and $0.36 /share CDN). The significant differences in the two
valuations were threefold: (a) the assumption of the monthly cost to subscribers
per station. In the March 1998 report, CST used the cost of $171/month CDN and
in the September 1998 Report the range of $250-$275/month CDN was used; (b) the
range of sustaining capital expenditures in the March 1998 report was $50,000
CDN to $75,000 CDN whereas the range of sustaining capital expenditures in the
September 1998 Report was $150,000 CDN to $200,000 CDN; and (c) the discount
rates used in the March 1998 report were 15-25% and whereas the discount rates
in the September 1998 Report were 14.5% - 22%. A copy of the September 1998
Report and March 1998 report will be available for inspection at the offices of
FutureLink USA at 550, 603 - 7th Avenue, S.W., Calgary, Alberta, T2P 2T5. A copy
of the September 1998 report will be mailed to registered holders of securities
of FutureLink Alberta upon payment of a charge to cover reasonable printing and
mailing costs.
GOING CONCERN BASIS
CST projected cash flow for the years 1999 to 2003, using a set of assumptions
outlined below. The selection of a five year projection period was based on
FutureLink Alberta's policy of financing network computers for the 36 month
lease period as well as to determine the changes in its financial position
during the 2 year transition period after the normalized level of operations was
reached but before all the lease payments were made. Due to increasingly rapid
pace of change in the computer industry, CST assumed that FutureLink Alberta's
operations would reach a level of maturity after only 3 years at which time
other competitors entering the field and/or further technological changes would
erode FutureLink Alberta's advantage of being a pioneer in the remote network
service providing.
The main assumptions of CST for the high/low cases are listed below:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
HIGH CASE LOW CASE
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Average number of stations connected to FutureLink
Alberta's network
1999 375 250
2000 1,219 813
2001 2,227 1,484
2002 and thereafter 2,766 1,844
- ---------------------------------------------------------------------------------------------
Monthly cost to subscribers per station (held constant) $275 CDN $250 CDN
- ---------------------------------------------------------------------------------------------
Increase in network personnel (number)
- ---------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 51
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<TABLE>
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
2000 15 7
2001 14 20
- ---------------------------------------------------------------------------------------------
Sustaining capital expenditures ($000) 200 CDN 150 CDN
- ---------------------------------------------------------------------------------------------
Income Tax Rate 45% 45%
- ---------------------------------------------------------------------------------------------
</TABLE>
CST determined the average number of stations through discussions with
management, review of target markets, other data such as total cost of ownership
comparisons and the trends in cost of bandwidth connections.
CST determined that FutureLink Alberta's cash flow stream and the revenues from
its operations would be substantially different due to the proposed leasing
arrangements. CST assumed that FutureLink Alberta would receive lump-sum
payments from leasing companies representing the cost of the equipment, the
profit component thereof and the network support charges to the subscribers. For
accounting purposes, CST recognized the revenue over the life of the lease. For
valuation purposes, CST based the fair market value on discretionary after tax
and capital expenditure cash flows.
CST expressed the projected financial results for accounting and valuation
purposes separately to identify the differences between the two. The discounted
cash flow analysis however was based on the discretionary cash flows.
CST assumed that under the proposed leasing arrangements, although guaranteeing
the lease payments, the subscribers would not have ownership of the equipment.
Subject to exercising a buy-out option (5% of the total lease amount at the end
of the lease), CST assumed that FutureLink Alberta would own all equipment under
the leases. Therefore, the network equipment under leases was treated as capital
leases. Since the risk of ownership resides with the subscriber, the minimum
lease payments payable to the leasing company was recorded as unearned income
rather than a liability in FutureLink Alberta's projected financial statements.
The net present value of the buy-out option was included in the capitalized
leases.
In determining the income tax consequences, CST assumed that FutureLink Alberta
would be able to claim capital cost allowance on equipment under leases.
After leases are paid in full, CST assumed that the subscribers would continue
making monthly payments to FutureLink Alberta for the same services at the same
rates which would make the recognition of revenue and cash flow streams
identical.
The fourth and fifth years of the projection period assumed that FutureLink
Alberta's operations reached a maturity and that no new customers were signed up
under the leasing arrangements. The impact of this shift can readily be seen
from FutureLink Alberta's projected financial statements. CST assumed that
during this transition period, FutureLink Alberta would have to contend with
reduced cash flows.
After the fifth year, CST calculated the residual value of the business using
the existing customer base, monthly rates and expenses. The maintainable after
tax earnings were capitalized by appropriate discount rates.
CST selected the discount rates on the basis of a number of factors, including
the interest yield available from long-term government and corporate bonds,
risks associated with equity investments (the additional return required over
the risk-free rate for investing in the public stock market) and small companies
(additional return required to compensate the risk
<PAGE> 52
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associated with investing in small companies over public stock market) and
FutureLink Alberta's specific factors such as:
Positive:
(a) a new product idea having definite advantages from users' perspective
which should make market penetration possible;
(b) FutureLink Alberta's demonstrated ability to attract investors to
finance the research, development and marketing of the product.
Negative:
(a) FutureLink Alberta's operations are at a formative stage. It has
experimented with the technology and signed up a few clients. Its
ability to market, install and operate an efficient remote network
remains to be seen;
(b) although network computing is gaining acceptance in the industry, its
main application to date was, is and will be in intranet environments.
As stated by FutureLink Alberta's management, FutureLink is the first
company to introduce the idea of providing network computing in a remote
"service bureau" environment. FutureLink Alberta's proposed operations
may therefore be construed as a new "Industry". As in every other major
change, there will be a natural resistance in favour of well accepted
concepts and methods;
(c) concerns relating to FutureLink Alberta's own survival as a going
concern to provide the remote networking services for an extended period
will be an impediment to market penetration at least during the initial
phase;
(d) predatory competition between PC manufacturers and network computing
proponents is changing the computer industry. The outcome of this
ongoing battle will have a major impact on FutureLink Alberta's
prospects;
(e) should the network computing concept gain acceptance, other competitors
with greater technical and financial resources will enter into the
market. This will not only result in loss of market share but also in
declining profit margins;
(f) FutureLink Alberta relies on the entrepreneurial and technical skills of
relatively few individuals who may be difficult to replace in the
short-run;
(g) qualified network technicians are in short supply in the Calgary area
which may pose a problem for maintaining growth.
The CST Report states that having regard to all of the above, company specific
risk factors ranging from 12.5 to 25% (2.5 to 5 points for each positive and
negative attribute) were added to the other components of the discount rate,
namely risk-free rate, equity risk premium and small company risk premium, to
arrive at after tax discount rates of 14.5% (6.9x after tax cash flows) to 22%
(4.5x after tax cash flows).
The discounted cash flows for the high and low cases including the residual
values were determined to be $5.1 million CDN to $8.7 million CDN and the "en
bloc" values were calculated as $5.9 million CDN and $9.1 million CDN (after
addition of the net present value of income tax pools) for the high and low
cases respectively.
ORDERLY LIQUIDATION
The calculation yielded a negative $1,457,000 CDN. There would be no residual
value to shareholders.
<PAGE> 53
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Assigning equal weight to the above techniques, the en bloc value of 3,286,275
Class "A" Common Voting Share of FutureLink Alberta was determined to be
$2,952,000 CDN to $4,554,000 CDN ($0.90 - $1.39 per share CDN).
PRINCIPAL HOLDERS OF TARGETCO SECURITIES
As at the date hereof, no person or company owns of record, or is known by
TargetCo to own beneficially, directly or indirectly, or to exercise control or
direction over 10% or more of the TargetCo Securities except as set forth below.
<PAGE> 54
-53-
<TABLE>
<CAPTION>
Name and Type of Number of Percentage
Municipality of Residence Ownership Shares of Class
- ------------------------- --------- --------- ----------
<S> <C> <C> <C>
FutureLink USA, Beneficial and 1,540,000 46%(1)
Colorado, U.S.A. of Record
</TABLE>
Note:
(1) Prior to giving effect to the exercise of any warrants. (See "FutureLink
Alberta Material Contracts").
TRADING IN SECURITIES OF THE OFFEREE ISSUER
FutureLink USA acquired 1,540,000 Class "A" Common Voting Shares of FutureLink
Alberta pursuant to an agreement dated January 20, 1998 from 5 individuals (See
"FutureLink USA Material Contracts"). FutureLink Alberta issued 333,775 Class
"A" Common Voting Shares to 18 individuals/corporations for cash and/or services
within the past eight months.
OWNERSHIP OF SECURITIES OF OFFEREE ISSUER
Neither FutureLink USA, nor any person acting jointly or in concert with
FutureLink USA, beneficially owns, directly or indirectly, or controls or
exercises direction over, or has the right to acquire, any securities of
TargetCo, other than as disclosed under the headings "TargetCo Acquisition
Agreement", "FutureLink Alberta Stock Options", "Material Contracts of
FutureLink Alberta" and "Principal Holders of TargetCo Securities" and as
otherwise disclosed herein.
COMMITMENTS TO ACQUIRE SHARES
To the knowledge of the directors and senior officers of FutureLink USA, no
securities of TargetCo are covered by any commitments made by FutureLink USA,
its associates or affiliates (as such terms are defined in the Securities Act
(Alberta) and the ABCA), or directors or senior officers of FutureLink USA or
their respective associates (as such terms are defined in the Securities Act
(Alberta) and the ABCA) or any person acting jointly or in concert with
FutureLink USA, to acquire any equity securities of TargetCo. However, where
appropriate each of the existing directors and officers of TargetCo (who are
also directors and officers of FutureLink USA) have indicated their intention to
tender their respective TargetCo Securities to the Offer.
ARRANGEMENTS, AGREEMENTS OR UNDERSTANDINGS
There are no arrangements or agreements made or proposed to be made between
FutureLink USA and any of the directors or senior officers of TargetCo and no
payments or other benefits are proposed to be made or given by way of
compensation for loss of office or as to such directors or senior officers
remaining in or retiring from office. Except for the TargetCo Acquisition
Agreement, there are no contracts, arrangements or understandings, formal or
informal, between FutureLink USA and any securityholder of TargetCo with respect
to the Offer or between FutureLink USA and any person or company with respect to
any securities of TargetCo in relation to the Offer. (See Section 14 of the
Offer).
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PRIOR SALES OF FUTURELINK ALBERTA
Since the date of incorporation of TargetCo, 3,331,275 Class "A" Common Voting
Shares have been issued as follows:
<TABLE>
<CAPTION>
Number of Issue Price Aggregate Issue Consideration
Date Shares Per Share Price Received
- -------- --------- ----------- --------------- -------------
<S> <C> <C> <C> <C>
Dec 31, 1997 2,952,500 $1.00 CDN $ 732,689 Cash/Services
Jan-June 1998 145,000 $1.00 CDN $ 145,000 Cash
Jan-June 1998 188,775 $1.00 CDN $ 188,775 Services
--------- ----------
June 30, 1998 3,286,275 $1,066,464
July 1998 45,000 $1.00 CDN $ 45,000 Cash
--------- ----------
Sept 28, 1998 3,331,275(1) $1,111,464
</TABLE>
Notes: (1) FutureLink Alberta has represented to FutureLink USA that all of
the Class "A" Common Voting Shares were issued pursuant to the
registration and prospectus exemptions provided by the Securities
Act (Alberta). FutureLink USA is aware that the Alberta Stock
Exchange has challenged the appropriate use of the statutory
exemptions. FutureLink USA is aware of a Notice of Hearing issued
against Cameron Chell by the Alberta Stock Exchange. The hearing has
not been held and no findings of fact or law have been made.
DIRECTORS AND OFFICERS OF FUTURELINK ALBERTA
The individuals who are the directors and officers of TargetCo are Cameron
Chell, Raghu Kilambi, Robert Kubbernus, Philip Ladouceur, Donald A. Bialik and
F. Bryson Farrill. These individuals are directors of FutureLink USA. The
officers are Cameron Chell (Chief Executive Officer) and Raghu Kilambi (Chief
Financial Officer). (See "Directors and Officers of FutureLink USA").
EXECUTIVE COMPENSATION BY FUTURELINK ALBERTA
Directors are not remunerated in their capacities as such. Out of pocket
expenses of directors incurred pursuant to their attendance at meetings of the
board of directors of FutureLink Alberta will be paid by FutureLink Alberta. The
following table sets forth compensation in respect of the three senior officers
of FutureLink Alberta for the fiscal year ended December 31, 1997 and the period
from January 1 to June 30, 1998.
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<TABLE>
<CAPTION>
=================================================================================================
Annual Compensation Long Term
Compensation
- -------------------------------------------------------------------------------------------------
Securities
Name and Period Other Under
Principal Ended Annual Options All Other
Position Salary Bonus Compensation Granted(2) Compensation
($) ($) ($) (#) ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Chief Executive 1997 Nil Nil Nil Nil $125,000
Officer 1998 $40,714 Nil Nil Nil $ 12,416
Cameron Chell 1997 N/A N/A N/A N/A N/A
1998 $28,214 Nil Nil Nil $ 1,128
Past President 1997 N/A N/A N/A N/A N/A
Murray Korth 1998 $25,000 Nil Nil Nil $ 8,000
Vice President
Raghu Kilambi
=================================================================================================
</TABLE>
FUTURELINK ALBERTA STOCK OPTIONS
There are no options to purchase FutureLink Alberta Class "A" Common Voting
Shares as of the date hereof.
INDEBTEDNESS OF FUTURELINK ALBERTA
DIRECTORS, EXECUTIVE AND SENIOR OFFICERS
Management of FutureLink Alberta is not aware of any indebtedness outstanding
by, or any guarantees, support agreements, letters of credit or other similar
arrangements provided by FutureLink Alberta or any of its subsidiaries to, any
of the directors, executive officers or senior officers of FutureLink Alberta or
any of their associates at any time since the date of incorporation of
FutureLink Alberta.
INTERESTS OF MANAGEMENT OF FUTURELINK ALBERTA
AND OTHERS IN MATERIAL TRANSACTIONS
The directors, officers and principal shareholders of FutureLink Alberta (and
the known associates and affiliates of such persons) have no direct or indirect
interest in any material transaction involving FutureLink Alberta since its
incorporation except as disclosed elsewhere herein. Cameron Chell has an
interest in the contracts with Willson Stationers Ltd. and JAWS Technologies
Inc. Cameron Chell is the Chief Executive Officer of Willson Stationers Ltd. He
also is a shareholder, officer and director of a corporation which has an option
to subscribe for shares, if paid for, will result in a 50% interest being
acquired in Willson Stationers Ltd. Both Cameron Chell and Robert Kubbernus have
an interest in the JAWS Technologies Inc. contract. FutureLink Alberta provides
IT services to JAWS Technologies Inc. Present value of the contract is approx.
$3,000/month CDN. Both are officers and shareholders of JAWS Technologies Inc.
Robert Kubbernus is a director. (See "Material Contracts of FutureLink
Alberta").
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PROMOTERS OF FUTURELINK ALBERTA
Cameron Chell may be considered to be the promoter of FutureLink Alberta under
applicable securities laws by reason of having taken the initiative in founding
and organizing the business and enterprise of FutureLink Alberta. Cameron Chell
has had no direct or indirect interest in any material transaction involving
FutureLink Alberta since its incorporation except as disclosed under "Interests
of FutureLink Alberta Management and Others in Material Transactions" and
elsewhere herein. From 1994 until May 1997, Cameron Chell was a registered
representative of a brokerage firm in Calgary, Alberta. The brokerage firm was
under the supervision of the Alberta Stock Exchange. In a Notice of Hearing, the
Alberta Stock Exchange has alleged that Cameron Chell breached the provisions of
the Securities Act (Alberta), the Rules of the Alberta Stock Exchange and
various industry rules. The Notice of Hearing contains allegations that breaches
occurred involving trades made by Coffee.com Interactive Cafe Corp (now known as
"FutureLink Alberta") at a time when Cameron Chell was a promoter. No hearing
has been held and no findings of fact or law have been made.
DIVIDEND RECORD AND POLICY OF FUTURELINK ALBERTA
FutureLink Alberta has not paid any dividends on its TargetCo Securities and has
no present intention of paying dividends on its TargetCo Securities. The future
payment of dividends will be dependent upon the financial requirements of
FutureLink Alberta to fund future growth, the financial condition of FutureLink
Alberta and other factors the board of directors of FutureLink Alberta may
consider appropriate in the circumstances.
CONFLICTS - INSIDERS OF FUTURELINK ALBERTA
The directors of FutureLink Alberta are engaged and will continue to be engaged
in other computer related projects. Conflicts of interest, if any, which arise
will be subject to and governed by procedures prescribed by the ABCA which
require a director or officer of a corporation who is a party to, or is a
director or an officer of, or has a material interest with any person who is a
party to, a material contract or proposed material contract with FutureLink
Alberta to disclose his interest and, in the case of directors, to refrain from
voting on any matter in respect of such contract unless otherwise permitted
under the ABCA. Cameron Chell has an interest in Willson Stationers Ltd. and
JAWS Technologies Inc. Robert Kubbernus has an interest in JAWS Technologies
Inc. (See "Interest of Management of FutureLink Alberta and Others in Material
Transactions" and "Material Contracts of FutureLink Alberta")
MATERIAL CONTRACTS OF FUTURELINK ALBERTA
Except for contracts entered into by FutureLink Alberta in the ordinary course
of business or otherwise disclosed herein, the only material contracts entered
into by FutureLink Alberta since incorporation which can reasonably be regarded
as being material are as follows:
1. the TargetCo Acquisition Agreement dated September 26, 1998.
2. FutureLink Alberta entered into agreement with Fundcorp Financial
Inc.("Fundcorp") effective December 19, 1997. Fundcorp was obliged to
use best efforts to assist FutureLink Alberta over a 60 month period in
obtaining, structuring, negotiating and settling the terms of Financing
Arrangements (as defined). Fundcorp was to manage the development of a
FutureLink Alberta finance division and its documentation and related
structure. Fundcorp was to provide management counsel and assist in
placing strategic planning. In consideration, FutureLink Alberta agreed
to pay Fundcorp: (a)
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cash payments equal to 1% of amounts provided to FutureLink Alberta from
time to time pursuant to Financing Arrangements paid to Fundcorp net of
any advances paid to Fundcorp; (b) cash payments equal to 1/3 of the
operating profits of the FutureLink Alberta finance division; (c) cash
payments of all out of pocket costs; (d) issuance of 250,000 warrants
upon signing of the agreement. Each warrant entitled Fundcorp to acquire
1 freely tradable Class "A" Common Voting Shares of FutureLink Alberta
for each warrant redeemed. Fundcorp agreed not to exercise their
warrants for a 12 month period from the date of the agreement unless
otherwise requested by FutureLink Alberta. Provided that the agreement
has not been cancelled, FutureLink Alberta also agreed to issue an
additional 250,000 warrants upon the signing of the agreement. Each of
these warrants entitled Fundcorp to acquire 1 Class "A" Common Voting
Share of FutureLink Alberta for each warrant redeemed not freely
tradable for a 1 year period from the signing of the agreement. The
price of the warrants is $0.75/share CDN. The liability pursuant to this
agreement is unknown. The management of FutureLink Alberta have
represented to FutureLink USA that Fundcorp has not met its obligations
under the terms of the agreement and that the agreement should be
cancelled along with the obligations with respect to the 500,000
warrants. The Class "A" Common Voting Shares which might be issuable to
Fundcorp pursuant to this agreement have not been included in this Offer
because: (a) the dispute with Fundcorp with respect to the performance
under the agreement; (b) there may not be an appropriate registration
and prospectus exemption to issue the warrants; and (a) the Offer is
only being made to Alberta residents. Fundcorp is a British Columbia
resident.
3. A share acquisition agreement dated January 20, 1998, between the
Corporation, FutureLink Alberta, Cameron Chell, Linda Carling, Gerald
Albert, Bernie March and Colleen Rudolph whereby FutureLink USA agreed
to acquire 1,540,000 Class "A" Common Voting shares of FutureLink
Alberta in consideration of the issuance of 1,540,000 FutureLink USA
Common Shares. The shares were issued subject to the Escrow Agreement
(January 20). The agreement provided that 3,500,000 FutureLink USA
Common Shares would be issued to various employees for the par value of
$3,500 USD. FutureLink Alberta was added as a party for the purpose of
making representations and warranties to induce FutureLink USA to enter
into the agreement.
4. Willson Stationers Ltd. Contract. Willson Stationers Ltd. signed the
standard service provider agreement. The contract is material because of
the potential size of the transaction and because of the relationship
with Cameron Chell. Mr. Chell is the Chief Executive Officer of Willson
Stationers Ltd. He also is a shareholder, officer and director of a
corporation which has an option to subscribe for shares, if paid for,
will result in a 50% interest being acquired in Willson Stationers Ltd.
5. JAWS Technology Inc. Contract. JAWS Technology Inc. has signed the
standard service provider agreement. The contract value is approx.
$3,000 CDN per month. It is material because of the interest of Cameron
Chell and Robert Kubbernus. Both are officers and shareholders. Robert
Kubbernus is a director.
<PAGE> 59
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LAWSUITS AGAINST FUTURELINK ALBERTA
The following sets out the lawsuits against FutureLink Alberta:
1. 554495 Alberta Ltd. commenced an action against Coffee.com Interactive
Cafe Corp. (now known as "FutureLink Alberta") in October 1997 in the
Court of Queen's Bench of Alberta, Judicial District of Calgary, Action
#9701-15514. The action relates to a purported lease agreement with
respect to space in Calgary. The Plaintiff seeks judgement an amount in
excess of $285,000 CDN. FutureLink Alberta has defended and
counterclaimed. The parties are to proceeding to discovery of corporate
officers.
2. Palmer Jarvis Inc. commenced an action against FutureLink Alberta in
June 1998 in the Court of Queen's Bench of Alberta, Judicial District of
Calgary, Action # 9801-07637. The action relates to a claim for unpaid
public relations and marketing services of approx. $34,000 CDN.
FutureLink Alberta disputes the claim.
AUDITORS OF FUTURELINK ALBERTA
The auditors of FutureLink Alberta were Halpin Antony Owen Mayer, Chartered
Accountants, 1167 Kensington Crescent NW, Calgary, Alberta T2N 1X7 for the
fiscal period ended December 31, 1997. FutureLink Alberta has retained Ernst &
Young, 1300, 707 - 7th Street, S.W., Calgary, Alberta, T2P 0H6 to audit the
financial statements for the fiscal period ending December 31, 1998.
RISK FACTORS RELATED TO THE BUSINESS OF FUTURELINK ALBERTA
In addition to the factors relating to FutureLink Alberta's business described
herein, the following factors should be considered:
CREDITWORTHINESS OF CLIENTS
The value of FutureLink Alberta's computer equipment, software, and intellectual
property thereto may depend on the credit and financial stability of FutureLink
Alberta's customers. FutureLink Alberta's projected income would be adversely
affected if a significant number of customers were to be unable to meet their
obligations to FutureLink Alberta or if FutureLink Alberta were unable to
continue to collect its accounts receivable. In the event of default by
customers, FutureLink Alberta may experience delays in enforcing its rights as a
vendor and may incur substantial costs in protecting its investment.
START-UP COMPANY
The business of FutureLink Alberta should be considered highly speculative due
to its present stage of development. FutureLink Alberta does not have a history
of earnings nor has it sufficiently diversified such that it can mitigate the
risks associated with its planned activities. FutureLink Alberta has limited
cash and other assets and a limited business history. Securityholders must rely
solely upon the ability, expertise, judgment, discretion, integrity and good
faith of FutureLink Alberta's management in all aspects of the development and
implementation of FutureLink Alberta's business strategy.
<PAGE> 60
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SPECULATIVE NATURE OF COMPUTER BUSINESS
The acquisition and management of computer services may result in a failure to
produce income or revenue. Moreover, the industry is subject to significant risk
factors including changes in general economic conditions, competition from other
properties, the failure of customer to meet their obligations and other
operating costs.
COMPETITION
The market for IT services is very competitive because of the large number of
competitors and the rapidly changing environment. Primary competitors include
participants from a variety of market segments, including "Big Five" accounting
firms, systems consulting and implementation firms, application software firms,
service groups of computer equipment companies, facilities management companies,
general management consulting firms and programming companies. Many of these
competitors have significantly greater financial, technical and marketing
resources and greater name recognition than FutureLink Alberta. In addition,
FutureLink Alberta competes with its clients internal resources, particularly
where these resources represent a fixed cost to the client. Such competition may
impose additional pricing pressures on FutureLink Alberta. These can be no
assurances that FutureLink Alberta will compete successfully with its existing
competitors or with any new competitors.
RAPID TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW SOLUTIONS
FutureLink Alberta's success will depend in part on its ability to develop IT
solutions that keep pace with continuing changes in IT, evolving industry
standards and changing client preferences. There can be no assurance that
FutureLink Alberta will be successful in adequately addressing these
developments on a timely basis or that, if these developments are addressed,
FutureLink Alberta will be successful in the marketplace. In addition, there can
be no assurance that products or technologies developed by others will not
render FutureLink Alberta's services uncompetitive or obsolete. FutureLink
Alberta's failure to address these developments could have a material adverse
effect on FutureLink Alberta's business, operating results and financial
conditions.
ATTRACTION AND RETENTION OF EMPLOYEES
FutureLink Alberta's business involves the deliver of professional services and
is labor-intensive. FutureLink Alberta's success depends in large part upon its
ability to attract, develop, motivate and retain highly skilled technical
employees. Qualified technical employees are in great demand and are likely to
remain a limited resource for the foreseeable future. There can be no assurance
that FutureLink Alberta will be able to attract and retain sufficient numbers of
highly skilled technical employees in the future. FutureLink Alberta has
historically experienced turnover rates which it believes are consistent with
industry norms. An increase in this rate could have a material adverse effect on
FutureLink Alberta's business, operating results and financial condition,
including its ability to secure and complete engagements.
PROJECT RISKS
Many of FutureLink Alberta's engagements involve projects that are critical to
the operations of its clients businesses and provide benefits that may be
difficult to quantify. FutureLink Alberta's failure or inability to meet a
client's expectations in the performance of its services could result in a
material adverse change to the client's operations and therefore could give rise
to claims
<PAGE> 61
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against FutureLink Alberta or damage FutureLink Alberta's reputation, adversely
affecting its business, operating results and financial condition.
DIVIDENDS
Since incorporation FutureLink Alberta has not paid any dividends on its
outstanding TargetCo Common Shares and has no present intention to pay dividends
thereon. (See "FutureLink Alberta" - Dividend Record and Policy").
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the FutureLink USA's
consolidated financial statements and the related notes thereto and the other
financial information included elsewhere in this Circular. When used in the
following discussions, the words "believes", "anticipates", "intends", "expects"
and similar expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks and uncertainties, which could
cause actual results to differ materially from those projected, including, but
not limited to, those set forth in "Risk Factors". Readers are cautioned not to
place undue reliance on forward-looking statements, which speak only as of the
date hereof.
JUNE 30, 1998 VS. JUNE 30, 1997 - FUTURELINK USA
On January 20, 1998, Core Ventures, Inc. (now known as FutureLink Distribution
Corp.) acquired a 48% (now 46%) interest in FutureLink Alberta. FutureLink
Alberta is the world's first computing utility and specializes in providing IT
services to mid-sized companies. FutureLink USA accounts for its investment in
FutureLink Alberta using the equity method for accounting for investments. In
the six months ended June 30, 1998, FutureLink USA incurred $71,076 USD of
administration expenses in administering its 46% investment in FutureLink
Alberta. In addition, FutureLink USA recorded an increase on its share capital
of $60,200 USD related to the forgiveness of a loan to the company by a
shareholder. FutureLink USA's equity in FutureLink Alberta losses during this
period was $411,316 USD. FutureLink USA has no revenues or expenses in the
similar period in 1997.
LIQUIDITY AND CAPITAL RESOURCES - FUTURELINK USA
FutureLink USA raised $1,351,602 USD in equity and advances from shareholders.
FutureLink USA has invested $1,680,575 USD in FutureLink Alberta in advances and
purchases of FutureLink Alberta shares. As at June 30, 1998, FutureLink USA's
investment in FutureLink Alberta had a book value (net of its equity loss) of
$1,269,259 USD. FutureLink USA had liabilities of $529,783 USD representing
accounts payable and accrued liabilities and advances from shareholders of
$504,802 USD. The $504,802 USD advance was converted to equity in July 1998.
FISCAL 1997 VS. FISCAL 1996 - FUTURELINK USA
For the year ended December 31, 1997, revenues were $0 compared to $0 in the
year ended December 31, 1996, as FutureLink USA had no active operations.
Operating expenses increased from $115,189 USD to $122,049 USD as FutureLink USA
unsuccessfully attempted to acquire the operations of Printscan Technologies
Inc. Share capital in excess of par increased $39,494 USD as a result of the
forgiveness of a loan from a shareholder. Other non-operation losses in 1997
included the write-off of mining assets recorded on the balance sheet
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at a book value of $515,000 USD and a loss of a non-refundable deposit of
$100,000 USD related to the failed attempt to acquire the assets of Printscan
Technologies Inc.
LIQUIDITY AND CAPITAL RESOURCES - FUTURELINK USA
In 1997, FutureLink USA raised $170,000 USD from the issuance of common shares.
These funds were used to pay operating administration expenses and the
non-refundable deposit in the failed attempt to acquire the assets of Printscan
Technologies Inc. At the end of 1997, FutureLink USA had no recorded assets and
current account payables were $23,932 USD.
1996 - FUTURELINK USA
FutureLink USA has been an inactive company for a number of years. In 1996,
FutureLink USA incurred nominal administrative expenses of $6,864 USD in
maintaining the FutureLink USA legal entity.
LIQUIDITY AND CAPITAL RESOURCES - FUTURELINK USA
FutureLink USA received shareholder advances of $3,602 USD in 1996 and ended the
year with mining assets with a book value of $515,000 USD and liabilities
(accounts payable and accrued liabilities and shareholder advances) of $11,377
USD.
JUNE 30, 1998 VS. JUNE 30, 1997 - FUTURELINK ALBERTA
In January 1998, FutureLink USA acquired a significant interest in FutureLink
Alberta with plans to acquire the rest of FutureLink Alberta later in 1998 via a
takeover bid to minority shareholders. During the first six months of 1998,
FutureLink Alberta launched its information technology services business focused
on distribution thin client technology. In the six months ended June 30, 1998,
FutureLink Alberta recognized revenues of $30,675 CDN from information
technology services and hardware/software sales. Operating expenses were
$1,096,052 CDN in the six months ended June 30, 1998, versus $160,775 CDN of
operating expenses in the six months ended June 30, 1997. The tremendous
increase in operating expenses in 1998 vs. 1997 can be attributed to an increase
in office premises, administration, marketing and technical management,
marketing efforts and the addition of employees in conjunction with the launch
of FutureLink Alberta's IT services business. In addition, in July 1998,
FutureLink Alberta discontinued its web page development activities and sold its
interest in the business to NextClick Ltd. in exchange for a 50% equity
interest. This equity was recorded at $1.00 CDN in its books and records.
LIQUIDITY AND CAPITAL RESOURCES - FUTURELINK ALBERTA
During the six months ended June 30, 1998, FutureLink Alberta raised $2,193,198
CDN of financing which included $333,775 CDN of common share equity financing
and $1,859,423 CDN of shareholder advances from FutureLink USA. The financing
helped fund $1,492,710 CDN of operating activities and $370,173 CDN of capital
asset investments. As of June 30, 1998, FutureLink Alberta had $232,971 CDN of
cash, $143,703 CDN of net working capital, capital assets of $515,050 CDN and
long-term liabilities of $1,891,401 CDN (including shareholder loans and capital
leases).
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FISCAL 1997 VS. FISCAL 1996 - FUTURELINK ALBERTA
During the fiscal 1997 year, there was a shift in FutureLink Alberta's business
as the interactive cafe initiative was discontinued in favour of distribution of
computing services to businesses via thin client networks. In 1997, FutureLink
Alberta had nominal interest income of $4,820 CDN versus $2,752 CDN in 1996.
FutureLink Alberta had operating expenses of $805,568 CDN, with consulting
expenses of $401,320 CDN being the major category of expense. Operating expenses
in 1997 increase tremendously from 1996 levels of $200,845 CDN as FutureLink
Alberta increased its development expenditures with respect to the distribution
of information technology services and ceased its interactive cafe development
expenditures. FutureLink Alberta's discontinued web page development activities
had a net loss of $14,179 CDN in 1997.
LIQUIDITY AND CAPITAL RESOURCES - FUTURELINK ALBERTA
In fiscal 1997, FutureLink Alberta raised $593,454 CDN of equity and debt
financing to help fund operating activities of $392,897 CDN (net of working
capital decrease) and capital asset purchases of $279,523 CDN. At December 31,
1997, FutureLink Alberta had cash of $10,886 CDN, a working capital deficit of
$413,508 CDN and capital assets of $239,330 CDN. In addition, FutureLink Alberta
had long term debt obligations (including capital leases) of $106,753 CDN.
FISCAL 1996 - FUTURELINK ALBERTA
FutureLink Alberta commenced operations as 689936 Alberta Ltd. In March 1996,
FutureLink Alberta was initially focused on developing a chain of internet cafes
focused on exposing and distributing new information technology to consumers.
From the date of commencement of operations to December 31, 1996, FutureLink
Alberta had nominal interest income of $2,752 CDN and incurred $200,845 CDN of
operating expenses in developing the interactive cafe business model. $109,625
CDN of the expenses were for consultants who assisted the company in developing
its business model and planning its internet cafes.
LIQUIDITY AND CAPITAL RESOURCES - FUTURELINK ALBERTA
In 1996, FutureLink Alberta raised $370,329 CDN in equity financing. In addition
to funding $269,817 CDN of operations, the company loaned $104,500 CDN to a
company owned by a director. The loan was repaid in 1997. As of December 31,
1996, FutureLink Alberta had $89,852 CDN of cash, $104,500 CDN of notes
receivables and $10,545 CDN of other assets. FutureLink Alberta had $40,458 CDN
of trade payables and accrued liabilities as of December 31, 1996.
8 MONTHS ENDED JUNE 30, 1998 COMPARED TO 8 MONTHS ENDED JUNE 30, 1997 -
FUTURELINK/SYSGOLD LTD. (FORMERLY RIVERVIEW MANAGEMENT CORPORATION)
For the 8 months ended June 30, 1998, revenues increased $2,351,872 CDN (43%) to
$7,844,545 CDN from $5,492,673 CDN recorded in the 8 months ended June 30, 1997.
This increase resulted from several factors. The number of major clients
increased by 13 (29%) to 58 from 45. The number of staff increased by 28 (58%)
to 76 from 48. Revenue from system consulting rose by $1,369,761 CDN (48%) to
$4,232,998 CDN from $2,863,237 CDN for the same period in the previous fiscal
year. Hardware and software sales increased by $1,369,761 CDN (47%) to
$3,611,356 CDN from $2,628,850 CDN for the same period in the previous fiscal
year. Hardware and software purchases rose proportionately by $911,046 CDN (38%)
to $3,314,946 CDN from $2,403,900 CDN. The major cost of system consulting
revenue -
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system consultant salaries, benefits, and contract costs increased by $1,283,238
CDN (58%) to $3,500,311 CDN from $2,217,073 CDN. This greater than proportional
increase in staffing costs rose from competitive pressure on staff salaries.
General and administrative expenses increased by $332,435 CDN (76%) to $769,665
CDN (9.8% of revenue) from $437,230 CDN (8.0% of revenue) in the prior year.
This increase in overhead costs occurred because FutureLink/Sysgold Ltd. had to
add supervisory, purchasing and administrative staff to handle larger number of
consultants. Advertising and Promotional costs went up by $33,380 CDN (64%) to
$85,851 CDN (1.1% of revenue) from $52,471 CDN (1.0% of revenue) for the same
period.
After provision for income taxes, and minority interest FutureLink/Sysgold Ltd.
recorded a decrease in net earnings of $33,668 CDN to $143,716 CDN for the 8
months ended June 30, 1998, compared to $177,384 CDN for the 8 months ended June
30, 1997.
LIQUIDITY AND CAPITAL RESOURCES - FUTURELINK/SYSGOLD LTD.
(FORMERLY RIVERVIEW MANAGEMENT CORPORATION)
During the 8 months ended June 30, 1998, FutureLink/Sysgold Ltd. increased
working capital by $369,033 CDN. FutureLink/Sysgold Ltd. acquired computer
hardware and equipment under capital leases in the amount of $72,264 CDN, repaid
debt and capital lease obligations of $26,699 CDN and paid dividends of $46,000
CDN.
The total cash outflows were financed by $177,007 CDN in cash from operations,
$126,454 CDN in shareholder advances, a decrease in cash of $37,931 CDN and bank
indebtedness of $174,124 CDN.
As at June 30, 1998, FutureLink/Sysgold Ltd. had current assets of $1,545,042
CDN, capital assets of $206,577 CDN and total liabilities of $1,498,433 CDN.
FISCAL YEAR 1997 AS COMPARED TO FISCAL YEAR 1996 - FUTURELINK/SYSGOLD LTD.
(FORMERLY RIVERVIEW MANAGEMENT CORPORATION)
For the year ended October 31, 1997, revenues increased $4,233,532 CDN (80%) to
$9,520,789 CDN from $5,287,257 CDN recorded in the year ended October 31, 1996.
This increase resulted from several factors. The number of major clients
increased by 9 (22%) to 49 from 40. The number of staff increased by 21 (60%) to
58 from 35. FutureLink/Sysgold Ltd.'s client base spent more on expansion of
their management information systems in 1997 compared to 1996. Hardware and
software sales increased by $1,961,878 CDN (66%) to $4,929,610 CDN from
$2,967,732 CDN the previous fiscal year. Cost of goods sold rose proportionately
by $1,776,779 CDN (65%) to $4,500,816 CDN from $2,724,037 CDN. The major cost of
system consulting revenue - system consultant salaries, benefits, and contract
costs increased by $1,921,208 CDN (100%) to $3,835,563 CDN from $1,914,355 CDN.
This greater than proportional increase in staffing costs arose mainly from
competitive pressure on staff salaries, prior to revenue contract renewal dates
with clients. Advertising and Promotional costs went up by $55,467 CDN (130%) to
$97,897 CDN (1.0% of revenue) from $42,430 CDN (0.8% of revenue) the previous
fiscal year. This low marketing cost basically reflected FutureLink/Sysgold
Ltd.'s policy of obtaining new customers by reference from staff and clients.
General and administrative expenses increased by $217,975 CDN (39%) to $773,921
CDN (8.1% of revenue) from $555,946 CDN (10.5% of revenue) in the prior year.
This increase in overhead costs occurred generally because FutureLink/Sysgold
Ltd. added supervisory, purchasing and administrative staff to handle its larger
number of consultants. As well, a favorable tenant sub-lease ended and Riverview
Management Corporation moved, incurred
<PAGE> 65
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increased rent costs of $48,000 CDN, additional furniture rent and lease costs
of $28,000 CDN and telephone cost of $11,000 CDN. After provision for income
taxes, and minority interest FutureLink/Sysgold Ltd. recorded an increase in
profit of $114,635 CDN (430%) to $141,311 CDN for the year ended October 31,
1997 compared to $26,676 CDN for the year ended October 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES OF FUTURELINK/SYSGOLD LTD.
(FORMERLY RIVERVIEW MANAGEMENT CORPORATION)
During the year ended October 31, 1997, FutureLink/Sysgold Ltd. increased
working capital by $42,438 CDN. FutureLink/Sysgold Ltd. acquired computer
hardware and equipment under capital leases in the amount of $209,251 CDN,
repaid debt and capital lease obligations of $21,807 CDN and paid dividends of
$46,000 CDN.
The total cash outflows were financed by $251,419 CDN in cash from operations,
$104,376 CDN in loan proceeds. A surplus of $28,588 CDN was applied to cash
balances.
As at October 31, 1997, FutureLink/Sysgold Ltd. had current assets of $1,424,159
CDN, capital assets of $202,833 CDN and total liabilities of $1,434,773 CDN.
ACQUISITION OF SECURITIES NOT DEPOSITED
COMPULSORY ACQUISITION
If within 120 days after the date hereof, the Offer has been accepted by holders
of not less than 90% of the TargetCo Securities which are the subject of the
Offer, other than TargetCo Securities held on the date of the Offer by or on
behalf of FutureLink USA or its affiliates and associates (as defined in the
ABCA), and FutureLink USA acquires such deposited securities, FutureLink USA
intends, to the extent possible, to acquire the remainder of the securities on
the same terms as securities of such class were acquired under the Offer
pursuant to the provisions of the ABCA.
To exercise such statutory right, FutureLink USA must give notice (the
"Offeror's Notice") to each holder of TargetCo Securities who did not accept the
Offer (and each person who subsequently acquires any such securities) (in each
case a "Dissenting Offeree") and to the Director under the ABCA of such proposed
acquisition on or before the earlier of 60 days from the Expiry Time and 180
days from the date of the Offer. Within 20 days of giving the Offeror's Notice,
FutureLink USA must pay or transfer to TargetCo the consideration FutureLink USA
would have had to pay or transfer to the Dissenting Offerees if they had elected
to accept the Offer, to be held in trust for the Dissenting Offerees. In
accordance with section 184 of the ABCA, within 20 days after receipt of the
Offeror's Notice, each Dissenting Offeree must send the certificates
representing the applicable securities held by such Dissenting Offeree to
TargetCo, and may elect either to transfer such securities to FutureLink USA on
the terms of the Offer or to demand payment of the fair value of such securities
held by such holder by so notifying FutureLink USA. If a Dissenting Offeree has
elected to demand payment of the fair value of such securities, FutureLink USA
may apply to a court having jurisdiction to hear an application to fix the fair
value of such securities of that Dissenting Offeree. If FutureLink USA fails to
apply to such court within 20 days after it made the payment or transferred the
consideration to TargetCo referred to above; the Dissenting Offeree may then
apply to the court within a further period of 20 days to have the court fix the
fair value. If there is no such application by the Dissenting Offeree within
such period, the Dissenting Offeree will be deemed to have elected to transfer
such securities to FutureLink USA on the terms of the Offer. Any
<PAGE> 66
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judicial determination of the fair value of the securities could be more or less
than the amount paid pursuant to the Offer.
THE FOREGOING IS A SUMMARY ONLY. REFERENCE IS MADE TO SECTION 184 OF THE ABCA,
THE TEXT OF WHICH IS ATTACHED AS EXHIBIT "F" TO THIS CIRCULAR. THE SECTION IS
COMPLEX AND MAY REQUIRE STRICT ADHERENCE TO NOTICE AND TIMING PROVISIONS,
FAILING WHICH SUCH RIGHTS MAY BE LOST OR ALTERED. PERSONS WHO WISH TO BE BETTER
INFORMED ABOUT THESE PROVISIONS SHOULD CONSULT THEIR LEGAL ADVISORS.
<PAGE> 67
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SUBSEQUENT TRANSACTIONS
If the foregoing statutory right of acquisition is not available, FutureLink USA
intends to consider other means of acquiring, directly or indirectly, all of the
equity interest in TargetCo available in accordance with applicable law,
including a subsequent acquisition transaction. In order to effect a subsequent
acquisition transaction, FutureLink USA may seek to cause a special meeting of
the securityholders to be called to consider an amalgamation, statutory
arrangement or other transaction involving FutureLink USA and/or an affiliate of
FutureLink USA and TargetCo and/or the securityholders of TargetCo for the
purposes of TargetCo becoming, directly or indirectly, a wholly-owned subsidiary
of FutureLink USA or effecting an amalgamation or merger of TargetCo's business
and assets with or into FutureLink USA and/or an affiliate of FutureLink USA
(referred to as a "subsequent acquisition transaction"). Depending upon the
nature and terms of the subsequent acquisition transaction, the approval of at
least 66 2/3% of the votes cast by holders of the outstanding TargetCo
Securities may be required at a meeting duly called and held for the purpose of
approving the subsequent acquisition transaction. FutureLink USA would cause
TargetCo Securities acquired under the Offer to be voted in favour of such a
transaction.
In certain types of subsequent acquisition transactions, the holders of TargetCo
Securities may have the right to dissent under the ABCA and to be paid fair
value for their securities, with such fair value to be determined by a court.
The fair value of securities so determined could be more or less than the amount
paid pursuant to the Offer or the subsequent acquisition transaction. Any such
judicial determination of the fair value of the TargetCo Securities could be
based upon considerations other than, or in addition to, the market price, if
any, of the TargetCo Securities.
The methods of acquiring the remaining outstanding TargetCo Securities described
above, other than the statutory right of acquisition under the ABCA, would be a
"going private transaction" within the meaning of the regulations to the
Securities Act (Ontario) and Policy 9.1 if such method would result in the
interest of a holder of TargetCo Securities (the "affected securities") being
terminated without the consent of the holder and without the substitution
therefor of an interest of equivalent value in a participating security of
TargetCo, a successor to the business of TargetCo or a person who controls
TargetCo or, in the case of Policy 9.1, a person who controls a successor to the
business of TargetCo. The subsequent acquisition transaction is expected to be a
"related party transaction" for purposes of Policy 9.1.
Policy 9.1 provides that, unless exempted, a corporation proposing to carry out
a going private transaction or a related party transaction is required to
prepare a valuation of the affected securities (and any non-cash consideration
being offered therefor) and provide to the holders of the affected securities a
summary of such valuation. In connection therewith, FutureLink USA intends to
rely on any exemption then available or to seek waivers pursuant to Policy 9.1,
if necessary, from the Ontario Securities Commission (the "OSC") exempting
FutureLink USA or TargetCo, as appropriate, from the requirement to prepare a
valuation in connection with the subsequent acquisition transaction and
permitting the subsequent acquisition transaction in accordance with the current
provisions of Policy 9.1, to be approved by a majority of votes cast at a
meeting of securityholders held to approve the subsequent acquisition
transaction, including votes cast in respect of TargetCo Securities acquired
under the Offer.
Policy 9.1 would also require that, in addition to any other required
securityholder approval, in order to complete a going private transaction or a
related party transaction, the approval of a simple or two-thirds majority
(depending on the nature of the transaction) of the votes cast by "minority"
holders of the affected securities be obtained. The necessary level of
securityholder approval required to complete a going private transaction or
related party transaction, in the
<PAGE> 68
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event that the median of the range of values for the affected securities is not
less than the median of the range of values for the consideration offered
therefor under the Offer or in the absence of a requirement for a valuation, is
a simple majority of the votes cast by "minority" holders of the affected
securities and, otherwise, is 66 2/3% of the votes cast by "minority" holders of
the affected securities. In relation to the Offer and any subsequent going
private or related party transaction, unless an exemption is available or
discretionary relief is granted by the OSC, as required, the "minority" holders
will be considered to be all holders of TargetCo Securities, other than
FutureLink USA, its directors and senior officers or any associate or affiliate
of FutureLink USA or its directors or senior officers or any person or company
acting jointly or in concert with FutureLink USA or any of its directors or
senior officers in connection with the Offer or the subsequent acquisition
transaction. However, Policy 9.1 also provides that FutureLink USA may treat
TargetCo Securities acquired pursuant to the Offer as "minority" shares and to
vote them, or to consider them voted, in favour of such going private or related
party transaction if the consideration per security in the going private or
related party transaction is at least equal in value to the consideration paid
under the Offer. FutureLink USA presently intends that the consideration offered
under any subsequent acquisition transaction proposed by it would be identical
to the consideration offered under the Offer. Under Policy 9.1, if following the
Offer, FutureLink USA and its affiliates are the registered holders of 90% or
more of the TargetCo Securities at the time the going private or related party
transaction is initiated, the requirement for minority approval would not apply
to the transaction if a statutory dissent and appraisal remedy is available to
the minority shareholders or if a substantially equivalent enforceable right is
made available to the minority shareholders.
If FutureLink USA decides not to effect a compulsory acquisition or propose a
subsequent acquisition transaction involving TargetCo, or proposes a subsequent
acquisition transaction but cannot promptly obtain any required approval,
FutureLink USA will evaluate its other alternatives. Such alternatives could
include, to the extent permitted by applicable law, purchasing additional
TargetCo Securities in privately negotiated transactions or in another take-over
bid or taking no further action to acquire additional TargetCo Securities. Any
additional Purchases of TargetCo Securities could be at a price greater than,
equal to or less than the price to be paid for TargetCo Securities under the
Offer and could be for cash and/or FutureLink USA Common Shares or other
consideration. Alternatively, FutureLink USA may sell or otherwise dispose of
any or all TargetCo Securities acquired pursuant to the Offer or otherwise. Such
transactions may be effected on terms and at prices then determined by
FutureLink USA, which may vary from the price paid for TargetCo Securities under
the Offer.
MATERIAL CHANGES AND OTHER INFORMATION
FutureLink USA has no information which indicates any material change in the
affairs of TargetCo since the date of the last published financial statements of
TargetCo, other than as disclosed herein. FutureLink USA has no knowledge of any
other matter that has not previously been generally disclosed but which would
reasonably be expected to affect the decision of TargetCo Securityholders to
accept or reject the Offer.
<PAGE> 69
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CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Wolff Leia Huckell, counsel to FutureLink USA ("Canadian
Counsel"), the following is a general summary of the principal Canadian federal
income tax consequences applicable to Canadian resident holders of TargetCo
Securities who: (a) hold their TargetCo Securities and will hold their
FutureLink USA Common Shares as capital property; (b) deal at arm's length with
FutureLink USA prior to the exchange; and (c) will not, either alone or together
with persons with whom they do not deal at arm's length, either control
FutureLink USA or own FutureLink USA Common Shares having a fair market value
which exceeds 50% of the fair market value of all outstanding FutureLink USA
Common Shares following the exchange. This summary has been prepared by
reference to the Income Tax Act (Canada), as amended ("Tax Act"), the Income Tax
Regulations (the "Regulations"), all published proposals from the Government of
Canada to enact specific amendments to the Tax Act or to the Regulations and
Counsel's understanding of the current administrative practices of Revenue
Canada, Taxation. This summary does not otherwise take into account or
anticipate changes in the Tax Act, the Regulations or the administrative
practice of Revenue Canada, Taxation. Furthermore, the individual circumstances
of holders of TargetCo Securities may vary and this summary is general in
nature. Specifically, this summary does not consider the income tax legislation
of countries other than Canada, or of the provinces of Canada.
TargetCo Securities and FutureLink USA Common Shares will generally constitute
capital property to a holder thereof unless such holder holds such TargetCo
Securities or FutureLink USA Common Shares in the course of carrying on a
business of trading or dealing in securities or has acquired such TargetCo
Securities or FutureLink USA Common Shares as an adventure in the nature of
trade.
DISPOSITION OF TARGETCO SECURITIES
A holder of TargetCo Securities will be deemed to have disposed of his TargetCo
Securities for proceeds of disposition equal to the fair market value of the
FutureLink USA Common Shares (OTC-BB share price/appraised value) and not his
adjusted cost base of the TargetCo Securities. Consequently, a holder of
TargetCo Securities must report and recognize a capital gain or a capital loss
in his return for the year in which the exchange is made. In such circumstances,
the FutureLink USA Common Shares acquired will not be deemed to have a cost
equal to the adjusted cost base of the TargetCo Securities disposed of. The
adjusted cost base of all FutureLink USA Common Shares to a particular
shareholder is their average acquisition cost. Three-quarters of such capital
gain (the "taxable capital gain") must be included in income while
three-quarters of any capital loss (the "allowable capital loss") may be used to
offset taxable capital gains in the year of disposition. Any allowable capital
loss, which is not so applied, may be carried back to any of the three prior
years or forward to any subsequent year to offset taxable capital gains.
Shareholders who acquired FutureLink Alberta Class "A" Common Voting Shares
pursuant to the exercise of employee stock options will be taxed in a different
fashion than other holders of Class "A" Common Voting Shares of FutureLink
Alberta. FutureLink Alberta would be considered to be a "Canadian controlled
private corporation" until January 20, 1998. FutureLink Alberta would not be
considered to be a "Canadian controlled private corporation" after January 20,
1998. Generally, subject to subsection 7(1.1), subsection 7(1) applies when a
corporation agrees to sell or issue shares of that corporation to an employee.
Except where subsection 7(1.1) applies, an employee who exercises a stock option
and acquires shares is generally required to include in employment income, in
the taxation year in which the shares are acquired, a benefit equal to the fair
market value of the shares at the time the shares are
<PAGE> 70
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acquired by the employee minus any amount paid or payable by the employee of the
corporation for the shares and any amount paid by the employee to acquire the
right to acquire the shares. Shares issued pursuant to stock option plans which
were in place prior to January 20, 1998 (whether issued after January 20, 1998
or not) will be entitled to: (a) the relief set out in subsection 7(1.1); (b)
the relief provided by subsection 7(1.5) where applicable; and (c) the deduction
under paragraph 110(1)(d.1). Shares issued pursuant to stock option plans
entered into after January 20, 1998 will not be entitled to the relief just
described. In addition to the potential employment benefit tax, the employee
must determine if any capital gain or loss results on the disposition of such
shares. Subsection 7(1.5) could defer the tax on the employment benefit
resulting from the exercise of the stock option. This could result in double
taxation. Each employee should seek specific tax advice with respect to their
individual situation.
COMPULSORY ACQUISITION
The consequences under the Tax Act of any compulsory acquisition of TargetCo
Securities will depend upon the consideration offered by FutureLink USA in
respect thereof. Generally speaking, to the extent that TargetCo Securities are
acquired for FutureLink USA Common Shares the consequences to former holders
will be as set out above. To the extent that any compulsory acquisition is
entirely for cash, former holders of TargetCo Securities will recognize a
capital gain, or sustain a capital loss, in an amount by which such cash
exceeds, or is exceeded by, the adjusted cost base of such TargetCo Securities
SUBSEQUENT ACQUISITION TRANSACTION
The consequences under the Tax Act of any subsequent acquisition transaction
will depend upon the nature of such transaction. Generally speaking, the
following comments in respect of a subsequent acquisition transaction may be
relevant to holders of TargetCo Securities who are either resident in Canada or
whose TargetCo Securities constitute taxable Canadian property, who deal at
arm's length with FutureLink USA and who hold such TargetCo Securities as
capital property for the purposes of the Tax Act.
Any mandatory acquisition of TargetCo Securities (other than by TargetCo) in
consideration of cash will give rise to a capital gain or a capital loss to the
extent that the amount of cash received exceeds, or is exceeded by, the adjusted
cost base of the TargetCo Securities disposed of. To the extent that only
FutureLink USA Common Shares are issued in respect of any such exchange, a
disposing shareholder will be deemed to have disposed of his TargetCo
Securities, and to have acquired his FutureLink USA Common Shares, for an amount
equal to the fair market value of the FutureLink USA shares (whereupon a capital
gain or a capital loss will be realized in respect of the TargetCo Securities).
To the extent that TargetCo Securities are acquired by TargetCo, a dividend will
be deemed to have been paid thereon in the amount by which the amount received
exceeds the paid up capital of such TargetCo Securities. Such dividend will
generally be excluded from the former holder's proceeds of disposition for the
purpose of computing such former holder's capital gain or capital loss.
The Canadian Federal Income Tax consequences set forth above are for general
information only. Securityholders are urged to consult their own tax advisors to
determine the particular tax effects to them of the Offer.
<PAGE> 71
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LEGAL MATTERS
The opinions contained under "Canadian Federal Income Tax Considerations" have
been provided by Wolff Leia Huckell, Barristers, Solicitors, Edmonton, Alberta,
Canadian counsel to FutureLink USA. The opinions contained under "Distribution,
Resale and Liquidity on Resale of TargetCo Securities" was provided by Wolff
Leia and Huckell as it relates to Alberta securities laws. As of the date
hereof, the members of Wolff Leia Huckell do not own any of the issued and
outstanding FutureLink USA Common Shares or TargetCo Securities. The opinion
contained under "Distribution, Resale and Liquidity on Resale of TargetCo
Securities as it relates to US federal securities laws was provided by Jeffer,
Mangels, Butler, & Marmaro LLP. As of the date hereof, the partners of the firm
of Jeffer, Mangels, Butler & Marmaro LLP do not own any of the issued and
outstanding FutureLink USA Common Shares or TargetCo Securities.
STATUTORY RIGHTS
Securities legislation in certain of the provinces and territories of Canada
provides holders of TargetCo Securities with, in addition to any other rights
they may have at law, rights of rescission or to damages, or both, if there is a
misrepresentation in a circular or a notice that is required to be delivered to
the holders of TargetCo Securities. However, such rights must be exercised
within prescribed time limits. Holders of TargetCo Securities should refer to
the applicable provisions of the securities legislation of their province or
territory for particulars of those rights or consult with a lawyer.
<PAGE> 72
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CONSENTS
CONSENT OF COUNSEL
Alberta Securities Commission
We hereby consent to the reference to our opinion contained under "Canadian
Federal Income Tax Considerations" in the take-over bid circular accompanying
the offer dated August 3, 1998 made by FutureLink USA to the holders of shares
of FutureLink Alberta.
Edmonton, Alberta (signed) "Wolff Leia Huckell"
September 28, 1998 -----------------------------
WOLFF LEIA HUCKELL
CONSENT OF COUNSEL
Alberta Securities Commission
We hereby consent to the reference to our opinion contained under "Distribution,
Resale and Liquidity of FutureLink USA Common Shares" in the take-over bid
circular accompanying the offer dated September 28, 1998 made by FutureLink USA
to the holders of shares of FutureLink Alberta.
Los Angeles, California (signed) "Jeffer, Mangels, Butler & Marmaro LLP"
September 28, 1998 ------------------------------------------------
JEFFER, MANGELS, BUTLER & MARMARO LLP
CONSENT OF THE VALUATOR
To: Alberta Securities Commission
Dear Sirs:
We refer to the take-over bid circular dated September 28, 1998 relating to the
offer by FutureLink USA to the holders of outstanding securities of FutureLink
Alberta.
We consent to the use in the take-over bid circular of our report dated
September 24, 1998 and effective June 30, 1998 respecting the valuation of
FutureLink Distribution Corp. (an Alberta corporation). We have reviewed that
portion of the take-over bid circular within which references are made and a
summary is presented on our valuation and find that these references and
summaries are consistent with that valuation. Based only on the foregoing, we
have no reason to believe that there are any misrepresentations contained in the
take-over bid circular concerning our report. We consent to the use of the
summaries and other references to the report as may occur in the take-over bid
circular.
CST FINANCIAL SERVICES INC.
Calgary, Alberta PER: (signed) "C.S. (Juneyt) Tirmandi"
September 28, 1998 -------------------------------------
C.S. (Juneyt) Tirmandi, C.A., C.B.V.
<PAGE> 73
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ERNST & YOUNG
Chartered Accountants
1300, 707 - 7th Avenue, S.W.
Calgary, Alberta T2P 0H6
TO: THE ALBERTA SECURITIES COMMISSION
CONSENT OF AUDITORS
We consent to the use of our audit report dated August 20, 1998 on the financial
statements of FutureLink Distribution Corp. for the year ended December 31, 1997
in the takeover bid circular dated September 28, 1998 relating to the offer by
FutureLink Distribution Corp. (a Colorado Corporation) to purchase all of the
outstanding securities of FutureLink Distribution Corp. (an Alberta
Corporation).
We also consent to the use in the takeover bid circular of our compilation
report dated September 28, 1998 on the unaudited pro forma consolidated
financial statements of FutureLink Distribution Corp. (a Colorado Corporation)
as at and for the periods ended June 30, 1998 and December 31, 1997.
Calgary, Alberta (Signed) Ernst & Young
September 28, 1998 Chartered Accountants
<PAGE> 74
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HALPIN ANTONY OWEN MAYER
Chartered Accountants
Suite 308, 1167 Kensington Crescent NW
Calgary, Alberta T2N 1X7
To the Alberta Securities Commission
Dear Sirs:
RE: FUTURELINK DISTRIBUTION CORP. (A COLORADO CORPORATION) ("FUTURELINK
USA") (FORMERLY CORE VENTURES, INC.) FUTURELINK DISTRIBUTION CORP. (AN
ALBERTA CORPORATION) ("FUTURELINK ALBERTA") FUTURELINK/SYSGOLD LTD.
(FORMERLY RIVERVIEW MANAGEMENT CORPORATION, SYSGOLD INC. AND SYSGOLD
LTD.)
We refer to the take-over bid circular dated September 28, 1998 relating to the
offer by FutureLink USA to purchase shares of FutureLink Alberta.
We consent to the use in the above-mentioned take-over bid circular of our audit
report dated February 26, 1998 to the Shareholders of FutureLink Alberta with
respect to the balance sheet dated December 31, 1997, the statements of income
and deficit dated as of December 31, 1997 and the statement of changes in
financial position for the year ended December 31, 1997.
HALPIN ANTONY OWEN MAYER
Calgary, Alberta PER: (signed) "Halpin Antony Owen Mayer"
September 28, 1998 ----------------------------------
<PAGE> 75
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BUCHANAN, BARRY & CO
Chartered Accountants
#800, 840 - 6th Avenue, S.W.
Calgary, Alberta T2P 3E5
TO THE ALBERTA SECURITIES COMMISSION
Dear Sirs:
RE: FUTURELINK DISTRIBUTION CORP.
We refer to the take-over bid circular of FutureLink Distribution Corporation
dated September 28, 1998.
We consent to the use, in the above-mentioned information circular, of our
report dated August 13, 1998 to the directors of Riverview Management Corp. on
the following consolidated financial statements:
- Consolidated Balance Sheet as at October 31, 1997 and 1996
- Consolidated Statements of earnings and retained earnings and
changes in -financial position for the years ended October 31,
1997 and October 31, 1996
We report that we have read the information circular and have no reason to
believe that there are any misrepresentations in the information contained
therein that is derived from the financial statements upon which we have
reported or that is derived from the financial statements upon which we have
reported or that is within our knowledge as a result of our audit of the
respective financial statements.
This letter is provided to the Securities Regulatory Authority to which it is
addressed pursuant to the requirements of its securities legislation and not for
any other purpose.
Yours very truly,
BUCHANAN, BARRY & CO.
Calgary, Alberta
September 28, 1998 PER: (signed) "Buchanan, Barry & Co."
----------------------------------
<PAGE> 76
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APPROVAL AND CERTIFICATE
The contents of the Offer and the Circular have been approved, and the sending,
communication or delivery thereof to the securityholders of FutureLink Alberta
has been authorized by the board of directors of FutureLink USA. The foregoing,
along with the Exhibits attached hereto, contains no untrue statement of a
material fact and does not omit to state a material fact that is required to be
stated or that is necessary to make a statement not misleading in the light of
the circumstances in which it was made. In addition, the foregoing, along with
the Exhibits attached hereto, does not contain any misrepresentation likely to
affect the value or the market price of the securities which are the subject of
the Offer.
DATED: September 28, 1998
Signed "Cameron Chell" Signed "Raghu Kilambi"
- ---------------------------------- ----------------------------------
CAMERON CHELL RAGHU KILAMBI
Chief Executive Officer, Director Vice-President, CFO and Director
On Behalf of the Board of Directors
Signed "F. Bryson Farrill" Signed "Robert Kubbernus"
- --------------------------------- ---------------------------------
F. BRYSON FARRILL ROBERT KUBBERNUS
Director Director
<PAGE> 77
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EXHIBIT "A"
FUTURELINK DISTRIBUTION CORP.
(a Colorado corporation)
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET (All
amounts stated in $U.S.)
December 31, 1997
<TABLE>
<CAPTION>
Riverview FutureLink USA
FutureLink FutureLink Pro Forma Management Pro Forma Pro Forma
USA Alberta Adjustments Corporation Adjustments Consolidated
$ $ $ $ $ $
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT
Cash -- 7,617 (2.2)(100,000) 26,542 (2.3) 150,777 (240,064)
(2.4)(325,000)
Accounts receivable -- 37,172 -- 955,528 -- 992,699
Inventory -- -- -- 8,168 -- 8,168
Prepaid expenses -- 7,302 -- 6,305 -- 13,608
--------------------------------------------------------------------------------------------
-- 52,091 (100,000) 996,543 (174,223) 774,411
Goodwill -- (2.1)1,569,978 -- (2.3)6,091,699 8,086,677
-- -- (2.2) 100,000 (2.4) 325,000
Capital assets -- 167,469 -- 141,924 -- 309,393
Incorporation costs -- 420 -- -- -- 420
Deposits -- -- -- 4,662 -- 4,662
--------------------------------------------------------------------------------------------
-- 219,980 1,569,978 1,143,129 6,242,476 9,175,563
============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Accounts payable and
accrued liabilities 23,932 253,012 -- 916,932 -- 1,193,876
Current portion of
capital leases -- 21,602 -- 22,966 -- 44,568
Loan payable -- -- -- 23,639 -- 23,639
Promissory note
payable -- -- -- -- (2.3)479,323 479,323
Shareholder loans -- -- -- 1,735 -- 1,735
Notes payable -- 66,825 -- -- -- 66,825
--------------------------------------------------------------------------------------------
23,932 341,439 -- 965,272 479,323 1,809,966
--------------------------------------------------------------------------------------------
DUE TO STOCKHOLDERS -- 61,259 -- -- -- 61,259
--------------------------------------------------------------------------------------------
OBLIGATIONS UNDER
CAPITAL LEASES -- 13,441 -- 38,698 -- 52,139
--------------------------------------------------------------------------------------------
CONVERTIBLE DEBENTURE -- -- -- -- (2.3)2,250,000 2,250,000
--------------------------------------------------------------------------------------------
MINORITY INTEREST -- -- -- 39,812 -- 39,812
--------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Share capital 1,020 512,693 (2.1)(512,693) 28 (2.3)(28) 4,987,339
(2.1)1,373,819 (2.3)3,612,500
Capital in excess of par 1,425,211 -- -- -- -- 1,425,211
Deficit (1,450,163) (708,852) (2.1)708,852 99,319 (2.3)(99,319) (1,450,163)
--------------------------------------------------------------------------------------------
(23,932) (196,159) 1,569,978 99,347 3,513,153 4,321,449
--------------------------------------------------------------------------------------------
-- 219,980 1,569,978 1,143,129 6,242,476 9,175,563
============================================================================================
</TABLE>
See accompanying notes to the unaudited pro forma consolidated financial
statements
<PAGE> 78
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FUTURELINK DISTRIBUTION CORP.
(a Colorado corporation)
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(All amounts stated in $U.S.)
Year ended December 31, 1997
<TABLE>
<CAPTION>
FutureLink
Riverview USA
FutureLink FutureLink Pro Forma Management Pro Forma Pro Forma
USA Alberta Adjustments Corporation Adjustments Consolidated
$ $ $ $ $ $
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
REVENUE -- 4,820 3,373 6,662,087 -- 6,665,460
---------------------------------------------------------------------------
EXPENSES
Salaries and employee benefits -- 48,946 -- 2,052,751 -- 2,101,698
Staff development -- -- -- 120,253 -- 120,253
Consulting -- 280,820 -- 631,150 -- 911,970
Travel -- 13,293 -- 14,734 -- 28,027
Accounting and legal fees 109,992 9,818 -- 60,870 -- 180,681
Hardware and software purchases -- -- -- 3,149,406 -- 3,149,406
Advertising and promotion -- 21,057 -- 68,503 -- 89,560
Depreciation and amortization -- 34,084 (3.1)166,998 51,604 (3.2)641,670 895,355
Office 12,057 22,438 -- 133,515 -- 168,010
Rent -- 25,078 -- 70,628 -- 95,706
Equipment rental -- 20,780 -- 8,901 -- 29,680
Internet -- 13,961 -- -- -- 13,961
Architectural and design fees -- 47,922 -- -- -- 47,922
Automotive -- -- -- 26,492 -- 26,492
Other -- 24,492 54,547 79,039
Interest on long term debt -- -- -- -- (3.3)272,932 272,932
---------------------------------------------------------------------------
122,049 563,689 166,998 6,443,354 814,602 8,178,644
---------------------------------------------------------------------------
LOSS BEFORE DISCONTINUED
OPERATIONS (122,049) (560,316) -- 218,733 -- (1,513,184)
LOSS FROM DISCONTINUED
OPERATIONS -- (9,922) -- -- -- (9,922)
---------------------------------------------------------------------------
LOSS FROM OPERATIONS (122,049) (570,238) -- 218,733 -- (1,523,106)
WRITE-OFF MINING RELATED ASSETS (515,000) -- -- -- -- (515,000)
LOSS ON NON-REFUNDABLE DEPOSIT (100,000) -- -- -- -- (100,000)
---------------------------------------------------------------------------
LOSS FOR THE YEAR BEFORE
INCOME TAXES (737,049) (570,238) -- 218,733 -- (2,138,106)
INCOME TAXES -- -- -- (94,409) -- (94,409)
---------------------------------------------------------------------------
(737,049) (570,238) -- 124,324 -- (2,232,515)
MINORITY INTEREST -- -- -- (24,443) -- (25,443)
---------------------------------------------------------------------------
NET EARNINGS (LOSS) FOR THE
YEAR (737,049) (570,238) -- 98,881 -- (2,257,958)
===========================================================================
</TABLE>
See accompanying notes to the unaudited pro forma consolidated financial
statements
<PAGE> 79
-78-
FUTURELINK DISTRIBUTION CORP.
(a Colorado corporation)
NOTES TO THE UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
Year ended December 31, 1997
1. The accompanying unaudited pro forma consolidated financial statements
have been prepared by management from the audited financial statements
as at December 31, 1997 and for the year then ended of FutureLink
Distribution Corp. (a Colorado corporation) ("FutureLink USA") and
FutureLink Distribution Corp. (an Alberta corporation) ("FutureLink
Alberta"), and from the audited financial statements as at October 31,
1997 and for the year then ended of Riverview Management Corporation
("Riverview") together with other information available to the
companies. In the opinion of the management of FutureLink USA, these pro
forma consolidated financial statements include all adjustments
necessary for fair presentation in accordance with accounting principles
generally accepted in the United States. These pro forma consolidated
financial statements may not be indicative of the financial position or
the results of operations that actually would have occurred if the
events reflected therein had been in effect on the dates indicated nor
of the financial position or the results of operations which may be
obtained in the future.
These pro forma consolidated financial statements should be read in
conjunction with the audited financial statements of the companies
included elsewhere in this registration document.
2. The pro forma consolidated balance sheet at December 31, 1997 gives
effect to the following assumptions and transactions, all of which will
become effective on the date of the fulfillment or waiver of the
conditions of the FutureLink Alberta Acquisition Agreement and the
SysGold Acquisition Agreement as if the effective dates of those
agreements were December 31, 1997:
2.1 The acquisition of all of the outstanding common shares of FutureLink
Alberta in exchange for an equal number of common shares of FutureLink
USA. This acquisition has been reflected as though the initial
acquisition of 1,540,000 common shares and the subsequent acquisition of
all the remaining common shares at a later date both occurred on
December 31, 1997.
The initial and subsequent acquisitions have been accounted for in these
pro forma financial statements using the purchase method. Based on an
independent valuation report dated March 1998 that attributed a value of
$0.22 USD to common shares of FutureLink Alberta, the total value
ascribed to the investment was $338,800. An independent valuation report
dated September 1998 that attributed a value ranging from $0.59 USD to
$0.91 USD to common shares of FutureLink Alberta. Based on a value of
$0.59 USD per Common Share, the total ascribed value to the subsequent
acquisition was $1,035,019. The aggregate purchase price of $1,373,819
has been allocated to the net assets acquired based on their estimated
fair values, as follows:
<TABLE>
<CAPTION>
Purchase Price
Allocation
$USD
--------------
<S> <C>
Net liabilities acquired (196,159)
Goodwill 1,569,978
---------
Purchase price 1,373,819
=========
</TABLE>
2.2 The allocation to goodwill of the estimated costs of the acquisition
described in 2.1 above, in the amount of $100,000 financed through bank
credit facilities of FutureLink USA.
2.3 The acquisition of all of the outstanding common shares of Riverview for
cash consideration of
<PAGE> 80
-79-
$3,100,000 Canadian, as well as a promissory note for $585,000 Canadian
and 4,250,000 common shares of FutureLink USA with an ascribed value of
$3,612,500 U.S.
<PAGE> 81
-80-
FUTURELINK DISTRIBUTION CORP.
(a Colorado corporation)
NOTES TO THE UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
Year ended December 31, 1997
The acquisition has been accounted for in these pro forma consolidated
financial statements by the purchase method. The purchase price has been
allocated to the net assets acquired based on their estimated fair
values, as follows:
<TABLE>
<CAPTION>
Purchase
Price
Allocation
$
----------
<S> <C>
Net assets acquired 99,347
Goodwill 6,091,699
---------
Purchase price 6,191,046
=========
Consideration:
Promissory note payable 479,323
10% convertible debenture* 2,099,223
Common shares of FutureLink USA 3,612,500
---------
Total consideration 6,191,046
=========
</TABLE>
*the proceeds from the debenture will be drawn in an initial amount of
$2,250,000, with the excess cash being held by FutureLink USA for
general use.
2.4 The allocation to goodwill of the estimated costs of the
acquisition described in 2.3 above, in the amount of $325,000
financed through bank credit facilities of FutureLink USA.
3. The pro forma consolidated statement of income for the year ended
December 31, 1997 gives effect to the acquisitions by FutureLink USA as
described in 2.1 and 2.3 above which will become effective on the date
of the fulfillment or waiver of the conditions of the FutureLink Alberta
Acquisition Agreement and the SysGold acquisition agreement, as if the
transactions had occurred January 1, 1997. The following adjustments are
reflected:
3.1 The amortization of Goodwill attributable to the allocation of
the purchase price of FutureLink Alberta in excess of the
carrying value of the net assets acquired, (see 2.1 and 2.2
above) calculated on a straight-line basis over a period of 10
years.
3.2 The amortization of Goodwill attributable to the allocation of
the purchase price of Riverview in excess of the carrying value
of the net assets acquired, (see 2.3 and 2.4 above) calculated on
a straight-line basis over a period of 10 years.
3.3 The inclusion of interest expense on the convertible debenture
for one year, at an annual rate of 10%.
4. The amounts shown in these pro forma consolidated financial statements
for FutureLink Alberta and for Riverview have been translated into
United States dollars from Canadian dollars at a rate of $1 US equal to
$1.4291 Canadian.
<PAGE> 82
-81-
FUTURELINK DISTRIBUTION CORP.
(A COLORADO CORPORATION)
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(All amounts stated in $U.S.)
June 30, 1998
<TABLE>
<CAPTION>
FutureLink
Riverview USA
FutureLink FutureLink Pro Forma Management Pro Forma Pro Forma
USA Alberta Adjustments Corporation Adjustments Consolidated
$ $ $ $ $ $
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT
Cash -- 158,581 (2.2)(100,000) -- (2.3) 207,933 (58,486)
(2.4)(325,000)
Accounts receivable -- 51,110 -- 1,028,028 -- 1,079,138
Inventory -- 2,480 -- 12,961 -- 15,441
Prepaid expenses -- 32,653 -- 10,704 -- 43,357
--------------------------------------------------------------------------------------
-- 244,823 (100,000) 1,051,693 (117,067) 1,079,449
Goodwill -- -- (2.1) 2,216,166 -- (2.3)5,957,683 8,598,849
(2.2)100,000 (2.4)325,000
Capital assets -- 350,589 -- 140,615 -- 491,203
Investment 1,269,259 -- (2.1)(1,269,259) -- -- --
Discontinued
operations -- 1 -- -- -- 1
Incorporation costs -- 272 -- -- -- 272
Deposits -- -- -- 5,570 -- 5,570
--------------------------------------------------------------------------------------
2,269,259 595,685 946,907 1,197,878 6,165,616 10,175,345
--------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT
Bank indebtedness -- -- -- 118,524 -- 118,524
Accounts payable
and accrued
liabilities 24,981 83,759 -- 748,873 -- 857,613
Current portion of
capital leases -- 29,187 -- 33,913 -- 63,100
Loan payable -- -- -- 19,152 -- 19,152
Promissory note
payable -- -- -- -- (2.3)466,272 466,272
Shareholder loans -- -- -- 87,763 -- 87,763
Notes payable -- 34,060 -- -- -- 34,060
--------------------------------------------------------------------------------------
24,981 147,006 -- 1,008,225 466,272 1,646,484
--------------------------------------------------------------------------------------
DUE TO STOCKHOLDERS 504,802 10,338 -- -- -- 515,140
--------------------------------------------------------------------------------------
OBLIGATIONS UNDER
CAPITAL LEASES -- 11,429 -- 11,742 -- 23,171
--------------------------------------------------------------------------------------
DUE TO FUTURELINK
USA -- 1,265,689 (2.1)(1,265,689) -- -- --
--------------------------------------------------------------------------------------
CONVERTIBLE DEBENTURE -- -- -- -- (2.3)2,250,000 2,250,000
--------------------------------------------------------------------------------------
MINORITY INTEREST -- -- -- 14,755 -- 14,755
--------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Share capital 1,200 725,930 (2.1)(725,930) 27 (2.3)(27) 4,987,519
(2.1)1,373,819 (2.3)3,612,500
Capital in excess
of par 2,670,831 -- -- -- -- 2,670,831
Deficit (1,932,555) (1,564,707) (2.1)1,564,707 163,129 (2.3)(163,129) (1,932,555)
--------------------------------------------------------------------------------------
739,476 (838,777) 2,212,596 163,156 3,449,344 5,725,796
--------------------------------------------------------------------------------------
1,269,259 595,685 946,907 1,197,878 6,165,616 10,175,345
======================================================================================
</TABLE>
See accompanying notes to the unaudited pro forma consolidated financial
statements
<PAGE> 83
-82-
FUTURELINK DISTRIBUTION CORP.
(a Colorado corporation)
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(All amounts stated in $U.S.)
Six months ended June 30, 1998
<TABLE>
<CAPTION>
FutureLink
Riverview USA
FutureLink FutureLink Pro Forma Management Pro Forma Pro Forma
USA Alberta Adjustments Corporation Adjustments Consolidated
$ $ $ $ $ $
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
REVENUE -- 20,880 -- 5,339,694 -- 5,360,575
---------------------------------------------------------------------------
EXPENSES
Salaries and employee benefits -- 219,781 -- 2,382,623 -- 2,602,404
Staff development -- -- -- 172,522 -- 172,522
Consulting -- 154,316 -- -- -- 154,316
Travel -- 52,591 -- 9,541 -- 62,133
Accounting and legal fees 40,158 51,827 -- 43,102 -- 135,087
Hardware and software
purchases -- -- -- 2,256,447 -- 2,256,447
Advertising and promotion -- 49,408 -- 58,438 -- 107,846
Depreciation and amortization -- 49,034 (3.1)115,808 46,634 (3.2)314,134 525,610
Office 30,918 48,101 -- 139,946 -- 218,964
Rent -- 34,771 -- 51,393 -- 86,164
Investor relations -- 22,229 -- -- -- 22,229
Equipment rental -- 19,578 -- 4,955 -- 24,533
Internet -- 16,754 -- -- -- 16,754
Automotive -- -- -- 26,268 -- 26,268
Other -- 27,681 29,542 57,223
Interest on long term debt -- -- -- -- (3.3)135,814 135,814
Equity in loss of an affiliate 411,316 -- (3.4)411,316 -- -- --
---------------------------------------------------------------------------
482,392 746,070 627,124 5,221,410 449,948 6,604,312
---------------------------------------------------------------------------
LOSS BEFORE DISCONTINUED
OPERATIONS (482,392) (752,190) -- 118,285 -- (1,243,737)
LOSS FROM DISCONTINUED
OPERATIONS -- (149,965) -- -- -- (149,965)
---------------------------------------------------------------------------
LOSS FOR THE YEAR BEFORE
INCOME TAXES (482,392) (875,156) -- 118,285 -- (1,393,702)
INCOME TAXES -- -- -- (44,432) -- (44,432)
---------------------------------------------------------------------------
(482,392) (875,156) -- 73,853 -- (1,438,134)
MINORITY INTEREST -- -- -- 23,973 -- 23,973
---------------------------------------------------------------------------
NET EARNINGS (LOSS) FOR THE
YEAR (482,392) (875,156) -- 97,826 -- (1,414,161)
===========================================================================
</TABLE>
See accompanying notes to the unaudited pro forma consolidated financial
statements
<PAGE> 84
-83-
FUTURELINK DISTRIBUTION CORP.
(a Colorado corporation)
NOTES TO THE UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 1998
1. The accompanying unaudited pro forma consolidated financial statements
have been prepared by management from the unaudited financial statements
as at June 30, 1998 of FutureLink Distribution Corp. (a Colorado
corporation) ("FutureLink USA"), FutureLink Distribution Corp. (an
Alberta corporation) ("FutureLink Alberta") and Riverview Management
Corporation ("Riverview"), and for the six month period then ended
(eight month period then ended in the case of Riverview) together with
other information available to the companies. In the opinion of the
management of FutureLink USA, these pro forma consolidated financial
statements include all adjustments necessary for fair presentation in
accordance with accounting principles generally accepted in the United
States. These pro forma consolidated financial statements may not be
indicative of the financial position or the results of operations that
actually would have occurred if the events reflected therein had been in
effect on the dates indicated nor of the financial position or the
results of operations which may be obtained in the future.
These pro forma consolidated financial statements should be read in
conjunction with the audited and unaudited financial statements of the
companies included elsewhere in this registration document.
2. The pro forma consolidated balance sheet at June 30, 1998 gives effect
to the following assumptions and transactions, all of which will become
effective on the date of the fulfillment or waiver of the conditions of
the FutureLink Alberta Acquisition Agreement and the SysGold acquisition
agreement as if the effective dates of those agreements were June 30,
1998:
2.1 The acquisition of all of the outstanding common shares of
FutureLink Alberta in exchange for an equal number of common
shares of FutureLink USA. This acquisition has been reflected as
though the initial acquisition of 1,540,000 common shares and the
subsequent acquisition of all the remaining common shares at a
later date both occurred on June 30, 1998.
The initial and subsequent acquisitions have been accounted for
in these pro forma financial statements using the purchase
method. Based on an independent valuation report dated March 1998
that attributed a value of $0.22 to common shares of FutureLink
Alberta, the total value ascribed to the investment was $338,800.
An independent valuation report dated September 1998 attributed a
value ranging from $0.59 USD to $0.91 USD common shares of
FutureLink Alberta. Based on a value of $0.59 per common share,
the total value ascribed to the subsequent events was $1,035,019.
The aggregate purchase price of $1,373,819 has been allocated to
the net assets acquired based on their estimated fair values, as
follows:
<TABLE>
<CAPTION>
Purchase Price
Allocation
$
--------------
<S> <C>
Net liabilities acquired (842,347)
Goodwill 2,216,166
---------
Purchase price 1,373,819
=========
</TABLE>
<PAGE> 85
-84-
<PAGE> 86
-85-
FUTURELINK DISTRIBUTION CORP.
(a Colorado corporation)
NOTES TO THE UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 1998
2.2 The allocation to goodwill of the estimated costs of the
acquisition described in 2.1 above, in the amount of $100,000
financed through bank credit facilities of FutureLink USA.
2.3 The acquisition of all of the outstanding common shares of
Riverview for cash consideration of $3,100,000 Canadian, as well
as a promissory note for $585,000 Canadian and 4,250,000 common
shares of FutureLink USA with an ascribed value of $3,612,500
U.S.
The acquisition has been accounted for in these pro forma
consolidated financial statements by the purchase method. The
purchase price has been allocated to the net assets acquired
based on their estimated fair values, as follows:
<TABLE>
<CAPTION>
Purchase Price
Allocation
$
--------------
<S> <C>
Net assets acquired 163,156
Goodwill 5,957,683
---------
Purchase price 6,120,839
=========
Consideration:
Promissory note payable 466,272
10% convertible debenture* 2,042,067
Common shares of FutureLink USA 3,612,500
---------
Total consideration 6,120,839
=========
</TABLE>
*the proceeds from the debenture will be drawn in an initial
amount of $2,250,000, with the excess cash being held by
FutureLink USA for general use.
2.4 The allocation to goodwill of the estimated costs of the
acquisition described in 2.3 above, in the amount of $325,000
financed through bank credit facilities of FutureLink USA.
3. The pro forma consolidated statement of income for the six months ended
June 30, 1998 gives effect to the acquisitions by FutureLink USA as
described in 2.1 and 2.3 above which will become effective on the date
of the fulfillment or waiver of the conditions of the FutureLink Alberta
Acquisition Agreement and the SysGold acquisition agreement, as if the
transactions had occurred January 1, 1998. The following adjustments are
reflected:
3.1 The amortization of Goodwill attributable to the allocation of
the purchase price of FutureLink Alberta in excess of the
carrying value of the net assets acquired, (see 2.1 and 2.2
above) calculated on a straight-line basis over a period of 10
years.
<PAGE> 87
-86-
FUTURELINK DISTRIBUTION CORP.
(a Colorado corporation)
NOTES TO THE UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 1998
3.2 The amortization of Goodwill attributable to the allocation of
the purchase price of Riverview in excess of the carrying value
of the net assets acquired, (see 2.3 and 2.4 above) calculated on
a straight-line basis over a period of 10 years.
3.3 The inclusion of interest expense on the convertible debenture
for six months, at an annual rate of 10%.
3.4 The reversal of FutureLink USA's equity in the loss of FutureLink
Alberta.
4. The amounts shown in these pro forma consolidated financial statements
for FutureLink Alberta and for Riverview have been translated into
United States dollars from Canadian dollars at a rate of $1 US equal to
$1.4691 Canadian.
<PAGE> 88
-87-
EXHIBIT "B"
LETTERHEAD OF ERNST & YOUNG
AUDITORS REPORT
To the Board of Directors and Stockholders of
FUTURELINK DISTRIBUTION CORP.
We have audited the accompanying balance sheet of FUTURELINK DISTRIBUTION CORP.
as at December 31, 1997 and the related statements of loss and deficit, changes
in stockholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of FutureLink Distribution Corp.
as at December 31, 1997 and the results of its operations and its cash flows for
the year then ended in conformity with accounting principles generally accepted
in the United States.
Calgary, Canada Ernst & Young
August 20, 1998 Chartered Accountants
<PAGE> 89
-88-
FUTURELINK DISTRIBUTION CORP.
(A COLORADO CORPORATION)
BALANCE SHEETS
(All amounts stated in $U.S.)
<TABLE>
<CAPTION>
DECEMBER 31
JUNE 30, ----------------------------
1998 1997 1996
(UNAUDITED) (Unaudited)
$ $ $
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CAPITAL ASSETS -- -- 515,000
Investment [note 3] 1,269,259 -- --
- -------------------------------------------------------------------------------------------
1,269,259 -- 515,000
===========================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Accounts payable and accrued
liabilities 24,981 23,932 6,873
- -------------------------------------------------------------------------------------------
24,981 23,932 6,873
DUE TO STOCKHOLDER [NOTE 6] 504,802 -- 4,504
- -------------------------------------------------------------------------------------------
529,783 23,932 11,377
- -------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Authorized
5,000,000 preferred shares without par value
100,000,000 common shares with par value of $0.0001
Issued
11,999,313, 10,203,500 and 2,500
common shares issued and
outstanding at June 30, 1998 and
December 31, 1997 and 1996,
respectively [note 5] 1,200 1,020 25
Capital in excess of par [note 5] 2,670,831 1,425,211 1,216,712
Deficit (1,932,555) (1,450,163) (713,114)
- -------------------------------------------------------------------------------------------
739,476 (23,932) 503,623
- -------------------------------------------------------------------------------------------
1,269,259 -- 515,000
===========================================================================================
</TABLE>
Contingencies [note 9]
See accompanying notes
On behalf of the Board:
(Signed) "Cameron Chell" (Signed) "Raghu Kilambi"
- -------------------------------- --------------------------------
Cameron Chell Raghu Kilambi
<PAGE> 90
-89-
FUTURELINK DISTRIBUTION CORP.
(A COLORADO CORPORATION)
STATEMENTS OF LOSS AND DEFICIT
(All amounts stated in $U.S.)
<TABLE>
<CAPTION>
SIX MONTHS YEARS ENDED
ENDED DECEMBER 31
JUNE 30 -----------------------
1998 1997 1996
$ $ $
- ------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
REVENUE -- -- --
- ------------------------------------------------------------------------------------
EXPENSES
Accounting and legal 40,158 109,992 3,803
General and administrative 30,918 12,057 3,061
- ------------------------------------------------------------------------------------
71,076 122,049 6,864
- ------------------------------------------------------------------------------------
Loss from operations (71,076) (122,049) (6,864)
- ------------------------------------------------------------------------------------
Write-off mining related assets [note 4] -- (515,000) --
Loss on non-refundable deposit [note 7] -- (100,000) --
Equity in loss of affiliate [note 3] (411,316) -- --
- ------------------------------------------------------------------------------------
(411,316) (615,000) --
- ------------------------------------------------------------------------------------
NET LOSS FOR THE PERIOD [NOTE 8] (482,392) (737,049) (6,864)
Deficit, beginning of period (1,450,163) (713,114) (706,250)
- ------------------------------------------------------------------------------------
DEFICIT, END OF PERIOD (1,932,555) (1,450,163) (713,114)
====================================================================================
LOSS PER COMMON SHARE (0.25) (1.65) (2.75)
====================================================================================
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 1,964,120 447,445 2,500
====================================================================================
</TABLE>
See accompanying notes
<PAGE> 91
-90-
FUTURELINK DISTRIBUTION CORP.
(A COLORADO CORPORATION)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(All amounts stated in $U.S.)
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN
------------------------ EXCESS OF PAR DEFICIT
SHARES $ $ $
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 AND 1995 2,500 25 1,216,712 (713,114)
Issuance of share capital 1,000 10 9,990 --
- ----------------------------------------------------------------------------------------------
3,500 35 1,226,702 (713,114)
Change of par value from
.01 to .0001 -- (35) 35 --
Issuance of share capital
for cash 10,200,000 1,020 158,980 --
Forgiveness of shareholder debt -- -- 39,494 --
Net loss for the period -- -- -- (737,049)
- ----------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 10,203,500 1,020 1,425,211 (1,450,163)
Issuance of share capital on
exercise of special warrants 255,813 26 846,774 --
Issuance of share capital
under Share Purchase
Agreement with FutureLink
Distribution Corp., an
Alberta, Canada corporation 1,540,000 154 338,646 --
Forgiveness of shareholder debt -- -- 60,200 --
Net loss for the period -- -- -- (482,392)
- ----------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1998 11,999,313 1,200 2,670,831 (1,932,555)
==============================================================================================
</TABLE>
The above statement gives retroactive effect to a share rollback of 200 to 1 on
July 20, 1997 and a rollback of 30 to 1 on December 2, 1997.
See accompanying notes
<PAGE> 92
-91-
FUTURELINK DISTRIBUTION CORP.
(A COLORADO CORPORATION)
STATEMENTS OF CASH FLOWS
(All amounts stated in $U.S.)
<TABLE>
<CAPTION>
SIX
MONTHS YEARS ENDED
ENDED DECEMBER 31
JUNE 30 --------------------
1998 1997 1996
$ $ $
- ---------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES
Net loss for the period (482,392) (737,049) (6,864)
Adjustments to reconcile net loss to net
cash provided by operating activities
Write off mining related assets [note 4] -- 515,000 --
Equity in loss of affiliate 411,316 -- --
Loss on refundable deposit -- 100,000 --
- ---------------------------------------------------------------------------------
(71,076) (122,049) (6,864)
Changes in non-cash working capital balances
Accounts payable and accrued liabilities 1,049 17,059 3,802
- ---------------------------------------------------------------------------------
(70,027) (104,990) (3,062)
- ---------------------------------------------------------------------------------
CASH FLOWS USED IN INVESTING ACTIVITIES
Advances to FutureLink Distribution Corp.
(Alberta) [note 3] (1,341,775) -- --
Loss on refundable deposit -- (100,000) --
- ---------------------------------------------------------------------------------
(1,341,775) (100,000) --
- ---------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from stockholders [note 6] 504,802 (4,504) 3,062
Proceeds from the issuance of common stock
[note 5] 846,800 170,000 --
Forgiveness of shareholder debt [note 5] 60,200 39,494 --
- ---------------------------------------------------------------------------------
1,411,802 204,990 3,062
- ---------------------------------------------------------------------------------
INCREASE IN CASH -- -- --
Cash, beginning of period -- -- --
- ---------------------------------------------------------------------------------
CASH, END OF PERIOD -- -- --
================================================================================
</TABLE>
See accompanying notes
<PAGE> 93
-92-
FUTURELINK DISTRIBUTION CORP.
(A COLORADO CORPORATION)
NOTES TO FINANCIAL STATEMENTS
1. INCORPORATION AND OPERATIONS
The Company was formed on April 4, 1955 in the state of Colorado, USA,
as Cortez Uranium and Mining Co. The company was involved in several
mining related projects and had changed its name several times. On July
20, 1997, the company changed its names to Core Ventures, Inc. The
Company changed its name to FutureLink Distribution Corp. effective
February 17, 1998.
The Company had no operations in the first six months of 1997.
Accordingly comparative interim financial statements are not presented
for this period.
In early 1998, the Company changed its focus to concentrate on the
acquisition and development of companies in the business of information
technology outsourcing. The Company currently has no sources of revenue,
except indirectly through its investee, and has a deficit at June 30,
1998 of $1,932,555. Its future viability is dependent upon acquiring or
developing profitable operations and securing additional financing to
support these activities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements have, in management's opinion, been properly
prepared in accordance with accounting principles generally accepted in
the United States. Differences between accounting principles generally
accepted in Canada and the United States would have no material impact
on these financial statements.
USE OF ESTIMATES
Because a precise determination of many assets and liabilities is
dependent upon future events, the preparation of financial statements
for a period necessarily involves the use of estimates which would
affect the amount of recorded assets, liabilities, revenues and
expenses. Actual amounts could differ from these estimates.
INVESTMENT
The Company's investment in FutureLink Distribution Corp. (an Alberta,
Canada corporation) ("FutureLink Alberta"), representing a 47% interest
in the outstanding common shares at June 30, 1998, is accounted for
using the equity method.
INCOME TAXES
The Company records its provision for income taxes using the liability
method. Under this method deferred tax assets and liabilities are
recognized based on the anticipated future tax effects arising from the
differences between the financial statement carrying amounts of assets
and liabilities and their respective tax bases.
<PAGE> 94
-93-
FUTURELINK DISTRIBUTION CORP.
(A COLORADO CORPORATION)
NOTES TO FINANCIAL STATEMENTS
FINANCIAL INSTRUMENTS
The carrying values of financial instruments, including accounts payable
and accrued liabilities, and amounts due to stockholders approximate
their fair values. It is management's opinion that the Company is not
exposed to significant interest, currency or credit risks arising from
these financial instruments.
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company's investment is Canadian dollars.
Adjustments arising from translating the investee's financial statements
into United States dollars are recorded in stockholders' equity as a
cumulative translation adjustment.
INTERIM FINANCIAL STATEMENTS
The interim financial statements as at and for the period ended June 30,
1998, in the opinion of management, include all adjustments (consisting
of normal recurring adjustments and accruals) necessary to present
fairly the results for the interim period presented. Operating results
for the period ended June 30, 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998.
3. INVESTMENT
<TABLE>
<CAPTION>
DECEMBER 31
JUNE 30, -------------------------
1998 1997 1996
(UNAUDITED) (Unaudited)
$ $ $
----------------------------------------------------------------------------------
<S> <C> <C> <C>
FutureLink Distribution Corp. (an
Alberta, Canada corporation)
1,540,000 common shares (47%) 338,800 -- --
Advances, non-interest bearing 1,341,775 -- --
Equity loss (411,316) -- --
----------------------------------------------------------------------------------
1,269,259 -- --
==================================================================================
</TABLE>
On January 20, 1998 the Company issued 1,540,000 common shares in
exchange for 1,540,000 common shares of FutureLink Distribution Corp.,
an Alberta, Canada corporation ("FutureLink Alberta") representing 48%
of the issued and outstanding shares at that time. Based on an
independent valuation report dated March 1998 that attributed a value of
$0.22 to common shares of FutureLink Alberta, the total value ascribed
to the investment was $338,800. The Company has also advanced FutureLink
Alberta $1,341,775. This amount is non-interest bearing and has no
repayment terms.
<PAGE> 95
-94-
FUTURELINK DISTRIBUTION CORP.
(A COLORADO CORPORATION)
NOTES TO FINANCIAL STATEMENTS
4. CAPITAL ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
$ $ $
--------------------------------------------------------------------------------
<S> <C> <C>
Mining concessions 85,000 -- 85,000
Proprietary mining process 430,000 -- 430,000
515,000 -- 515,000
================================================================================
</TABLE>
During 1997 the Company wrote off these assets to their estimated net
realizable value of nil. The Company is no longer in the mining
business.
5. SHARE CAPITAL
On January 20, 1998 the articles of the Company were amended to increase
the authorized share capital to 100,000,000 common shares and 5,000,000
preferred shares.
83,334 warrants were issued to the share subscribers who were issued
shares on January 29, 1998. The warrants allow the holder to purchase
additional shares at $3.00 on or before one year and $3.30 before two
years from the date of acquisition. None of the outstanding warrants
have been exercised as at June 30, 1998.
105,813 warrants were issued to the share subscribers who were issued
shares on April 3, 1998. The warrants allow the holder to purchase
additional shares at $3.75 on or before one year and $4.00 before two
years from the date of acquisition. None of the outstanding warrants
have been exercised as at June 30, 1998.
66,666 warrants were issued to the share subscribers who were issued
shares on April 22, 1998. The warrants allow the holder to purchase
additional shares at $3.25 on or before two years from the date of
acquisition. None of the outstanding warrants have been exercised as at
June 30, 1998.
On January 19, 1998, the Company reserved 3,500,000 restricted common
shares for the issuance to officers, directors and employees of
FutureLink Alberta. These shares were issued on July, 1998.
Of the 11,999,313 shares issued at June 30, 1998, 1,341,000 are
restricted and 10,658,313 are freely trading. Restricted shares held by
non-affiliates of the Company must be held for at least one year.
Restricted shares held by affiliates of the Company must be held for 1
to 2 years.
The 1,540,000 common shares issued to purchase a 48% investment in
FutureLink Alberta, are subject to a hold period. One half of the shares
given to the vendors will be released from escrow on July 20, 1998 and
the balance will be released on January 20, 1999.
<PAGE> 96
-95-
FUTURELINK DISTRIBUTION CORP.
(A COLORADO CORPORATION)
NOTES TO FINANCIAL STATEMENTS
On June 29, 1998, the Company issued stock options to purchase 3,080,000
common shares to employees and non-employee directors with an exercise
price of $0.755. These stock options were all outstanding as at June 30,
1998. The options expire on June 29, 2001.
A stockholder of the Company forgave $60,200 in 1998 and $39,494 in 1997
which he had advanced to the Company during that period.
6. RELATED PARTY TRANSACTIONS
During 1998, Linear Strategies Ltd., a stockholder, advanced the Company
$504,802. The Company in turn advanced the money to FutureLink Alberta.
Interest incurred on the loan to June 30, 1998 in the amount of $2,904
has been added to the principal amount owing. Subsequent to June 30,
1998, the loan was converted into shares and warrants.
The amount of $4,504 due to a stockholder of the Company at December 31,
1996 was non-interest bearing and had no repayment terms.
7. LOSS ON NON-REFUNDABLE DEPOSIT
During 1997, the Company made a $100,000 non-refundable deposit to
purchase Printscan Technology; however, the Company did not raise
sufficient funds to complete the purchase, and the deposit was
forfeited.
8. INCOME TAXES
The provision for income taxes differs from the Company's statutory rate
of 40 percent as follows:
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31
JUNE 30 ---------------------
1998 1997 1996
$ $ $
-------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Provision for income taxes based on net
loss as reported 192,957 294,820 2,746
Add temporary differences not recognized
Write-off of mining related assets -- (206,000) --
Equity in loss of affiliate (164,526) -- --
Loss carryforwards (28,431) (88,820) (2,746)
-------------------------------------------------------------------------------
Provision for income taxes -- -- --
===============================================================================
</TABLE>
<PAGE> 97
-96-
FUTURELINK DISTRIBUTION CORP.
(A COLORADO CORPORATION)
NOTES TO FINANCIAL STATEMENTS
The Company has cumulative temporary differences related to mining
operations written off in prior years and loss carryforwards which would
give rise to deferred tax assets. The Company has not maintained
sufficient taxation records to quantify these amounts; however,
valuation allowances would reduce all such assets to zero as there is
significant uncertainty as to whether the Company will generate taxable
income.
9. CONTINGENCIES
A statement of claim has been filed against the Company in the amount of
approximately of $350,000 plus any interest on any damages awarded,
costs on a solicitor client basis and other damages the court may award.
The statement of claim alleges that the Company made certain
misrepresentations and interfered with contractual relations in respect
of a sale transaction between two third parties involving the Company's
common shares. It is management's position that the claim is without
merit; consequently, no liability in respect of the claim has been
recorded in the financial statements.
10. SUBSEQUENT EVENTS
On August 4, 1998 the Company signed a share purchase agreement which
provides for the acquisition of Riverview Management Corporation, an
information technology outsourcing and services firm, for cash
consideration of $3,100,000 Canadian, as well as a 90 day promissory
note for $585,000 Canadian and 4,250,000 common shares with an ascribed
value of $3,612,500 U.S. Closing of the purchase is subject to various
conditions, including obtaining third party financing for the cash
portion of the purchase cost.
On August 20, 1998 the Company issued a takeover bid circular in order
to complete the purchase of 100% of FutureLink Alberta through the issue
of an additional 1,791,275 common shares with an ascribed value of
$394,081. It is management's intention to complete the acquisition by
the end of September, 1998.
<PAGE> 98
-97-
EXHIBIT "C"
LETTERHEAD OF HALPIN ANTONY OWEN MAYER
AUDITOR'S REPORT
To the Shareholders of:
FUTURELINK DISTRIBUTION CORP. (AN ALBERTA CORPORATION)
We have audited the balance sheet of FutureLink Distribution Corp. as at
December 31, 1997 and the statements of loss and deficit and changes in
financial position for the year then ended. These financial statements are the
responsibility of the corporation's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at December 31, 1997 and the
results of its operations and the changes in its financial position for the
period then ended in accordance with generally accepted accounting principles.
Calgary, Alberta "Halpin Antony Owen Mayer"
February 26, 1998 CHARTERED ACCOUNTANTS
<PAGE> 99
-98-
FUTURELINK DISTRIBUTION CORP.
(AN ALBERTA CORPORATION)
BALANCE SHEETS
(all amounts stated in $ Cdn.)
JUNE 30, 1998
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
--------------------------------------
1998 1997 1996
(Unaudited)
$ $ $
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
CURRENT
Cash and short term deposits 232,971 10,886 89,852
Accounts receivable 75,085 53,122 8,158
Inventory 3,643 -- --
Prepaid expenses and deposits 47,971 10,436 1,669
Notes receivable [note 8] -- -- 104,500
- ------------------------------------------------------------------------------------
359,670 74,444 204,179
CAPITAL ASSETS [NOTE 3] 515,050 239,330 9,745
DISCONTINUED OPERATIONS [NOTE 11] 1 -- --
INCORPORATION COSTS [NOTE 4] 400 600 800
- ------------------------------------------------------------------------------------
875,121 314,374 214,724
====================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Accounts payable and accrued liabilities 123,051 361,581 40,458
Current portion of capital leases [note 5] 42,879 30,871 --
Notes payable [note 8] 50,037 95,500 --
- ------------------------------------------------------------------------------------
215,967 487,952 40,458
- ------------------------------------------------------------------------------------
DUE TO SHAREHOLDERS [NOTE 8] 15,188 87,545 2,030
- ------------------------------------------------------------------------------------
OBLIGATION UNDER CAPITAL LEASES [NOTE 5] 16,790 19,208 --
- ------------------------------------------------------------------------------------
DUE TO FUTURELINK DISTRIBUTION CORP., A
COLORADO CORPORATION [NOTE 8] 1,859,423 -- --
- ------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Share capital [note 7] 1,066,464 732,689 370,329
Deficit (2,298,711) (1,013,020) (198,093)
- ------------------------------------------------------------------------------------
(1,232,247) (280,331) 172,236
- ------------------------------------------------------------------------------------
875,121 314,374 214,724
====================================================================================
</TABLE>
Contingency [note 12]
See accompanying notes
Behalf of the Board:
(Signed) "Cameron Chell" (Signed) "Raghu Kilambi"
- --------------------------------- -----------------------------------
Cameron Chell Raghu Kilambi
<PAGE> 100
-99-
FUTURELINK DISTRIBUTION CORP.
(an Alberta Corporation)
STATEMENTS OF INCOME AND RETAINED EARNINGS
(all amounts stated in $ Cdn.)
<TABLE>
<CAPTION>
PERIOD
SIX MONTHS ENDED JUNE 30 YEAR ENDED FROM MARCH 28 TO
------------------------- DECEMBER 31 DECEMBER 31
1998 1997 1997 1996
(Unaudited) (Unaudited)
$ $ $ $
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE
Sales 10,015 -- -- --
Equipment sales 19,668 -- -- --
Interest income 992 3,083 4,820 2,752
- ---------------------------------------------------------------------------------------
30,675 3,083 4,820 2,752
- ---------------------------------------------------------------------------------------
EXPENSES
Salaries 322,881 69,950 69,949 7,716
Consulting 226,705 30,442 401,320 109,625
Travel 77,262 8,645 18,997 12,196
Accounting and legal fees 76,139 4,794 14,031 17,172
Advertising and promotion 72,585 12,178 30,093 11,778
Depreciation and amortization 72,036 2,849 50,138 2,145
Office 70,665 6,109 32,066 12,674
Rent 51,082 7,046 35,839 3,300
Investor relations 32,656 -- -- --
Equipment rental 28,762 13,074 29,696 6,569
Internet 24,613 -- 19,952 --
Architectural and design fees -- -- 68,485 --
Other 40,666 5,688 35,002 17,670
- ---------------------------------------------------------------------------------------
1,096,052 160,775 805,568 200,845
- ---------------------------------------------------------------------------------------
LOSS BEFORE DISCONTINUED
OPERATIONS (1,065,377) (157,692) (800,748) (198,093)
LOSS FROM DISCONTINUED
OPERATIONS [NOTE 11] (220,314) (6,680) (14,179) --
- ---------------------------------------------------------------------------------------
NET LOSS FOR THE PERIOD (1,285,691) (164,372) (814,927) (198,093)
DEFICIT, BEGINNING OF PERIOD (1,013,020) (198,093) (198,093) --
- ---------------------------------------------------------------------------------------
DEFICIT, END OF PERIOD (2,298,711) (362,465) (1,013,020) (198,093)
=======================================================================================
</TABLE>
See accompanying notes
<PAGE> 101
-100-
FUTURELINK DISTRIBUTION CORP.
(an Alberta Corporation)
STATEMENTS OF CASH FLOWS
(all amounts stated in $ Cdn.)
<TABLE>
<CAPTION>
PERIOD
SIX MONTHS ENDED JUNE 30 YEAR ENDED FROM MARCH 28 TO
------------------------- DECEMBER 31 DECEMBER 31
1998 1997 1997 1996
(Unaudited) (Unaudited)
$ $ $ $
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH WAS PROVIDED BY (USED
FOR):
Loss before discontinued
operations (1,065,377) (157,692) (800,748) (198,093)
Add items not affecting cash:
Depreciation and
amortization 72,036 2,849 50,138 2,145
- --------------------------------------------------------------------------------------------
(993,341) (154,843) (750,610) (195,948)
Net change in non-cash
working capital related to
operating activities
[note 10] (339,671) (24,483) 371,892 (73,869)
- --------------------------------------------------------------------------------------------
Cash used for continuing
operations (1,333,012) (179,326) (378,718) (269,817)
- --------------------------------------------------------------------------------------------
Loss from discontinued
operations (220,314) (6,680) (14,179) --
Add item not affecting cash:
Loss on discontinuance 60,616 -- -- --
- --------------------------------------------------------------------------------------------
Cash used for discontinued
operations (159,698) (6,680) (14,179) --
- --------------------------------------------------------------------------------------------
(1,492,710) (186,006) (392,897) (269,817)
- --------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of capital assets (370,173) (68,019) (279,523) (11,690)
Incorporation costs -- -- -- (1,000)
- --------------------------------------------------------------------------------------------
(370,173) (68,019) (279,523) (12,690)
- --------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from issuance of
common shares 333,775 160,000 362,360 370,329
Advances from shareholders (72,357) 31,500 85,515 2,030
Advances from FutureLink
Distribution Corp. 1,859,423 -- -- --
Increase in capital lease
obligation 9,590 -- 50,079 --
Increase (decrease) in note
payable (45,463) -- 95,500 --
- --------------------------------------------------------------------------------------------
2,084,968 191,500 593,454 372,359
- --------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH 222,085 (62,525) (78,966) 89,852
CASH AND SHORT TERM
DEPOSITS, END OF PERIOD 232,971 27,327 10,886 --
- --------------------------------------------------------------------------------------------
CASH, BEGINNING OF PERIOD 10,886 89,852 89,852 89,852
============================================================================================
</TABLE>
See accompanying notes
<PAGE> 102
101
FUTURELINK DISTRIBUTION CORP. (an Alberta Corporation)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
INFORMATION AS AT AND FOR THE PERIODS ENDED
JUNE 30, 1998 AND 1997 IS UNAUDITED
1. DESCRIPTION OF BUSINESS
The Company was incorporated under the Business Corporations Act
(Alberta) on March 28, 1996 as 689936 Alberta Ltd. The name of the
Company was changed to Coffee.com Interactive Cafe Corp. by articles of
amendment on June 19, 1996. The name of the Company was subsequently
changed to FutureLink Distribution Corp. on November 17, 1997.
The Company is in the initial stages of development. Its future
viability is dependent upon management's ability to generate revenues or
secure additional financing to support continued service.
2. SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the Company have been prepared in accordance
with accounting principles generally accepted in Canada. Differences
between accounting principles generally accepted in the United States
and Canada would have no material impact on these financial statements.
Because a precise determination of many assets and liabilities is
dependent upon future events, the preparation of financial statements
for a period necessarily involves the use of estimates and
approximations which have been made using careful judgment. The
financial statements have, in management's opinion, been properly
prepared within reasonable limits of materiality and within the
framework of the significant account policies summarized below.
CAPITAL ASSETS
Capital assets are recorded at cost. Depreciation is recorded at the
following rates:
<TABLE>
<S> <C>
Furniture and fixtures 20% declining balance
Computer hardware 30% declining balance
Computer software 100% declining balance
Leasehold improvements 5 years straight line
</TABLE>
One half of the normal depreciation is taken in the year of acquisition.
INCORPORATION COSTS
Incorporation costs are recorded at cost and are amortized on a straight
line basis over five years.
FINANCIAL INSTRUMENTS
The carrying values of financial instruments, including cash, accounts
receivable, accounts payable and accrued liabilities, notes payable, due
to shareholders, note payable, and long term debt, approximate their
fair values.
<PAGE> 103
102
FUTURELINK DISTRIBUTION CORP. (an Alberta corporation)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
INFORMATION AS AT AND FOR THE PERIODS ENDED
JUNE 30, 1998 AND 1997 IS UNAUDITED
3. CAPITAL ASSETS
<TABLE>
<CAPTION>
JUNE 30, 1998
-------------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
$ $ $
------------------------------------------------------------------------------
<S> <C> <C> <C>
Furniture and fixtures 67,290 8,785 58,505
Computer hardware 404,211 75,916 328,295
Computer software 92,916 33,779 59,137
Leasehold improvements 74,352 5,239 69,113
------------------------------------------------------------------------------
638,769 123,719 515,050
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
$ $ $
------------------------------------------------------------------------------
<S> <C> <C> <C>
Furniture and fixtures 33,385 4,346 29,039
Computer hardware 226,854 35,239 191,615
Computer software 20,830 11,284 9,546
Leasehold improvements 10,145 1,015 9,130
------------------------------------------------------------------------------
291,214 51,884 239,330
=======================================================================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
$ $ $
------------------------------------------------------------------------------
<S> <C> <C> <C>
Furniture and fixtures 5,595 559 5,036
Computer hardware 4,747 712 4,035
Computer software 1,348 674 674
------------------------------------------------------------------------------
11,690 1,945 9,745
================================================================================
</TABLE>
Included in computer hardware at June 30, 1998 are assets under capital
lease of $84,802 (December 31, 1997 - $61,069; December 31, 1996 - $Nil)
and related accumulated depreciation of $18,727 (December 31, 1997 -
$9,160).
<PAGE> 104
103
FUTURELINK DISTRIBUTION CORP. (an Alberta corporation)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
INFORMATION AS AT AND FOR THE PERIODS ENDED
JUNE 30, 1998 AND 1997 IS UNAUDITED
4. INCORPORATION COSTS
<TABLE>
<CAPTION>
JUNE 30, 1998
------------------------------------------
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
$ $ $
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Incorporation costs 1,000 600 400
================================================================================
</TABLE>
<TABLE>
DECEMBER 31, 1997
------------------------------------------
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
$ $ $
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Incorporation costs 1,000 400 600
================================================================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------
Accumulated Net Book
Cost Amortization Value
$ $ $
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Incorporation costs 1,000 200 800
--------------------------------------------------------------------------------
</TABLE>
5. LEASE COMMITMENTS
The future minimum lease payments at June 30, 1998 under capital and
operating leases are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
$ $
-------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 25,435 72,903
1999 30,414 131,740
2000 8,843 131,184
2001 1,474 124,938
2002 -- 40,952
-------------------------------------------------------------------------------
Total future minimum lease payments 66,166 501,717
=========
Less: imputed interest (6,497)
------------------------------------------------------------------
Balance of obligations under capital lease 59,669
Less: current portion (42,879)
------------------------------------------------------------------
Long term obligation under capital lease 16,790
==================================================================
</TABLE>
<PAGE> 105
104
FUTURELINK DISTRIBUTION CORP. (an Alberta corporation)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
INFORMATION AS AT AND FOR THE PERIODS ENDED
JUNE 30, 1998 AND 1997 IS UNAUDITED
6. NOTES PAYABLE
The notes payable are due to 679132 Alberta Ltd., a corporation
controlled by a director and officer of the Company. The notes are
payable on demand on or before December 31, 1998. Interest accrues on
the notes at the prime rate of a Canadian chartered bank plus 1%. These
notes were repaid in full in July, 1998.
7. SHARE CAPITAL
AUTHORIZED:
Unlimited Class "A" common shares
Unlimited Class "B" non-voting common shares
Unlimited first preferred shares
<TABLE>
<CAPTION>
ISSUED Shares $
----------------------
<S> <C> <C>
Class A common shares
Balance at December 31, 1996 3,660,000 370,329
Rollback of initial founder shares (1,400,000) (140)
Shares issued for cash during the year, net of issue 367,500 362,500
costs of $5,000
Shares issued to key employees 325,000 --
--------------------------------------------------------------------------------
Balance, December 31, 1997 2,952,500 732,689
Shares issued for cash 145,000 145,000
Shares issued as compensation 188,775 188,775
--------------------------------------------------------------------------------
Balance, June 30, 1998 3,286,275 1,066,464
================================================================================
</TABLE>
At June 30, 1998, there were 165,000 (December 31, 1997 - 225,000) Class
A common shares reserved for issuance on exercise of stock options, of
which 45,000 were exercised subsequent to June 30, 1998. These remaining
120,000 options outstanding may be exercised at a price of $1.00 per
share and expire on August 26, 1998.
8. RELATED PARTY TRANSACTIONS
At June 30, 1998, the Company had amounts due to shareholders of $15,188
(December 31, 1997 - $87,545; 1996 - $2,030).
At June 30, 1998, the Company had amounts owing to 679132 Alberta Ltd.,
a corporation controlled by a director and officer of the Company of
$47,000 plus $3,037 of accrued interest (1997 - $95,500). This amount is
due on or before December 31, 1998. Interest is accumulated at the Royal
Bank of Canada prime plus 1%.
<PAGE> 106
105
FUTURELINK DISTRIBUTION CORP. (an Alberta corporation)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
INFORMATION AS AT AND FOR THE PERIODS ENDED
JUNE 30, 1998 AND 1997 IS UNAUDITED
During the year, the Company received $1,859,423 of cash advances from a
significant shareholder, FutureLink Distribution Corp., a Colorado
corporation, which remains payable at June 30, 1998. The amount does not
carry interest and has no set repayment terms. The Company has been
advised by its shareholder that it does not intend to demand repayment
within the next year; consequently, this amount has been classified as
long-term in the financial statements.
As at December 31, 1996 there is an amount of $104,500 including accrued
interest owing from a corporation controlled by a director of the
Company. This amount was repaid during 1997.
Included in accounts receivable at June 30, 1998 are amounts due from
two shareholders of the Company, FutureLink Distribution Corp., a
Colorado corporation, and Chell McNeill Inc. for $18,893 and $9,681
respectively (December 31, 1997 and 1996 - $Nil).
9. INCOME TAXES
As at December 31, 1997, the Company has approximately $950,000 of
non-capital loss carry forwards for tax purposes. The potential future
benefit of these losses has not been recognized in these financial
statements. These losses expire in 2004 and 2005.
10. NET CHANGE IN NON-CASH WORKING CAPITAL BALANCES RELATED TO OPERATING
ACTIVITIES
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD
JUNE 30 YEAR ENDED FROM MARCH 28 TO
---------------------- DECEMBER 31 DECEMBER 31
1998 1997 1997 1996
$ $ $ $
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Accounts receivable (21,963) (11,806) (44,964) (8,158)
Inventory (3,643) -- -- --
Prepaid expenses and deposits (75,535) (25,689) (8,767) (1,669)
Notes receivable -- -- 104,500 (104,500)
Accounts payable and accrued
liabilities (238,530) 13,012 321,123 40,458
---------------------------------------------------------------------------------------
(339,671) (24,483) 371,892 (73,869)
=======================================================================================
</TABLE>
<PAGE> 107
106
FUTURELINK DISTRIBUTION CORP. (an Alberta corporation)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
INFORMATION AS AT AND FOR THE PERIODS ENDED
JUNE 30, 1998 AND 1997 IS UNAUDITED
11. DISCONTINUED OPERATIONS
Effective April 23, 1998, the Company discontinued its operations that
provided Internet web page design services. The remaining assets and
liabilities related to these operations have been written down to $1
resulting in a loss on discontinuance of $60,616. On July 1, 1998, the
Company disposed of the discontinued operations in exchange for an
investment in 50% of the common shares of NextClick Ltd. The fair market
value of this investment has been estimated at $1.
During the period, revenues and results of the discontinued operations
were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD
JUNE 30 YEAR ENDED FROM MARCH 28 TO
---------------------- DECEMBER 31 DECEMBER 31
1998 1997 1997 1996
$ $ $ $
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue 21,190 -- 22,585 --
--------------------------------------------------------------------------------------
Results of operations (159,698) (6,680) (14,179) --
Loss on discontinuance (60,616) -- -- --
--------------------------------------------------------------------------------------
(220,314) (6,680) (14,179) --
======================================================================================
</TABLE>
12. CONTINGENCY
A statement of claim has been filed against the Company in the amount of
$285,000 seeking damages and loss of rent related to a purported lease
agreement with respect to a building in Calgary, Alberta. The Company is
counter claiming an amount of $360,000 against the claimant. It is
impossible at this time for the Company to predict with any certainty
the outcome of such litigation. However, management is of the opinion
that the claim is without merit and will defend the Company's position
vigorously. These financial statements contain no provision for loss
related to the claims.
<PAGE> 108
107
EXHIBIT "D"
LETTERHEAD OF
BUCHANAN, BARRY & CO.
CHARTERED ACCOUNTANTS
AUDITOR'S REPORT
To the Directors of
Riverview Management Corporation
We have audited the consolidated balance sheet of Riverview Management
Corporation as at October 31, 1997 and 1996 and the consolidated statements of
earnings and retained earnings and changes in financial position for the years
then ended. These consolidated financial statements are the responsibility of
the company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance whether the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated financial
statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at October 31, 1997
and 1996 and the results of its operations and the changes in its financial
position for the years then ended in accordance with generally accepted
accounting principles.
Calgary, Alberta "Buchanan, Barry & Co."
August 13, 1998,except as to note 6(b) CHARTERED ACCOUNTANTS
Which is as of September 24, 1998
<PAGE> 109
108
RIVERVIEW MANAGEMENT CORPORATION
CONSOLIDATED BALANCE SHEET
OCTOBER 31, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
CURRENT
Cash $ 37,931 $ 9,343
Accounts receivable 1,365,544 1,080,261
Prepaid expenses 9,011 665
Inventory 11,673 6,840
---------- ----------
1,424,159 1,097,109
CAPITAL ASSETS (Note 2) 202,823 67,319
DEPOSITS 6,663 --
---------- ----------
$1,633,645 $1,164,428
========== ==========
LIABILITIES
CURRENT
Accounts payable and accrued liabilities $ 991,698 $ 917,725
Bonus payable 184,500 108,600
Income taxes payable 134,190 14,261
Deferred revenue -- 13,778
Loan payable 33,782 33,782
Shareholder loans 2,479 3,527
Current portion of obligation under capital lease 32,821 --
Current portion of long-term debt (Note 3) -- 5,555
---------- ----------
1,379,470 1,097,228
OBLIGATION UNDER CAPITAL LEASE (Note 4) 55,303 --
---------- ----------
1,434,773 1,097,228
MINORITY INTEREST 56,895 20,534
---------- ----------
1,491,668 1,117,762
---------- ----------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 5) 40 40
RETAINED EARNINGS
141,937 46,626
---------- ----------
141,977 46,666
---------- ----------
$1,633,645 $1,164,428
========== ==========
</TABLE>
<PAGE> 110
109
APPROVED ON BEHALF OF THE BOARD
(Signed) "DONALD A. BIALIK"
- ------------------------------------
Donald A. Bialik, Director
<PAGE> 111
110
RIVERVIEW MANAGEMENT CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS AND RETAINED EARNINGS
YEARS ENDED OCTOBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
REVENUE
System consulting $ 4,587,504 $ 2,309,576
Hardware and software sales 4,929,610 2,967,732
Sundry 3,675 9,949
----------- -----------
9,520,789 5,287,257
----------- -----------
EXPENSES
Advertising and promotion 97,897 42,430
Amortization 73,747 57,218
Automotive 37,860 25,947
Bad debts 5,878 3,556
Bank charges and interest 15,986 13,474
Employee benefits 343,976 173,462
Equipment rental 12,720 --
Hardware and software purchases 4,500,816 2,724,037
Interest on long-term debt and capital lease obligation 4,629 4,150
Management fees -- 74,357
Memberships and subscriptions 26,161 27,351
Office 58,304 37,917
Out sourced administration 3,802 12,679
Professional fees 86,990 74,624
Rent 100,935 32,520
Repairs and maintenance 2,770 3,177
Salaries 2,589,611 1,386,708
Staff development 171,853 69,812
Supplies 18,727 23,067
System consultants 901,976 354,185
Telephone 132,503 78,630
Travel 21,056 18,097
----------- -----------
9,208,197 5,236,768
----------- -----------
EARNINGS BEFORE INCOME TAXES 312,592 50,489
INCOME TAXES 134,920 14,991
----------- -----------
177,672 35,498
MINORITY INTEREST 36,361 8,822
----------- -----------
NET EARNINGS 141,311 26,676
RETAINED EARNINGS, beginning of year 46,626 65,950
----------- -----------
187,937 92,626
DIVIDENDS (46,000) (46,000)
----------- -----------
</TABLE>
<PAGE> 112
111
<TABLE>
<S> <C> <C>
RETAINED EARNINGS, end of year $ 141,937 $ 46,626
=========== ===========
</TABLE>
<PAGE> 113
112
RIVERVIEW MANAGEMENT CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
YEARS ENDED OCTOBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 141,311 $ 26,676
Adjustments to operations not involving cash
Amortization 73,747 57,218
Minority interest 36,361 8,822
--------- ---------
251,419 92,716
--------- ---------
Change in non-cash working capital items
Accounts receivable (285,283) (636,392)
Prepaid expense (8,346) 335
Inventory (4,833) 16,528
Accounts payable and accrued liabilities 73,973 552,704
Deferred revenue (13,778) (496)
Income taxes payable 119,929 (6,017)
Bonus payable 75,900 78,600
--------- ---------
(42,438) 5,262
--------- ---------
208,981 97,978
--------- ---------
INVESTING ACTIVITIES
Acquisition of capital assets (209,251) (66,001)
Advancement of deposits (6,663) --
--------- ---------
(215,914) (66,001)
--------- ---------
FINANCING ACTIVITIES
Advances (to) from shareholders (1,048) 5,423
Dividends paid to minority shareholders -- (2,128)
Advancement of capital lease obligation 104,376 --
Repayment of capital lease obligation (16,252) --
Repayment of long-term debt (5,555) (13,332)
Dividends paid (46,000) (46,000)
--------- ---------
35,521 (56,037)
--------- ---------
NET CHANGE IN CASH 28,588 (24,060)
CASH, beginning of year 9,343 33,403
--------- ---------
CASH, end of year $ 37,931 $ 9,343
========= =========
</TABLE>
<PAGE> 114
113
RIVERVIEW MANAGEMENT CORPORATION
NOTES TO FINANCIAL CONSOLIDATED STATEMENTS
OCTOBER 31, 1997 AND 1996
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include the accounts of the
company, its wholly-owned subsidiary Sysgold Inc. and Sysgold Ltd., an
entity controlled by the company. The consolidated financial statements
are prepared in accordance with accounting principles generally accepted
in Canada. The fiscal year of the parent company is September 30th and
the fiscal year of the two subsidiaries is October 31st.
INVENTORY
Inventory has been valued at the lower of cost or net realizable value.
Cost being determined on a first-in first-out basis.
CAPITAL ASSETS
Capital assets are recorded at cost. Amortization is provided annually
at rates calculated to write-off the assets over their estimated useful
lives as follows:
<TABLE>
<S> <C>
Cellular phones 2.7% per month straight line
Computer hardware 4% per month straight line
Computer software 100% per annum declining balance
Leasehold improvements straight-line over the term of the lease
Office equipment 20% per annum declining balance
Equipment under capital lease 20% per annum declining balance
</TABLE>
MEASUREMENT UNCERTAINTY
The amount recorded for amortization of capital assets is based on
estimates. Management requires estimates to forecast economic indicators
for determining the net recoverable amount of such assets under
generally accepted accounting principles. By their nature, these
estimates are subject to measurement uncertainty and the effect of any
changes in such estimates on the financial statements of future periods
could be material. Management periodically reviews the useful lives of
these assets to determine the adequacy of the amortization policy.
2. CAPITAL ASSETS
<TABLE>
<CAPTION>
1997 1996
------------------------------------------------------
Accumulated Net Book Net Book
COST AMORTIZATION VALUE VALUE
<S> <C> <C> <C> <C>
Cellular phones $ 31,125 $ 15,551 $ 15,574 $11,323
Computer hardware 215,111 167,779 47,332 44,460
Computer software 21,896 19,444 2,452 1,723
Leasehold improvements 36,272 6,676 29,596 204
Office equipment 15,071 5,658 9,413 9,609
Equipment under
capital lease 104,377 5,921 98,456 --
-------- -------- -------- -------
$423,852 $221,029 $202,823 $67,319
======== ======== ======== =======
</TABLE>
<PAGE> 115
114
<PAGE> 116
115
RIVERVIEW MANAGEMENT CORPORATION
NOTES TO FINANCIAL CONSOLIDATED STATEMENTS
OCTOBER 31, 1997 AND 1996
3. LONG-TERM DEBT
<TABLE>
<CAPTION>
1997 1996
--------- -------
<S> <C> <C>
Bank loan bearing interest at prime plus 1%, secured
by general assignment of book debts and a chattel
mortgage over equipment $ -- $ 5,555
Less current portion $ -- $(5,555)
--------- -------
$ -- $ --
========= =======
</TABLE>
4. OBLIGATION UNDER CAPITAL LEASE
<TABLE>
<CAPTION>
1997 1996
--------- -----
<S> <C> <C>
The following is a schedule of future minimum lease
payments under capital leases expiring between
July 1999 and July 2000
Year ending October 31,
1998 $ 49,819 $ --
1999 46,155 --
2000 19,370 --
--------- -----
Total minimum lease payments 115,344 --
Less amount representing interest imputed at rates of 14-34% (27,220) --
--------- -----
Balance of obligation 88,124 --
Less current portion of obligation 32,821 --
--------- -----
Long-term portion of obligation $ 55,303 $ --
========= =====
</TABLE>
5. SHARE CAPITAL
<TABLE>
<CAPTION>
1997 1996
--------- -----
<S> <C> <C>
Authorized
Unlimited number of
Class A common voting shares
Class B common non-voting shares
Class C common non-voting shares
Class D common non-voting 8% non-cumulative
preferred shares with a redemption price of
$1 per share
Issued
100 Class A shares $ 10 $ 10
100 Class B shares 10 10
100 Class C shares 10 10
10 Class D shares 10 10
--------- -----
$ 40 $ 40
========= =====
</TABLE>
<PAGE> 117
116
<PAGE> 118
117
RIVERVIEW MANAGEMENT CORPORATION
NOTES TO FINANCIAL CONSOLIDATED STATEMENTS
OCTOBER 31, 1997 AND 1996
6. SUBSEQUENT EVENT
(a) The company purchased the remaining 33% interest in its
subsidiary Sysgold Ltd. from the minority shareholder for cash
proceeds of $315,000 on July 24, 1998. The shareholder buy-out
was based on an effective valuation date of April 30, 1996. The
purchase was accounted for using the purchase method. The
purchase price allocation is estimated as follows:
<TABLE>
<S> <C>
NET ASSETS ACQUIRED
Current assets $514,182
Capital assets 67,257
Other assets 20,728
Goodwill 222,886
--------
825,053
--------
Current liabilities 411,740
Other liabilities 98,313
--------
510,053
--------
Net assets $315,000
========
</TABLE>
(b) A statement of claim was filed on August 19, 1998 against the
corporation in the amount of $150,000 seeking damages for
wrongful termination of a consulting contract. Management does
not believe there is any merit to the lawsuit and it will be
vigorously defended.
7. COMMITMENTS
The company is committed under various operating leases including:
office equipment lease; $930 per month expiring May 2000, premises
lease; $3,653 per month expiring January 2002 and vehicle lease; $1,693
per month commencing March 1998 and expiring March 2001. The basic
minimum lease payments for the duration of the agreements are as
follows:
<TABLE>
<S> <C>
1998 $ 68,535
1999 75,311
2000 70,661
2001 64,151
2002 10,958
--------
$289,616
========
</TABLE>
<PAGE> 119
118
EXHIBIT "E"
RIVERVIEW MANAGEMENT CORPORATION
CONSOLIDATED BALANCE SHEET
JUNE 30, 1998 AND 1997
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
CURRENT
Accounts receivable $1,510,276 $1,539,994
Prepaid expenses 15,725 15,679
Inventory 19,041 51,840
---------- ----------
1,545,042 1,607,513
CAPITAL ASSETS (Note 2) 206,577 111,552
DEPOSITS 8,183 6,663
---------- ----------
$1,759,802 $1,725,728
========== ==========
LIABILITIES
CURRENT
Bank indebtedness $ 174,124 $ 101,401
Accounts payable and accrued liabilities 937,919 1,162,768
Income taxes payable 162,250 141,550
Loan payable 28,136 33,782
Shareholder loans 128,933 24,577
Current portion of obligation under capital lease 49,821 --
---------- ----------
1,481,183 1,464,078
OBLIGATION UNDER CAPITAL LEASE (Note 3) 17,250 --
---------- ----------
1,498,433 1,464,078
MINORITY INTEREST 21,676 83,600
---------- ----------
1,520,109 1,547,678
---------- ----------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 4) 40 40
RETAINED EARNINGS 239,653 178,010
---------- ----------
239,693 178,050
---------- ----------
$1,759,802 $1,725,728
========== ==========
</TABLE>
<PAGE> 120
119
RIVERVIEW MANAGEMENT CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS AND RETAINED EARNINGS
EIGHT MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
REVENUE
System consulting $ 4,232,998 $ 2,863,237
Hardware and software sales 3,611,356 2,628,859
Sundry 191 577
----------- -----------
7,844,545 5,492,673
----------- -----------
EXPENSES
Advertising and promotion 85,851 52,471
Amortization 68,510 43,775
Automotive 38,590 18,662
Bad debts 7,475 3,300
Bank charges and interest 23,764 11,283
Equipment rental 7,280 8,498
Hardware and software purchases 3,314,946 2,403,900
Interest on capital lease obligation 12,161 --
Office 95,677 41,926
Professional fees 63,321 40,821
Rent 75,501 57,308
Salaries 3,500,311 2,217,073
Staff development 253,452 125,243
Telephone 109,917 78,351
Travel 14,017 8,063
----------- -----------
7,670,773 5,110,674
----------- -----------
EARNINGS BEFORE INCOME TAXES 173,772 381,999
INCOME TAXES 65,275 141,550
----------- -----------
108,497 240,449
MINORITY INTEREST (35,219) 63,065
----------- -----------
NET EARNINGS 143,716 177,384
RETAINED EARNINGS, beginning of period 141,937 46,626
----------- -----------
285,653 224,010
DIVIDENDS (46,000) (46,000)
----------- -----------
RETAINED EARNINGS, end of period $ 239,653 $ 178,010
=========== ===========
</TABLE>
<PAGE> 121
120
RIVERVIEW MANAGEMENT CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
EIGHT MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 143,716 $ 177,384
--------- ---------
Adjustments to operations not involving cash
Amortization 68,510 43,775
Minority interest (35,219) 63,065
--------- ---------
177,007 284,224
--------- ---------
Change in non-cash working capital items
Accounts receivable (144,732) (459,733)
Prepaid expense (6,714) (15,014)
Inventory (7,368) (45,000)
Accounts payable and accrued liabilities (53,779) 245,041
Deferred revenue -- (13,778)
Income taxes payable 28,060 127,289
Bonus payable (184,500) (108,600)
--------- ---------
(369,033) (269,795)
--------- ---------
(192,026) 14,429
--------- ---------
INVESTING ACTIVITIES
Acquisition of capital assets (72,264) (88,005)
Advancement of deposits (1,520) (6,663)
--------- ---------
(73,784) (94,668)
--------- ---------
FINANCING ACTIVITIES
Advances to shareholder 126,454 21,050
Repayment of loan payable (5,646) --
Repayment of capital lease obligation (21,053) --
Repayment of long-term debt -- (5,555)
Dividends paid (46,000) (46,000)
--------- ---------
53,755 (30,505)
--------- ---------
NET CHANGE IN CASH (BANK INDEBTEDNESS) (212,055) (110,744)
CASH, beginning of period 37,931 9,343
--------- ---------
BANK INDEBTEDNESS, end of period $(174,124) $(101,401)
========= =========
</TABLE>
<PAGE> 122
121
RIVERVIEW MANAGEMENT CORPORATION
NOTES TO FINANCIAL CONSOLIDATED STATEMENTS
JUNE 30, 1998 AND 1997
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include the accounts of the
company, its wholly-owned subsidiary Sysgold Inc. and Sysgold Ltd., an
entity controlled by the company. The consolidated financial statements
are prepared in accordance with accounting principles generally accepted
in Canada. The consolidated financial statements represent nine months
of the parent company and eight months of the subsidiaries as a result
of different fiscal year-ends.
INVENTORY
Inventory has been valued at the lower of cost or net realizable value.
Cost being determined on a first-in first-out basis.
CAPITAL ASSETS
Capital assets are recorded at cost. Amortization is provided annually
at rates calculated to write-off the assets over their estimated useful
lives as follows:
<TABLE>
<S> <C>
Cellular phones 2.7% per month straight line
Computer hardware 4% per month straight line
Computer software 100% per annum declining balance
Leasehold improvements Straight-line over the term of the lease
Office equipment 20% per annum declining balance
Equipment under capital 20% per annum declining balance lease
</TABLE>
MEASUREMENT UNCERTAINTY
The amount recorded for amortization of capital assets is based on
estimates. Management requires estimates to forecast economic indicators
for determining the net recoverable amount of such assets under
generally accepted accounting principles. By their nature, these
estimates are subject to measurement uncertainty and the effect of any
changes in such estimates on the financial statements of future periods
could be material. Management periodically reviews the useful lives of
these assets to determine the adequacy of the amortization policy.
2. CAPITAL ASSETS
<TABLE>
<CAPTION>
1998 1997
----------------------------------------------------
ACCUMULATED NET BOOK NET BOOK
COST AMORTIZATION VALUE VALUE
<S> <C> <C> <C> <C>
Cellular phones $ 44,529 $ 23,007 $ 21,522 $ 15,844
Computer hardware 254,812 201,962 52,850 49,339
Computer software 28,752 25,883 2,869 4,354
Leasehold improvements 39,081 11,692 27,389 30,795
Office equipment 24,564 7,945 16,619 11,220
Equipment under capital
lease 104,377 19,049 85,328 --
-------- -------- -------- --------
$496,115 $289,538 $206,577 $111,552
======== ======== ======== ========
</TABLE>
<PAGE> 123
122
RIVERVIEW MANAGEMENT CORPORATION
NOTES TO FINANCIAL CONSOLIDATED STATEMENTS
JUNE 30, 1998 AND 1997
(Unaudited)
3. OBLIGATION UNDER CAPITAL LEASE
<TABLE>
<CAPTION>
1998 1997
-------- ------
<S> <C> <C>
The following is a schedule of future minimum lease
payments under capital leases expiring between
July 1999 and July 2000
Year ending October 31,
1998 $ 49,819 $ --
1999 30,222 --
2000 2,090 --
-------- ------
Total minimum lease payments 82,131 --
Less amount representing interest imputed at rates of 14-34% (15,060) $ --
-------- ------
Balance of obligation 67,071 --
Less current portion of obligation (49,821) --
-------- ------
Long-term portion of obligation $ 17,250 $ --
======== ======
</TABLE>
4. SHARE CAPITAL
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Authorized
Unlimited number of
Class A common voting shares
Class B common non-voting shares
Class C common non-voting shares
Class D common non-voting 8% non-cumulative preferred
shares with a redemption price of $1 per share
Issued
100 Class A shares $ 10 $ 10
100 Class B shares 10 10
100 Class C shares 10 10
10 Class D shares 10 10
------ ------
$ 40 $ 40
====== ======
</TABLE>
<PAGE> 124
123
RIVERVIEW MANAGEMENT CORPORATION
NOTES TO FINANCIAL CONSOLIDATED STATEMENTS
JUNE 30, 1998 AND 1997
5. SUBSEQUENT EVENT
(a) The company purchased the remaining 33% interest in its subsidiary
Sysgold Ltd. from the minority shareholder for cash proceeds of $315,000
on July 24, 1998. The shareholder buy-out was based on an effective
valuation date of April 30, 1996. The purchase was accounted for using
the purchase method. The purchase price allocation is estimated as
follows:
<TABLE>
<S> <C>
NET ASSETS ACQUIRED
Current assets $514,182
Capital assets 67,257
Other assets 20,728
Goodwill 222,886
--------
825,053
--------
Current liabilities 411,740
Other liabilities 98,313
--------
510,053
--------
Net assets $315,000
========
</TABLE>
(b) A statement of claim was filed on August 19, 1998 against the
corporation in the amount of $150,000 seeking damages for wrongful
termination of a consulting contract. Management does not believe there
is any merit to the lawsuit and it will be defended vigorously.
6. COMMITMENTS
The company is committed under various operating leases including:
office equipment lease; $930 per month expiring May 2000, premises
lease; $3,653 per month expiring January 2002 and vehicle lease; $1,693
per month commencing March 1998 and expiring March 2001. The basic
minimum lease payments for the duration of the agreements are as
follows:
<TABLE>
<S> <C>
1999 75,311
2000 74,381
2001 59,068
2002 25,571
--------
$234,331
========
</TABLE>
<PAGE> 125
124
EXHIBIT "F"
SECTION 184 OF THE BUSINESS CORPORATIONS ACT (ALBERTA)
184 (1) Subject to sections 185 and 234, a holder of shares of any
class of a corporation may dissent if the corporation resolves
to:
(a) amend its articles under section 167 or 168 to add, change
or remove any provisions restricting or constraining the
issue or transfer of shares of that class,
(b) amend its articles under section 167 to add, change or
remove any restrictions on the business or businesses that
the corporation may carry on,
(c) amalgamate with another corporation, otherwise than under
section 178 or 180.1,
(d) be continued under the laws of another jurisdiction under
section 182, or
(e) sell, lease or exchange all or substantially all its
property under section 183.
(2) A holder of shares of any class or series of shares entitled
to vote under section 170, other than section 170(1) (a), may
dissent if the corporation resolves to amend its articles in a
manner described in that section.
(3) In addition to any other right he may have, but subject to
subsection 20, a shareholder entitled to dissent under this
section and who complies with this section is entitled to be
paid by the corporation the fair value of the shares held by him
in respect of which he dissents, determined as of the close of
business on the last business day before the day on which the
resolution from which he dissents was adopted.
(4) A dissenting shareholder may only claim under this section
with respect to all the shares of a class held by him or on
behalf of any one beneficial owner and registered in the name of
the dissenting shareholder.
(5) A dissenting shareholder shall send to the corporation a
written objection to a resolution referred to in subsection 1 or
2:
(a) at or before any meeting of shareholders at which the
resolution is to be voted on, or
<PAGE> 126
125
(b) if the corporation did not send notice to the shareholder
of the purpose of the meeting or of his right to dissent,
within a reasonable time after he learns that the
resolution was adopted and of his right to dissent.
(1) An application may be made to the Court by originating notice
after the adoption of a resolution referred to in subsection 1 or
2,
(a) by the corporation, or;
(b) by a shareholder if he has sent an objection to the
corporation under subsection 5, to fix the fair value in
accordance with subsection 3 of the shares of a
shareholder who dissents under this section.
(2) If an application is made under subsection 6, the corporation
shall, unless the Court otherwise orders, send to each dissenting
shareholder a written offer to pay him an amount considered by
the directors to be the fair value of the shares.
(3) Unless the Court otherwise orders, an offer referred to in
subsection 7 shall be sent to each dissenting shareholder:
(a) at least 10 days before the date on which the application
is returnable, if the corporation is the applicant, or
(b) within 10 days after the corporation is served with a copy
of the originating notice, if a shareholder is the
applicant.
(4) Every offer made under subsection 7 shall:
(a) be made on the same terms, and
(b) contain or be accompanied by a statement showing how the
fair value was determined.
(5) A dissenting shareholder may make an agreement with the
corporation for the purchase of his shares by the corporation, in
the amount of the corporation's offer under subsection 7 or
otherwise, at any time before the Court pronounces an order
fixing the fair value of the shares.
(6) A dissenting shareholder
(a) is not required to give security for costs in respect of
an application under subsection 6, and
<PAGE> 127
126
(b) except in special circumstances shall not be required to
pay the costs of the application or appraisal.
(7) In connection with an application under subsection 6, the
Court may give directions for
(a) joining as parties all dissenting shareholders whose
shares have not been purchased by the corporation and for
the representation of dissenting shareholders who, in the
opinion of the Court, are in need of representation,
(b) the trial of issues and interlocutory matters, including
pleadings and examinations for discovery,
(c) the payment to the shareholder of all or part of the sum
offered by the corporation for the shares,
(d) the deposit of the share certificates with the Court or
with the corporation or its transfer agent,
(e) the appointment and payment of independent appraisers, and
the procedures to be followed by them,
(f) the service of documents, and
(g) the burden of proof on the parties.
(8) On an application under subsection 6, the Court shall make an
order:
(a) fixing the fair value of the shares in accordance with
subsection 3 of all dissenting shareholders who are
parties to the application,
(b) giving judgment in that amount against the corporation and
in favour of each of those dissenting shareholders, and
(c) fixing the time within which the corporation must pay that
amount to a shareholder.
(9) On
(a) the action approved by the resolution from which the
shareholder dissents becoming effective,
(b) the making of an agreement under subsection 10 between the
corporation and the dissenting shareholder as to the
payment to be made by the corporation for his shares,
whether by the acceptance of the corporation's offer under
subsection 7 or otherwise, or
<PAGE> 128
127
(c) the pronouncement of an order under subsection 13,
whichever first occurs, the shareholder cease to have any
rights as a shareholder other than the right to be paid
the fair value of his shares in the amount agreed to
between the corporation and the shareholder or in the
amount of the judgment, as the case may be.
(10) Subsection 14(a) does not apply to a shareholder referred to
in subsection 5.b.
(11) Until one of the events mentioned in subsection 14 occurs,
(a) the shareholder may withdraw his dissent, or
(b) the corporation may rescind the resolution,
and in either event proceedings under this section shall be
discontinued.
(12) The Court may in its discretion allow a reasonable rate of
interest on the amount payable to each dissenting shareholder,
from the date on which the shareholder cease to have any rights
as a shareholder by reason of subsection 14 until the date of
payment.
(13) If subsection 20 applies, the corporation shall, within 10
days after
(a) the pronouncement of an order under subsection 13, or
(b) the making of an agreement between the shareholder and the
corporation as to the payment to be made for his shares,
notify each dissenting shareholder that it is unable
lawfully to pay dissenting shareholders for their shares.
(14) Notwithstanding that a judgment has been given in favour of
a dissenting shareholder under subsection 13(b), if subsection 20
applies, the dissenting shareholder, by written notice delivered
to the corporation within 30 days after receiving the notice
under subsection 18, may withdraw his notice of objection, in
which case the corporation is deemed to consent to the withdrawal
and the shareholder is reinstated to his full rights as a
shareholder, failing which he retains a status as a claimant
against the corporation, to be paid as soon as the corporation is
lawfully able to do so or, in a liquidation, to be ranked
subordinate to the rights of creditors of the corporation but in
priority to its shareholders.
(15) A corporation shall not make a payment to a dissenting
shareholder under this section if there are reasonable grounds
for believing that
<PAGE> 129
128
(a) the corporation is or would after the payment be unable to
pay its liabilities as they become due, or
(b) the realizable value of the corporation's assets would
thereby be less than the aggregate of its liabilities.
ADDRESS OF DEPOSITARY
Beaumont Church
Suite 2200, AGT Tower
411 - 1st Street S.E.
Calgary, Alberta
Attention : Riaz Mamdani
Telephone: (403) 264-0000
Telecopier: (403) 264-0478
<PAGE> 1
EXHIBIT 10.1.30
EMPLOYMENT AGREEMENT
THIS AGREEMENT dated as of the day of August ___, 1998.
BETWEEN:
FUTURELINK/SYSGOLD LTD., an Alberta corporation
(hereinafter referred to as "the Employer") OF THE FIRST PART
- and -
DONALD A. BIALIK, an individual residing in the City of Calgary,
in the Province of Alberta
(hereinafter referred to as the "Executive") OF THE SECOND PART
- and -
FUTURELINK DISTRIBUTION CORP., a Colorado corporation
(hereinafter referred to as "FutureLink Colorado") OF THE THIRD PART
WHEREAS the FutureLink Colorado through its subsidiary wholly owned FutureLink
Acquisition Corp., an Alberta corporation acquired the Employer, a corporation
which carries on an IT outsourcing business;
AND WHEREAS in partial consideration for the purchase of the shares of the
Executive, FutureLink Colorado agreed to cause the Employer to employ the
Executive;
AND WHEREAS the Executive has experience in the management of IT businesses;
AND WHEREAS the Employer has agreed to retain the Executive and the Executive
has agreed to provide his services to the Employer;
AND WHEREAS Futurelink Colorado has agreed to appoint the Executive as a
director and President of FutureLink Colorado;
NOW THEREFORE, in consideration of the mutual covenants and agreements contained
herein, the parties hereto covenant and agree as follows:
DUTIES
<PAGE> 2
2
1. The Employer hereby agrees to employ the Executive as Director and President
of the Employer. The Executive shall serve the Employer in such capacity or
capacities and shall perform such duties and exercise such powers pertaining to
the management and operation of the Employer as may be determined from time to
time by the Board of Directors of the Employer, consistent with the office of
the Executive and in full compliance with all applicable federal, territorial,
provincial and local laws and regulations, and the Employer's present, future,
or amended code of conduct. Without limitation of the foregoing, the Executive
shall:
(a) devote his full time and attention during normal business hours to the
business and affairs of the Employer;
(b) perform those duties that may reasonably be assigned to him diligently,
faithfully, to the best of his abilities and in the best interests of
the Employer;
(c) promote the best interests and goodwill of the Employer.
REPORTING PROCEDURES
2. The Executive shall report to the Chief Executive Officer of the Employer.
The Executive shall report fully on the management, operation and business
affairs of the Employer and advise to the best of his ability and in accordance
with reasonable standards on business matters that may arise from time to time
during the term of this agreement.
TERM
3. The Employer shall employ the Executive for a period of three years from the
21st day of August, 1998 to and including the 20th day of August, 2001, unless
such employment shall be terminated earlier as hereinafter provided. Upon the
expiry of the term of this agreement on August 20, 2001, and on each anniversary
of such date falling thereafter, the term of this agreement shall be
automatically extended for one additional year on the same terms and conditions
unless, not less than six months prior to any such anniversary, either the
Executive or the Employer shall have given written notice to the other that it
does not wish to further extend this agreement.
REMUNERATION
4. Unless otherwise agreed, in consideration for the services provided by the
Executive, the Employer agrees to pay the Executive the following:
(1) an annual base salary in the sum of ONE HUNDRED AND EIGHTY THOUSAND
DOLLARS ($180,000.00) for the first year of the term of this agreement.
For each year thereafter the annual base salary payable to the Executive
shall be as agreed between the Employer and the Executive but in no
event shall the same be less than the annual base salary paid to the
Executive for the immediately preceding TWELVE (12) MONTH period (the
"Annual Base Salary"). The Annual Base Salary shall be payable in
accordance with the Employer's normal payroll procedures, less any and
all deductions or withholdings required by law;
<PAGE> 3
3
(2) a performance bonus, based on criteria to be set by the Board of
Directors at the next regular meeting of the Board of Directors
following execution of this Agreement, to a maximum of twenty percent
(20%) of the Annual Base Salary in respect of each year of the term of
this agreement (the "Performance Bonus");
(3) 250,000 options (the "Options"), each Option entitling the Executive to
acquire one common share of FutureLink Colorado at a price of $1.17
(U.S.) per share. The option shall vest as to one-half of the Options
immediately on the commencement of the term of this agreement and the
balance on the first anniversary of the commencement of the term. The
period for the exercise of the Options shall be three (3) years;
(4) the Executive shall be reimbursed by the Employer for all reasonable
travel and other out-of-pocket expenses actually and properly incurred
by the Executive in connection with the performance of his duties
hereunder. For all such expenses, the Executive shall furnish to the
Employer originals of all invoices, statements, receipts and vouchers as
and when requested;
(5) the Employer shall provide the Executive and his family members with
employee benefits comparable to those provided by the Employer from time
to time to other senior executives of the Employer;
(6) other than as herein provided, there shall be no cost-of-living increase
or merit increase in the Annual Base Salary or the Performance Bonus
unless agreed to in writing by the Board of Directors.
VACATION
5. The Executive shall be entitled to _____ weeks' paid vacation per fiscal year
of the Employer at a time approved in advance by the Chief Executive Officer of
the Employer, which approval shall not be unreasonably withheld, but shall take
into account the staffing requirements of the Employer and the need for the
timely performance of the Executive's responsibilities.
NON-COMPETITION AND NON-SOLICITATION
6. The Executive covenants and agrees that he shall not:
(a) during the term of this agreement and for a period of two years following
the termination of the Executive's employment or termination of this agreement
for whatever reason directly or indirectly, whether as principal, shareholder
(except of publicly traded securities), director, officer, manager, employee,
<PAGE> 4
4
consultant, lender, guarantor, or agent or in any other capacity be involved in
any other business, trade or entity that provides services similar or identical
to the services of the Employer:
(i) within the province of Alberta;
(ii) within the boundaries of Canada;
(iii) within the boundaries of Canada and the United States of
America.
(b) The Executive agrees that sub-paragraphs (i) through (iii) thereof are
separate and distinct agreements, that the greatest restriction of them shall
apply, failing which the next greatest restriction, and that if one of them is
determined to be void or unenforceable it shall not affect the validity of the
others.
(c) The Executive acknowledges and agrees that the provisions contained in this
paragraph shall survive the termination of this agreement for any reason
whatsoever.
7. The Executive covenants and agrees that he shall not during the term of this
agreement and for a period of two years following the termination of the
Executive's employment or termination of this agreement for whatever reason,
directly or indirectly solicit or assist any person, firm or corporation, either
as principal, agent, employee, shareholder or in any other manner whatsoever.
(a) solicit or induce any client or supplier of the Employer to terminate or
reduce its business with the Employer, or solicit or induce any
prospective client of the Employer to not engage the services of
the Employer (for which purpose, "prospective client" means a
specific client which has been identified by the Employer as a
possible client of the Employer and which the Employer has,
within the prior six months approached), or
(b) solicit or induce any employee of the Employer to leave the employment
of the Employer.
The Executive acknowledges and agrees that the provisions contained in this
paragraph shall survive the termination of this agreement for any reason
whatsoever.
8. It is hereby acknowledged and agreed that the restrictions contained in
paragraphs 6 and 7 herein shall not apply in the following circumstances.
(1) the Employer fails to pay when due the amounts outstanding under the
promissory notes issued to the Executive and his spouse in connection
with the acquisition by FutureLink Colorado of the Employer provided
that sixty days have passed from their due dates and the said amounts
payable thereunder remain unpaid;
<PAGE> 5
5
(2) the Employer ceases to carry on business except in the case of a merger,
amalgamation or other combination of business with any other corporation
or entity;
(3) the IT service business ceases to be the principal business of the
Employer;
(4) the Employer is dissolved or makes a general assignment for the benefit
of creditors, or any proceeding shall be instituted by or against the
Employer, unless defended by the Employer, seeking to adjudicate the
Employer a bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief or
composition of it or its debt under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors or seeking the entry
of an order for relief or the appointment of a receiver, trustee (other
than Chapter 11 protection), custodian or other similar official for it
or for any substantial part of its property;
(5) the Employer fails to issue to the Trustee (as defined in the Voting and
Exchange Trust Agreement among the Employer, Riverview Management
Corporation and Howard, Mackie dated August 21, 1998) the FutureLink
Special Voting Stock (as defined in the Voting and Exchange Trust
Agreement among the Employer, Riverview Management Corporation and
Howard, Mackie dated August 21, 1998) by December 15, 1998; or
(6) the acquisition by the Executive of 5% or less of the securities in
publicly traded companies in competition with the Employer or its
subsidiaries.
INSURANCE COVERAGE
9. The Executive shall be provided with the same or similar type of officers and
directors insurance coverage as is made available from time to time to other
officers and directors of the Employer throughout the period of time the
Executive serves as an officer and director of the Employer under this
agreement. The Employer agrees to indemnify the Executive for claims made
against him arising out of the Executive's performance of his duties under this
agreement.
CONFIDENTIALITY
10. The Executive agrees that he will hold in confidence all the Employer's
confidential information acquired by the Executive during the performance of his
duties pursuant to this agreement. The Executive also agrees that any
information provided to him by the Employer where such information is the
property of a third party will be treated with the same confidence as accorded
the confidential information of the Employer as set out above. The Executive
agrees and acknowledges that the disclosure of any such information to the
competitors of the Employer or to the general public, or the use of same by the
Executive or any competitor of the Employer, would be highly detrimental to the
interests of the Employer.
<PAGE> 6
6
11. The Executive acknowledges that, as a senior executive of the Employer that
he owes fiduciary duties to the Employer, including the duty of loyalty, the
duty of honesty and the duty to act in the best interests of the Employer.
12. The Executive further acknowledges that the right to maintain the
confidential information, the right to preserve the goodwill of the Employer and
the right to the benefit of any relationships that have developed between the
Executive and the clients, suppliers and employees of the Employer by virtue of
the Executive's employment with the Employer constitute proprietary rights of
the Employer, which the Employer is entitled to protect.
TERMINATION
13. The Executive acknowledges that this agreement can be terminated by the
Board of Directors of the Employer at their pleasure and for any reason
whatsoever, without advance notice of termination. In the event of the
termination of this agreement, in whole or in part, prior to the expiry of the
term of this agreement, the Executive shall receive payment of all amounts
payable under this agreement for the balance of the term herein and the Annual
Base Salary and Performance Bonus shall be paid forthwith on demand therefore by
the Executive, calculated on the basis of the amount of Annual Base Salary then
paid during the year of termination. The Options, if not vested, shall vest and
the Executive shall be entitled to exercise the Options at any time within the
three (3) year period during which they were exercisable. Notwithstanding the
foregoing, if the Executive is terminated for any matter relating to fraud or
criminal activity on the part of the Executive against the Employer, its
customers, or employees, officers or directors of the Employer or its related
companies, the Annual Base Salary shall be prorated to the date of dismissal and
there shall be no further compensation hereunder.
14. The Executive shall be entitled to resign from his employment at any time
upon giving four months' notice in writing to the Chief Executive Officer of the
Employer. The Employer may waive in whole or in part such notice. Upon
termination of the Executive's employment:
(i) by the resignation from the employment by the Executive;
(iii) by death; or
(iii) by permanent disability meaning an absence from the
regular place of employment due to mental or physical
illness for 45 days in any 90 day period,
the Executive shall not be entitled to any severance payment other than Annual
Base Salary prorated to the last day worked by the Executive, vacation earned by
the Executive to the date of termination and any Options which have vested at
such date.
FUTURELINK COLORADO
<PAGE> 7
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16. The Executive agrees to act as a director and President of FutureLink
Colorado and FutureLink Colorado agrees to cause such appointment.
SEVERABILITY
16. In the event that any provision contained in this agreement shall be
declared by any court or other lawful authority of competent jurisdiction to be
invalid, illegal or unenforceable, in whole or in part, such invalidity,
illegality or non-enforceability shall not affect the validity, legality or
enforceability of the remaining provisions, or part thereof, of this agreement
and such remaining provisions, or part thereof, shall remain enforceable and
binding and any unenforceable provision shall, to the extent permitted by law,
be replaced by a provision which, being valid comes closest to the intention
underlying the invalid, illegal or unenforceable provision.
NO AMENDMENTS OR WAIVER
16. No amendment, modification or rescission of this agreement shall be
effective unless set forth in writing signed by a duly authorized representative
of each party.
17. No provision hereof shall be deemed waived and no breach excused, unless
such waiver or consent excusing the breach shall be in writing and signed by the
party to be charged with such waiver or consent. A waiver by a party of any
provision of this agreement shall not be construed as a waiver of a further
breach of the same provision.
SURVIVAL
18. Any terms or conditions of this agreement by which obligations of either
party are expressed to be applicable or which extend or may extend beyond
termination of this agreement shall survive and continue in full force and
effect, except to the extent expressly set out herein.
NO ASSIGNMENT
19. The rights of the parties under this agreement may not be assigned, pledged
or encumbered.
NOTICES
20. All notices as required hereunder shall be in writing and either delivered
by hand or facsimile transmission or mailed by prepaid registered mail to the
parties hereto at the addresses as follows:
<PAGE> 8
8
(a) To the Employer: FutureLink/SysGold Ltd.
550, 603 - 7 Avenue S.W.
Calgary, Alberta
T2P 2T5
Attention: Chief Executive Officer
Facsimile No. (403-543-5510)
(b) To the Executive: Donald A. Bialik
3911 Crestview Road S.W.
Calgary, Alberta
T2T 2L5
SUCCESSORS
21. This agreement shall enure to the benefit of and be binding upon the parties
together with their personal representatives, successors, executors and
permitted assigns, if any.
LEGAL ADVICE
22. The Executive hereby represents and warrants to the Employer and
acknowledges and agrees that he had the opportunity to seek and was not
prevented nor discouraged by the Employer from seeking independent legal advice
prior to the execution and delivery of this agreement and that, in the event
that he did not avail himself of that opportunity prior to signing this
agreement, he did so voluntarily without any undue pressure and agrees that his
failure to obtain independent legal advice shall not be used by him as a defence
to the enforcement of his obligations under this agreement.
GOVERNING LAW
23. This agreement shall be governed by and construed in accordance with the
laws of the Province of Alberta and the laws of Canada applicable herein.
IN WITNESS WHEREOF the parties hereto have executed these present this ________
day of August, 1998 to have effect as of the date and year first above written.
FUTURELINK/SYSGOLD LTD.
Per: _______________________________
Per: _______________________________
I/We have authority to bind the
Corporation
FUTURELINK DISTRIBUTION CORP.
(COLORADO)
<PAGE> 9
9
Per: _______________________________
Per: _______________________________
I/We have authority to bind the
Corporation
____________________________________
Witness: DONALD A. BIALIK
<PAGE> 10
THIS AGREEMENT made the 16th day of July, 1998.
BETWEEN:
PHILIP R. LADOUCEUR, of the City of Calgary, in the Province of Alberta,
(hereinafter referred to as "Ladouceur")
OF THE FIRST PART;
- and -
FUTURELINK DISTRIBUTION CORP. a corporation incorporated pursuant to the
laws of the State of Colorado,
(hereinafter referred to as the "Corporation")
OF THE SECOND PART.
AND WHEREAS the Corporation wishes to retain the services of
Ladouceur to provide Services to the Corporation, as and when requested by the
Directors of the Corporation;
NOW THEREFORE THIS AGREEMENT WITNESSETH THAT in consideration
of the mutual covenants and conditions hereinafter contained, the parties agree
as follows:
ARTICLE 1.00 - APPOINTMENT AND TERM
1.1 Appointment. The Corporation hereby retains Ladouceur to act as a director
of the Corporation effective August 1, 1998, and agrees to appoint Ladouceur as
Chairman of the Board of Directors by November 30, 1998, on a mutually agreeable
timetable. The Corporation will make press releases and other appropriate
announcements upon these appointments. These appointments are subject to
approval by the shareholders of the Corporation. Ladouceur agrees to perform the
duties and exercise such powers consistent with his position and such additional
powers as may from time to time be assigned or vested in him by the by-laws of
the Corporation or by the resolutions of the Board of Directors of the
Corporation. In particular, Ladouceur shall, without limiting the foregoing:
(a) provide advice with respect to the targeting and structuring of
acquisitions of other businesses by the Corporation;
(b) assist in the development of the profile of the Corporation with
the general public and with the financial community; and
<PAGE> 11
(c) introduce the Corporation and its executive officers to contacts of
Ladouceur who would be of assistance to the Corporation in obtaining
funds for proposed acquisitions as well as the day to day financing
requirements of the Corporation;
all such duties being hereinafter referred to as the "Services. Ladouceur agrees
that he shall perform the Services faithfully and to the best of his abilities.
While the role of external director is not a full-time position, Ladouceur
agrees to devote such time and attention as is reasonably necessary for the
fulfilment of the Services and is consistent with standards for external
directors. For special project work, please refer to 2.4.
1.2 Term. Ladouceur is retained hereunder for a term commencing on the date
hereof and continuing for eighteen (18) months (the "Term") unless earlier
terminated in accordance with the terms hereof.
ARTICLE 2.00 - COMPENSATION
2.1 Initial Compensation. As initial compensation for the Services performed
pursuant to this Agreement, the Corporation shall pay to Ladouceur's service
company (Mardale Investments Ltd.) a fee of One Hundred Thousand Canadian
Dollars (C$100,000) within 24 hours of execution of this agreement.
2.2 Board Meeting Fee. Ladouceur shall also be compensated as a director of the
Corporation in the same manner as other members of the Board of Directors for
attending board meetings. Ladouceur acknowledges that, as of the date hereof,
the directors of the Corporation are paid US$250.00 per board meeting that they
are in physical attendance.
2.3 Expenses. Ladouceur shall also be entitled to be re-imbursed for his
reasonable expenses incurred while performing the Services on behalf of the
Corporation including entertainment, meals, travel and accommodation expenses,
outside of Calgary.
2.4 Special Projects. The Corporation agrees to separately compensate Ladouceur
for special project work that would involve commitment of time above what would
be normally expected for an external director. Special project work could
involve, for example, involvement in multiple day roadshows for financing and/or
participation in the analysis, negotiation and structuring of potential
acquisitions. The Corporation and Ladouceur would agree in advance which
projects would constitute special project work. The Corporation agrees to pay
Ladouceur's service company (Mardale Investments Ltd.) a per diem of C$1000.00
for special project work that has been designated as such in advance.
ARTICLE 3.00 - TERMINATION
3.1 Termination by Corporation. This Agreement may only be terminated by the
Corporation for cause prior to the expiration of the Term if Ladouceur is in
default in the performance of the Services and such default continues for a
period of thirty (30) days after notice thereof or upon the death or disability
of Ladouceur. Disability shall occur if Ladouceur is unable to attend to his
duties due to medical reasons for a continuous period of 30 days during the
Term.
3.2 Termination by Ladouceur. This Agreement may only be terminated by
Ladouceur, by resignation, prior to the expiration of the Term if the
Corporation is in default in the performance
<PAGE> 12
3
of any of its covenants, obligations or agreements herein contained and such
default shall continue for a period of thirty (30) days following notice
thereof.
3.3 Termination by Mutual Agreement. It is acknowledged that this Agreement may
be terminated at any time upon the mutual agreement of the parties hereto.
ARTICLE 4.00 - STOCK OPTION
4.1 The Corporation hereby grants to Ladouceur two options (A & B) to purchase a
total of Five Hundred Thousand (500,000) shares of the Corporation at a strike
price of US$0.76 per share until June 29, 2001. Option A is for Two Hundred and
Fifty Thousand (250,000) shares and vests immediately upon execution of this
agreement. Option B is for the other Two Hundred and Fifty Thousand (250,000)
shares and vests one year after the execution of this agreement.
ARTICLE 5.00 - CONFIDENTIALITY AND NON-DISCLOSURE
5.1 In this Article, the following words have the following meanings:
(a) "Business Secrets" means confidential or sensitive business information,
including without limitation, data, business strategies, plans, contracts,
financial records and budgets, marketing techniques, pricing policies, costing
information, and information relating to or pertaining to targeted acquisitions
of the Corporation;
(b) "Contractors" of the Corporation means customers, suppliers, partners,
co-venturers and other contractors of the Corporation and also includes
potential customers of the Corporation in respect of whom access to Business
Secrets has been obtained for the purpose of evaluating proposed projects or for
submitting of tenders, bids or proposals.
(c) "Corporation", in this Article 5.00 only, shall mean the Corporation and any
and all affiliated or related corporations.
(c) "Documentation" means all materials constituting or containing Technology or
Business Secrets, including electronic storage media.
(d) "Technology" means all computer program, protocols, product technical
specifications including installation, performance and maintenance
specifications, patents, designs, drawings, manuals and generally all knowledge,
know-how, expertise and information of a technical nature, whether or not
protected under patent, design, copyright or other intellectual property laws,
and includes any and all future changes, modifications, additions, improvements
and enhancements thereof.
5.2 Ladouceur will not divulge Technology or Business Secrets belonging to the
Corporation or Contractors of the Corporation to any persons whatsoever, other
than to:
<PAGE> 13
4
(a) employees of Corporation;
(b) persons to whom Ladouceur is authorized and directed to
release such Technology or Business Secrets, and only then to
the extent of such authorization.
5.3 Ladouceur shall always:
(a) exercise reasonable care and diligence to protect the
confidentiality and integrity of Technology or Business
Secrets belonging to the Corporation or its Contractors; and
(b) strictly adhere to all policies, procedures and directions of
the Corporation relating to the protection and custody of
Technology and Business Secrets of the Corporation or its
Contractors.
5.4 All Technology and Business Secrets belonging to the Corporation will be
assumed by Ladouceur to be confidential.
5.5 Ladouceur will only use Technology and Business Secrets belonging to the
Corporation in performance of his duties hereunder and for no other use
whatsoever.
5.6 The obligation of confidentiality in this Article shall apply unless
Ladouceur can establish that he reasonably believed that such Technology or
Business Secrets were generally known in the industry.
5.7 Upon any termination of this agreement for any reason, Ladouceur shall
forthwith return to the Corporation all Documentation relating to the Technology
and Business Secrets of either the Corporation or its Contractors, and if any
such information is electronically copied and stored by Ladouceur, upon request
he shall destroy such electronically stored copies.
5.8 The obligations of Ladouceur set out in this Article shall continue in full
force and effect after termination of this agreement regardless of the reason or
cause of such termination.
5.10 Ladouceur agrees that he will not, during the term hereof and for a period
of two years following termination of this agreement, be a party to or abet any
solicitation of customers, clients or Contractors of the Corporation, to
transfer business from the Corporation to any other person, or seek in any way
to persuade or entice any employee, officer or director of the Corporation to
leave their office or employment or to be a party to or abet such action.
ARTICLE 6.00 - GENERAL PROVISIONS
6.1 Notices. All notices, requests, demands or other communications required or
desired to be given or made by one party to another shall be given in writing by
personal delivery or prepaid registered mail or by facsimile transmission or
other means of instantaneous transmission in regular commercial usage at such
time, verified by a transmission report, as follows:
<PAGE> 14
5
to the Corporation: FutureLink Distribution Corp.
No. 550, 603 - 7 Avenue SW
Calgary, Alberta
T2P 2T5
to Ladouceur: 119 Valley Ridge Green NW
Calgary, Alberta
T3B 5L5
or at such other address as may be given by any of them to the others. Any
notice or other communication so given or made shall be conclusively deemed to
have been given and received when delivered personally, if delivered personally,
provided that if it is delivered on a day which is not a Business Day then the
notice or communication shall be deemed to have been given and received on the
next business day following such date, or on the fifth (5th) business day
following the date of mailing, if mailed by prepaid registered mail, except in
the event of disruption of mail services in which event any notice shall be
delivered personally.
6.2 Time of the Essence. Time is of the essence of this Agreement and every part
of this Agreement and no extension or variation of this Agreement shall operate
as a waiver of this provision.
6.3 Choice of Law. This Agreement shall be governed by and construed in
accordance with the laws of the Province of Alberta, and the laws of Canada
applicable therein, and the parties hereto attorn to the non-exclusive
jurisdiction of the courts of such Province.
6.4 Entire Agreement: This Agreement and the terms hereof constitute the entire
agreement between the parties hereto with respect to all of the matters herein
and its execution has not been induced by, nor do any of the parties hereto rely
upon or regard as material, any representations or writings not incorporated
herein and made a part hereof and this Agreement shall not be amended or altered
or qualified except by memorandum in writing signed by both of the parties.
6.5 Severability. If any of the provisions contained in this Agreement are, for
any reason, held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Agreement, but this Agreement shall be construed as if such invalid,
illegal or unenforceable provision or provisions had never been contained in
this Agreement unless the deletion of such provision or provisions would result
in such a material change as to cause the completion of the transactions
contemplated in this Agreement to be unreasonable.
6.6 Further Assurances. The parties covenant and agree to execute such further
and other documents and undertake such other actions as may be reasonably
required to give effect to the terms and intent of the transactions contemplated
in this Agreement.
6.7 Enurement. The provisions hereof, where the context permits, shall enure to
the benefit of and be binding upon the heirs, executors, administrators or other
legal representatives of Ladouceur
<PAGE> 15
6
and the successors and assigns of the Corporation. With respect to Ladouceur,
this Agreement, being personal, may not be assigned.
6.8 Time Periods. When calculating the period of time within which or following
which any act is to be done or step taken pursuant to this Agreement, the date
which is the reference day in calculating such period shall be excluded.
6.9 Extended Meanings. In this Agreement, where the context requires, the
singular number includes the plural and vice versa, the masculine gender
includes the feminine and neuter genders and vice versa and the word person is
not limited to an individual but includes any entity recognized by law.
6.10 Entire Agreement. This Agreement constitutes the entire agreement among the
parties pertaining to the subject matter of this Agreement and supersedes all
prior agreements, understandings, negotiations and discussions, whether oral or
written, of the parties, and there are no warranties, representations or other
agreements between the parties in connection with the subject matter of this
Agreement except as specifically set out in this Agreement. No supplement,
modification, waiver or termination of this Agreement shall be binding, unless
executed in writing by the party or parties to be bound thereby.
6.11 Headings. All headings are included solely for convenience of reference and
are not intended to be full or accurate descriptions of the contents thereof.
6.12 Recitals. Each of the parties acknowledges that the recitals of this
Agreement, so far as they relate to such party, are true and correct in
substance and in fact.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as
of the date first above written.
FUTURELINK DISTRIBUTION CORPORATION
Per: _________________________________
Raghu Kilambi
Chief Financial Officer, Director
__________________________________ ________________________________
WITNESS PHILIP R. LADOUCEUR
<PAGE> 1
EXHIBIT 10.1.31
THIS AGREEMENT made as of this ___________ day of March, 1998.
BETWEEN:
692594 ALBERTA LTD.
a body corporate under the laws of Alberta
(hereinafter called the "Assignor")
OF THE FIRST PART
- and -
FUTURELINK DISTRIBUTION CORP.
a body corporate under the laws of Colorado
(hereinafter called the "Assignee")
OF THE SECOND PART
WHEREAS the Assignor entered into an Investment Agreement with
Logical Link Communications Inc.("Logical Link") on November 7, 1997, attached
hereto as Schedule "A" on November 7, 1997.
AND WHEREAS this Investment Agreement has attached to it a
General Security Agreement ("GSA") granting a security interest in all of
Logical Links present and after acquired property and proceeds to the Assignor.
<PAGE> 2
AND WHEREAS the GSA was registered on February 23, 1998.
AND WHEREAS the Assignee has arranged with Beaumont Church,
Barristers and Solicitors to arrange for seizure of the assets of Logical Link
pursuant to the registered GSA.
AND WHEREAS the Assignor wishes to absolve itself from any
liability associated with the ownership of the GSA and the seizure.
AND WHEREAS the Assignee has agreed to purchase the Assignor's
interest in the Investment Agreement and GSA and indemnify the Assignor from any
liability incurred as a result of the Investment Agreement, GSA and seizure
pertaining thereto.
NOW THEREFORE THIS AGREEMENT WITNESSES that the parties
mutually agree as follows:
1. PURCHASE AND SALE
Subject to the terms and conditions set forth in this
Agreement the Assignor shall sell and the Assignee shall purchase all the
interest of the Assignor in the Investment Agreement and the GSA including all
the Assignor's interest in the current seizure.
2. PURCHASE PRICE
The purchase price for the assignment shall be:
(a) $20,000.00 to be paid on or before the end of business Monday
March 16, 1998; and
(b) 100,000 options in FutureLink Distribution Corp. which is a
NASD-BB listed Company and trades with ticker symbol FLNK. It
is understood that the exercise price for these options shall
be for the maximum discount permitted by the appropriate
-2-
<PAGE> 3
regulatory authorities (not exceeding 20% to current market
price) and shall vest immediately on issue. The options shall
be exercisable for a period of 3 years from date of issue. It
is understood that the issuance of these options is subject to
proper regulatory approval. FutureLink will use all reasonable
efforts to ensure that such approvals are obtained and that
the options are issued in a timely manner. If for any reason
these options are not issued on or before June 1, 1998 the
Assignee shall pay to the Assignor $48,000 in lieu of the
options.
3. REPRESENTATIONS BY THE ASSIGNOR
The Assignor represents and warrants to the Assignee that:
(a) the Assignor has power and authority and capacity to enter
into this Agreement and to carry out the transactions
contemplated herein;
(b) that there is now owing to the Assignor from Logical Link the
sum of $70,000.00 plus interest and that this sum is a valid
and subsisting claim for that amount and that this sum has not
been previously assigned, postponed or encumbered in full or
part.
(c) the Assignor will provide further reasonable assurances,
documentation and assistance as required by the Assignee in
order to enforce the Investment Agreement and the GSA at the
full expense of the Assignee.
4. REPRESENTATIONS BY THE ASSIGNEE
The Assignee represents and warrants to the Assignor that:
(a) the Assignee has power and authority and capacity to enter
into this Agreement and to carry out the transactions
contemplated herein;
5. INDEMNIFICATION
-3-
<PAGE> 4
The Assignee hereby indemnifies and saves harmless the
Assignor it's directors and officers from and against any and all manner of
action, actions, cause and causes of action, suits, debts, dues, costs
(including, but not limited to solicitor and own client costs), sums of money,
claims and demands whatsoever at law or in equity by any party, including the
Assignee, arising from or related to the Investment Agreement, GSA and seizure
pertaining thereto.
IN WITNESS WHEREOF the parties hereto have duly executed these presents
as of the day and year first above written.
692594 ALBERTA LTD.
PER: ______________________________
FUTURELINK DISTRIBUTION CORP.
PER: ______________________________
-4-
<PAGE> 1
EXHIBIT 23.1
CONSENT OF JEFFER, MANGELS, BUTLER & MARMARO LLP
We consent to the reference to our firm under the caption "Legal Opinion" and to
the inclusion of our opinion as an Exhibit to Amendment No. 1 of the Form SB-2
Registration Statement of FutureLink Distribution Corp. as filed with the
Securities and Exchange Commission on October 22, 1998.
/s/ JEFFER, MANGELS, BUTLER & MARMARO LLP
<PAGE> 1
EXHIBIT 23.2.1
[ERNST & YOUNG LETTERHEAD]
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated August 20, 1998 on the financial statements included in
the Prospectus filed as part of Amendment No. 1 (dated October 22, 1998) to the
registration statement on Form SB-2 of FutureLink Distribution Corp., a
Colorado corporation.
/s/ ERNST & YOUNG, LLP
Chartered Accountants
Calgary, Canada
October 22, 1998
<PAGE> 1
EXHIBIT 23.2.2
[HALPIN - ANTONY - OWEN - MAYER LETTERHEAD]
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 26, 1998 on the financial statements included
in the Prospectus filed as part of Amendment No. 1 (dated October 22, 1998) to
the registration statement on Form SB-2 of FutureLink Distribution Corp., a
Colorado corporation.
/s/ HALPIN ANTONY OWEN MAYER
Chartered Accountants
Calgary, Canada
October 22, 1998
<PAGE> 1
EXHIBIT 23.2.3
[BUCHANAN, BARRY & CO. LETTERHEAD]
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated August 13, 1998, except as to Note 5 and 6(b) which is
as September 24, 1998 on the financial statements listed in Amendment No. 1 to
Form SB-2 of FutureLink Distribution Corp., a Colorado corporation.
/s/ BUCHANAN, BARRY & CO.
Chartered Accountants
Calgary, Canada
October 22, 1998
