<PAGE> 1
As Filed with the Securities and Exchange Commission on November 24, 1998
Commission File No. 333-62133
----------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
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
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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
$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
<TABLE>
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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 November 24, 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 at www.sec.gov.
<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(1)
Common Stock Outstanding as of October 1, 1998 16,168,065 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.
(1) As of October 1, 1998 only 668,762 shares of the 14,865,385 shares offered
hereby had been issued by the Company. If all of these shares are issued,
the Company will have 30,364,688 shares of Common Stock outstanding.
<PAGE> 9
SUMMARY OF SELECTED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION (1)
<TABLE>
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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
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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:
------------------------------------------------------------------------------
------------------------------------------------------------------------------
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
delivers 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 allies 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 offers 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 offers 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 provides 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 provides 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 performs 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 provides 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
includes 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 provides 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 USAwould first
conducts 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, as solicitor for
Core Ventures Inc., was instructed to advise 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. FutureLink USA has minimal exposure in this litigation due to the
Indemnity Agreement and does not believe that there would be a material impact
if the plaintiff was successful.
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. FutureLink Alberta believes it has minimal exposure but
should 554495 Alberta Ltd. win this case and FutureLink should not win
it's counterclaim, FutureLink Alberta would incur damages of
approximately CDN$500,000.
4. 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 for
CDN$8,000.
4.5. 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. FutureLink USA
has minimal exposure in this litigation due to the Indemnity Agreement and
does not believe that there would be a material impact if the plaintiff was
successful.
<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>
Percent Owned
Name and Address(1) Amount Percent of Class(2) Following Offering(3)
<S> <C> <C> <C>
Cameron Chell 1,067,750(4) 6.5% 3.5%
Don Bialik 4,375,000(5) 21.3% .4%
Raghunath Kilambi 550,000(4) 3.3% 1.9%
Linda M. Murray 61,000(6) 0.4% .2%
F. Bryson Farrill 350,000(7) 2.1% 1.2%
Philip Ladouceur 500,000(8) 3.0% 1.6%
Robert Kubbernus 350,000(7) 2.1% 1.2%
Robert Kohn 475,000(9) 2.9% 1.6%
Thomson Kernaghan 9,615,385(10) 37.3% 0%
All directors and executive
officers a group(8 persons) 7,728,750 41.6% 11.5%
</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 16,168,065 shares of Common Stock outstanding as of October
1, 1998 and for each person or group, any securities that person or
group has the right to acquire within 60 days pursuant to options,
warrants or other rights.
3) Based upon 30,364,688 shares of Common Stock outstanding after the
offering is complete. This number includes (i) 16,168,065 shares
outstanding as of October 1, 1998; (ii) 4,250,000 shares underlying the
Bialik Exchangeable shares; (iii) 8,946,623 shares underlying the 10%
Convertible Debenture issued to Thomson Kernaghan; and (iii) 1,000,000
shares underlying the Thomson Kernaghan Warrants. With the exception of
668,762 shares issued to Thomson Kernaghan, none of the shares being
registered pursuant to this Registration Statement have been issued by
the Company and the Company does not know when, if at all, these shares
will be issued and, if issued, when they would be sold pursuant to this
Registration Statement.
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 currently 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.
7) Includes options for the purchase of 125,000 shares of Common Stock
exercisable at $0.76 per share which vested on June 29, 1998. Does not
include options to purchase 125,000 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) As of October 1, 1998, Thomson Kernaghan owned 668,762 shares of Common
Stock. These shares were purchased pursuant to the terms of the
Debenture Agreement (see "Business-History"). The remaining 8,946,623
shares may be issued to Thomson Kernaghan subject to certain conditions
set forth in the Debenture Agreement.
<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 30 Chairman of the Board and
Chief Executive Officer 75
Don Bialik 43 Director, President 100
Raghunath Kilambi 33 Director, V.P.-Corporate Finance and
Chief Financial Officer 90
Linda M. Murray 32 Corporate Secretary 100
Philip Ladouceur 57 Director 10
Robert Kubbernus 40 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 AND CHIEF EXECUTIVE OFFICER -- 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 -- DIRECTOR/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 AND CHIEF
FINANCIAL OFFICER - 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 - 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.
On November 6, 1998 Cameron Chell entered into a Settlement Agreement with
the Alberta Stock Exchange to resolve a pending investigation into alleged
breaches by Mr. Chell of Alberta Stock Exchange rules and bylaws. As part of the
Settlement Agreement, (i) Mr. Chell acknowledged that he had breached certain
duties of supervision, disclosure, or compliance in connection with various
offers and sales of securities and (ii) Mr. Chell was prohibited from receiving
Alberta Stock Exchange approval for a five year period, subjected to a
CDN$25,000 fine and a three year period of enhanced supervision.
<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$87,500 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$62,500 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
Don Bialik 1998 CDN$19,846 Nil Nil 250,000 CDN$600
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 Ownership 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 $.001 per
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, $.001 par value, and 5,000,000 shares of Preferred Stock, having
no par value.
As of October 1, 1998, there were 16,168,065 shares of Common Stock outstanding
held of record by approximately 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) 323,996 51,604 (3.2) 1,677,507 2,088,191
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) 915,789 915,789
----------- ----------- --------------- ----------- ------------- -----------
122,049 563,689 -- 6,443,354 -- 12,163,884
----------- ----------- --------------- ----------- ------------- -----------
LOSS BEFORE DISCONTINUED OPERATIONS (122,049) (560,316) -- 218,733 -- (5,498,424)
LOSS FROM DISCONTINUED OPERATIONS -- (9,922) -- -- -- (9,922)
----------- ----------- --------------- ----------- ------------- -----------
LOSS FROM OPERATIONS (122,049) (570,238) -- 218,733 -- (5,508,346)
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 -- (6,123,346)
INCOME TAXES -- -- -- (94,409) -- (94,409)
----------- ----------- --------------- ----------- ------------- -----------
(737,049) (570,238) -- 124,324 -- (6,217,755)
MINORITY INTEREST -- -- -- (24,443) -- (25,443)
----------- ----------- --------------- ----------- ------------- -----------
NET EARNINGS (LOSS) FOR THE YEAR (737,049) (570,238) -- 98,881 -- (6,243,198)
----------- ----------- --------------- ----------- ------------- -----------
</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 recognized
immediately.
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 5 years.
3.2 The amortization of Goodwill and Employee/Consultant Base
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
5 years for Goodwill and a period of 3 years for Employee/Consultant
Base.
3.3 The inclusion of interest expense on the convertible debenture for
one year, at an annual rate of 10%, together with 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) 226,616 46,634 (3.2) 825,351 1,147,635
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) 778,671 778,671
Equity in loss of an affiliate 411,316 -- (3.4) (411,316) -- -- --
----------- ---------- ------------- ----------- ------------ -----------
482,392 746,070 -- 5,221,409 -- 9,986,694
----------- ---------- ------------- ----------- ------------ -----------
LOSS BEFORE DISCONTINUED OPERATIONS (482,392) (725,190) -- 118,285 -- (4,626,119)
LOSS FROM DISCONTINUED OPERATIONS -- (149,965) -- -- -- (149,965)
----------- ---------- ------------- ----------- ------------ -----------
LOSS FOR THE YEAR BEFORE INCOME TAXES (482,392) (875,156) -- 118,285 -- (4,776,084)
INCOME TAXES -- -- -- (44,432) -- (44,432)
----------- ---------- ------------- ----------- ------------ -----------
</TABLE>
<PAGE> 66
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
(482,392) (875,156) -- 73,853 -- (4,820,516)
MINORITY INTEREST -- -- -- 23,973 -- 23,973
----------- ---------- ------------- ----------- ------------ -----------
NET EARNINGS (LOSS) FOR THE YEAR (482,392) (875,156) -- 97,826 -- (4,796,543)
----------- ---------- ------------- ----------- ------------ -----------
</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, recognized immediately.
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 5 years.
3.2 The amortization of Goodwill and Employee/Consultant Base
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
5 years for goodwill and period of 3 years for Employee/Consultant
Base.
3.3 The inclusion of interest expense on the convertible debenture for
six months, at an annual rate of 10%, together with 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
CONSOLIDATED FINANCIAL STATEMENTS
FUTURELINK DISTRIBUTION CORP.
(a Colorado corporation)
December 31, 1997
December 31, 1996
September 30, 1998 (unaudited)
<PAGE> 81
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> 82
FUTURELINK DISTRIBUTION CORP.
CONSOLIDATED BALANCE SHEETS
(All amounts stated in $U.S.)
<TABLE>
<CAPTION>
DECEMBER 31
SEPTEMBER 30, --------------------------
1998 1997 1996
(Unaudited)
$ $ $
- --------------------------------------- --------------- ------------ -------------
<S> <C> <C> <C>
CURRENT ASSETS
CASH 68 -- --
Accounts receivable 1,100,475 -- --
Prepaid expenses 74,167 -- --
Inventory and work in progress 25,880 -- --
- ----------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,200,590 -- --
- ----------------------------------------------------------------------------------
CAPITAL ASSETS [NOTE 5] 149,496 -- 515,000
INVESTMENT [NOTE 4] 1,226,400 -- --
INTANGIBLE ASSETS [NOTE 6] 6,197,894 -- --
- ----------------------------------------------------------------------------------
7,573,790 -- --
- ----------------------------------------------------------------------------------
8,774,380 -- 515,000
==================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Bank indebtedness 564,754 -- --
Accounts payable and accrued 833,126 23,932 6,873
liabilities
Due to stockholders [note 9] 292,118 -- 4,504
- ----------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,689,998 23,932 11,377
- ----------------------------------------------------------------------------------
NOTES PAYABLE [NOTE 3] 381,033 -- --
CAPITAL LEASE 13,048 -- --
CONVERTIBLE DEBENTURES [NOTE 8] 2,070,602 -- --
CONTINGENCIES [NOTE 12]
STOCKHOLDERS' EQUITY [NOTE 7]
Authorized
5,000,000 preferred shares without par value
100,000,000 common shares with par value of
$0.0001
Issued
20,418,075, 10,203,500 and 2,500
common shares issued and
outstanding at September 30, 1998 2,042 1,020 25
and December 31, 1997 and 1996,
respectively
To be issued [note 9] 732,706 -- --
Capital in excess of par value 8,519,799 1,425,211 1,216,712
Contributed surplus 1,205,357 -- --
Deficit (5,840,205) (1,450,163) (713,114)
- ----------------------------------------------------------------------------------
Total shareholders' equity 4,619,699 (23,932) 503,623
- ----------------------------------------------------------------------------------
8,774,380 -- 515,000
==================================================================================
</TABLE>
See accompanying notes
On behalf of the Board:
Director Director
<PAGE> 83
FUTURELINK DISTRIBUTION CORP.
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
(All amounts stated in $U.S.)
<TABLE>
<CAPTION>
NINE MONTHS YEARS ENDED
ENDED DECEMBER 31
SEPTEMBER 30 ------------------------
1998 1997 1996
$ $ $
------------------------------------------- ----------- ----------- ------------
(Unaudited)
<S> <C> <C> <C>
REVENUE 622,854 -- --
- ---------------------------------------------------------------------------------
EXPENSES
Hardware and software purchases 143,991 -- --
Contracts, payroll and benefits [note 7] 2,527,457 -- --
Accounting and legal 45,509 109,992 3,803
General and administrative 81,108 12,057 3,061
Interest on long term debt [note 8] 1,230,367 -- --
Other interest expense 2,545 -- --
Depreciation and amortization 190,144 -- --
- ------------------------------------------------------------------- ------------
4,221,121 122,049 6,864
- ------------------------------------------------------------------- ------------
Loss from operations (3,598,267) (122,049) (6,864)
- ------------------------------------------------------------------- ------------
Write-off mining related assets [note 5] -- (515,000) --
Loss on non-refundable deposit [note 10] -- (100,000) --
Equity in loss of affiliate [note 4] (807,279) -- --
- ------------------------------------------------------------------- ------------
(807,279) (615,000) --
- ------------------------------------------------------------------- ------------
LOSS BEFORE INCOME TAXES (4,405,546) (737,049) (6,864)
Income taxes [note 11] 15,504 -- --
- ------------------------------------------------------------------- ------------
Net loss for the period (4,390,042) (737,049) (6,864)
Deficit, beginning of period (1,450,163) (713,114) (706,250)
- ------------------------------------------------------------------- ------------
DEFICIT, END OF PERIOD (5,840,205) (1,450,163) (713,114)
=================================================================== ============
LOSS PER COMMON SHARE (0.32) (1.65) (2.75)
=================================================================== ============
WEIGHTED AVERAGE NUMBER OF SHARES 13,578,965 447,445 2,500
OUTSTANDING
=================================================================================
</TABLE>
See accompanying notes
<PAGE> 84
FUTURELINK DISTRIBUTION CORP.
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY
(All amounts stated in $U.S.)
<TABLE>
<CAPTION>
CAPITAL
IN EXCESS CONTRIBUTED
COMMON STOCK OF PAR SURPLUS DEFICIT
--------------------
SHARES $ $ $ $
- ----------------------------------------------------------------------------------------------
<S> <C> <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 -- (35) 35 -- --
.01 to .0001
Issuance of share capital 10,200,000 1,020 158,980 -- --
for cash
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 255,813 26 846,774 -- --
warrants
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 -- --
Issue of share capital to
employees, officers and
directors of the company 3,500,000 350 2,117,150 -- --
Warrants issued with
issuance of convertible -- -- -- 562,500 --
debentures
Equity component of
convertible debentures -- -- -- 642,857 --
Shares issued upon conversion
of convertible debt 668,762 67 201,632 -- --
Issuance of share capital
under Share Purchase
Agreement with Riverview
Management Corporation 4,250,000 425 3,612,075 -- --
Share issue costs -- -- (81,889) -- --
Net loss for the period -- -- -- -- (4,390,042)
- -------------------------------------------------------- ------------- ----------- -----------
BALANCE, SEPTEMBER 30, 1998 20,418,075 2,042 8,519,799 1,205,357 (5,840,205)
==============================================================================================
</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> 85
FUTURELINK DISTRIBUTION CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts stated in $U.S.)
<TABLE>
<CAPTION>
NINE
MONTHS YEARS ENDED
ENDED DECEMBER 31
SEPTEMBER 30 ------------------------
1998 1997 1996
$ $ $
------------------------------------------- ----------- ----------- ------------
(Unaudited)
<S> <C> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES
Net loss for the period (4,390,042) (737,049) (6,864)
Adjustments to reconcile net loss to net
cash provided by operating activities
Write off mining related assets
[note 5] -- 515,000 --
Equity in loss of affiliate 807,279 -- --
Non cash interest expense on 1,205,357 -- --
convertible debentures [NOTE 8]
Non cash expenses included with -- --
contracts, payroll and benefits
expense [NOTE 7] 2,114,000
Depreciation and amortization 190,144 -- --
Loss on refundable deposit -- 100,000 --
- ------------------------------------------------------- ----------- ------------
(73,262) (122,049) (6,864)
Changes in non-cash working capital 557,532 17,059 3,802
balances
- ------------------------------------------------------- ----------- ------------
484,270 (104,990) (3,062)
- ------------------------------------------------------- ----------- ------------
CASH FLOWS USED IN INVESTING ACTIVITIES
Advances to Futurelink Distribution Corp.
(Alberta) [note 4] (1,694,879) -- --
Capital assets purchased (20,266)
Cash consideration on acquisition of
Riverview Management Corporation (2,019,149) -- --
Loss on refundable deposit -- (100,000) --
- ------------------------------------------------------- ----------- ------------
(3,734,294) (100,000) --
- ------------------------------------------------------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from stockholders 1,024,824 (4,504) 3,062
Issuance of common stock net of issue 764,885 170,000 --
expenses [note 7]
Forgiveness of shareholder debt [note 7] -- 39,494 --
Issuance of convertible debentures net of 2,025,000 -- --
issue expenses
- ------------------------------------------------------- ----------- ------------
3,814,709 204,990 3,062
- ------------------------------------------------------- ----------- ------------
DECREASE IN CASH (564,685) -- --
Cash, beginning of period -- -- --
- ------------------------------------------------------- ----------- ------------
Cash less bank indebtedness, end of period (564,685) -- --
=================================================================================
</TABLE>
See accompanying notes
<PAGE> 86
FUTURELINK DISTRIBUTION CORP.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996 and September 30, 1998
(Information as at September 30, 1998 and for the nine
month period ended September 30, 1998 is unaudited)
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 September 30, 1998 of $5,840,205. 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.
INVENTORY AND WORK IN PROGRESS
Inventories of computer hardware and work in process are recorded at the lower
of actual cost or net realizable value.
CAPITAL ASSETS
Capital assets are recorded at cost. Depreciation is provided at rates designed
to depreciate the cost of the assets over their estimated useful lives.
1
<PAGE> 87
FUTURELINK DISTRIBUTION CORP.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996 and September 30, 1998
(Information as at September 30, 1998 and for the nine
month period ended September 30, 1998 is unaudited)
INVESTMENT
The Company's investment in Futurelink Distribution Corp. (an Alberta, Canada
corporation), representing a 46% interest in the outstanding common shares at
September 30, 1998, is accounted for using the equity method.
INTANGIBLE ASSETS
(a) Employee/consultants base
The employee/consultants base is recorded at cost and is being amortized on
a straight-line basis over three years. The recoverability of the
employee/consultants base is assessed periodically based on retention of
employees and consultants in relation to management estimates of future
revenue from provided information technology services.
(b) Goodwill
Goodwill is recorded at cost and is being amortized on a straight line basis
over five years. The recoverability of goodwill is assessed periodically
based on management estimates of undiscounted future operating income from
each of the acquired businesses to which the goodwill relates.
REVENUE
Revenue from information technology services is recognized when the service is
delivered. Revenue from information technology outsourcing contracts is
recognized over the term of the contracts.
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.
2
<PAGE> 88
FUTURELINK DISTRIBUTION CORP.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996 and September 30, 1998
(Information as at September 30, 1998 and for the nine
month period ended September 30, 1998 is unaudited)
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 nine month period ended
September 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 September 30, 1998 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1998.
NET LOSS PER SHARE
Net loss per common share is net loss for the period divided by the weighted
average number of common shares outstanding. Net loss per common share assuming
dilution includes the dilutive effect of stock options outstanding.
3. ACQUISITION OF RIVERVIEW MANAGEMENT CORPORATION
Effective August 24, 1998, the Company acquired all of the outstanding shares of
Riverview Management Corporation ("Riverview"), an information technology
outsourcing and services firm. The consideration for the purchase, totalling
$6,012,682, consisted of a cash payment of $2,019,149, promissory notes payable
for $381,033, and 4,250,000 common shares of the Company with an ascribed value
of $3,612,500. The acquisition was accounted for using the purchase method.
The results of Riverview and its wholly-owned subsidiary from the date of
acquisition are included in these consolidated financial statements. Net assets
acquired are as follows:
<TABLE>
$
- ------------------------------------------------------------------ -------------
<S> <C>
NET ASSETS ACQUIRED
Non cash working capital (179,251)
Capital assets 135,291
Intangible assets 6,381,642
- ------------------------------------------------------------------ -------------
Net assets acquired 6,337,682
Less acquisition costs (325,000)
- ------------------------------------------------------------------ -------------
NET ASSETS ACQUIRED 6,012,682
================================================================== =============
</TABLE>
3
<PAGE> 89
FUTURELINK DISTRIBUTION CORP.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996 and September 30, 1998
(Information as at September 30, 1998 and for the nine
month period ended September 30, 1998 is unaudited)
4. INVESTMENT
<TABLE>
<CAPTION>
DECEMBER 31
SEPTEMBER 30, --------------------------
1998 1997 1996
$ $ $
- ------------------------------------- --------------- ------------ -------------
(Unaudited)
<S> <C> <C> <C>
Futurelink Distribution Corp. (an
Alberta, Canada corporation)
1,540,000 common shares (46%) 338,800 -- --
Advances, non-interest bearing 1,694,879 -- --
Equity loss (807,279) -- --
- --------------------------------------------------------------------------------
1,226,400 -- --
================================================================================
</TABLE>
On January 20, 1998 the Company issued 1,540,000 common shares in exchange for
1,540,000 common shares of Futurelink Distributions 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 $1,694,879. 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>
September 30, December 31,
1998 1997
$ $
- ---------------------------------------------------- ------------- --------------
(Unaudited)
<S> <C> <C>
Current assets 345,758 52,091
Non-current assets 465,220 167,889
Current liabilities (2,167,972) (341,439)
Long-term debt (44,849) (74,700)
- ---------------------------------------------------- ------------- --------------
NET ASSETS (1,401,843) (196,159)
==================================================== ============= ==============
GROSS REVENUES 99,503 3,373
==================================================== ============= ==============
NET LOSS BEFORE DISCONTINUED OPERATIONS (2,017,060) (560,316)
==================================================== ============= ==============
</TABLE>
4
<PAGE> 90
FUTURELINK DISTRIBUTION CORP.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996 and September 30, 1998
(Information as at September 30, 1998 and for the nine
month period ended September 30, 1998 is unaudited)
5. CAPITAL ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-------------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
$ $ $
- ------------------------------------------ ----------- ------------- -----------
<S> <C> <C> <C>
Computers and equipment 50,470 3,484 46,986
Leasehold improvements 25,029 617 24,412
Software 1,561 421 1,141
Office equipment 24,900 878 24,022
Equipment under capital lease 53,932 996 52,935
- ------------------------------------------ ----------- ------------- -----------
155,892 6,396 149,496
- ------------------------------------------ ----------- ------------- -----------
DECEMBER 31, 1996
-------------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
$ $ $
- ------------------------------------------ ----------- ------------- -----------
Mining concessions 85,000 -- 85,000
Proprietary mining process 430,000 -- 430,000
- ------------------------------------------ ----------- ------------- -----------
515,000 -- 515,000
- ------------------------------------------ ----------- ------------- -----------
</TABLE>
During 1997 the Company wrote off the above mining assets to their estimated net
realizable value of nil. The Company is no longer in the mining business.
6. INTANGIBLE ASSETS
Intangible assets consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-------------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
$ $ $
- ------------------------------------------ ----------- ------------- -----------
<S> <C> <C> <C>
Goodwill 3,181,642 66,853 3,114,789
Other intangible assets 3,200,000 116,895 3,083,105
- ------------------------------------------ ----------- ------------- -----------
6,381,642 183,748 6,197,894
- ------------------------------------------ ----------- ------------- -----------
</TABLE>
5
<PAGE> 91
FUTURELINK DISTRIBUTION CORP.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996 and September 30, 1998
(Information as at September 30, 1998 and for the nine
month period ended September 30, 1998 is unaudited)
7. 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.
Of the 20,418,075 shares issued at September 30, 1998, 8,522,516 are restricted
and 11,895,559 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 September 30, 1998. The options
expire on June 29, 2001.
On July 7, 1998, the Company issued 3,500,000 shares to employees, officers and
directors of the Company for $3,500. The fair value of these shares at that time
was $2,117,500. The difference between the fair value and the cash consideration
received has been included with capital in excess of par and with expenses under
contracts, payroll and benefits.
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.
8. CONVERTIBLE DEBENTURES
On August 21, 1998, the Company issued $2,250,000 10% convertible debentures,
due August 20, 2001. The holders have the right to convert the debentures in
increments of at least $100,000, at a price equal to the lower of $0.75 and 78%
of the average closing bid price of the Company's
6
<PAGE> 92
FUTURELINK DISTRIBUTION CORP.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996 and September 30, 1998
(Information as at September 30, 1998 and for the nine
month period ended September 30, 1998 is unaudited)
common stock for the three trading days immediately preceding the Notice of
Conversion served on the Company. The Company may prepay any or all of the
outstanding principal amounts at any time, upon thirty days' notice, subject to
the holders' right to convert into common shares. At the holders' election,
interest can be settled in common stock of the Company based on market prices.
Of the total initial principal amount of the debentures of $2,250,000, an amount
of $642,857 has been attributed to the value of the conversion option and
included with contributed surplus.
Upon entering into the convertible debenture agreement, the Company issued
1,041,687 common share purchase warrants to the underwriter of the issue. Each
warrant gives the holders the right to purchase one common share of the Company
at $0.96 until August 20, 2001. An amount of $562,500 has been included with
contributed surplus as the value attributed to these warrants.
The amount attributed to the conversion option of $642,857 and the amount
attributed to the warrants issued to underwriters of $562,500, together
totalling $1,205,357, has been included with interest on long term debt.
On September 21, 1998, $200,000 of the convertible debentures, together with
accrued interest, were converted into 668,762 common shares of the Company.
9. RELATED PARTY TRANSACTIONS
During 1998, two of the Company's stockholders advanced the Company $289,264.
Interest for the period of $2,854 has been added to the principal amount owing.
The loans have no set repayment terms.
During 1998, Linear Strategies Ltd., a stockholder, advanced the Company
$729,802. The Company in turn advanced the money to Futurelink Alberta. Interest
incurred on the loan in the amount of $2,904 has been added to the principal
amount owing. $300,000 of the loan was assigned to another shareholder on July
2, 1998. On the same date, both portions of the loan were converted into
1,127,250 common shares with an ascribed value of $732,706, and an equal number
of common share purchase warrants. The share certificates were not yet issued as
at September 30, 1998. Each warrant entitles the holder to purchase one common
share at $1.00 until June 30, 1999 and at $1.25 until June 30, 2000.
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.
10. 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.
7
<PAGE> 93
FUTURELINK DISTRIBUTION CORP.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996 and September 30, 1998
(Information as at September 30, 1998 and for the nine
month period ended September 30, 1998 is unaudited)
11. INCOME TAXES
The provision for income taxes differs from the Company's statutory rate of 40
percent as follows:
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED DECEMBER 31
SEPTEMBER 30 ------------------------
1998 1997 1996
$ $ $
------------------------------------------- ----------- ----------- ------------
(Unaudited)
<S> <C> <C> <C>
Provision for income taxes based on net 1,997,469 294,820 2,746
loss as reported
Add temporary differences not recognized
Write-off of mining related assets -- (206,000) --
Equity in loss of affiliate (367,312) -- --
Non-deductible amortization of purchase
price discrepancy (83,605) -- --
Loss carryforwards (1,531,048) (88,820) (2,746)
- ------------------------------------------------------------------------------------
Provision for income taxes 15,504 -- --
====================================================================================
</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.
12. CONTINGENCIES
A statement of claim has been filed against the Company in the amount of
approximately $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.
8
<PAGE> 94
FUTURELINK DISTRIBUTION CORP.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996 and September 30, 1998
(Information as at September 30, 1998 and for the nine
month period ended September 30, 1998 is unaudited)
13. SUBSEQUENT EVENTS
On September 28, 1998 the Company issued a takeover bid circular in order to
acquire all outstanding common shares of Futurelink Alberta in exchange for
common shares in the Company. Management anticipates that it will complete the
acquisition during the fourth quarter of 1998.
9
<PAGE> 95
FINANCIAL STATEMENTS
FUTURELINK DISTRIBUTION CORP. ("FUTURELINK ALBERTA")
JUNE 30, 1998
(Unaudited)
<PAGE> 96
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> 97
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> 98
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> 99
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> 100
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> 101
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> 102
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> 103
<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> 104
<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> 105
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> 106
RIVERVIEW MANAGEMENT CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
(ALL AMOUNTS STATED IN $ CDN.)
JUNE 30, 1998 and 1997
(Unaudited)
<PAGE> 107
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> 108
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> 109
Calgary, Alberta
August 13,
<PAGE> 110
1
1998, expect as to Note 5 and 6(b)
which is as September 24, 1998 CHARTERED ACCOUNTANTS
<PAGE> 111
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> 112
<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> 113
4
<TABLE>
<S> <C> <C>
$1,826,608 $1,762,287
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 114
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> 115
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> 116
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> 117
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> 118
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> 119
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> 120
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> 121
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> 122
RIVERVIEW MANAGEMENT CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997 and 1996
<PAGE> 123
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> 124
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> 125
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> 126
<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> 127
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> 128
<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> 129
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> 130
See accompanying notes to consolidated financial statements
<PAGE> 131
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> 132
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> 133
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> 134
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> 135
<TABLE>
<S> <C> <C>
$ 40 $ 40
------ ------
</TABLE>
No changes in share capital occurred in the year ended October 31, 1996.
<PAGE> 136
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> 137
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> 138
================================================================================
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
---------------
November 23, 1998
<PAGE> 139
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> 140
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 ......... $ 4,385.29
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 ....................................................... $ 51,385.29
</TABLE>
II-2
<PAGE> 141
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
(the "Act")("Rule 504 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 an exemption provided by Rule 506 of Regulation D
promulgated under the Act ("Rule 506 Exemption") and Regulation S. The sale of
shares was to twenty three investors.(1)
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 Rule
506 Exemption and Regulation S. The sale of shares was to twenty five different
investors.(1)
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 Rule
504 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 Rule 504
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 Rule 504 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 Rule 504
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 Rule 504 Exemption.
(1) Each of these sales was made to a non-U.S. resident and legended to restrict
any trading for a minimum of one year. The securities are legended to that
effect and to the knowledge of the Company, no transfers have been made since
the date of issuance on any of these shares. Therefore, these issuances may be
exempt from U.S. Securities laws in accordance with Regulation S or other
applicable exemptions from registration relating to offers and sales that occur
outside of the United States and are not resold for a one year period in the
U.S. market.
II-3
<PAGE> 142
(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.
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.(2)
Amendment to the Share Purchasing Agreement dated August 21,
1998.
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.(2)
5 Jeffer, Mangels, Butler & Marmaro LLP Legal Opinion.
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.
(2) Previously filed on October 22, 1998.
II-4
<PAGE> 143
<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> 144
<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.(2)
10.1.31 Agreement by and between 692594 Alberta Ltd. and FutureLink
USA dated March 1998.(2)
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.
(2) Previously filed on October 22, 1998.
II-6
<PAGE> 145
<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> 146
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 23rd day of November, 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 November 23, 1998
Robert Kubbernus
*
- ------------------------------------ Director November 23, 1998
Bryson Farrill
*
- ------------------------------------ Director, Vice President Corporate November 23, 1998
Raghu Kilambi Finance, Corporate Secretary,
CFO and Chief Accounting Officer
*
- ------------------------------------ Assistant Corporate November 23, 1998
Linda M. Murray Secretary
*
- ------------------------------------ Director November 23, 1998
Philip Ladouceur
*
- ------------------------------------ President November 23, 1998
Don Bialik
*
- ------------------------------------ Director November 23, 1998
Robert H. Kohn
*By: /s/ CAMERON CHELL
-------------------------------- November 23, 1998
Cameron Chell
CEO and Director
</TABLE>
II-8
<PAGE> 1
128561
ARTICLES OF INCORPORATION
CORTEZ URANIUM AND MINING CO.
RECORDED
BOOK 700 PAGE 296
DOMESTIC
FILED in the office of the Secretary of
State of the State of Colorado, on the
4th day of April
AD 1955, at 10 o'clock A.M.
GEORGE C. BAKER
Secretary of State
Filing Clerk __________________
_____________________
This document has been inspected and
Entered on the Records of the ________ Department
Date: April 5, 1955
(Filing Clerk Signature) Clerk
<PAGE> 2
ARTICLES OF INCORPORATION
OF
CORTEZ URANIUM AND MINING CO.
KNOW ALL MEN BY THESE PRESENTS, That we, Donald M. Shere, Irving
Lindner, and Robert B. Rottman, desiring to associate ourselves together as a
corporation under the name of Cortez Uranium and Mining Co., for the purpose of
becoming a body corporate and politic, under and by virtue of the laws of the
State of Colorado, and in accordance with the provisions of the laws of said
State, do hereby make, execute, and acknowledge this certificate in writing of
our intention so to become a body corporate under and by virtue of said laws.
FIRST: The corporate name of our said corporation shall be:
"CORTEZ URANIUM AND MINING CO."
SECOND: The object for which our said corporation is formed and
incorporated is for the purpose of:
a. Conducting and engaging generally in the business of mining,
producing, processing, refining, and selling uranium, radioactive materials, and
ores, oil, petroleum, and all other minerals and ores, whether or not of like
class or character, including the by-products from the same, or any of them; to
search for, prospect, and explore for ores and minerals; to locate, buy, lease,
license, or otherwise acquire mining claims, developments, grounds, leases, and
mineral rights therein in the United States of America or the territories
thereof, or in any foreign country; to mine, drill, develop, bore, explore,
operate, and work the same; to develop, produce, refine, amalgamate, and prepare
for market ores, minerals, and mining substances of all kinds; to do all acts
and things necessary or convenient to the company's objects, including the
erection of buildings, warehouses, structures, furnaces, mills, crushing,
concentrating, and smelting works, and installations of machinery, equipment,
apparatus, and appliances of every description; to construct roads, ways,
private railroads, bridges, water courses, and reservoirs, and to operate all of
the same as required for the uses and purposes of the company.
b. Conducting and engaging generally in the timber and lumbering
business; to cut, process, sell, develop, and market timber and lumber,
including all of the by-products from the same; to buy, lease, and otherwise
acquire timber property, acreages, real estate, or rights and interest therein;
to manufacture, produce, buy, hold, sell, and deal in all materials, equipment,
apparatus, machinery, and property of all kinds appurtenant or incident to and
useful in said business; to do all acts or things necessary or convenient to the
operation of said timber and lumbering business.
THIRD: In furtherance of and not in limitation of the objects and
purposes herein stated, and by the general powers conferred by the statutes of
the State of Colorado, our corporation shall have the following powers, to wit:
a. To enter into, make, perform, carry out contracts and agreements of
every sort and kind, with any person, firm, association, corporation, private or
public, municipal or body politic, and with the Government of the United States,
or of any state, territory, or
<PAGE> 3
colony thereof, or any subdivision or agency in the United States of America,
or of any nation, state, or subdivision thereof.
b. To acquire, purchase, gift, devise, bequest, or otherwise, all kinds
of property, whether real, personal, or mixed, and wheresoever situate,
including stocks, bonds, debentures, and obligations of this and other
companies, and to despise of the same by sale, barter, trade, issue, reissue, or
otherwise, and to execute each and every kind of instrument of conveyance and/or
transfer.
c. To acquire good will, rights, property, and assets of all kinds, and
to undertake the whole or any part of the liabilities of any person, firm,
association, or corporation, on such terms as may be agreed on, and to pay for
the same in cash, stocks, bonds, debentures, or securities of this corporation,
or otherwise; to acquire and undertake all or any part of the business, assets,
and liabilities of any person, firm, association, or corporation.
d. To issue shares of capital stock of the corporation for such
consideration, labor or services performed or money or property of any kind
actually received, as may be determined from time to time by the Board of
Directors in their sole discretion, and any and all shares so issued shall be
deemed fully paid and non-assessable and not liable to any call or assessment
thereon, and the holder of such shares shall not be liable for any further
payment or assessment in respect thereto.
e. To offer for public or private subscription any shares of stock in
the capital of, or debentures or other securities of this corporation, or any
other corporation, the stock and debentures which this corporation owns, to
promote or concur in the establishment of any corporation, company, or
association undertaking.
f. To borrow money in the name of the corporation and give evidence
thereof by notes, bonds, or otherwise, and to give as security therefore any and
all of the assets of the corporation by pledge, mortgage, trust deed, or
otherwise.
g. To lend money of the corporation, either with or without security
therefore, and to fix and collect lawful and reasonable interests and charges
therefore.
h. To do all, any, or every thing necessary, suitable, expedient,
convenient, or proper for the accomplishment of the purposes or the attainment
of any one or more of the objects herein enumerated or incidental to the powers
herein named, or at any time it appears conducive to or expedient for the
advancement, protection, or benefit of the corporation, either as holders of or
interested in any property or otherwise.
i. To have and possess all the powers of a corporation granted by the
laws of the State of Colorado, whether herein specifically set forth or not.
j. It is the intention that the objects and purpose specified in the
clauses contained in this Certificate of Incorporation shall be in no way
limited or restricted by reference to or inference from the terms of any other
clause of this or any other paragraph herein contained, but the objects and
powers specified in each of these clauses of this Certificate of Incorporation
shall be independent objects and powers above named shall not be held to exclude
any object or power which is in any way incident to the proper conduct of the
business of this corporation.
FOURTH: This corporation shall have a capitalization of $100,000.00,
consisting of ten million ($10,000,000) shares of common stock at one cent
($.01) par value, said common stock to be full voting, and issued fully paid and
non-assessable.
<PAGE> 4
FIFTH: No stockholder of the corporation shall have, by virtue of being
a stockholder, any preemptive right to subscribe to and/or purchase any
additional stock or additional issues of stock and/or other securities of any or
all classes of the corporation or securities convertible into stock or carrying
stock purchase warrant or privileges.
SIXTH: The term of existence of said corporation is perpetual.
SEVENTH: The affairs and management of said corporation are to be under
the control of a board of directors consisting of not less than three nor more
than five members. Hyman Hoffman, Michael Grande, and Harry Hoffman are hereby
selected to act as the Board of Directors and to manage the affairs of said
corporation for the first year of its existence or until their successors are
elected and qualify. At such time as a majority of the Board of Directors shall
deem it desirable, the number of directors may be increased to the maximum
number of five members, said additional directors to be elected by a majority of
the directors then in the office.
EIGHTH: The principal office of said corporation shall be located in
the City and County of Denver and State of Colorado. Part or all of the business
of the said corporation may be carried on beyond the limits of the State of
Colorado.
NINTH: A stock ledger and other books of record of the said corporation
shall be kept within the State of Colorado in charge of Donald M. Shere, whose
office address if 407 University Building, Denver, Colorado, c/o Lindner and
Shere, Attorneys.
TENTH: The Directors shall have the power to make such by-laws as they
may deem proper for the management of the affairs of said corporation according
to the statute in such case made and provided.
ELEVENTH: Cumulative voting shall not be allowed.
IN WITNESS WHEREOF, we have hereunto set our hands and seals to this
31st day of March, 1955.
(signatures) Donald M. Shere
Irving Lindner
Robert B. Rottman
STATE OF COLORADO
CITY AND SS.
COUNTY OF DENVER
I, (Signature), a Notary Public, in and for said county, in the state
aforesaid, do hereby certify that Donald M. Shere, Irving Lindner, and Robert B.
Rottman, whose names are subscribe to the annexed and foregoing certificate of
incorporation, appeared before me this day in person, and acknowledged that they
signed, sealed, and delivered the said instrument of writing as their free and
voluntary act, for the uses and purposes therein set forth.
Given under my hand and notarial seal this 31st day of March, AD 1955.
My commission expires (Date of expiration)
(Signature)
(Notary public stamp)
<PAGE> 5
<TABLE>
<S> <C> <C>
SS Form D-4 (Rev 10/82) Change of Name MAIL TO: (Date stamped September 12,1983)
Submit in Duplicate Colorado Secretary of State (Stamped P12:13)
Filing fee $22.50 Corporation Office
1575 Sherman St. 2nd Floor
This document should be typewritten Denver Colorado 80203
(303) 866-2361
</TABLE>
ARTICLES OF AMENDMENT
to the
ARTICLES OF INCORPORATION
Pursuant to the provisions of the Colorado Corporation Code, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the corporation is (note 3) CORE OIL CO.
SECOND: The following amendment was adopted by the shareholders of the
corporation on June 16th 1983 , in the manner prescribed by the Colorado
Corporation Code:
Article FIRST of the Articles of Incorporation is amended to read as
follows:
"The corporate name of our said corporation shall be CORE MINERAL
RECOVERIES, INC."
THIRD: The number of shares of the corporation outstanding at the time
of such adoption was 2,285,710 and the number of shares entitled to vote thereon
was 1,417,676.
FOURTH: The designation and number of outstanding shares of each class
entitled to vote thereon as a Class were as follows:
<TABLE>
<CAPTION>
CLASS (Note 1) NUMBER OF SHARES VOTED
For Against
<S> <C> <C>
COMMON 1,417,676 - 0 -
</TABLE>
FIFTH: The number of shares voted for such amendment was 1,417,676 ;
and the number of shares voted against such amendment was - 0 - .
SIXTH: The number of shares of each class entitled to vote thereon as a
class voted for and against such amendment, respectively, was:
<TABLE>
<CAPTION>
CLASS (Note 1) NUMBER OF SHARES VOTED
For Against
<S> <C> <C>
COMMON 1,417,676 - 0 -
</TABLE>
<PAGE> 6
SEVENTH: The manner if not set forth in such amendment, in which any
exchange, reclassification, or cancellation of issued shares provided for in the
amendment shall be effected, is as follows:
(Note 2)
No Change
EIGHTH: The manner in which such amendment effects a change in the
amount of stated capital, and the amount of stated capital as changed by such
amendment are as follows:
(Note 2)
No Change
CORE OIL CO. (Note 3)
By (President's signature)
And (Second signature) (Note 4)
Subscribed and sworn to before me this (not filled in by notary public)
day of __________, 19___. My commission expires ____________________________.
(not signed by notary public)
(address not filled in)
NOTES 1 If inapplicable, insert "None"
2 If inapplicable, insert "No Change"
3 Each corporate name of corporation adopting the Articles of
Amendment is still a change of name before the amendment is filed.
4 Signature, and titles of officers signing for the corporation
<PAGE> 7
<TABLE>
<S> <C> <C>
SS Form D-4 (Rev 10/82) MAIL TO: (Date stamped September 12,1983)
Submit in Duplicate Colorado Secretary of State (Stamped P12:13)
Filing fee $22.50 Corporation Office
1575 Sherman St. 2nd Floor
This document should be typewritten Denver Colorado 80203
(303) 866-2361
</TABLE>
ARTICLES OF AMENDMENT
to the
ARTICLES OF INCORPORATION
(DPO135074 (written))
Pursuant to the provisions of the Colorado Corporation Code, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the corporation is (note 3) CORE OIL CO.
SECOND: The following amendment was adopted by the shareholders of the
corporation on June 16th , 1983 , in the manner prescribed by the Colorado
Corporation Code.
Article FOURTH of the Articles of Incorporation is amended to read as
follows:
"This corporation shall have a capitalization of $150,000.00,
consisting of fifteen million (15,000,000) share of common stock at one cent
($.01) per value, said common stock to be full voting, and issued fully paid and
non-assessable."
THIRD: The number of shares of the corporation outstanding at the time
of such adoption was 2,285,710 and the number of shares entitled to vote thereon
was 1,417,676.
FOURTH: The designation and number of outstanding shares of each class
entitled to vote thereon as a class were as follows:
CLASS (Note 1) NUMBER OF SHARES
COMMON 1,417,676
FIFTH: The number of shares voted for such amendment was 1,417,676 ;
and the number of shares voted against such amendment was - 0 - .
<PAGE> 8
SIXTH: The number of shares of each class entitled to vote thereon as a
class voted for and against such amendment, respectively, was:
<TABLE>
<CAPTION>
CLASS (Note 1) NUMBER OF SHARES VOTED
For Against
<S> <C> <C>
COMMON 1,417,676 - 0 -
</TABLE>
SEVENTH: The manner, if not set forth in such amendment, in which any
exchange, reclassification, or cancellation of issued shares provided for in the
amendment shall be effected, is as follows:
(Note 2)
No Change
EIGHTH: The manner in which such amendment effects a change in the
amount of stated capital, and the amount of stated capital as changed by such
amendment, are as follows:
(Note 2)
Stated capital increases from $100,000.00
to $150,000.00 because authorized stock _______________________(Note 3)
increased from 10,000,000 shares to By (Presidents signature)
15,000,000 shares (par value $.01) -------------------------------
and (other signature) (Note 4)
-------------------------------
Subscribed and sworn to before me this (not completed by notary public)
day of ________, 19___. My commission expires ________________.
(Notary public signature not completed)
(Address not completed)
NOTES 1 If inapplicable, insert "None"
2 If inapplicable, insert "No Change"
3 Each corporate name of corporation adopting the Articles of
Amendment is still a change of name before the amendment is
filed.
4 Signature, and titles of officers signing for the corporation
<PAGE> 9
SS Form D-4 (Rev 1/86) MAIL TO:
Submit in Duplicate Colorado Secretary of State
Filing Fee $22.50 Corporation Office
1560 Broadway, Suite 200
This document must be typewritten Denver, Colorado 80202
(303)866-2361
(Stamped RECEIVED October 7, 1986 10:07 A.M.)
(Stamped SECRETARY OF STATE
STATE OF COLORADO)
ARTICLES OF AMENDMENT
to the
ARTICLES OF INCORPORATION
Pursuant to the provisions of the Colorado Corporation Code, the
undersigned corporation adopts the following Articles of Amendments to its
Articles of Incorporation:
FIRST: The name of the corporation is (Note 1) CORE MINERAL RECOVERIES,
INC. .
SECOND: The following amendment to the Articles of Incorporation was
adopted on NOVEMBER 12 1986 , as prescribed by the Colorado Corporation Code,
in the manner marked with an X below:
[ ] Such amendment was adopted by the board of directors where
no shares have been issued.
[X] Such amendment was adopted by a vote of the shareholders. The
number of shares voted for the amendment was sufficient for
approval.
That, by unanimous vote of a quorum of shareholders the amount of shares
authorized be 30,000,000.
That, by unanimous vote of a quorum of shareholders, that the Articles of the
corporation be amended that the corporation may conduct business as a trust and
may set up trusts both in the United States and in foreign countries.
THIRD: The manner, if not set forth in such amendment, in which any
exchange, reclassification, or cancellation of issued shares provided for in the
amendment shall be effected as follows: N/A
<PAGE> 10
FOURTH: The manner in which such amendment effects a change in the
amount of stated capital, and the amount of stated capital as changed by such
amendment are as follows:
_______________________(Note
By (President's signature)
And (blank space )(Note
(signature )(Note
ROBERT VELTEN
NOTES: 1 Exact corporate name of corporation adopting the Articles of
Amendments. (If this is a change of name amendment name before this
amendment is filed.) (other notes cut off by copier)
<PAGE> 11
MAIL TO:
Secretary of State
Corporations Section
1560 Broadway, Suite 200
Denver, Colorado 80202
(303) 894-2251
Fax (303) 894-2242
MUST BE TYPED
FILING FEE: $25.00
MUST SUBMIT TWO COPIES
Please include a typed self-addressed envelope
(Stamped CHANGE OF NAME and STOCK CHANGE)
(Stamped 19971139700 M
$ 25.00
SECRETARY OF STATE
09-03-97 11:44:45)
ARTICLES OF AMENDMENT
to the
ARTICLES OF INCORPORATION
Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned corporation adopts the following Articles of Amendments to its
Articles of Incorporation
FIRST: The name of the corporation is CORE MINERAL RECOVERIES, INC. .
SECOND: The following amendment to the Articles of Incorporation was adopted on
JULY 20, 1997 , as prescribed by the Colorado Business Corporation Act, in the
manner marked with an X below:
The Articles of Incorporation are amended to:
(a) change the name of the Corporation from Core Mineral
Recoveries to "Core Ventures, Inc."
(b) change the par value of the shares of the common stock of the
Corporation from $.01 par value to $.0001 par value per share.
[ ] No shares have been issued or Directors Elected - Action by
Incorporators
[ ] No shares have been issued but Directors Elected - Action by Directors
[ ] Such amendment was adopted by the board of directors where shares have
been issued and shareholder action was not required.
[X] Such amendment was adopted by a vote of the shareholders. The number of
shares voted for the amendment was sufficient for approval.
THIRD: If changing corporate name, the new name of the corporation is CORE
VENTURES, INC. .
<PAGE> 12
FOURTH: The manner, if not set forth in such amendment, in which any exchange,
reclassification, or cancellation of issued shares provided for in the amendment
shall be effected, is as follows:
No Change.
If these amendments are to have a delayed effective date,: JULY 20, 1997
----------------------
please list that date (Not to exceed ninety (90) days from
the date of filing)
CORE VENTURES, INC.
(Formerly Core Mineral Recoveries, Inc.)
Signature(signature )
-------------------------
Title (stamped) ALIXE B. CORMICK
--------------------------
BARRISTER & SOLICITOR
Suite 618, 688 West Hastings Street
P.O. Box 28, Vancouver, Canada V6B ?
<PAGE> 13
RESTATED ARTICLES OF INCORPORATION
(Section 7-2-103)
COLORADO BUSINESS CORPORATION ACT
Pursuant to the provisions of the Colorado Corporation Act, the undersigned
corporation's articles are as follows:
1. The name of the corporation is "CORE VENTURES, INC."
2. The authorized capital of the Company consists of THIRTY MILLION
(30,000,000) common shares with a par value of $0.0001.
3. The registered office of the corporation is:
CT Corporate System
Suite 1200 - 1675 Broadway
Denver, Colorado 80202
- --------------------------------------------------------------------------------
Dated at Vancouver, British Columbia, this 20th day of July, 1997.
(signature )
- --------------------------
Ashif Jiwa, President
<PAGE> 14
MAIL TO:
Secretary of State
Corporations Section
1560 Broadway, Suite 200
Denver, Colorado 80202
(303) 894-2251
Fax (303) 894-2242
Please include a typed self-addressed envelope (Stamped FILED COPY
MUST BE TYPED 19981030974 M
FILING FEE: $10.00 $ 10.00
MUST SUBMIT TWO COPIES SECRETARY OF STATE
02-18-98 11:32:00)
NOTICE OF TRANSFER OF RESERVED CORPORATE NAME
LIMITED LIABILITY COMPANY NAME OR LIMITED PARTNERSHIP NAME OF
FutureLink Distribution Inc.
Pursuant to the provisions of the Colorado Business Corporation Act, Colorado
Limited Liability Company Act or the Colorado Limited Partnership Act of 1981,
you are hereby notified that the undersigned has transferred to
Core Ventures Inc.
Whose address is 618 - 688 West Hastings Street, Vancouver, BC V6B 1P1
The name of FutureLink Distribution Corp.
which was reserved in your office for the exclusive use of the undersigned on
January 14 1998, for a period of one hundred twenty days thereafter.
(written) Venture Law Corporation
(typed) Alixe B. Cormick
618-688 West Hastings Street
Vancouver, BC V6B 1P1
By (signature )
Its Lawyer
Title
<PAGE> 15
MAIL TO:
Secretary of State
Corporations Section
1560 Broadway, Suite 200
Denver, Colorado 80202
(303) 894-2251
Fax (303) 894-2242
Please include a typed self-addressed envelope (Stamped FILED COPY
MUST BE TYPED 19981008266 M
FILING FEE: $10.00 $ 10.00
MUST SUBMIT TWO COPIES SECRETARY OF STATE
02-18-98 11:41:00)
APPLICATION FOR
RESERVATION OF NAME
To the Secretary of State of the State of Colorado:
Pursuant to the provisions of the Colorado Business Corporation Act, Colorado
Nonprofit Corporation Act, Colorado Uniform Limited Partnership Act of 1981 or
the Colorado Limited Liability Company Act, the undersigned hereby applies for
reservation of the following name for a period of one hundred twenty days:
1ST CHOICE FutureLink Distribution, Corp.
2ND CHOICE (IF 1ST CHOICE IS NOT AVAILABLE) ________________________________
3RD CHOICE (IF 1ST, 2ND CHOICES NOT AVAILABLE)_______________________________
----------------------------------------
(signature) (title)
Alixe B. Cormick, Venture Law Corporation
Typed name of applicant
618-688 West Hastings
(address)
Vancouver, British Columbia, V6B 1P1
<PAGE> 16
MAIL TO:
Secretary of State
Corporations Section
1560 Broadway, Suite 200
Denver, Colorado 80202
(303) 894-2251
Fax (303) 894-2242
Please include a typed self-addressed envelope (Stamped FILED COPY
MUST BE TYPED 1997118914 M
FILING FEE: $10.00 $ 10.00
MUST SUBMIT TWO COPIES SECRETARY OF STATE
11-24-97 10:53:44)
STATEMENT OF CHANGE OF
REGISTERED OFFICE OR
REGISTERED AGENT, OR BOTH
Pursuant to the provisions of the Colorado Business Corporation Act, the
Colorado Nonprofit Corporation Act, the Colorado Uniform Limited Partnership Act
of 1981 and the Colorado Limited Liability Company Act, the undersigned,
organized under the laws of:
Colorado
submits the following statement for the purpose of changing its registered
office or its registered agent or both, in the state of Colorado:
FIRST: The name of the corporation, limited partnership or limited liability
company is: Core Ventures, Inc.
SECOND: Street address of current REGISTERED OFFICE is: 5650 South Alexander
Ct., Littleton, Colorado 80121 and if changed, the new street address
is: 1675 Broadway, Denver, Colorado 80202
THIRD: The name of its current registered agent is: Randall Kirk and if
changed, the new registered agent is: The Corporation Company
Signature of Registered Agent By: (signature )
Principal place of business 4510 Victoria Dr., Vancouver, BC
V5N 4N8
The address of its registered office and the address of the business office of
its registered agent, as changed will be identical.
Core Ventures, Inc.
Name of Entity
By (signature), Frank Demitro
------------------------------------
Its President
Title
<PAGE> 17
MAIL TO:
Secretary of State
Corporations Section
1560 Broadway, Suite 200
Denver, Colorado 80202
(303) 894-2251
Fax (303) 894-2242
Please include a typed self-addressed envelope (Stamped FILED COPY
MUST BE TYPED 1997118913 M
FILING FEE: $10.00 $ 10.00
MUST SUBMIT TWO COPIES SECRETARY OF STATE
11-24-97 10:53:44)
RESIGNATION OF OFFICER
OR DIRECTOR
Pursuant to the provision of the Colorado Business Corporation Act, the
undersigned states:
FIRST: The name of the corporation is: CORE VENTURES INC. (VENTURES, INC is
written over crossed out MINERAL RECOVERIES, INC.)
SECOND: That the undersigned is named as an officer or director of such
corporation and is shown as having the following title on the documents
listed below which documents have been filed with the Secretary of
State by the corporation:
<TABLE>
<CAPTION>
TITLE DOCUMENT FILING NUMBER
<S> <C> <C>
President Corporate Report 19971110965
</TABLE>
THIRD: That the undersigned hereby resigns as an officer/director of the
corporation and has given notice to the corporation of such resignation
or states that the undersigned was named as an officer/director without
the consent of the undersigned.
FOURTH: The undersigned ceased to be an officer/director on July 14 , 1997
John Xinos
---------------------------------------
Typed name of Officer/Director
(Signed)
----------------------------------------
Signature
<PAGE> 18
MAIL TO:
Secretary of State
Corporations Section
1560 Broadway, Suite 200
Denver, Colorado 80202
(303) 894-2251
Fax (303) 894-2242
Please include a typed self-addressed envelope (Stamped FILED COPY
MUST BE TYPED 19981030975 M
FILING FEE: $10.00 $ 25.00
MUST SUBMIT TWO COPIES SECRETARY OF STATE
02-18-98 11:35:29)
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the corporation is CORE VENTURES, INC.
SECOND: The following amendment to the Articles of Incorporation was adopted on
January 20, 1998, as prescribed by the Colorado Business Corporation
Act, in the manner marked with an X below:
[ ] No shares have been issued or Directors Elected - Action by
Incorporators
[ ] No shares have been issued but Directors Elected - Action by Directors
[ ] Such amendment was adopted by the board of directors where shares have
been issued and shareholder action was not required.
[X] Such amendment was adopted by a vote of the shareholders. The number of
shares voted for the amendment was sufficient for approval.
THIRD: If changing corporate name, the new name of the corporation is
FUTURELINK DISTRIBUTION, CORP.
FOURTH: The manner, if not set forth in such amendment, in which any exchange,
reclassification, or cancellation of issued shares provided for in the
amendment shall be effected, is as follows:
The authorized capital of the Company is 100,000,000 shares in
the common stock with a par value of $0.001 per share and 5,000,000
shares in the preferred stock with no par value.
Dated: February 17, 1998
Signature ( signed )
---------------------------
FRANK DEMITRO
SECRETARY AND DIRECTOR
CORE VENTURES, INC.
N/K/A FUTURELINK DISTRIBUTION, CORP.
<PAGE> 19
AMENDING AGREEMENT
THIS AMENDING AGREEMENT made as of the 21st day of August, 1998.
AMONG:
<TABLE>
<S> <C>
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 OF THE FIFTH PART
("RMC")
- and -
SYSGOLD LTD., a corporation incorporated under the laws of the
Province of Alberta
("SysGold") OF THE SIXTH PART
- and -
FUTURELINK DISTRIBUTION CORP., a corporation incorporated under the
laws of the Province of Alberta
("FutureLink Alberta") OF THE SEVENTH PART
</TABLE>
<PAGE> 20
2
WHEREAS the parties are party to that share purchase agreement dated
August 4, 1998 (the "Share Purchase Agreement"); and
WHEREAS pursuant to the provisions of Article 7 of the Share Purchase
Agreement, the parties agreed to permit a reorganization of RMC and to execute
such further documents and agreements and give such further assurances and
undertake such further action as might be necessary to give effect thereto.
NOW THEREFORE the parties agree as follows:
ARTICLE 1
INTERPRETATION
1.1 Capitalized terms shall, unless otherwise defined herein, be given the same
meaning as is ascribed to such terms in the Share Purchase Agreement, the
Support Agreement, the Exchangeable Share Provisions and the Voting and Exchange
Trust Agreement.
1.2 The Share Purchase Agreement, as amended and supplemented by the provisions
of this Agreement, shall remain in full force and effect as if the provisions
thereof and hereof were contained in one agreement. To the extent that there is
any conflict between the terms of the Share Purchase Agreement and the terms of
this Agreement, this Agreement shall govern.
ARTICLE 2
IMPLEMENTING THE TRANSACTION
2.1 The parties agree that the Closing Date shall be amended to August 21, 1998.
2.2 The parties agree that the purchase and sale of the Purchased Shares shall
be carried out in the following manner and the Permitted Transactions Schedule
shall be amended and replaced by this section 2.2:
(a) the Buyer establishes FutureLink Acquisition Corporation, an
Alberta corporation ("Acquisition Co.") which shall be
permitted to carry out the obligations of the Buyer under the
terms of the Share Purchase Agreement and this Agreement, and
the Buyer shall subscribe for 3,000,000 common shares of
Acquisition Co. at a price of $1.00 (Cdn.) per common share;
(b) RMC acquires the Class "K" Shares as follows:
<TABLE>
<CAPTION>
SHAREHOLDER NO. OF SHARES AMOUNT
- ------------- -------- --------
<S> <C> <C>
(i) Donald 842,500 $842,500
(ii) Olivia 842,500 $842,500
</TABLE>
(c) Acquisition Co. acquires the following Class "J" shares for the
following consideration:
<PAGE> 21
3
<TABLE>
<CAPTION>
SHAREHOLDER NO. OF SHARES AMOUNT
- -------------- ------------- -----------------
<S> <C> <C>
(i) Donald 500,000 $ 500,000 *
(ii) Olivia 500,000 $ 85,000 *
$ 415,000 cash**
(iii) Trust 1,000,000 $1,000,000 cash
TOTAL $2,000,000
</TABLE>
* by the issuance of the Promissory Note
** $100,000 of which has already been received as the Deposit;
(d) RMC files Articles of Amendment creating exchangeable shares
having the terms and conditions set out in Schedule "A" hereto
(the "Exchangeable Shares");
(e) Donald and Olivia exchange their remaining Class "K" Shares
and Class "B" Common Shares for Exchangeable Shares as
follows:
<TABLE>
<CAPTION>
EXCHANGEABLE SHARES
SHAREHOLDER NO. OF SHARES RECEIVED
----------- ------------- --------
<S> <C> <C>
(i) Donald 1,325,833 Class "K" 1,418,084
100 Class "B" Common
(ii) Olivia 2,989,165 Class "K" 2,831,916
100 Class "B" Common
TOTAL 4,250,000
</TABLE>
(f) The Buyer shall create a voting share (the "Voting Share")
having the terms and conditions set out in Schedule "B" hereto
and shall issue to and deposit with the Trustee such Voting
Share, in consideration of the payment to the Buyer of U.S.$1,
to be held by the Trustee as trustee for and on behalf of, and
for the use and benefit of, the holders of the Exchangeable
Shares, in accordance with the Voting and Exchange Trust
Agreement, hereinafter defined;
(g) The Buyer and RMC will execute and deliver the support
agreement attached hereto as Schedule "C" (the "Support
Agreement");
(h) The Buyer, RMC and the Trustee will execute and deliver voting
and exchange trust agreement attached hereto as Schedule "D"
(the "Voting and Exchange Trust Agreement"); and
(i) The Buyer shall reserve for issuance such number of shares of
Common Stock as shall be necessary for the issuance on
exchange of the Exchangeable Shares and the exercise by Donald
of his option under the Employment Agreement.
<PAGE> 22
4
ARTICLE 3
CERTAIN RIGHTS OF THE BUYER
TO ACQUIRE EXCHANGEABLE SHARES
3.1 (a) The Buyer and any subsidiary thereof shall have the
overriding right (the "Liquidation Call Right"), in the event of
and notwithstanding the proposed liquidation, dissolution or
winding-up of RMC pursuant to Article 5 of the Exchangeable
Share Provisions, to purchase from all but not less than all of
the holders (other than the Buyer) thereof of Exchangeable
Shares on the Liquidation Date all but not less than all of the
Exchangeable Shares held by each such holder on payment by the
Buyer to the holder of the Exchangeable Share Price applicable
on the last Business Day prior to the Liquidation Date (the
"Liquidation Call Purchase Price"). In the event of the exercise
of the Liquidation Call Right by FutureLink (Alberta), each
holder shall be obligated to sell all the Exchangeable Shares
held by the holder to the Buyer on the Liquidation Date on
payment by the Buyer to the holder of the Liquidation Call
Purchase Price for each such share.
(b) To exercise the Liquidation Call Right, the Buyer or any of its
subsidiaries, must notify the Trustee and RMC in writing, of the
Buyer's or its subsidiaries' intention to exercise such right at
least 55 days before the Liquidation Date in the case of a
voluntary liquidation, dissolution or winding-up of RMC and at
least five Business Days before the Liquidation Date in the case
of an involuntary liquidation, dissolution or winding-up of RMC.
The Trustee will notify the holders of Exchangeable Shares as to
whether or not the Buyer or any of its subsidiaries has
exercised the Liquidation Call Right forthwith after the expiry
of the date by which the same may be exercised by the Buyer. If
the Buyer or any subsidiary exercises the Liquidation Call
Right, on the Liquidation Date the Buyer or any subsidiary will
purchase and the holders will sell all of the Exchangeable
Shares then outstanding for a price per share equal to the
Liquidation Call Purchase Price.
(c) For the purposes of completing the purchase of the Exchangeable Shares
pursuant to the Liquidation Call Right, the Buyer or its
subsidiary shall deposit with the Trustee, on or before the
Liquidation Date, the Exchangeable Share Consideration
representing the total Liquidation Call Purchase Price. Provided
that such Exchangeable Share Consideration has been so deposited
with the Transfer Agent, on and after the Liquidation Date the
rights of each holder of Exchangeable Shares will be limited to
receiving such holder's proportionate part of the total
Liquidation Call Purchase Price payable by the Buyer or on of
its subsidiaries without interest upon presentation and
surrender by the holder of certificates representing the
Exchangeable Shares held by such holder and the holder shall on
and after the Liquidation Date be considered and deemed for all
purposes to be the holder of the Buyer Common Stock delivered to
such holder. Upon surrender to the Transfer Agent of a
certificate or certificates representing Exchangeable Shares,
together with such other documents and instruments as may be
required to effect a transfer of Exchangeable Shares under
applicable law and such additional documents and instruments as
the Transfer Agent may reasonably require, the holder of such
surrendered certificate or certificates shall be entitled to
receive in exchange therefor, and the Transfer Agent on behalf
of the Buyer or its subsidiary shall
<PAGE> 23
5
deliver to such holder, the Exchangeable Share Consideration to
which the holder is entitled. If the Buyer or one of its
subsidiaries does not exercise the Liquidation Call Right in the
manner described above, on the Liquidation Date the holders of
the Exchangeable Shares will be entitled to receive in exchange
therefor the liquidation price otherwise payable by RMC in
connection with the liquidation, dissolution or winding-up of
RMC pursuant to Article 5 of the Exchangeable Share Provisions.
Notwithstanding the foregoing, until such Exchangeable Share
Consideration is delivered to the holder, the holder shall be
deemed to still be a holder of Exchangeable Shares for purposes
of all voting rights with respect thereto under the Voting and
Exchange Trust Agreement.
3.2 (a) The Buyer or any of its subsidiaries shall have the overriding
right (the "Redemption Call Right"), notwithstanding the
proposed redemption of the Exchangeable Shares by RMC pursuant
to Article 7 of the Exchangeable Share Provisions, to purchase
from all but not less than all of the holders (other than the
Buyer or any Subsidiary thereof) of Exchangeable Shares on the
Automatic Redemption Date all but not less than all of the
Exchangeable Shares held by each such holder on payment by the
Buyer or any of its subsidiaries to the holder of the
Exchangeable Share Price applicable on the last Business Day
prior to the Automatic Redemption Date (the "Redemption Call
Purchase Price"). In the event of the exercise of the Redemption
Call Right by the Buyer or any of its subsidiaries, each holder
shall be obligated to sell all the Exchangeable Shares held by
the holder to the Buyer on the Automatic Redemption Date on
payment by the Buyer or any of its subsidiaries to the holder of
the Redemption Call Purchase Price for each such share.
(b) To exercise the Redemption Call Right, the Buyer or any of its
subsidiaries must notify the Transfer Agent in writing, as agent
for the holders of Exchangeable Shares, and RMC of the Buyer's
or any of its subsidiaries' intention to exercise such right at
least 60 days before the Automatic Redemption Date. The Transfer
Agent will notify the holders of the Exchangeable Shares as to
whether or not the Buyer or any of its subsidiaries has
exercised the Redemption Call Right forthwith after the date by
which the same may be exercised by the Buyer or any of its
subsidiaries. If the Buyer or any of its subsidiaries exercises
the Redemption Call Right, on the Automatic Redemption Date the
Buyer or any of its subsidiaries will purchase and the holders
will sell all of the Exchangeable Shares then outstanding for a
price per share equal to the Redemption Call Purchase Price.
(c) For the purposes of completing the purchase of the Exchangeable Shares
pursuant to the Redemption Call Right, the Buyer or any of its
subsidiaries shall deposit with the Transfer Agent, on or before
the Automatic Redemption Date, the Exchangeable Share
Consideration representing the total Redemption Call Purchase
Price. Provided that such Exchangeable Share Consideration has
been so deposited with the Transfer Agent, on and after the
Automatic Redemption Date the rights of each holder of
Exchangeable Shares will be limited to receiving such holder's
proportionate part of the total Redemption Call Purchase Price
payable by the Buyer or any of its subsidiaries without interest
upon presentation and surrender by the holder of certificates
representing the Exchangeable Shares held by such holder and the
holder shall on and after the Automatic Redemption Date be
considered and
<PAGE> 24
6
deemed for all purposes to be the holder of the Buyer's Common
Stock delivered to such holder. Upon surrender to the Transfer
Agent of a certificate or certificates representing Exchangeable
Shares, together with such other documents and instruments as
may be required to effect a transfer of Exchangeable Shares
under applicable law and such additional documents and
instruments as the Transfer Agent may reasonably require, the
holder of such surrendered certificate or certificates shall be
entitled to receive in exchange therefor, and the Transfer Agent
on behalf of the Buyer or any of its subsidiaries shall deliver
to such holder, the Exchangeable Share Consideration to which
the holder is entitled. If the Buyer or any of its subsidiaries
does not exercise the Redemption Call Right in the manner
described above, on the Automatic Redemption Date the holders of
the Exchangeable Shares will be entitled to receive in exchange
therefor the redemption price otherwise payable by RMC in
connection with the redemption of the Exchangeable Shares
pursuant to Article 7 of the Exchangeable Share Provisions.
Notwithstanding the foregoing, until such Exchangeable Share
Consideration is delivered to the holder, the holder shall be
deemed to still be a holder of Exchangeable Shares for purposes
of all voting rights with respect thereto under the Voting and
Exchange Trust Agreement.
ARTICLE 4
ADDITIONAL COVENANTS OF BUYER AND SELLERS
4.1 The Buyer covenants and agrees with the Sellers that:
(a) immediately following the closing of the transactions contemplated
hereby it will cause the appointment of Donald to the Board of
Directors of the Buyer for a term of 2 years;
(b) it will become a reporting issuer in the Province of Alberta (as that
term is defined in the Securities Act (Alberta)) on or before
September 30, 1998;
(c) that it will place on the agenda for its next shareholders meeting to be
held on or before November 20, 1998 the creation of the
FutureLink Special Voting Stock, recommend to its stockholders
the approval of such resolutions as may be necessary for the
creation and issuance of such share and issue such share to the
Trustee immediately after receipt of approval from the
shareholders;
(d) notwithstanding the use of Acquisition Co., perform or cause the
performance of all obligations under the Share Purchase
Agreement and this Agreement and perform or cause the
performance of all obligations under the Support Agreement, the
Voting and Exchange Trust Agreement and issue FutureLink Common
Stock in exchange for the Exchangeable Shares in the manner
provided for in the Exchangeable Share provisions, the Support
Agreement and the Voting and Exchange Trust Agreement;
(e) that so long as any of the Exchangeable Shares are outstanding, it will
remain the sole shareholder of Acquisition Co., will cause
Acquisition Co. to be the sole shareholder of RMC, and, to the
extent that it would affect the Exchangeable shares, will not
permit the amendment to the
<PAGE> 25
7
articles of either or issue or create any additional shares in
either without the prior written consent of the Sellers.
4.2 The Sellers covenant and agree with the Buyers that the Sellers will
exercise their rights of retraction in respect of all of the Exchangeable Shares
outstanding when the number of Exchangeable Shares outstanding is less than ten
percent (10%) of the initial amount of Exchangeable Shares issued.
ARTICLE 5
AMENDMENT TO REPRESENTATIONS, WARRANTIES,
COVENANTS AND CONDITIONS
5.1 The parties hereto agree that the representations and warranties of the
Buyer and Sellers in the Share Purchase Agreement require amendments to remove
some inaccuracies contained therein. The parties acknowledge the inaccuracies of
the following representations and warranties and such representations and
warranties are hereby restated and amended:
(a) Subsection 3.01 (d) shall be amended to reflect that the issued and
outstanding shares of RMC on the Closing Date will be as
follows:
<TABLE>
<CAPTION>
SHAREHOLDER SHARES
----------- ------
<S> <C>
Donald 500,000 Class "J" Preferred Shares
2,168,334 Class "K" Preferred Shares
100 Class "B" Common Shares
Olivia 500,000 Class "J" Preferred Shares
3,831,666 Class "K" Preferred Shares
100 Class "B" Common Shares
Trust 1,000,000 Class "J" Preferred Shares
</TABLE>
(b) Subsection 3.01(h) shall be amended to add at the end of the first
sentence "except for any financial assistance required to carry
out the transactions resulting in the share structure of RMC set
out in subsection 3.01(d)";
(c) Subsection 3.02(c) shall be amended by deleting "16,623,553 common
shares" on the third line and replacing such with "15,499,313
common shares";
(d) Subsection 3.02(d) shall be amended by adding at the end of the
subsection "and except for 255,813 warrants for FutureLink
Colorado common shares issued pursuant to Rule 504 of the U.S.
Securities Act between January and May, 1998, options for
850,000 common shares of FutureLink Colorado issued pursuant a
director's meeting on August 3, 1998, options for 120,000 common
shares of FutureLink Alberta issued to a former employee of
FutureLink Alberta;
<PAGE> 26
8
(e) Subsection 3.02(e) shall be amended by adding on the first line after
the words "FutureLink Alberta" the words "and FutureLink
Acquisition Corp."
(f) Subsection 3.02(f) shall be amended to add at the end of the first
sentence "except for any financial assistance required to carry
out the transactions resulting in the share structure of RMC set
out in subsection 3.01(d)";
(g) Subsection 3.02(j) shall be amended by deleting the first sentence;
(h) Subsection 3.02(z) shall be amended to add at the end of the first line
", except as required to carry out the transactions resulting in
the share structure of RMC set out in subsection 3.01(d)";
(i) Subsection 3.02(dd) shall be amended by deleting the representation with
respect to FutureLink Colorado starting with the words "Subject
to any..." in the middle of page 33 to the end of the
subsection;
(j) Subsection 3.02(nn) shall be amended by adding at the beginning of the
subsection "Except as otherwise agreed,"; and
(k) Subsection 3.02(oo) shall be amended by adding at the beginning of the
subsection "Except for the Special Voting Stock issued to the
trustee pursuant the Voting and Exchange Trust Agreement,".
5.2 The covenant of the Buyer in subsection 4.05 (b) shall be amended by
deleting the words "best efforts" in the fourth line and replacing them with
"reasonable commercial efforts".
5.3 Subsection 5.01(g) is amended by adding the following:
"(iv) the conditions precedent to the obligations of the Sellers in section
6.01 have been satisfied or waived by the Sellers."
5.4 Subsection 6.01(b) is amended by adding the following:
"(v) the conditions precedent to the obligations of the Buyer in section
5.01 have been satisfied or waived by the Buyer."
ARTICLE 6
RE: DELIVERY OF SCHEDULES
6.1 The parties to this Agreement agree to waive each of their respective
conditions of closing subject to the terms of this Agreement and any
undertakings, indemnities or other documentation delivered on Closing. The
parties further acknowledge that notwithstanding that the Schedules to the Share
Purchase
<PAGE> 27
9
Agreement may not have been attached within the agreed period, that they are
satisfied that such late attachment does not result in a breach of Share
Purchase Agreement.
IN WITNESS WHEREOF the parties hereto have executed this Agreement on the date
first above written.
FUTURELINK DISTRIBUTION CORP.
(COLORADO)
Per:________________________________
RAGHU KILAMBI, A.S.O.
____________________________________
Witness DONALD A. BIALIK
____________________________________
Witness OLIVIA B. BIALIK
BIALIK FAMILY TRUST
Per:________________________________
Trustee
Per:________________________________
Trustee
RIVERVIEW MANAGEMENT
CORPORATION
Per:________________________________
Name:
Title:
SYSGOLD LTD.
Per:________________________________
Name:
Title:
FUTURELINK DISTRIBUTION CORP.
(ALBERTA)
Per:________________________________
RAGHU KILAMBI, A.S.O.
<PAGE> 28
ESCROW AGREEMENT
THIS AGREEMENT made this __________ day of August, 1998
AMONG:
FUTURELINK DISTRIBUTION CORPORATION (COLORADO)
(herein called "the Issuer")
- and -
HOWARD, MACKIE
(herein called "the Trustee")
- and -
DONALD A. BIALIK and OLIVIA B. BIALIK,
(herein called "the Security Holders")
WHEREAS pursuant to the provisions of the Share Purchase Agreement among
FutureLink Distribution Corp. (Colorado), Donald A. Bialik, Olivia B. Bialik,
Bialik Family Trust, Riverview Management Corporation, SysGold Ltd. and
FutureLink Distribution Corp. (Alberta) as amended by supplemental agreement
dated August 21, 1998 (the share purchase agreement, as amended and supplemented
hereinafter referred to as the "Share Purchase Agreement") the Issuer acquired
all of the issued and outstanding shares of Riverview Management Corporation;
and
WHEREAS the consideration payable in part for the purchase price for the
shares of Riverview Management Corporation were the Exchangeable Shares (as
defined in the Share Purchase Agreement); and
WHEREAS the Exchangeable Shares are exchangeable on a share for share
basis for the common stock of the Issuer; and
WHEREAS the common stock of the Issuer currently trades on the over the
counter bulletin board on the NASDAQ Exchange; and
WHEREAS the parties agreed to voluntarily escrow, on the terms and
conditions set out herein, the shares of the Issuer issuable on the exchange of
the Exchangeable Shares.
NOW THEREFORE this Agreement witnesses that, in consideration of the sum
of one dollar ($1) paid by the parties to each other, receipt of this sum being
acknowledged by each of the parties, the Security Holders jointly and severally
covenant and agree with the Issuer and with the Trustee, and the Issuer and the
Trustee covenant and agree each with the other and with the Security Holders
jointly and severally, as follows:
1. Each of the Security Holders hereby irrevocably agrees to deposit in escrow
with the Trustee those securities of the Issuer issued to the Security Holder
upon exchange of the Exchange Shares during the Escrow Period. The parties
agree, however, that nothing contained herein shall prevent the Security
<PAGE> 29
2
Holder from selling or assigning their Exchangeable Shares provided that the
party to whom they are sold or assigned agrees to be bound by the provisions
hereof.
2. Each of the Security Holders shall be entitled to a letter or receipt from
the Trustee stating the number of securities held for him by the Trustee subject
to the terms of this Agreement. It is expressly understood and agreed by the
parties hereto that such letter or receipt shall not be assignable, except as
permitted under paragraph 5 and 6 hereof.
3. Any securities deposited in escrow as aforesaid shall subject to the early
release provisions hereinafter provided for remain in escrow for a period of one
year from the closing of the transaction contemplated by the Share Purchase
Agreement (the "Escrow Period"). The events which entitle each of the Security
Holders to an earlier release of the security are as follows:
1) an assessment by a taxing authority on the Exchange Shares
received by the Holder but only such number of securities, the
proceeds from the sale of which would raise the monies
required to satisfy such assessment;
2) the sale by any other director or officer of the Issuer of
securities of the Issuer; but only such number of securities
sold by such director or officer;
3) in the event an offer is received for the shares of FutureLink
which the Board of Directors of FutureLink agrees to accept
and to which offer the Board members agree to tender their
shares in FutureLink.
4) the occurrence of an event entitling the trustee under the
Voting and Exchange Trust Agreement dated August 21, 1998
among FutureLink, Riverview Management Corporation and the
Trustee to exercise the Exchange Right or Automatic Exchange
Rights referred to in the Voting and Exchange Trust Agreement;
5) the failure by FutureLink to pay when due the Promissory Note
referred to in the Share Purchase Agreement within 60 days
after the due date;
6) removal by FutureLink of Mr. Bialik as a director and officer
of FutureLink; or
7) the Issuer not having issued to the Trustee (as defined in the
Voting and Exchange Trust Agreement among FutureLink
Distribution Corporation, 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 FutureLink Distribution Corporation, Riverview
Management Corporation and Howard, Mackie dated August 21,
1998) by December 15, 1998.
<PAGE> 30
3
Following release from Escrow, the Securities shall be tradeable in
accordance with the rules of the SEC and NASDAQ.
4. The trustee when asked to release securities prior to the expiration of the
one year shall be entitled to rely on a declaration of the Security Holder
seeking the release of security certifying that the events entitling him to
release as set out in this agreement have occurred. Such declaration shall be
sworn before a Notary Public and the trustee shall be entitled to rely on such
declaration without inquiry as to the truth of the matter referred to therein.
5. Except with the written consent of the Issuer, the securities held in escrow
under this Agreement and the beneficial ownership of or interest in them and the
certificates representing them (including any replacement certificates) shall
not be sold, assigned, hypothecated, transferred within escrow or otherwise
dealt with in any manner and the Trustee shall not acknowledge or implement any
of the foregoing. In the event of bankruptcy or death of a Security Holder, the
Trustee, on written notification to the Issuer, may transmit the Security
Holder's securities by operation of law to the trustee in bankruptcy, personal
representative, or heirs as the case may be but, notwithstanding such
transmission, the securities shall remain in escrow subject to this Agreement.
6. The Issuer may consent in writing to the transfer within escrow or
hypothecation within escrow of any of the escrowed securities, subject to the
transferee or mortgagee agreeing in writing under seal to be bound by this
Agreement and subject also to such other terms and conditions as the Issuer may
impose, and the Trustee, on receipt of the written consent of the Issuer and of
the Agreement of the transferee or mortgagee as aforesaid, may permit such
transfer within escrow or hypothecation within escrow.
7. All voting rights attached to the escrowed securities shall at all times be
exercised by the respective registered owners thereof.
8. The Trustee accepts the responsibilities placed on it by this Agreement and
agrees to perform them in accordance with the terms hereof and with the
applicable consents, orders or directions of the Corporation.
9. The Trustee shall not be liable for any error in judgment, or for any act
done or step taken or omitted by it in good faith or for any mistake in fact, or
for anything it may do or refrain from doing in connection herewith except its
own wilful misconduct or gross negligence.
10. The Trustee may consult with and obtain the advice of legal counsel, who may
be counsel to the Issuer, in the event of any questions as to the provisions
hereof or its duties hereunder and shall be fully protected in acting in
accordance with the opinion
<PAGE> 31
4
and instructions of such counsel. The reasonable cost of such counsel shall be
paid by the Issuer.
11. This Agreement may be executed in several parts in the same form and the
parts as so executed shall together constitute one original agreement, and the
parts, if more than one, shall be read together and construed as if all the
signing parties hereto had executed one copy of this Agreement.
12. The Security Holders hereby jointly and severally agree to and do hereby
release and indemnify and save harmless the Trustee from and against all claims,
suits, demands, costs, damages and expenses which may be occasioned by reason of
the Trustee's compliance in good faith with the terms hereof.
13. If the Trustee should wish to be replaced, the Issuer shall, by writing
appoint another Trustee in its place and such appointment shall be binding on
the Security Holders, and the new Trustee shall assume and be bound by the
obligation of the Trustee hereunder.
14. In this Agreement, the expression "the Security Holders" shall include and
any person to whom the interest of a Security Holder may be transmitted by
operation of law as provided in paragraph 5, and the expression "the Trustee"
shall include a new trustee appointed under paragraph 14, and wherever the
singular or masculine is used, the same shall be construed to include the plural
or feminine or neuter where the context so requires.
15. This Agreement may be amended upon agreement of the Issuer, the Trustee and
the Security Holders.
<PAGE> 32
5
16. This Agreement shall enure to the benefit of and be binding on the parties
to this Agreement and each of their heirs, executors, administrators, successors
and permitted assigns.
IN WITNESS WHEREOF, the Issuer and the Trustee have caused their
respective corporate seals to be hereto affixed and the Security Holders have
hereto set their respective hands and seals.
FUTURELINK DISTRIBUTION CORPORATION
(COLORADO)
Per:________________________________
Per:________________________________
SIGNED, SEALED AND DELIVERED by the respective Security Holders whose names are
subscribed in the right-hand column below in the presence of the respective
persons whose names are subscribed in the left-hand column.
Witnesses: Security Holders:
____________________________________
DONALD A. BIALIK
____________________________________
OLIVIA B. BIALIK
Trustee:
HOWARD, MACKIE
Per:________________________________
John Poetker
<PAGE> 33
August 21, 1998
SCHEDULE "A"
2.5 EXCHANGEABLE SHARE PROVISIONS
An unlimited number of Exchangeable Shares in the capital of the
Corporation having the following rights, privileges, restrictions and
conditions:
ARTICLE I
INTERPRETATION
1.1 For the purposes of these share provisions:
"AGGREGATE EQUIVALENT VOTE AMOUNT" means, with respect to any matter,
proposition or question on which holders of FutureLink Common Stock are
entitled to vote, consent or otherwise act, the product of (i) the
number of shares of Exchangeable Shares issued and outstanding and held
by holders thereof (other than FutureLink and its Subsidiaries)
multiplied by (ii) the number of votes to which a holder of one share
of FutureLink Common Stock is entitled with respect to such matter,
proposition or question.
"AUTOMATIC REDEMPTION DATE" means the date for the automatic redemption
by the Corporation of Exchangeable Shares pursuant to Article 7 of
these share provisions, which date shall be the tenth anniversary of
the date of the first issuance of Exchangeable Shares.
"BOARD OF DIRECTORS" means the Board of Directors of the Corporation.
"BUSINESS DAY" means any day other than a Saturday, a Sunday or a day
when banks are not open for business in either or both of Denver,
Colorado and Calgary, Alberta.
"CORPORATION" means Riverview Management Corporation.
"CURRENT MARKET PRICE" means, in respect of a share of FutureLink
Common Stock on any date, the average of the closing prices of
FutureLink Common Stock during a period of 20 consecutive trading days
ending not more than five trading days before such date on such U.S.
stock exchange or automated quotation system on which the FutureLink
Common Stock is listed or quoted, as the case may be, as may be
selected by the Board of Directors for such purpose; provided, however,
that if in the opinion of the Board of Directors the public
distribution or trading activity of FutureLink Common Stock during such
periods does not create a market which reflects the fair market value
of a share of FutureLink Common
<PAGE> 34
Stock, then the Current Market Price of a share of FutureLink Common
Stock shall be determined by the Board of Directors based upon the
advice of such qualified independent financial advisors as the Board of
Directors may deem to be appropriate, and provided further that any
such selection, opinion or determination by the Board of Directors
shall be conclusive and binding.
"EXCHANGEABLE SHARE CONSIDERATION" means, for any acquisition of
Exchangeable Shares pursuant to these share provisions, the Share
Purchase Agreement, the Support Agreement or the Voting and Exchange
Trust Agreement the following:
(1) certificates representing the aggregate number of shares of
FutureLink Common Stock deliverable in connection with such
acquisition;
(2) a cheque or cheques payable at par at any branch of the
bankers of the payor in the amount of declared and unpaid cash
dividends deliverable in connection with such acquisition; and
(3) such stock or property constituting any declared and unpaid
non-cash dividends deliverable in connection with such
acquisition;
provided that any such stock or property shall be duly issued as fully
paid and non-assessable, in the case of stock, and free and clear of
any lien, claim and encumbrance, security interest or adverse claim and
provided further that such consideration shall be paid less any tax
required to be deducted and withheld therefrom and without interest.
"EXCHANGEABLE SHARE PRICE" means, for each Exchangeable Share:
(a) the Current Market Price of a share of FutureLink Common
Stock, which shall be satisfied in full by causing to be
delivered one share of FutureLink Common Stock, plus
(b) an additional amount equal to the full amount of all cash
dividends declared and unpaid on such Exchangeable Share; plus
(c) the stock or other non-cash assets, if any, representing
non-cash dividends declared and unpaid on such Exchangeable
Share.
"EXCHANGEABLE SHARES" mean the Exchangeable Shares of the Corporation
having the rights, privileges, restrictions and conditions set forth
herein.
"FUTURELINK" means Futurelink Distribution Corp., a corporation
organized and existing under the laws of the State
<PAGE> 35
of Colorado and includes any successor corporation and Subsidiary.
"FUTURELINK CALL NOTICE" has the meaning ascribed thereto in Section
6.3 of these share provisions.
"FUTURELINK COMMON STOCK" mean the shares of common stock of
FutureLink, with a par value of U.S. $0.01 per share, having voting
rights of one vote per share, and any other securities into which such
shares may be changed.
"FUTURELINK DIVIDEND DECLARATION DATE" means the date on which the
board of directors of FutureLink declares any dividend on the
FutureLink Common Stock.
"FUTURELINK SPECIAL SHARE" means the share of Special Preferred Voting
Stock of FutureLink with a par value of U.S. $0.01 and having voting
rights at meetings of holders of FutureLink Common Stock equal to the
Aggregate Equivalent Vote Amount.
"LIQUIDATION AMOUNT" has the meaning attributed thereto in Section 5.1
of these share provisions.
"LIQUIDATION CALL RIGHT" means the overriding right of FutureLink, in
the event of a proposed liquidation, dissolution or winding-up of
Riverview, to purchase all of the outstanding Exchangeable Shares from
the holders thereof on the effective date of any such liquidation,
dissolution or winding-up in exchange for shares of FutureLink Common
Stock.
"LIQUIDATION DATE" has the meaning attributed thereto in Section 5.1 of
these share provisions.
"PURCHASE PRICE" has the meaning attributed thereto in Section 6.3 of
these share provisions.
"REDEMPTION CALL PURCHASE PRICE" means, for each Exchangeable Share:
(a) the Current Market Price of a share of FutureLink Common
Stock, which shall be satisfied in full by causing to be
delivered one share of FutureLink Common Stock, plus
(b) an additional amount equal to the full amount of all cash
dividends declared and unpaid on such Exchangeable Share; plus
(c) the stock or other non-cash assets, if any, representing
non-cash dividends declared and unpaid on such Exchangeable
Share.
3
<PAGE> 36
"REDEMPTION CALL RIGHT" means the overriding right pursuant to the
Share Purchase Agreement of FutureLink to purchase all of the
outstanding Exchangeable Shares from the holders thereof on the
Automatic Redemption Date in exchange for shares of FutureLink Common
Stock.
"REDEMPTION PRICE" has the meaning attributed thereto in Section 7.1 of
these share provisions.
"RETRACTED SHARES" has the meaning attributed thereto in Subsection 6.1
(i) of these share provisions.
"RETRACTION CALL RIGHT" means the overriding right of FutureLink, in
the event of a proposed retraction of Exchangeable Shares by a holder
thereof, to purchase from such holder on the Retraction Date the
Exchangeable Shares tendered for retraction in exchange for shares of
FutureLink Common Stock pursuant to the Exchangeable Share Provisions.
"RETRACTION DATE" has the meaning attributed thereto in Subsection 6.1
(ii) of these share provisions.
"RETRACTION PRICE" has the meaning attributed thereto in Section 6.1 of
these share provisions.
"RETRACTION REQUEST" has the meaning attributed thereto in Section 6.1
of these share provisions.
"RIVERVIEW" means Riverview Management Corporation.
"SHARE PURCHASE AGREEMENT " means the Share Purchase Agreement dated
August 4, 1998 among Futurelink Distribution Corporation (Colorado),
Donald Bialik, Olivia B. Bialik, Bialik Family Trust, Riverview
Management Corporation, SysGold Ltd. and Futurelink Distribution Corp.
(Alberta) as amended and supplemented by agreement amongst the same
parties dated August 21, 1998.
"SUBSIDIARY" of any person means each partnership, joint venture,
corporation, association or other business entity of which more than
50% of the total voting power of shares of stock or units of ownership
or beneficial interest entitled to vote in the election of directors
(or members of a comparable governing body) is owned or controlled,
directly or indirectly, by such person.
"SUPPORT AGREEMENT" means the support agreement between FutureLink and
the Corporation, made as of August 21, 1998.
4
<PAGE> 37
"TRUSTEE" means Howard, Mackie or any successor trustee appointed under
the provisions of the Voting and Exchange Trust Agreement.
"VOTING AND EXCHANGE TRUST AGREEMENT" means the Voting and Exchange
Trust Agreement among the Corporation, FutureLink and the Trustee, made
as of August 21, 1998.
ARTICLE II
RANKING OF EXCHANGEABLE SHARES
1.2 The Exchangeable Shares shall be entitled to a preference over all other
shares of the Corporation, with respect to the payment of dividends and the
distribution of assets in the event of the liquidation, dissolution or
winding-up of the Corporation, whether voluntary or involuntary, or any other
distribution of the assets of the Corporation among its shareholders for the
purpose of winding-up its affairs.
ARTICLE III
DIVIDENDS
1.3 A holder of an Exchangeable Share shall be entitled to receive and the Board
of Directors shall, subject to applicable law, on each FutureLink Dividend
Declaration Date, declare a dividend on each Exchangeable Share (a) in the case
of a cash dividend declared on the FutureLink Common Stock, in an amount in cash
for each Exchangeable Share equal to the cash dividend declared on each share of
FutureLink Common Stock or (b) in the case of a stock dividend declared on the
FutureLink Common Stock to be paid in FutureLink Common Stock, such number of
Exchangeable Shares for each Exchangeable Share as is equal to the number of
shares of FutureLink Common Stock to be paid on each share of FutureLink Common
Stock or (c) in the case of a dividend declared on the FutureLink Common Stock
in property other than cash or securities of FutureLink in such type and amount
of property for each Exchangeable Share as is the same as the type and amount of
property declared as a dividend on each share of FutureLink Common Stock or (d)
in the case of a dividend declared on the FutureLink Common Stock to be paid in
securities of FutureLink other than FutureLink Common Stock, in such number of
either such securities or economically equivalent securities of the Corporation,
as the Board of Directors determines, for each Exchangeable Share as is equal to
the number of securities of FutureLink to be paid on each share of FutureLink
Common Stock. Such dividends shall be paid out of money, assets or property of
the Corporation properly applicable to the payment of dividends, or out of
authorized but unissued shares of the Corporation.
5
<PAGE> 38
1.4 Cheques of the Corporation payable at par at any branch of the bankers of
the Corporation shall be issued in respect of any cash dividends contemplated by
Subsection 3.1 (a) hereof and the sending of such a cheque to each holder of an
Exchangeable Share (less any tax required to be deducted and withheld from such
dividends paid or credited by the Corporation) shall satisfy the cash dividend
represented thereby unless the cheque is not paid on presentation. Certificates
registered in the name of the registered holder of Exchangeable Shares shall be
issued or transferred in respect of any stock dividends or dividends payable in
other securities contemplated by Subsections 3.1 (b) or (d) hereof and the
sending of such a certificate to each holder of an Exchangeable Share shall
satisfy the stock dividend or dividend payable in other securities represented
thereby. Such other type and amount of property in respect of any dividends
contemplated by Subsection 3.1 (c) hereof shall be issued, distributed or
transferred by the Corporation in such manner as it shall determine and the
issuance, distribution or transfer thereof by the Corporation to each holder of
an Exchangeable Share shall satisfy the dividend represented thereby (subject to
any adjustment for the tax required to be deducted and withheld from such
dividends paid or credited by the Corporation). No holder of an Exchangeable
Share shall be entitled to recover by action or other legal process against the
Corporation any dividend that is represented by a cheque that has not been duly
presented to the Corporation's bankers for payment or that otherwise remains
unclaimed for a period of six years from the date on which such dividend was
payable.
1.5 The record date for the determination of the holders of Exchangeable Shares
entitled to receive payment of, and the payment date for, any dividend declared
on the Exchangeable Shares under Section 3.1 hereof shall be the same dates as
the record date and payment date, respectively, for the corresponding dividend
declared on the FutureLink Common Stock.
1.6 If on any payment date for any dividends declared on the Exchangeable Shares
under Section 3.1 hereof the dividends are not paid in full on all of the
Exchangeable Shares then outstanding, any such dividends that remain unpaid
shall be paid on a subsequent date or dates determined by the Board of Directors
on which the Corporation shall have sufficient moneys, assets or property
properly applicable to the payment of such dividends (subject to any adjustment
for the tax required to be deducted and withheld from such dividends paid or
credited by the Corporation).
1.7 Except as provided in this Article 3, the holders of Exchangeable Shares
shall not be entitled to receive dividends in respect thereof.
ARTICLE IV
CERTAIN RESTRICTIONS
6
<PAGE> 39
1.8 So long as any of the Exchangeable Shares are outstanding, the Corporation
shall not at any time without, but may at any time with, the approval of the
holders of the Exchangeable Shares given as specified in Section 9.2 of these
share provisions:
(1) pay any dividends on any other shares of the Corporation;
(2) redeem or purchase or make any capital distribution in respect
of any other shares of the Corporation;
(3) redeem or purchase any other shares of the Corporation;
(4) issue any Exchangeable Shares or any other shares of the
Corporation ranking equally with, or superior to, the
Exchangeable Shares other than by way of stock dividends
(including rights to acquire Exchangeable Shares) to the
holders of such Exchangeable Shares or distributions of
securities as contemplated by the Support Agreement; or
(5) amend the articles or by-laws of the Corporation.
ARTICLE V
DISTRIBUTION ON LIQUIDATION
1.9 In the event of the liquidation, dissolution or winding-up of the
Corporation or any other distribution of the assets of the Corporation among its
shareholders for the purpose of winding-up its affairs, a holder of Exchangeable
Shares shall be entitled, subject to applicable law, to receive from the assets
of the Corporation in respect of each Exchangeable Share held by such holder on
the effective date (the "Liquidation Date") of such liquidation, dissolution or
winding-up, before any distribution of any part of the assets of the Corporation
to the holders of any other shares of the Corporation an amount equal to the
Exchangeable Share Price applicable on the last Business Day prior to the
Liquidation Date (the "Liquidation Amount").
1.10 On or promptly after the Liquidation Date, and subject to the exercise by
FutureLink of the Liquidation Call Right, the Corporation shall cause to be
delivered to the holders of the Exchangeable Shares the Liquidation Amount for
each such Exchangeable Share upon presentation and surrender of the certificates
representing such Exchangeable Shares, together with such other documents and
instruments as may be required to effect a transfer of Exchangeable Shares under
applicable law and the by-laws of the Corporation at the registered office of
the Corporation. Payment of the total Liquidation Amount for such Exchangeable
Shares shall be made by delivery to each holder, at the address of the holder
recorded in the securities register of the Corporation for the Exchangeable
Shares or by holding for pick
7
<PAGE> 40
up by the holder at the registered office of the Corporation of the Exchangeable
Share Consideration representing the total Liquidation Amount. On and after the
Liquidation Date, the holders of the Exchangeable Shares shall cease to be
holders of such Exchangeable Shares and shall not be entitled to exercise any of
the rights of holders in respect thereof, other than the right to receive their
proportionate part of the total Liquidation Amount, unless payment of the total
Liquidation Amount for such Exchangeable Shares shall not be made upon
presentation and surrender of share certificates in accordance with the
foregoing provisions, in which case the rights of the holders shall remain
unaffected until the total Liquidation Amount has been paid in the manner
hereinbefore provided. The Corporation shall have the right at any time on or
after the Liquidation Date to deposit or cause to be deposited the Exchangeable
Share Consideration in respect of the Exchangeable Shares represented by
certificates that have not at the Liquidation Date been surrendered by the
holders thereof in a custodial account or for safe keeping, in the case of
non-cash items, with any chartered bank or trust company in Canada. Upon such
deposit being made, the rights of the holders of Exchangeable Shares after such
deposit shall be limited to receiving their proportionate part of the total
Liquidation Amount for such Exchangeable Shares so deposited, against
presentation and surrender of the said certificates held by them, respectively,
in accordance with the foregoing provisions. Upon such payment or deposit of
such Exchangeable Share Consideration, the holders of the Exchangeable Shares
shall thereafter be considered and deemed for all purposes to be the holders of
the FutureLink Common Stock delivered to them.
1.11 After the Corporation has satisfied its obligations to pay the holders of
the Exchangeable Shares the Liquidation Amount per Exchangeable Share pursuant
to Section 5.1 of these share provisions, such holders shall not be entitled to
share in any further distribution of the assets of the Corporation.
ARTICLE VI
RETRACTION OF EXCHANGEABLE SHARES BY HOLDER
1.12 A holder of Exchangeable Shares shall be entitled at any time, subject to
the exercise by FutureLink of the Retraction Call Right and otherwise upon
compliance with the provisions of this Article 6, to require the Corporation to
redeem any or all of the Exchangeable Shares registered in the name of such
holder for an amount equal to the Exchangeable Share Price applicable on the
last Business Day prior to the Retraction Date (the "Retraction Price'). To
effect such redemption, the holder shall present and surrender at the registered
office of the Corporation the certificate or certificates representing the
Exchangeable Shares which the holder desires to have the Corporation redeem,
together with such other documents and instruments as may be required to effect
a transfer of Exchangeable Shares under applicable law and the by-laws of the
8
<PAGE> 41
Corporation together with a duly executed statement (the "Retraction Request")
in the form of Exhibit A hereto or in such other form as may be acceptable to
the Corporation:
(1) specifying that the holder desires to have all or any number
specified therein of the Exchangeable Shares represented by
such certificate or certificates (the "Retracted Shares")
redeemed by the Corporation;
(2) stating the Business Day on which the holder desires to have
the Corporation redeem the Retracted Shares (the "Retraction
Date"), provided that the Retraction Date shall be not less
than 10 Business Days nor more than 20 Business Days after the
date on which the Retraction Request is received by the
Corporation and further provided that, in the event that no
such Business Day is specified by the holder in the Retraction
Request, the Retraction Date shall be deemed to be the tenth
Business Day after the date on which the Retraction Request is
received by the Corporation; and
(3) acknowledging the overriding right (the "Retraction Call
Right") of FutureLink to purchase all but not less than all
the Retracted Shares directly from the holder and that the
Retraction Request shall be deemed to be a revocable offer by
the holder to sell the Retracted Shares to FutureLink in
accordance with the Retraction Call Right on the terms and
conditions set out in Section 6.3 below.
1.13 Subject to the exercise by FutureLink of the Retraction Call Right, upon
receipt by the Corporation in the manner specified in Section 6.1 hereof of a
certificate or certificates representing the number of Exchangeable Shares which
the holder desires to have the Corporation redeem, together with a Retraction
Request, and provided that the Retraction Request is not revoked by the holder
in the manner specified in Section 6.7, the Corporation shall redeem the
Retracted Shares effective at the close of business on the Retraction Date and
shall cause to be delivered to such holder the total Retraction Price with
respect to such shares. If only a part of the Exchangeable Shares represented by
any certificate are redeemed (or purchased by FutureLink pursuant to the
Retraction Call Right), a new certificate for the balance of such Exchangeable
Shares shall be issued to the holder at the expense of the Corporation.
1.14 Upon receipt by the Corporation of a Retraction Request, the Corporation
shall immediately notify FutureLink thereof. In order to exercise the Retraction
Call Right, FutureLink must notify the Corporation in writing of its
determination to do so (the "FutureLink Call Notice") within seven Business Days
of notification to FutureLink by the Corporation of the receipt by the
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<PAGE> 42
Corporation of the Retraction Request. If FutureLink does not so notify the
Corporation within such seven Business Day period, the Corporation will notify
the holder as soon as possible thereafter that FutureLink will not exercise the
Retraction Call Right. If FutureLink delivers the FutureLink Call Notice within
such seven Business Day time period, and provided that the Retraction Request is
not revoked by the holder in the manner specified in Section 6.7, the Retraction
Request shall thereupon be considered only to be an offer by the holder to sell
the Retracted Shares to FutureLink in accordance with the Retraction Call Right.
In such event, the Corporation shall not redeem the Retracted Shares and
FutureLink shall purchase from such holder and such holder shall sell to
FutureLink on the Retraction Date the Retracted Shares for a purchase price (the
"Purchase Price") per share equal to the Retraction Price per share. For the
purposes of completing a purchase pursuant to the Retraction Call Right,
FutureLink shall deposit with the Trustee, on or before the Retraction Date the
Exchangeable Share Consideration representing the total Purchase Price. Provided
that such Exchangeable Share Consideration has been so deposited with the
Trustee, the closing of the purchase and sale of the Retracted Shares pursuant
to the Retraction Call Right shall be deemed to have occurred as at the close of
business on the Retraction Date and, for greater certainty, no redemption by the
Corporation of such Retracted Shares shall take place on the Retraction Date. In
the event that FutureLink does not deliver a FutureLink Call Notice within such
two Business Day period or otherwise comply with these Exchangeable Share
provisions in respect thereto, and provided that Retraction Request is not
revoked by the holder in the manner specified in Section 6.7, the Corporation
shall redeem the Retracted Shares on the Retraction Date and in the manner
otherwise contemplated in this Article 6.
1.15 The Corporation or FutureLink, as the case may be, shall deliver or cause
the Trustee to deliver to the relevant holder, at the address of the holder
recorded in the securities register of the Corporation for the Exchangeable
Shares or at the address specified in the holder's Retraction Request or by
holding for pick up by the holder at the registered office of the Corporation
the Exchangeable Share Consideration representing the total Retraction Price or
the total Purchase Price, as the case may be, and such delivery of such
Exchangeable Share Consideration to the Trustee shall be deemed to be payment of
and shall satisfy and discharge all liability for the total Retraction Price or
total Purchase Price, as the case may be, unless any cheque included therein is
not paid on due presentation.
1.16 On and after the close of business on the Retraction Date, the holder of
the Retracted Shares shall cease to be a holder of such Retracted Shares and
shall not be entitled to exercise any of the rights of a holder in respect
thereof, other than the right to receive his proportionate part of the total
Retraction Price or total Purchase Price, as the case may be, unless upon
presentation and surrender of certificates in accordance with the foregoing
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<PAGE> 43
provisions, payment of the total Retraction Price or the total Purchase Price,
as the case may be, shall not be made, in which case the rights of such holder
shall remain unaffected until the total Retraction Price or the total Purchase
Price, as the case may be, has been paid in the manner hereinbefore provided. On
and after the close of business on the Retraction Date, provided that
presentation and surrender of certificates and payment of the total Retraction
Price or the total Purchase Price, as the case may be, has been made in
accordance with the foregoing provisions, the holder of the Retracted Shares so
redeemed by the Corporation or purchased by FutureLink shall thereafter be
considered and deemed for all purposes to be a holder of the FutureLink Common
Stock delivered to it.
1.17 Notwithstanding any other provision of this Article 6, the Corporation
shall not be obligated to redeem Retracted Shares specified by a holder in a
Retraction Request to the extent that such redemption of Retracted Shares would
be contrary to liquidity or solvency requirements or other provisions of
applicable law. If the Corporation believes that on any Retraction Date it would
not be permitted by any of such provisions to redeem the Retracted Shares
tendered for redemption on such date, and provided that FutureLink shall not
have exercised the Retraction Call Right with respect to the Retracted Shares,
the Corporation shall only be obligated to redeem Retracted Shares specified by
a holder in a Retraction Request to the extent of the maximum number that may be
so redeemed (rounded down to a whole number of shares) as would not be contrary
to such provisions and shall notify the holder at least seven Business Days
prior to the Retraction Date as to the number of Retracted Shares which will not
be redeemed by the Corporation. In any case in which the redemption by the
Corporation of Retracted Shares would be contrary to liquidity or solvency
requirements or other provisions of applicable law, the Corporation shall redeem
Retracted Shares in accordance with Section 6.2 of these share provisions on a
PRO RATA basis and shall issue to each holder of Retracted Shares a new
certificate, at the expense of the Corporation, representing the Retracted
Shares not redeemed by the Corporation pursuant to Section 6.2 hereof. Provided
that the Retraction Request is not revoked by the holder in the manner specified
in Section 6.7, the holder of any such Retracted Shares not redeemed by the
Corporation pursuant to Section 6.2 of these share provisions as a result of
liquidity or solvency requirements of applicable law shall be deemed by giving
the Retraction Request to require FutureLink to purchase such Retracted Shares
from such holder on the Retraction Date or as soon as practicable thereafter on
payment by FutureLink to such holder of the Purchase Price for each such
Retracted Share, all as more specifically provided in the Voting and Exchange
Trust Agreement, and FutureLink shall make such purchase.
1.18 A holder of Retracted Shares may, by notice in writing given by the holder
to the Corporation before the close of business on the Business Day immediately
preceding the Retraction Date,
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<PAGE> 44
withdraw its Retraction Request in which event such Retraction Request shall be
null and void and, for greater certainty, the revocable offer constituted by the
Retraction Request to sell the Retracted Shares to FutureLink shall be deemed to
have been revoked.
ARTICLE VII
REDEMPTION OF EXCHANGEABLE SHARES BY THE CORPORATION
1.19 Subject to applicable law and the Redemption Call Right, the Corporation
shall on the Automatic Redemption Date redeem the whole of the then outstanding
Exchangeable Shares for an amount equal to the Exchangeable Share Price
applicable on the last Business Day prior to the Automatic Redemption Date (the
"Redemption Price").
1.20 In any case of a redemption of Exchangeable Shares under this Article 7,
the Corporation shall, at least 60 days before the Automatic Redemption Date,
send or cause to be sent to each holder of Exchangeable Shares a notice in
writing of the redemption by the Corporation or the purchase by FutureLink under
the Redemption Call Right, as the case may be, of the Exchangeable Shares held
by such holder.
1.21 On or after the Automatic Redemption Date and subject to the exercise by
FutureLink of the Redemption Call Right, the Corporation shall cause to be
delivered to the holders of the Exchangeable Shares to be redeemed the
Redemption Price for each such Exchangeable Share upon presentation and
surrender at the registered office of the Corporation the certificates
representing such Exchangeable Shares, together with such other documents and
instruments as may be required to effect a transfer of Exchangeable Shares under
applicable law and the by-laws of the Corporation. Payment of the total
Redemption Price for such Exchangeable Shares shall be made by delivery to each
holder, at the address of the holder recorded in the securities register of the
Corporation or by holding for pick up by the holder at the registered office of
the Corporation of the Exchangeable Share Consideration representing the total
Redemption Price. On and after the Automatic Redemption Date, the holders of the
Exchangeable Shares called for redemption shall cease to be holders of such
Exchangeable Shares and shall not be entitled to exercise any of the rights of
holders in respect thereof, other than the right to receive their proportionate
part of the total Redemption Price, unless payment of the total Redemption Price
for such Exchangeable Shares shall not be made upon presentation and surrender
of certificates in accordance with the foregoing provisions, in which case the
rights of the holders shall remain unaffected until the total Redemption Price
has been paid in the manner hereinbefore provided. The Corporation shall have
the right at any time after the sending of notice of its intention to redeem the
Exchangeable Shares as aforesaid to deposit or cause to be deposited the
Exchangeable Share Consideration with
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<PAGE> 45
respect to the Exchangeable Shares so called for redemption, or of such of the
said Exchangeable Shares represented by certificates that have not at the date
of such deposit been surrendered by the holders thereof in connection with such
redemption, in a custodial account or for safe keeping, in the case of non-cash
items, with any chartered bank or trust company in Canada named in such notice.
Upon the later of such deposit being made and the Automatic Redemption Date, the
Exchangeable Shares in respect whereof such deposit shall have been made shall
be redeemed and the rights of the holders thereof after such deposit or
Automatic Redemption Date, as the case may be, shall be limited to receiving
their proportionate part of the total Redemption Price for such Exchangeable
Shares so deposited, against presentation and surrender of the said certificates
held by them, respectively, in accordance with the foregoing provisions. Upon
such payment or deposit of such Exchangeable Share Consideration, the holders of
the Exchangeable Shares shall thereafter be considered and deemed for all
purposes to be holders of the FutureLink Common Stock delivered to them.
ARTICLE VIII
VOTING RIGHTS
1.22 Except as required by applicable law and the provisions hereof, the holders
of the Exchangeable Shares shall not be entitled as such to receive notice of or
to attend any meeting of the shareholders of the Corporation or to vote at any
such meeting.
ARTICLE IX
AMENDMENT AND APPROVAL
1.23 The rights, privileges, restrictions and conditions attaching to the
Exchangeable Shares may be added to, changed or removed but, except as
hereinafter provided, only with the approval of the holders of the Exchangeable
Shares given as hereinafter specified.
1.24 Any approval given by the holders of the Exchangeable Shares to add to,
change or remove any right, privilege, restriction or condition attaching to the
Exchangeable Shares or any other matter requiring the approval or consent of the
holders of the Exchangeable Shares shall be deemed to have been sufficiently
given if it shall have been given in accordance with applicable law subject to a
minimum requirement that such approval be evidenced by resolution passed by not
less than two-thirds of the votes cast on such resolution by persons represented
in person or by proxy at a meeting of holders of Exchangeable Shares duly called
and held at which the holders of at
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<PAGE> 46
least 30% (excluding Exchangeable Shares beneficially owned by FutureLink or its
Subsidiaries) of the outstanding Exchangeable Shares at that time are present or
represented by proxy. If at any such meeting the holders of at least 30%
(excluding Exchangeable Shares beneficially owned by FutureLink or its
Subsidiaries) of the outstanding Exchangeable Shares at that time are not
present or represented by proxy within one-half hour after the time appointed
for such meeting then the meeting shall be adjourned to such date not less than
10 days thereafter and to such time and place as may be designated by the
Chairman of such meeting. At such adjourned meeting the holders of Exchangeable
Shares present or represented by proxy thereat may transact the business for
which the meeting was originally called and a resolution passed thereat by the
affirmative vote of not less than two-thirds of the votes cast on such
resolution by holders of Exchangeable Shares represented in person or by proxy
at such meeting shall constitute the approval or consent of the holders of the
Exchangeable Shares.
ARTICLE X
RECIPROCAL CHANGES, ETC. IN RESPECT OF FUTURELINK COMMON STOCK
10.1 (a) Each holder of an Exchangeable Share acknowledges that the Support
Agreement provides, in part, that FutureLink will not without the prior
approval of the Corporation and the prior approval of the holders of
the Exchangeable Shares given in accordance with Section 9.2 of these
share provisions:
(1) issue or distribute FutureLink Common Stock (or securities
exchangeable for or convertible into or carrying rights to
acquire FutureLink Common Stock) to the holders of all or
substantially all of the then outstanding FutureLink Common
Stock by way of stock dividend or other distribution; or
(2) issue or distribute rights, options or warrants to the holders
of all or substantially all of the then outstanding FutureLink
Common Stock entitling them to subscribe for or to purchase
shares of FutureLink Common Stock (or securities exchangeable
for or convertible into or carrying rights to acquire shares
of FutureLink Common Stock); or
(3) issue or distribute to the holders of all or substantially all
of the then outstanding shares of FutureLink Common Stock (A)
shares or securities of FutureLink of any class other than
FutureLink Common Stock (other than shares convertible into or
exchangeable for or carrying rights to acquire FutureLink
Common Stock), (B) rights, options or warrants other than
those referred to in Section 10.1 (a) (H) above, (C) evidences
of indebtedness of FutureLink or (D) assets of FutureLink;
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unless the Corporation is permitted under applicable law to
issue or distribute the economic equivalent on a per share
basis of such rights, options, securities, shares, evidences
of indebtedness or other assets to holders of the Exchangeable
Shares and the Corporation shall issue or distribute the
economic equivalent on a per share basis of such rights,
options, securities, shares, evidences of indebtedness or
other assets simultaneously to holders of the Exchangeable
Shares.
(b) Each holder of an Exchangeable Share acknowledges that the
Support Agreement further provides, in part, that FutureLink
will not without the prior approval of the Corporation and the
prior approval of the holders of the Exchangeable Shares given
in accordance with Section 9.2 of these share provisions:
(i) subdivide, redivide or change the then outstanding
shares of FutureLink Common Stock into a greater
number of shares of FutureLink Common Stock, or
(ii) reduce, combine or consolidate or change the then
outstanding shares of FutureLink Common Stock into a
lesser number of shares of FutureLink Common Stock,
or
(iii) reclassify or otherwise change the shares of
FutureLink Common Stock or effect an amalgamation,
merger, reorganization or other transaction affecting
the shares of FutureLink Common Stock,
unless the Corporation is permitted under applicable law to
simultaneously make the same or an equivalent change to, or in
the rights of holders of, the Exchangeable Shares and the same
or an equivalent change is made to, or in the rights of the
holders of, the Exchangeable Shares.
The Support Agreement further provides, in part, that the aforesaid provisions
of the Support Agreement shall not be changed without the approval of the
holders of the Exchangeable Shares given in accordance with Section 9.2 of these
share provisions.
ARTICLE XI
ACTIONS BY THE CORPORATION UNDER SUPPORT AGREEMENT
1.25 The Corporation shall take all such actions and do all such things as shall
be necessary or advisable to perform and comply with and to ensure performance
and compliance by FutureLink with all provisions of the Support Agreement and
the Voting Trust and Exchange Agreement in accordance with the terms thereof
including, without limitation, taking all such actions and doing all such
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<PAGE> 48
things as shall be necessary or advisable to enforce to the fullest extent
possible for the direct benefit of the Corporation all rights and benefits in
favour of the Corporation under or pursuant thereto.
1.26 The Corporation shall not propose, agree to or otherwise give effect to any
amendment to, or waiver or forgiveness of its rights or obligations under, the
Support Agreement or the Voting Trust and Exchange Agreement or without the
approval of the holders of the Exchangeable Shares given in accordance with
Section 9.2 of these share provisions other than such amendments, waivers and/or
forgiveness as may be necessary or advisable for the purposes of.
(1) adding to the covenants of the other party or parties to such
agreement for the protection of the Corporation or the holders
of Exchangeable Shares; or
(2) making such provisions or modifications not inconsistent with
such agreement as may be necessary or desirable with respect
to matters or questions arising thereunder which, in the
opinion of the Board of Directors, it may be expedient to
make, provided that the Board of Directors shall be of the
opinion, after consultation with counsel, that such provisions
and modifications will not be prejudicial to the interests of
the holders of the Exchangeable Shares; or
(3) making such changes in or corrections to such agreement which,
on the advice of counsel to the Corporation, are required for
the purpose of curing or correcting any ambiguity or defect or
inconsistent provision or clerical omission or mistake or
manifest error contained therein, provided that the Board of
Directors shall be of the opinion, after consultation with
counsel, that such changes or corrections will not be
prejudicial to the interests of the holders of the
Exchangeable Shares.
ARTICLE XII
LEGEND
1.27 The certificates evidencing the Exchangeable Shares shall contain or have
affixed thereto a legend, in form and on terms approved by the Board of
Directors, with respect to the Support Agreement, the provisions of the Share
Purchase Agreement relating to the Liquidation Call Right and the Redemption
Call Right, and the Voting and Exchange Trust Agreement (including the
provisions with respect to the voting rights, exchange right and automatic
exchange thereunder).
ARTICLE XIII
MISCELLANEOUS
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<PAGE> 49
1.28 Any notice, request or other communication to be given to the Corporation
by a holder of Exchangeable Shares shall be in writing and shall be valid and
effective if given by mail (postage prepaid) or by telecopy or by delivery to
the registered office of the Corporation and addressed to the attention of the
President. Any such notice, request or other communication, if given by mail,
telecopy or delivery, shall only be deemed to have been given and received upon
actual receipt thereof by the Corporation.
1.29 Any presentation and surrender by a holder of Exchangeable Shares to the
Corporation of certificates representing Exchangeable Shares in connection with
the liquidation, dissolution or winding-up of the Corporation or the retraction
or redemption of Exchangeable Shares shall be made by registered mail (postage
prepaid) or by delivery to the registered office of the Corporation addressed to
the attention of the President of the Corporation. Any such presentation and
surrender of certificates shall only be deemed to have been made and to be
effective upon actual receipt thereof by the Corporation. Any such presentation
and surrender of certificates made by registered mail shall be at the sole risk
of the holder mailing the same.
1.30 Any notice, request or other communication to be given to a holder of
Exchangeable Shares by or on behalf of the Corporation shall be in writing and
shall be valid and effective if given by mail (postage prepaid) or by delivery
to the address of the holder recorded in the securities register of the
Corporation or, in the event of the address of any such holder not being so
recorded, then at the last known address of such holder. Any such notice,
request or other communication, if given by mail, shall be deemed to have been
given and received on the fifth Business Day following the date of mailing and,
if given by delivery, shall be deemed to have been given and received on the
date of delivery. Accidental failure or omission to give any notice, request or
other communication to one or more holders of Exchangeable Shares shall not
invalidate or otherwise alter or affect any action or proceeding to be taken by
the Corporation pursuant thereto.
1.31 All Exchangeable Shares acquired by the Corporation upon the redemption or
retraction thereof shall be canceled.
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<PAGE> 50
EXHIBIT A
RETRACTION REQUEST
To the Corporation and FutureLink
This request is given pursuant to Article 6 of the provisions (the
"Share Provisions") attaching to the share (s) represented by this certificate
and all capitalized words and expressions used in this request which are defined
in the Share Provisions have the meanings attributed to such words and
expressions in such Share Provisions.
The undersigned hereby requests that the Corporation, subject to the
Retraction Call Right referred to below, redeem in accordance with Article 6 of
the Share Provisions:
[ ] all share(s) represented by this certificate; or
[ ] share(s) only.
The undersigned hereby notifies the Corporation that the Retraction
Date shall be
NOTE: The Retraction Date must be a Business Day and must not be less than 10
Business Days nor more than 20 Business Days after the date upon which
this request is received by the Corporation. In the event that no such
Business Day is specified above, the Retraction Date shall be deemed to
be the tenth Business Day after the date on which this request is
received by the Corporation.
The undersigned acknowledges the Retraction Call Right of FutureLink to
purchase all but not less than all the Retracted Shares from the undersigned and
that this request shall be deemed to be a revocable offer by the undersigned to
sell the Retracted Shares to FutureLink in accordance with the Retraction Call
Right on the Retraction Date for the Retraction Price and on the other terms and
conditions set out in Section 6.3 of the Share Provisions. If FutureLink
determines not to exercise the Retraction Call Right, the Corporation will
notify the undersigned of such fact as soon as possible. This retraction
request, and offer to sell the Retracted Shares to FutureLink may be revoked and
withdrawn by the undersigned by notice in writing given to the Corporation at
any time before the close of business on the Business Day immediately preceding
the Retraction Date.
The undersigned acknowledges that if, as a result of liquidity or
solvency provisions of applicable law, the Corporation is unable to redeem all
Retracted Shares, the undersigned will be deemed to have exercised the Exchange
Right (as defined in the Voting and Exchange Trust Agreement) so as to require
FutureLink to purchase the unredeemed Retracted Shares.
The undersigned hereby represents and warrants to the Corporation and
FutureLink that the undersigned has good title to, and owns, the share (s)
represented by this certificate to be acquired by the Corporation or FutureLink
as the case may be, free and clear of all liens, claims and encumbrances.
______________________________
(Date) (Signature of Shareholder) (Guarantee of Signature)
[ ] Please check box if the legal or beneficial owner of the Retracted
Shares is a non-resident of Canada.
The securities and any cheque(s) or other non-cash assets will be delivered to
the last address of the shareholder as it appears on the register by such means
as the Corporation deems appropriate or to [specify].
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<PAGE> 51
NOTE: The securities and any cheque(s) or other non-cash assets resulting
from the retraction or purchase of the Retracted Shares will be issued
and registered in, and made payable to, or transferred into,
respectively, the name of the shareholder as it appears on the register
of the Corporation and the securities, cheque(s) and other non-cash
assets resulting from such retraction or purchase will be delivered to
such shareholder as indicated above, unless the form appearing
immediately below is duly completed.
Date______________________
Name of Person in Whose Name Securities or Cheque(s)
or Other Non-cash Assets Are To Be Registered, Issued
or Delivered (please print)
Street Address or P.O. Box ____________________________________
Signature of Shareholder
City - Province ____________________________________
Signature Guaranteed by
NOTE: If the retraction request is for less than all of the share (s)
represented by this certificate, a certificate representing the
remaining shares of the Corporation will be issued and registered in
the name of the shareholder as it appears on the register of the
Corporation, unless the Share Transfer Power on the share certificate
is duly completed in respect of such shares.
19
<PAGE> 52
August 21, 1998
SCHEDULE "B"
RESTRICTION ON ISSUANCE
So long as any of the Exchangeable Shares of the Corporation are
outstanding, the Corporation shall not at any time without, but may at any time
with, the approval of the holders of such shares issue any further Exchangeable
Shares of the Corporation, except as contemplated in accordance with the rights,
privileges, restrictions and conditions attaching to the Exchangeable Shares of
the Corporation.
<PAGE> 53
SCHEDULE "B"
TERMS AND CONDITIONS OF FUTURELINK DISTRIBUTION CORP.
PREFERRED VOTING STOCK
Section .1 Special Preferred Voting Stock Designated. A series of
Preferred Stock, consisting of one share of such stock, is hereby designated as
"Special Preferred Voting Stock." The outstanding share of Special Preferred
Voting Stock shall be entitled at any relevant date to the number of votes
(including for purposes of determining the presence of a quorum) determined in
accordance with the terms and conditions of the "Exchangeable Shares" and the
"Share Purchase Agreement" as such terms are defined in that certain share
purchase agreement among FutureLink Distribution Corp. (Colorado), Donald A.
Bialik, Olivia B. Bialik, Bialik Family Trust, Riverview Management Corp.
(Alberta) and SysGold Ltd. dated August 4, 1998 as amended by agreement dated
August 20, 1998 (the agreement, as amended, hereinafter referred to as the
"Share Purchase Agreement") on all matters presented to the holders of Common
Stock of the Corporation, with the Special Preferred Voting Stock and Common
Voting Stock voting together as a single class. The Special Preferred Voting
Stock shall have no other voting rights except as required by law. No dividend
shall be paid to the holder of Special Preferred Voting Stock. The share of
Special Preferred Voting Stock shall be entitled to $1.00 on liquidation of the
Corporation in preference to any shares of Common Stock of the Corporation, but
only after the liquidation preference of any other shares of Preferred Stock of
the Corporation has been paid in full. The Special Preferred Voting Stock is not
convertible into any other class or series of the capital stock of the
Corporation or into cash, property or other rights, and may not be redeemed,
except pursuant to the last sentence of this Section .1. The share of Special
Preferred Voting Stock purchased or otherwise acquired by the Corporation shall
be deemed retired and shall be cancelled and may not thereafter be reissued or
otherwise disposed of by the Corporation. So long as any Exchangeable Shares
shall be outstanding, the number of shares comprising the Special Preferred
Voting Stock shall not be increased or decreased and no other term of the
Special Preferred Voting Stock shall be amended, except upon the approval of the
holder of the outstanding shares of Special Preferred Voting Stock. At such time
as no Exchangeable Shares shall be outstanding, the Special Preferred Voting
Stock shall automatically be redeemed, with the $1.00 liquidation preference due
and payable upon such redemption.
Section .2 Restriction. So long as the share of Special Voting Stock is
outstanding, the Corporation shall (i) fully comply with all terms of the
Exchangeable Shares and with all contractual obligations of the Corporation
associated with such Exchangeable Shares and (ii) not amend, change or repeal
this Section .2 except upon the unanimous approval of the holder of the
outstanding share of Special Preferred Voting Stock.
<PAGE> 54
SCHEDULE "C"
SUPPORT AGREEMENT
MEMORANDUM OF AGREEMENT made as of the day of August, 1998.
BETWEEN:
FUTURELINK DISTRIBUTION CORP., a corporation incorporated
under the laws of the State of Colorado and having an office
at 550, 603 - 7th Avenue S.W., Calgary, Alberta (hereinafter
referred to as "FutureLink")
OF THE FIRST PART,
- and -
RIVERVIEW MANAGEMENT CORPORATION, a corporation incorporated
under the laws of the Province of Alberta and having its head
and principal office at Calgary, Alberta (hereinafter referred
to as "Riverview")
OF THE SECOND PART.
WHEREAS pursuant to the provisions of a share purchase agreement among
FutureLink Distribution Corp. (Colorado), Donald A. Bialik, Olivia B. Bialik,
Bialik Family Trust, Riverview Management Corporation, Sysgold Ltd. and
FutureLink Distribution Corp. (Alberta) as amended by a supplemental agreement
dated August 21, 1998, (the share purchase agreement, as amended and
supplemented by the amending agreement dated August 21, 1998 hereinafter
referred to as the "Share Purchase Agreement") the parties hereto agreed that
FutureLink Distribution Corp. (Colorado) and Riverview Management Corporation
would deliver this Support Agreement; and,
WHEREAS pursuant to the provisions of the Share Purchase Agreement the
parties agree to amend the articles of Riverview Management Corporation creating
an infinite number of exchangeable shares having the attributes as set out in
the articles of amendment of Riverview Management Corp. (the "Exchangeable
Shares"); and,
WHEREAS pursuant to the Share Purchase Agreement the parties agreed to
exchange the Class "K" Preferred Shares and Class "B" Common Shares of Riverview
Management Corporation for 4,250,000 Exchangeable Shares; and,
WHEREAS the parties hereto wish to provide for and establish a
procedure whereby FutureLink will take certain actions and make certain payments
and deliveries necessary to ensure that Riverview will be able to make certain
payments and to deliver or cause to be delivered shares of FutureLink Common
Stock in satisfaction of the obligations of Riverview under the Exchangeable
Share provisions with respect to the payment and satisfaction of dividends,
Liquidation Amounts, Retraction Prices and Redemption Prices, all in accordance
with the Exchangeable Share Provisions;
NOW THEREFORE in consideration of the respective covenants and
agreements provided in this Agreement and for other good and valuable
consideration (the receipt and sufficiency of which are hereby acknowledged),
the parties agree as follows:
1. Definitions and Interpretation
<PAGE> 55
2
(1) Defined Terms. Each term denoted herein by initial capital
letters and not otherwise defined herein shall have the
meaning attributed thereto in the Exchangeable Share
Provisions, unless the context requires otherwise.
(2) Interpretation Not Affected by Headings, etc. The division of
this Agreement into articles, sections and paragraphs and the
insertion of headings are for convenience of reference only
and shall not affect the construction or interpretation of
this Agreement.
(3) Number, Gender, etc. Words importing the singular number only
shall include the plural and vice versa. Words importing the
use of any gender shall include all genders.
(4) Date for any Action. If any date on which any action is
required to be taken under this Agreement is not a Business
Day, such action shall be required to be taken on the next
succeeding Business Day.
2. Covenants of FutureLink and Riverview
(1) Covenants of FutureLink Regarding Exchangeable Shares.
FutureLink covenants and agrees that so long as any
Exchangeable Shares are outstanding, it will:
(1) not declare or pay any dividend on FutureLink Common
Stock unless (A) Riverview will have sufficient
assets, funds and other property available to enable
the due declaration and the due and punctual payment
in accordance with applicable law of an equivalent
dividend on the Exchangeable Shares and (B) shall
simultaneously declare or pay, as the case may be, an
equivalent dividend on the Exchangeable Shares, in
each case in accordance with the Exchangeable Share
Provisions;
(2) advise Riverview sufficiently in advance of the
declaration by FutureLink of any dividend on
FutureLink Common Stock and take all such other
actions as are necessary, in cooperation with
Riverview, to ensure that the respective declaration
date, record date and payment date for a dividend on
the Exchangeable Shares shall be the same as the
record date, declaration date and payment date for
the corresponding dividend on FutureLink Common
Stock;
(3) ensure that the record date for any dividend declared
on FutureLink Common Stock is not less than 10
calendar days after the declaration date for such
dividend;
(4) take all such actions and do all such things as are
necessary or desirable to enable and permit
Riverview, in accordance with applicable law, to pay
and otherwise perform its obligations with respect to
the satisfaction of the Liquidation Amount in respect
of each issued and outstanding Exchangeable Share
upon the liquidation, dissolution or winding-up of
Riverview, including
<PAGE> 56
3
without limitation all such actions and all such
things as are necessary or desirable to enable and
permit Riverview to cause to be delivered shares of
FutureLink Common Stock to the holders of
Exchangeable Shares in accordance with the provisions
of Article 5 of the Exchangeable Share Provisions;
(5) take all such actions and do all such things as are
necessary or desirable to enable and permit
Riverview, in accordance with applicable law, to pay
and otherwise perform its obligations with respect to
the satisfaction of the Retraction Price and the
Redemption Price, including without limitation all
such actions and all such things as are necessary or
desirable to enable and permit Riverview to cause to
be delivered shares of FutureLink Common Stock to the
holders of Exchangeable Shares, upon the retraction
or redemption of the Exchangeable Shares in
accordance with the provisions of Article 6 or
Article 7 of the Exchangeable Share Provisions, as
the case may be; and
(6) not exercise its vote as a direct or indirect
shareholder to initiate the voluntary liquidation,
dissolution or winding-up of Riverview nor take any
action or omit to take any action that is designed to
result in the liquidation, dissolution or winding-up
of Riverview.
(2) Reservation of Shares of FutureLink Common Stock. FutureLink
hereby represents, warrants and covenants that it has
irrevocably reserved for issuance and will at all times keep
available, free from preemptive and other rights, out of its
authorized and unissued capital stock such number of shares of
FutureLink Common Stock (or other shares or securities into
which FutureLink Common Stock may be reclassified or changed
as contemplated by section 2(e) hereof) (i) as is equal to the
sum of (A) the number of Exchangeable Shares issued and
outstanding from time to time and (B) the number of
Exchangeable Shares issuable upon the exercise of all rights
to acquire Exchangeable Shares outstanding from time to time
and (ii) as are now and may hereafter be required to enable
and permit Riverview to meet its obligations hereunder, under
the Voting and Exchange Trust Agreement, under the
Exchangeable Share Provisions and under any other security or
commitment pursuant to the Share Purchase Agreement with
respect to which FutureLink may now or hereafter be required
to issue shares of FutureLink Common Stock.
(3) Notification of Certain Events. In order to assist FutureLink
to comply with its obligations hereunder, Riverview covenants
and agrees to give FutureLink notice of each of the following
events at the time set forth below:
(1) in the event of any determination by the Board of
Directors of Riverview to institute voluntary
liquidation, dissolution or winding-up proceedings
with respect to Riverview or to effect any other
distribution of the assets of Riverview among its
shareholders for the purpose of winding-up its
affairs, at least 60 days prior to the proposed
effective date of such liquidation, dissolution,
winding-up or other distribution;
<PAGE> 57
4
(2) immediately, upon the earlier of (A) receipt by
Riverview of notice of, or (B) Riverview otherwise
becoming aware of, any threatened or instituted
claim, suit, petition or other proceedings with
respect to the involuntary liquidation, dissolution
or winding-up of Riverview or to effect any other
distribution of the assets of Riverview among its
shareholders for the purpose of winding-up its
affairs;
(3) Immediately, upon receipt by Riverview of a
Retraction Request (as defined in the Exchangeable
Share Provisions); and,
(4) as soon as practicable upon the issuance by Riverview
of any Exchangeable Shares or rights to acquire
Exchangeable Shares.
(4) Delivery of Shares of FutureLink Common Stock. In furtherance
of its obligations hereunder, upon notice of any event which
requires Riverview to cause to be delivered shares of
FutureLink Common Stock to any holder of Exchangeable Shares,
FutureLink shall and covenants and agrees to forthwith issue
and deliver the requisite shares of FutureLink Common Stock to
or to the order of the former holder of the surrendered
Exchangeable Shares, as Riverview shall direct. All such
shares of FutureLink Common Stock shall be duly issued as
fully paid and non-assessable and shall be free and clear of
any lien, claim, encumbrance, security interest or adverse
claim.
(5) Equivalence.
(1) FutureLink covenants and agrees that it will not
without the prior approval of Riverview and the prior
approval of the holders of the Exchangeable Shares
given in accordance with Section 9.2 of the
Exchangeable Share Provisions:
(1) issue or distribute shares of FutureLink
Common Stock (or securities exchangeable for
or convertible into or carrying rights to
acquire shares of FutureLink Common Stock)
to the holders of all or substantially all
of the then outstanding FutureLink Common
Stock by way of stock dividend or other
distribution; or
(2) issue or distribute rights, options or
warrants to the holders of all or
substantially all of the then outstanding
shares of FutureLink Common Stock entitling
them to subscribe for or to purchase shares
of FutureLink Common Stock (or securities
exchangeable for or convertible into or
carrying rights to acquire shares of
FutureLink Common Stock); or
(3) issue or distribute to the holders of all or
substantially all of the then outstanding
shares of FutureLink Common Stock (1) shares
or securities of FutureLink of any class
other than FutureLink Common Stock (other
than shares convertible into or exchangeable
for or carrying rights to acquire shares of
FutureLink Common Stock), (II)
<PAGE> 58
5
rights, options or warrants other than those
referred to in subsection 2 (e) (i) (B)
above, (III) evidences of indebtedness of
FutureLink or (IV) assets of FutureLink;
unless
(4) Riverview is permitted under applicable law
to issue or distribute the economic
equivalent on a per share basis of such
rights, options, securities, shares,
evidences of indebtedness or other assets to
holders of the Exchangeable Shares; and
(5) Riverview shall issue or distribute the
economic equivalent on a per share basis of
such rights, options, securities, shares,
evidences of indebtedness or other assets
simultaneously to holders of the
Exchangeable Shares.
(2) FutureLink will not without the prior approval of
Riverview and the prior approval of the holders of
the Exchangeable Shares given in accordance with
Section 9.2 of the Exchangeable Share Provisions:
(1) subdivide, divide or change the then
outstanding shares of FutureLink Common
Stock into a greater number of shares of
FutureLink Common Stock; or
(2) reduce, combine or consolidate or change the
then outstanding shares of FutureLink Common
Stock into a lesser number of shares of
FutureLink Common Stock; or
(3) reclassify or otherwise change the shares of
FutureLink Common Stock or effect an
amalgamation, merger, reorganization or
other transaction affecting the shares of
FutureLink Common Stock;
unless (I) Riverview is permitted under applicable
law to simultaneously make the same or an equivalent
change to, or in the rights of holders of, the
Exchangeable Shares and (II) the same or an
equivalent change is made to, or in the rights of the
holders of, the Exchangeable Shares.
(3) FutureLink will ensure that the record date for any
event referred to in section 2(e) (i) or 2 (e) (ii)
above, or (if no record date is applicable for such
event) the effective date for any such event, is not
less than 10 calendar days after the date on which
such event is declared or announced by FutureLink
(with simultaneous notice thereof to be given by
FutureLink to Riverview).
(6) Tender Offers, etc. In the event that a tender offer, share
exchange offer, issuer bid, take-over bid or similar
transaction with respect to FutureLink Common Stock (an
"Offer") is proposed by FutureLink or is proposed to
FutureLink or its shareholders and is recommended by the Board
of Directors of FutureLink, or is otherwise effected or to be
effected with the consent or approval of the Board of
Directors of
<PAGE> 59
6
FutureLink, FutureLink shall take all such actions and do all
such things as are necessary or desirable to enable and permit
holders of Exchangeable Shares to participate in such Offer to
the same extent and on an equivalent basis as the holders of
shares of FutureLink Common Stock, without discrimination,
including, without limiting the generality of the foregoing,
FutureLink will use its good faith efforts expeditiously to
(and shall, in the case of a transaction proposed by
FutureLink or where FutureLink is a participant in the
negotiation thereof) ensure that holders of Exchangeable
Shares may participate in all such Offers without being
required to retract Exchangeable Shares as against Riverview
(or, if so required, to ensure that any such retraction shall
be effective only upon, and shall be conditional upon, the
closing of the Offer and only to the extent necessary to
tender or deposit to the Offer).
(7) Ownership of Outstanding Shares. Without the prior approval of
Riverview and the prior approval of the holders of the
Exchangeable Shares given in accordance with Section 9.2 of
the Exchangeable Share Provisions, FutureLink covenants and
agrees in favour of Riverview that, as long as any outstanding
Exchangeable Shares are owned by any person or entity other
than FutureLink or any of its Subsidiaries, FutureLink will be
and remain the direct or indirect beneficial owner of all
issued and outstanding shares in the capital of Riverview and
all outstanding securities of Riverview carrying or otherwise
entitled to voting rights in any circumstances, in each case
other than the Exchangeable Shares.
(8) FutureLink Not to Vote Exchangeable Shares. FutureLink
covenants and agrees that it will appoint and cause to be
appointed proxyholders with respect to all Exchangeable Shares
held by FutureLink and its Subsidiaries for the sole purpose
of attending each meeting of holders of Exchangeable Shares in
order to be counted as part of the quorum for each such
meeting. FutureLink further covenants and agrees that it will
not, and will cause its Subsidiaries not to, exercise any
voting rights which may be exercisable by holders of
Exchangeable Shares from time to time pursuant to the
Exchangeable Share Provisions or pursuant to the provisions of
any corporate statute by which Riverview may be governed with
respect to any Exchangeable Shares held by it or by its
Subsidiaries in respect of any matter considered at any
meeting of holders of Exchangeable Shares.
(9) Due Performance. On and after the Effective Date, FutureLink
shall duly and timely perform all of its obligations provided
for under the Share Purchase Agreement, this agreement and
all of the agreements to which it is a party in connection
with the transactions contemplated under the Share Purchase
Agreement including any obligations that may arise upon the
exercise of FutureLink's rights under the Exchangeable Share
Provisions.
3. General
(1) Term. This Agreement shall come into force and be effective as
of the date hereof and shall terminate and be of no further
force and effect at such time as no Exchangeable Shares (or
securities or rights convertible into or exchangeable for or
carrying rights to acquire securities Exchangeable Shares) are
held by any party other than FutureLink and any of its
Subsidiaries.
<PAGE> 60
7
(2) Changes in Capital of FutureLink and Riverview.
Notwithstanding the provisions of section 3 (d) hereof, at all
times after the occurrence of any event effected pursuant to
section 2 (e) or 2 (f) hereof, as a result of which either
FutureLink Common Stock or the Exchangeable Shares or both are
in any way changed, this Agreement shall forthwith be amended
and modified as necessary in order that it shall apply with
full force and effect, mutatis mutandis, to all new securities
into which FutureLink Common Stock or the Exchangeable Shares
or both are so changed and the parties hereto shall execute
and deliver an agreement in writing giving effect to and
evidencing such necessary amendments and modifications.
(3) Severability. If any provision of this Agreement is held to be
invalid, illegal or unenforceable, the validity, legality or
enforceability of the remainder of this Agreement shall not in
any way be affected or impaired thereby and this Agreement
shall be carried out as nearly as possible in accordance with
its original terms and conditions.
(4) Amendments, Modifications, etc. This Agreement may not be
amended or modified except by an agreement in writing executed
by Riverview and FutureLink and approved by the holders of the
Exchangeable Shares in accordance with Section 9.2 of the
Exchangeable Share Provisions.
(5) Ministerial Amendments. Notwithstanding the provisions of
section 3(d), the parties to this Agreement may in writing, at
any time and from time to time, without the approval of the
holders of the Exchangeable Shares, amend or modify this
Agreement for the purposes of.
(1) adding to the covenants of either or both parties for
the protection of the holders of the Exchangeable
Shares;
(2) making such amendments or modifications not
inconsistent with this Agreement as may be necessary
or desirable with respect to matters or questions
which, in the opinion of the board of directors of
each of Riverview and FutureLink, it may be expedient
to make, provided that each such boards of directors
shall be of the opinion that such amendments or
modifications will not be prejudicial to the
interests of the holders of the Exchangeable Shares;
or
(3) making such changes or corrections which, on the
advice of counsel to Riverview and FutureLink, are
required for the purpose of curing or correcting any
ambiguity or defect or inconsistent provision or
clerical omission or mistake or manifest error,
provided that the boards of directors of each of
Riverview and FutureLink shall be of the opinion that
such changes or corrections will not be prejudicial
to the interests of the holders of the Exchangeable
Shares.
(6) Meeting to Consider Amendments. Riverview, at the request of
FutureLink, shall call a meeting or meetings of the holders of
the Exchangeable Shares for the purpose of
<PAGE> 61
8
considering any proposed amendment or modification requiring
approval of such shareholders. Any such meeting or meetings
shall be called and held in accordance with the by-laws of
Riverview, the Exchangeable Share Provisions and all
applicable laws.
(7) Amendments Only in Writing. No amendment to or modification or
waiver of any of the provisions of this Agreement otherwise
permitted hereunder shall be effective unless made in writing
and signed by both of the parties hereto.
(8) Inurement. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and the holders, from time
to time, of Exchangeable Shares and each of their respective
heirs, successors and assigns.
(9) Notices to Parties. All notices and other communications
between the parties shall be in writing and shall be deemed to
have been given if delivered personally or by confirmed
telecopy to the parties at the following addresses (or at such
other address for either such party as shall be specified in
like notice):
(1) if to FutureLink at:
FutureLink Distribution Corp. (Colorado)
c/o 550, 603 - 7 Avenue S.W.
Calgary, Alberta T2P 2T5
Attention: President
Fax:
(2) if to Riverview at:
Riverview Management Corporation
550, 603 - 7 Avenue S.W.
Calgary, Alberta T2P 2T5
Attention: President
Fax:
Any notice or other communication given personally shall be
deemed to have been given and received upon delivery thereof
and if given by telecopy shall be deemed to have been given
and received on the date of confirmed receipt thereof unless
such day is not a Business Day in which case it shall be
deemed to have been given and received upon the immediately
following Business Day.
(10) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, and all of which
taken together shall constitute one and the same instrument.
(11) Jurisdiction. This Agreement shall be construed and enforced
in accordance with the laws of the Province of Alberta and the
laws of Canada applicable therein.
<PAGE> 62
9
(12) Attornment. FutureLink agrees that any action or proceeding
arising out of or relating to this Agreement may be instituted
in the courts of Alberta, waives any objection which it may
have now or hereafter to the venue of any such action or
proceeding, irrevocably submits to the jurisdiction of the
said courts in any such action or proceeding, agrees to be
bound by any judgment of the said courts and not to seek, and
hereby waives, any review of the merits of any such judgment
by the courts of any other jurisdiction and hereby appoints
Riverview at its registered office in the Province of Alberta
as FutureLink's attorney for service of process.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
FUTURELINK DISTRIBUTION CORP.
Per:________________________________
Per:________________________________
RIVERVIEW MANAGEMENT CORPORATION
Per:________________________________
Per:________________________________
<PAGE> 63
SCHEDULE "D"
AUGUST 21/98
VOTING AND EXCHANGE TRUST AGREEMENT
MEMORANDUM OF AGREEMENT made as of the _____________ day of August,
1998,
AMONG:
FUTURELINK DISTRIBUTION CORP., a corporation incorporated under the
laws of the State of Colorado and having a principal office at 550 -
7th Avenue S.W., Calgary, Alberta (hereinafter referred to as
"FutureLink")
OF THE FIRST PART,
RIVERVIEW MANAGEMENT CORPORATION, a corporation incorporated under the
laws of the Province of Alberta and having its head and principal
office at Calgary, Alberta (hereinafter referred to as "Riverview")
OF THE SECOND PART,
HOWARD, MACKIE; Barristers and Solicitors, a partnership for the
practice of law with its principal office at 1000, 400 - 3rd Avenue
S.W., Calgary, Alberta (hereinafter referred to as the "Trustee")
OF THE THIRD PART.
WHEREAS pursuant to the provisions of a share purchase agreement among
FutureLink Distribution Corp. (Colorado), Donald A. Bialik, Olivia B. Bialik,
Bialik Family Trust, Riverview Management Corporation, SysGold Ltd. and
FutureLink Distribution Corp. (Alberta) as amended by a supplemental agreement
dated August 21, 1998 (the share purchase agreement, as amended and supplemented
by the Amending Agreement dated August 21, 1998 hereinafter referred to as the
Share Purchase Agreement"); and
WHEREAS pursuant to the provisions of the Share Purchase Agreement the
parties agree to amend the articles of Riverview Management Corporation creating
an unlimited number of exchangeable shares having the attributes as set out in
the Articles of Amendment of Riverview Management Corp. (the "Exchangeable
Shares"); and
WHEREAS pursuant to the Share Purchase Agreement, the parties agreed to
exchange the Class "K" Preferred Shares and Class "B" Common Shares of Riverview
Management Corporation for 4,250,000 Exchangeable Shares; and
WHEREAS the Articles of Amendment of Riverview set forth the rights,
privileges, restrictions and conditions (collectively, the "Exchangeable Share
Provisions") attaching to the Exchangeable Shares;
WHEREAS FutureLink agreed to provide voting rights in FutureLink to
each holder (other than FutureLink and its Subsidiaries) from time to time of
Exchangeable Shares, such voting rights per Exchangeable Share to be equivalent
to the voting rights per share of FutureLink Common Stock (the "FutureLink
Common Stock"); and
WHEREAS FutureLink is to grant to and in favour of the holders (other
than FutureLink and its Subsidiaries) from time to time of Exchangeable Shares
the right, in the circumstances set forth herein, to
<PAGE> 64
2
require FutureLink to purchase from each such holder all or any part of the
Exchangeable Shares held by the holder; and
WHEREAS the parties desire to make appropriate provision and to
establish a procedure whereby voting rights in FutureLink shall be exercisable
by holders (other than FutureLink and its Subsidiaries) from time to time of
Exchangeable Shares by and through the Trustee, which will hold legal title to
one (1) share of FutureLink Special Preferred Voting Stock (the "FutureLink
Special Voting Stock") to which voting rights attach for the benefit of such
holders and whereby the rights to require FutureLink to purchase Exchangeable
Shares from the holders thereof (other than FutureLink and its Subsidiaries)
shall be exercisable by such holders from time to time of Exchangeable Shares by
and through the Trustee, which will hold legal title to such rights for the
benefit of such holders; and
WHEREAS these recitals and any statements of fact in this Agreement are
made by FutureLink and Riverview and not by the Trustee;
NOW THEREFORE in consideration of the respective covenants and
agreements provided in this Agreement and for other good and valuable
consideration (the receipt and sufficiency of which are hereby acknowledged),
the parties agree as follows:
1. Definitions and Interpretation
(a) Definitions. In this Agreement, the following terms shall have
the following meanings:
"Aggregate Equivalent Vote Amount" means, with respect to any matter,
proposition or question on which holders of FutureLink Common Stock are
entitled to vote, consent or otherwise act, the product of (i) the
number of shares of Exchangeable Shares issued and outstanding and held
by Holders multiplied by (ii) the Equivalent Vote Amount.
"Automatic Exchange Rights" means the benefit of the obligation of
FutureLink to effect the automatic exchange of shares of FutureLink
Common Stock for Exchangeable Shares pursuant to Section 5 (k) hereof.
"Board of Directors" means the Board of Directors of Riverview.
"Business Day" has the meaning attributed thereto in the Exchangeable
Share Provisions.
"Equivalent Vote Amount" means, with respect to any matter, proposition
or question on which holders of FutureLink Common Stock are entitled to
vote, consent or otherwise act, the number of votes to which a holder
of one share of FutureLink Common Stock is entitled with respect to
such matter, proposition or question.
"Exchange Right" has the meaning attributed thereto in Article 5
hereof.
"Exchangeable Share Consideration" has the meaning attributed thereto
in the Exchangeable Share Provisions.
<PAGE> 65
3
"Exchangeable Share Price" has the meaning attributed thereto in the
Exchangeable Share Provisions.
"Exchangeable Share Provisions" has the meaning attributed thereto in
the recitals hereto.
"Exchangeable Shares" has the meaning attributed thereto in the
recitals hereto.
"FutureLink Common Stock" has the meaning attributed thereto in the
recitals hereto.
"FutureLink Consent" has the meaning attributed thereto in Section 4(b)
hereof.
"FutureLink Meeting" has the meaning attributed thereto in Section 4(b)
hereof.
"FutureLink Special Voting Stock" has the meaning attributed thereto in
the recitals hereto.
"FutureLink Successor" has the meaning attributed thereto in subsection
11 (a) hereof.
"Holder Votes" has the meaning attributed thereto in Section 4(b)
hereof.
"Holders" means the registered holders from time to time of
Exchangeable Shares, other than FutureLink and its Subsidiaries.
"Insolvency Event" means the institution by Riverview of any proceeding
to be adjudicated a bankrupt or insolvent or to be dissolved or
wound-up, or the consent of Riverview to the institution of bankruptcy,
insolvency, dissolution or winding-up proceedings against it, or the
filing of a petition, answer or consent seeking dissolution or
winding-up under any bankruptcy, insolvency or analogous laws,
including without limitation the Companies' Creditors' Arrangement Act
(Canada) and the Bankruptcy and Insolvency Act (Canada), and the
failure by Riverview to contest in good faith any such proceedings
commenced in respect of Riverview within 15 days of becoming aware
thereof, or the consent by Riverview to the filing of any such petition
or to the appointment of a receiver, or the making by Riverview of a
general assignment for the benefit of creditors, or the admission in
writing by Riverview of its inability to pay its debts generally as
they become due, or Riverview not being permitted, pursuant to
liquidity or solvency requirements of applicable law, to redeem any
Retracted Shares pursuant to Section 6.6 of the Exchangeable Share
Provisions.
"Liquidation Call Right" has the meaning attributed thereto in the
Exchangeable Share Provisions.
"Liquidation Event" has the meaning attributed thereto in subsection
5(k)(ii) hereof.
"Liquidation Event Effective Date" has the meaning attributed thereto
in subsection 5 (k) (iii) hereof.
"List" has the meaning attributed thereto in Section 4(f) hereof.
<PAGE> 66
4
"Officers' Certificate" means, with respect to FutureLink or Riverview,
as the case may be, a certificate signed by any two of the Chairman of
the Board, the Vice-Chairman of the Board, the President, any
Vice-President or any other senior officer of FutureLink or Riverview,
as the case may be.
"Person" includes an individual, partnership, corporation, company,
unincorporated syndicate or organization, trust, trustee, executor,
administrator and other legal representative.
"Redemption Call Right" has the meaning attributed thereto in the
Exchangeable Share Provisions.
"Retracted Shares" has the meaning attributed thereto in Section 5(g)
hereof.
"Retraction Call Right" has the meaning attributed thereto in the
Exchangeable Share Provisions.
"Share Purchase Agreement" has the meaning attributed thereto in the
recitals hereof.
"Subsidiary" has the meaning attributed thereto in the Exchangeable
Share Provisions.
"Support Agreement" means that certain support agreement made as of
even date hereof between Riverview and FutureLink.
"Trust" means the trust created by this Agreement.
"Trust Estate" means the Voting Share, any other securities, the
Exchange Right, the Automatic Exchange Rights and any money or other
property which may be held by the Trustee from time to time pursuant to
this Agreement.
"Trustee" means Howard, Mackie and, subject to the provisions of
Article 10 hereof, includes any successor trustee or permitted assigns.
"Voting Rights" means the voting rights attached to the Voting Share.
"Voting Share" means the one (1) share of FutureLink Special Voting
Stock, U.S. $1.00 par value, issued by FutureLink to and deposited with
the Trustee, which entitles the holder of record to a number of votes
at meetings of holders of FutureLink Common Stock equal to the
Aggregate Equivalent Vote Amount.
(b) Interpretation Not Affected by Headings, etc. The division of this
Agreement into articles, sections and paragraphs and the insertion of
headings are for convenience of reference only and shall not affect the
construction or interpretation of this Agreement.
<PAGE> 67
5
(c) Number, Gender, etc. Words importing the singular number only shall
include the plural and vice versa. Words importing the use of any
gender shall include all genders.
(d) Date for any Action. If any date on which any action is required to
be taken under this Agreement is not a Business Day, such action shall
be required to be taken on the next succeeding Business Day.
2. Purpose of Agreement
The purpose of this Agreement is to create the Trust for the benefit of
the Holders, as herein provided. The Trustee will hold the Voting Share in order
to enable the Trustee to exercise the Voting Rights and will hold the Exchange
Right and the Automatic Exchange Rights in order to enable the Trustee to
exercise such rights, in each case as Trustee for and on behalf of the Holders
as provided in this Agreement. The Trust is hereby constituted on August 21,
1998 by the granting of the Exchange Rights and Automatic Exchange Rights to the
Trustee notwithstanding that the Voting Share entitling the Trustee to Voting
Rights is delivered after the date hereof.
3. VOTING SHARE
(a) Issuance and Ownership of the Voting Share. Immediately following
approval by the Shareholders of the creation and issuance of the voting
share, FutureLink shall issue to and deposit with the Trustee the
Voting Share to be hereafter held of record by the Trustee as trustee
for and on behalf of, and for the use and benefit of the Holders and in
accordance with the provisions of this Agreement in consideration for
the payment by the Trustee of $1.00 (the receipt and sufficiency of
which is hereby acknowledged) for and on behalf of the Holders. During
the term of the Trust and subject to the terms and conditions of this
Agreement, the Trustee shall possess and be vested with full legal
ownership of the Voting Share and shall be entitled to exercise all of
the rights and powers of an owner with respect to the Voting Share,
provided that the Trustee shall:
(i) hold the Voting Share and the legal title thereto as
trustee solely for the use and benefit of the Holders in
accordance with the provisions of this Agreement; and
(ii) except as specifically authorized by this Agreement, have
no power or authority to sell, transfer, vote or otherwise
deal in or with the Voting Share and the Voting Share shall
not be used or disposed of by the Trustee for any purpose
other than the purposes for which this Trust is created
pursuant to this Agreement.
(b) Legended Share Certificates. Riverview will cause each certificate
representing Exchangeable Shares to bear an appropriate legend
notifying the Holders of their right to instruct the Trustee with
respect to the exercise of the Voting Rights with respect to the
Exchangeable Shares held by a Holder.
<PAGE> 68
6
(c) Safe Keeping of Certificate. The certificate representing the
Voting Share shall at all times be held in safe keeping by the Trustee
or its agent.
3. Exercise of Voting Rights
(a) Voting Rights. The Trustee, as the holder of record of the Voting
Share, shall be entitled to all of the Voting Rights, including the
right to consent to or to vote in person or by proxy the Voting Share,
on any matter, question or proposition whatsoever that may properly
come before the stockholders of FutureLink at a FutureLink Meeting or
in connection with a FutureLink Consent (in each case, as hereinafter
defined). The Voting Rights shall be and remain vested in and exercised
by the Trustee. Subject to Section 7(m) hereof, the Trustee shall
exercise the Voting Rights only on the basis of instructions received
pursuant to this Article 4 from Holders entitled to instruct the
Trustee as to the voting thereof at the time at which a FutureLink
Consent is sought or a FutureLink Meeting is held. To the extent that
no instructions are received from a Holder with respect to the Voting
Rights to which such Holder is entitled, the Trustee shall not exercise
or permit the exercise of such Holder's Vote.
(b) Number of Votes. With respect to all meetings of stockholders of
FutureLink at which holders of shares of FutureLink Common Stock are
entitled to vote (a "FutureLink Meeting") and with respect to all
written consents sought by FutureLink from its stockholders including
the holders of shares of FutureLink Common Stock (a "FutureLink
Consent"), each Holder shall be entitled to instruct the Trustee to
cast and exercise, in the manner instructed, a number of votes equal to
the Equivalent Vote Amount for each Exchangeable Share owned of record
by such Holder on the record date established by FutureLink or by
applicable law for such FutureLink Meeting or FutureLink Consent, as
the case may be (the "Holder Votes" ) in respect of each matter,
question or proposition to be voted on at such FutureLink Meeting or to
be consented to in connection with such FutureLink Consent.
(c) Mailings to Shareholders. With respect to each FutureLink Meeting
and FutureLink Consent, the Trustee will mail or cause to be mailed (or
otherwise communicate in the same manner as FutureLink utilizes in
communications to holders of FutureLink Common Stock, subject to the
Trustee's ability to provide this method of communication and upon
being advised in writing of such method) to each of the Holders named
in the List on the same day as the initial mailing or notice (or other
communication) with respect thereto is given by FutureLink to its
stockholders:
(i) a copy of such notice, together with any proxy or
information statement and related materials to be provided to
stockholders of FutureLink;
(ii) a statement that such Holder is entitled to instruct the
Trustee as to the exercise of the Holder Votes with respect to
such FutureLink Meeting or FutureLink Consent, as the case may
be, or, pursuant to Section 4(g) hereof, to attend such
FutureLink Meeting and to exercise personally the Holder Votes
thereat;
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7
(iii) a statement as to the manner in which such instructions
may be given to the Trustee, including an express indication
that instructions may be given to the Trustee to give:
(A) a proxy to such Holder or his designee to
exercise personally the Holder Votes; or
(B) a proxy to a designated agent or other
representative of the management of FutureLink to
exercise such Holder Votes;
(iv) a statement that if no such instructions are received
from the Holder, the Holder Votes to which such Holder is
entitled will not be exercised;
(v) a form of direction whereby the Holder may so direct and
instruct the Trustee as contemplated herein; and
(vi) a statement of (A) the time and date by which such
instructions must be received by the Trustee in order to be
binding upon it, which in the case of a FutureLink Meeting
shall not be later than the close of business on the Business
Day prior to such meeting, and (B) the method for revoking or
amending such instructions.
The materials referred to above are to be provided by FutureLink to the
Trustee, but shall be subject to review and comment by the Trustee.
For the purpose of determining Holder Votes to which a Holder is
entitled in respect of any such FutureLink Meeting or FutureLink Consent, the
number of Exchangeable Shares owned of record by the Holder shall be determined
at the close of business on the record date established by FutureLink or by
applicable law for purposes of determining stockholders entitled to vote at such
FutureLink Meeting or to give written consent in connection with such FutureLink
Consent. FutureLink will notify the Trustee in writing of any decision of the
board of directors of FutureLink with respect to the calling of any such
FutureLink Meeting or the seeking of any such FutureLink Consent and shall
provide all necessary information and materials to the Trustee in each case
promptly and in any event in sufficient time to enable the Trustee to perform
its obligations contemplated by this Section 4(c).
(d) Copies of Stockholder Information. FutureLink will deliver to the
Trustee copies of all proxy materials (including notices of FutureLink
Meetings but excluding proxies to vote shares of FutureLink Common
Stock), information statements, reports (including without limitation
all interim and annual financial statements) and other written
communications that are to be distributed from time to time to holders
of FutureLink Common Stock in sufficient quantities and in sufficient
time so as to enable the Trustee to send those materials to each Holder
at the same time as such materials are first sent to holders of
FutureLink Common Stock. The Trustee will mail or otherwise send to
each Holder, at the expense of FutureLink,
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8
copies of all such materials (and all materials specifically directed
to the Holders or to the Trustee for the benefit of the Holders by
FutureLink) received by the Trustee from FutureLink at the same time as
such materials are first sent to holders of FutureLink Common Stock.
The Trustee will make copies of all such materials available for
inspection by any Holder at the office of the Trustee in the city of
Calgary.
(e) Other Materials. Immediately after receipt by FutureLink or any
stockholder of FutureLink of any material sent or given generally to
the holders of FutureLink Common Stock by or on behalf of a third
party, including without limitation dissident proxy and information
circulars (and related information and material) and tender and
exchange offer circulars (and related information and material),
FutureLink shall use its best efforts to obtain and deliver to the
Trustee copies thereof in sufficient quantities so as to enable the
Trustee to forward such material (unless the same has been provided
directly to Holders by such third party) to each Holder as soon as
possible thereafter. As soon as practicable after receipt thereof, the
Trustee will mail or otherwise send to each Holder, at the expense of
FutureLink, copies of all such materials received by the Trustee from
FutureLink. The Trustee will also make copies of all such materials
available for inspection by any Holder at the office of the Trustee in
the city of Calgary.
(f) List of Persons Entitled to Vote. Riverview shall, (i) prior to
each annual, general and special FutureLink Meeting or the seeking of
any FutureLink Consent and (ii) forthwith upon each request made at any
time by the Trustee in writing, prepare or cause to be prepared a list
(a "List") of the names and addresses of the Holders arranged in
alphabetical order and showing the number of Exchangeable Shares held
of record by each such Holder, in each case at the close of business on
the date specified by the Trustee in such request or, in the case of a
List prepared in connection with a FutureLink Meeting or a FutureLink
Consent, at the close of business on the record date established by
FutureLink or pursuant to applicable law for determining the holders of
FutureLink Common Stock entitled to receive notice of and/or to vote at
such FutureLink Meeting or to give consent in connection with such
FutureLink Consent. Each such List shall be delivered to the Trustee
promptly after receipt by Riverview of such request or the record date
for such meeting or seeking of consent, as the case may be, and in any
event within sufficient time as to enable the Trustee to perform its
obligations under this Agreement. FutureLink agrees to give Riverview
written notice (with a copy to the Trustee) of the calling of any
FutureLink Meeting or the seeking of any FutureLink Consent together
with the record dates therefor, sufficiently prior to the date of the
calling of such meeting or seeking of such consent so as to enable
Riverview to perform its obligations under this Section 4(f).
(g) Entitlement to Direct Votes. Any Holder named in a List prepared in
connection with any FutureLink Meeting or any FutureLink Consent will
be entitled (i) to instruct the Trustee in the manner described in
Section 4(c) hereof with respect to the exercise of the Holder Votes to
which such Holder is entitled or (ii) to attend such meeting and
personally to exercise thereat (or to exercise with respect to any
written consent), as the proxy of the Trustee, the Holder Votes to
which such Holder is entitled.
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(h) Stockholder Proposals. The Trustee shall forthwith submit to
FutureLink any stockholder proposal (within the meaning of the United
States Securities Exchange Act of 1934) received by the Trustee from a
Holder. Such stockholder proposal may be considered at any meeting of
FutureLink at which the holders of FutureLink Common Stock are entitled
to submit stockholder proposals. FutureLink agrees to accept all
stockholder proposals submitted by the Trustee that are received by
FutureLink within the applicable time limitation under the United
States Securities Exchange Act of 1934, provided that not more than one
proposal is submitted on behalf of any one Holder.
(i) Voting by Trustee, and Attendance of Trustee Representative, at
Meeting.
(i) In connection with each FutureLink Meeting and FutureLink
Consent, the Trustee shall exercise, either in person or by
proxy, in accordance with the instructions received from a
Holder pursuant to Section 4(c) hereof, the Holder Votes as to
which such Holder is entitled to direct the vote (or any
lesser number thereof as may be set forth in the
instructions); provided, however, that such written
instructions are received by the Trustee from the Holder prior
to the time and date fixed by it for receipt of such
instructions in the notice given by the Trustee to the Holder
pursuant to Section 4(c) hereof.
(ii) The Trustee shall cause such representatives as are
empowered by it to sign and deliver, on behalf of the Trustee,
proxies for Voting Rights to attend each FutureLink Meeting at
the expense of FutureLink. Upon submission by a Holder (or its
designee) of identification satisfactory to the Trustee's
representatives, and at the Holder's request, such
representatives shall sign and deliver to such Holder (or its
designee) a proxy to exercise personally the Holder Votes as
to which such Holder is otherwise entitled hereunder to direct
the vote, if such Holder either (A) has not previously given
the Trustee instructions pursuant to Section 4(c) hereof in
respect of such meeting, or (B) submits to the Trustee's
representatives written revocation of any such previous
instructions. At such meeting, the Holder exercising such
Holder Votes shall have the same rights as the Trustee to
speak at the meeting in respect of any matter, question or
proposition, to vote by way of ballot at the meeting in
respect of any matter, question or proposition and to vote at
such meeting by way of a show of hands in respect of any
matter, question or proposition.
(j) Distribution of Written Materials. Any written materials to be
distributed by the Trustee to the Holders pursuant to this Agreement
shall be delivered or sent by mail (or otherwise communicated in the
same manner as FutureLink utilizes in communications to holders of
FutureLink Common Stock) to each Holder at its address as shown on the
books of Riverview. Riverview shall provide or cause to be provided to
the Trustee for this purpose, on a timely basis and without charge or
other expense:
(A) current lists of the Holders; and
<PAGE> 72
10
(B) upon the request of the Trustee, mailing labels to
enable the Trustee to carry out its duties under this
Agreement.
The materials referred to above are to be provided by FutureLink to the
Trustee, but shall be subject to review and comment by the Trustee.
(k) Termination of Voting Right. Except as otherwise provided herein or
in the Exchangeable Share Provisions, all of the rights of a Holder
with respect to the Holder Votes exercisable in respect of the
Exchangeable Shares held by such Holder, including the right to
instruct the Trustee as to the voting of or to vote personally such
Holder Votes and including the right to submit a stockholder proposal
to the Trustee in accordance with Section 4(h) hereof, shall be deemed
to be surrendered by the Holder to FutureLink and such Holder Votes and
the Voting Rights represented thereby shall cease immediately upon the
delivery by such Holder to the Trustee of the certificates representing
such Exchangeable Shares in connection with the exercise by the Holder
of the Exchange Right or the occurrence of the automatic exchange of
Exchangeable Shares for shares of FutureLink Common Stock, as specified
in Article 5 hereof (unless in either case FutureLink shall not have
delivered the Exchangeable Share Consideration deliverable in exchange
therefor to the Trustee for delivery to the Holders), or upon the
redemption of Exchangeable Shares pursuant to Article 6 or Article 7 of
the Exchangeable Share Provisions, or upon the effective date of the
liquidation, dissolution or winding-up of Riverview pursuant to Article
5 of the Exchangeable Share Provisions, or upon the purchase of
Exchangeable Shares from the holder thereof by FutureLink pursuant to
the exercise by FutureLink of the Retraction Call Right, the Redemption
Call Right or the Liquidation Call Right.
5. EXCHANGE RIGHT AND AUTOMATIC EXCHANGE
(a) Grant and Ownership of the Exchange Right. FutureLink hereby grants
to the Trustee as trustee for and on behalf of, and for the use and
benefit of, the Holders (i) the right (the "Exchange Right"), upon the
occurrence and during the continuance of an Insolvency Event, to
require FutureLink to purchase from each or any Holder all or any part
of the Exchangeable Shares held by such Holders, and (ii) the Automatic
Exchange Rights, all in accordance with the provisions of this
Agreement.
FutureLink hereby acknowledges receipt from the Trustee as
trustee for and on behalf of the Holders of good and valuable
consideration (and the adequacy thereof) for the grant of the
Exchange Right and the Automatic Exchange Rights by FutureLink
to the Trustee. During the term of the Trust and subject to
the terms and conditions of this Agreement, the Trustee shall
possess and be vested with full legal ownership of the
Exchange Right and the Automatic Exchange Rights and shall be
entitled to exercise all of the rights and powers of an owner
with respect to the Exchange Right and the Automatic Exchange
Rights, provided that the Trustee shall:
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(i) hold the Exchange Right and the Automatic Exchange Rights
and the legal title thereto as trustee solely for the use and
benefit of the Holders in accordance with the provisions of
this Agreement; and
(ii) except as specifically authorized by this Agreement, have
no power or authority to exercise or otherwise deal in or with
the Exchange Right or the Automatic Exchange Rights, and the
Trustee shall not exercise any such rights for any purpose
other than the purposes for which this Trust is created
pursuant to this Agreement.
(b) Legended Share Certificates. Riverview will cause each certificate
representing Exchangeable Shares to bear an appropriate legend
notifying the Holders of:
(i) their right to instruct the Trustee with respect to the
exercise of the Exchange Right in respect of the Exchangeable
Shares held by a Holder; and
(ii) the Automatic Exchange Rights.
(c) General Exercise of Exchange Right. The Exchange Right shall be and
remain vested in and exercised by the Trustee. Subject to Section 7(m)
hereof, the Trustee shall exercise the Exchange Right only on the basis
of instructions received pursuant to this Article 5 from Holders
entitled to instruct the Trustee as to the exercise thereof. To the
extent that no instructions are received from a Holder with respect to
the Exchange Right, the Trustee shall not exercise or permit the
exercise of the Exchange Right.
(d) Purchase Price. The purchase price payable by FutureLink for each
Exchangeable Share to be purchased by FutureLink under the Exchange
Right shall be an amount equal to the Exchangeable Share Price on the
last Business Day prior to the day of closing of the purchase and sale
of such Exchangeable Share under the Exchange Right. In connection with
each exercise of the Exchange Right, FutureLink will provide to the
Trustee an Officer's Certificate setting forth the calculation of the
Exchangeable Share Price for each Exchangeable Share. The Exchangeable
Share Price for each such Exchangeable Share so purchased may be
satisfied only by FutureLink issuing and delivering or causing to be
delivered to the Trustee, on behalf of the relevant Holder, the
Exchangeable Share Consideration representing the total Exchangeable
Share Price.
(e) Exercise Instructions. Subject to the terms and conditions herein
set forth, a Holder shall be entitled, upon the occurrence and during
the continuance of an Insolvency Event, to instruct the Trustee to
exercise the Exchange Right with respect to all or any part of the
Exchangeable Shares registered in the name of such Holder. To cause the
exercise of the Exchange Right by the Trustee, the Holder shall deliver
to the Trustee, in person or by certified or registered mail, at its
principal offices in Calgary, Alberta or at such other places in Canada
as the Trustee may from time to time designate by written notice to the
Holders, the certificates representing the Exchangeable Shares which
such Holder desires FutureLink
<PAGE> 74
12
to purchase, duly endorsed in blank, and accompanied by such other
documents and instruments as may be required to effect a transfer of
Exchangeable Shares under applicable law and the bylaws of Riverview
and such additional documents and instruments as the Trustee may
reasonably require together with (i) a duly completed form of notice of
exercise of the Exchange Right, contained on the reverse of or attached
to the Exchangeable Share certificates, stating (A) that the Holder
thereby instructs the Trustee to exercise the Exchange Right so as to
require FutureLink to purchase from the Holder the number of
Exchangeable Shares specified therein, (B) that such Holder has good
title to and owns all such Exchangeable Shares to be acquired by
FutureLink free and clear of all liens, claims and encumbrances, (C)
the names in which the certificates representing FutureLink Common
Stock issuable in connection with the exercise of the Exchange Right
are to be issued and (D) the names and addresses of the persons to whom
the Exchangeable Share Consideration should be delivered and (ii)
payment (or evidence satisfactory to the Trustee, Riverview and
FutureLink of payment) of the taxes (if any) payable as contemplated by
Section 5(h) of this Agreement. If only a part of the Exchangeable
Shares represented by any certificate or certificates delivered to the
Trustee are to be purchased by FutureLink under the Exchange Right, a
new certificate for the balance of such Exchangeable Shares shall be
issued to the Holder at the expense of Riverview.
(f) Delivery of Exchangeable Share Consideration; Effect of Exercise.
Promptly after receipt of the certificates representing the
Exchangeable Shares which the Holder desires FutureLink to purchase
under the Exchange Right (together with such documents and instruments
of transfer and a duly completed form of notice of exercise of the
Exchange Right), duly endorsed for transfer to FutureLink the Trustee
shall notify FutureLink and Riverview of its receipt of the same, which
notice to FutureLink and Riverview shall constitute exercise of the
Exchange Right by the Trustee on behalf of the Holder of such
Exchangeable Shares, and FutureLink shall immediately thereafter
deliver or cause to be delivered to the Trustee, for delivery to the
Holder of such Exchangeable Shares (or to such other persons, if any,
properly designated by such Holder), the Exchangeable Share
Consideration deliverable in connection with the exercise of the
Exchange Right; provided, however, that no such delivery shall be made
unless and until the Holder requesting the same shall have paid (or
provided evidence satisfactory to the Trustee, Riverview and FutureLink
of the payment of) the taxes (if any) payable as contemplated by
Section 5(h) of this Agreement. Immediately upon the giving of notice
by the Trustee to FutureLink and Riverview of the exercise of the
Exchange Right, as provided in this Section 5 (f), the closing of the
transaction of purchase and sale contemplated by the Exchange Right
shall be deemed to have occurred, and the Holder of such Exchangeable
Shares shall be deemed to have transferred to FutureLink all of its
right, title and interest in and to such Exchangeable Shares and in the
related interest in the Trust Estate and shall cease to be a holder of
such Exchangeable Shares and shall not be entitled to exercise any of
the rights of a holder in respect thereof, other than the right to
receive his proportionate part of the total purchase price therefor,
unless such Exchangeable Share Consideration is not delivered by
FutureLink to the Trustee, for delivery to such Holder (or to such
other persons, if any, properly designated by such Holder), within
three Business Days of the date of the giving of such
<PAGE> 75
13
notice by the Trustee, in which case the rights of the Holder shall
remain unaffected until such Exchangeable Share Consideration is
delivered by FutureLink and any cheque included therein is paid.
Concurrently with such Holder ceasing to be a holder of Exchangeable
Shares, the Holder shall be considered and deemed for all purposes to
be the holder of the shares of FutureLink Common Stock delivered to it
pursuant to the Exchange Right.
(g) Exercise of Exchange Right Subsequent to Retraction. In the event
that a Holder has exercised its right under Article 6 of the
Exchangeable Share Provisions to require Riverview to redeem any or all
of the Exchangeable Shares held by the Holder (the "Retracted Shares")
and is notified by Riverview pursuant to Section 6.6 of the
Exchangeable Share Provisions that Riverview will not be permitted as a
result of liquidity or solvency requirements of applicable law to
redeem all such Retracted Shares, subject to receipt by the Trustee of
written notice to that effect from Riverview and provided that
FutureLink shall not have exercised the Retraction Call Right with
respect to the Retracted Shares and that the Holder has not revoked the
retraction request delivered by the Holder to Riverview pursuant to
Section 6.I of the Exchangeable Share Provisions, the retraction
request will constitute and will be deemed to constitute notice from
the Holder to the Trustee instructing the Trustee to exercise the
Exchange Right with respect to those Retracted Shares which Riverview
is unable to redeem. In any such event, Riverview hereby agrees with
the Trustee and in favour of the Holder immediately to notify the
Trustee of such prohibition against Riverview redeeming all of the
Retracted Shares and immediately to forward or cause to be forwarded to
the Trustee all relevant materials delivered by the Holder to Riverview
(including without limitation a copy of the retraction request
delivered pursuant to Section 6.I of the Exchangeable Share
Provisions) in connection with such proposed redemption of the
Retracted Shares and the Trustee will thereupon exercise the Exchange
Right with respect to the Retracted Shares that Riverview is not
permitted to redeem and will require FutureLink to purchase such shares
in accordance with the provisions of this Article 5.
(h) Stamp or Other Transfer Taxes. Upon any sale of Exchangeable Shares
to FutureLink pursuant to the Exchange Right or the Automatic Exchange
Rights, the share certificate or certificates representing FutureLink
Common Stock to be delivered in connection with the payment of the
total purchase price therefor shall be issued in the name of the Holder
of the Exchangeable Shares so sold or in such names as such Holder may
otherwise direct in writing without charge to the holder of the
Exchangeable Shares so sold, provided, however, that such Holder (i)
shall pay (and neither FutureLink, Riverview nor the Trustee shall be
required to pay) any documentary, stamp, transfer or other similar
taxes that may be payable in respect of any transfer involved in the
issuance or delivery of such shares to a person other than such Holder
or (ii) shall have established to the satisfaction of the Trustee,
FutureLink and Riverview that such taxes, if any, have been paid.
(i) Notice of Insolvency Event. Immediately upon the occurrence of an
Insolvency Event or any event which with the giving of notice or the
passage of time or both would be an Insolvency Event Riverview and
FutureLink shall give written notice thereof to the Trustee. As soon as
practicable after receiving notice from Riverview and FutureLink or
from any
<PAGE> 76
14
other Person of the occurrence of an Insolvency Event, the Trustee will
mail to each Holder, at the expense of FutureLink, a notice of such
Insolvency Event in the form provided by FutureLink, which notice shall
contain a brief statement of the right of the Holders with respect to
the Exchange Right.
(j) Reservation of Shares of FutureLink Common Stock. FutureLink hereby
represents, warrants and covenants that it has irrevocably reserved for
issuance and will at all times keep available, free from pre-emptive
and other rights, out of its authorized and unissued capital stock such
number of shares of FutureLink Common Stock (i) as is equal to the sum
of (A) the number of Exchangeable Shares issued and outstanding from
time to time and (B) the number of Exchangeable Shares issuable upon
the exercise of all rights to acquire Exchangeable Shares outstanding
from time to time and (ii) as are now and may hereafter be required to
enable and permit Riverview and FutureLink to meet their respective
obligations hereunder, under the Support Agreement, under the
Exchangeable Share Provisions and under any other security or
commitment pursuant to the Share Purchase Agreement with respect to
which FutureLink may now or hereafter be required to issue shares of
FutureLink Common Stock.
(k) Automatic Exchange on Liquidation of FutureLink
(i) FutureLink will give the Trustee written notice of each of
the following events at the time set forth below:
(A) in the event of any determination by the board of
directors of FutureLink to institute voluntary
liquidation, dissolution or winding-up proceedings
with respect to FutureLink or to effect any other
distribution of assets of FutureLink among its
stockholders for the purpose of winding-up its
affairs, at least 60 days prior to the proposed
effective date of such liquidation, dissolution,
winding-up or other distribution; and
(B) immediately, upon the earlier of (I) receipt by
FutureLink of notice of and (II) FutureLink otherwise
becoming aware of any threatened or instituted claim,
suit, petition or other proceedings with respect to
the involuntary liquidation, dissolution or
winding-up of FutureLink or to effect any other
distribution of assets of FutureLink among its
stockholders for the purpose of winding-up its
affairs.
(ii) Immediately following receipt by the Trustee from
FutureLink of notice of any event (a "Liquidation Event")
contemplated by Section 5 (k) (i) above, the Trustee will give
notice thereof to the Holders. Such notice will be provided by
FutureLink to the Trustee and shall include a brief
description of the automatic exchange of Exchangeable Shares
for shares of FutureLink Common Stock provided for in Section
5(k) (iii) below.
<PAGE> 77
15
(iii) In order that the Holders will be able to participate on
a PRO RATA basis with the holders of FutureLink Common Stock
in the distribution of assets of FutureLink in connection with
a Liquidation Event, immediately prior to the effective time
(the "Liquidation Event Effective Time") of a Liquidation
Event all of the then outstanding Exchangeable Shares shall be
automatically exchanged for shares of FutureLink Common Stock.
To effect such automatic exchange, FutureLink shall be deemed
to have purchased each Exchangeable Share outstanding
immediately prior to the Liquidation Event Effective Time and
held by Holders, and each Holder shall be deemed to have sold
the Exchangeable Shares held by it at such time, for a
purchase price per share equal to the Exchangeable Share Price
applicable at such time. In connection with such automatic
exchange, FutureLink shall provide to the Trustee an Officers'
Certificate setting forth the calculation of the purchase
price for each Exchangeable Share.
(iv) The closing of the transaction of purchase and sale
contemplated by Section 5(k)(iii) above shall be deemed to
have occurred immediately prior to the Liquidation Event
Effective Time, and each Holder of Exchangeable Shares shall
be deemed to have transferred to FutureLink all of the
Holder's right, title and interest in and to such Exchangeable
Shares and the related interest in the Trust Estate and shall
cease to be a holder of such Exchangeable Shares and
FutureLink shall deliver to the Holder the Exchangeable Share
Consideration deliverable upon the automatic exchange of
Exchangeable Shares. Concurrently with such Holder ceasing to
be a holder of Exchangeable Shares, the Holder shall be
considered and deemed for all purposes to be the holder of the
shares of FutureLink Common Stock issued to it pursuant to the
automatic exchange of Exchangeable Shares for FutureLink
Common Stock and the certificates held by the Holder
previously representing the Exchangeable Shares exchanged by
the Holder with FutureLink pursuant to such automatic exchange
shall thereafter be deemed to represent the shares of
FutureLink Common Stock issued to the Holder by FutureLink
pursuant to such automatic exchange. Upon the request of a
Holder and the surrender by the Holder of Exchangeable Share
certificates deemed to represent shares of FutureLink Common
Stock, duly endorsed in blank and accompanied by such
instruments of transfer as FutureLink may reasonably require,
FutureLink shall deliver or cause to be delivered to the
Holder certificates representing the shares of FutureLink
Common Stock of which the Holder is the holder.
6. Restrictions on Issuance of FutureLink Special Voting Stock
During the term of this Agreement, FutureLink will not issue any shares
of FutureLink Special Voting Stock in addition to the Voting Share.
7. CONCERNING THE TRUSTEE
<PAGE> 78
16
(a) Powers and Duties of the Trustee. The rights, powers and
authorities of the Trustee under this Agreement, in its capacity as
trustee of the Trust, shall include:
(i) receipt and deposit of the Voting Share from FutureLink as
trustee for and on behalf of the Holders in accordance with
the provisions of this Agreement;
(ii) granting proxies and distributing materials to Holders as
provided in this Agreement;
(iii) voting the Holder Votes in accordance with the
provisions of this Agreement;
(iv) receiving the grant of the Exchange Right and the
Automatic Exchange Rights from FutureLink as trustee for and
on behalf of the Holders in accordance with the provisions of
this Agreement;
(v) exercising the Exchange Right and enforcing the benefit of
the Automatic Exchange Rights, in each case in accordance with
the provisions of this Agreement, and in connection therewith
receiving from Holders Exchangeable Shares and other requisite
documents and distributing to such Holders the shares of
FutureLink Common Stock and cheques, if any, to which such
Holders are entitled upon the exercise of the Exchange Right
or pursuant to the Automatic Exchange Rights, as the case may
be;
(vi) holding title to the Trust Estate;
(vii) investing any monies forming, from time to time, a part
of the Trust Estate as provided in this Agreement;
(viii) taking action at the direction of a Holder or Holders
to enforce the obligations of FutureLink under this Agreement;
and
(ix) taking such other actions and doing such other things as
are specifically provided in this Agreement.
In the exercise of such rights, powers and authorities the Trustee
shall have (and is granted) such incidental and additional rights, powers and
authority not in conflict with any of the provisions of this Agreement as the
Trustee, acting in good faith and in the reasonable exercise of its discretion,
may deem necessary, appropriate or desirable to effect the purpose of the Trust.
Any exercise of such discretionary rights, powers and authorities by the Trustee
shall be final, conclusive and binding upon all persons. For greater certainty,
the Trustee shall have only those duties as are set out specifically in this
Agreement.
The Trustee shall not be bound to give any notice or do or take any
act, action or proceeding by virtue of the powers conferred on it hereby unless
and until it shall be specifically required to do
<PAGE> 79
17
so under the terms hereof; nor shall the Trustee be required to take any notice
of, or to do or to take any act, action or proceeding as a result of any default
or breach of any provision hereunder, unless and until notified in writing of
such default or breach, which notices shall distinctly specify the default or
breach desired to be brought to the attention of the Trustee and in the absence
of such notice the Trustee may for all purposes of this Agreement conclusively
assume that no default or breach has been made in the observance or performance
of any of the representations, warranties, covenants, agreements or conditions
contained herein.
(b) None of the provisions contained in this Agreement shall require
the Trustee to expend or risk its own funds or otherwise incur
financial liability in the exercise of any of its rights, powers,
duties or authorities unless funded, given funds, security and
indemnified; such costs and expenses shall be paid for by FutureLink.
The Trustees shall not be required to take any action until it has
received reasonable funding, security and indemnity against the costs,
expenses and liabilities which may be incurred by the Trustee.
(c) Dealings with Transfer Agents, Registrars, etc. FutureLink
irrevocably authorize the Trustee, from time to time, to:
(i) consult, communicate and otherwise deal with the
respective registrars and transfer agents, and with any such
subsequent registrar or transfer agent, of the FutureLink
Common Stock; and
(ii) requisition, from time to time, (A) from any such
registrar or transfer agent any information readily available
from the records maintained by it which the Trustee may
reasonably require for the discharge of its duties and
responsibilities under this Agreement and (B) from the
transfer agent of FutureLink Common Stock, and any subsequent
transfer agent of such shares, the share certificates issuable
upon the exercise from time to time of the Exchange Right and
pursuant to the Automatic Exchange Rights in the manner
specified in Article 5 hereof.
FutureLink irrevocably authorizes and agree to direct its registrars
and transfer agents to comply with all such requests. FutureLink covenants that
it will supply its transfer agent with duly executed share certificates for the
purpose of completing the exercise from time to time of the Exchange Right and
the Automatic Exchange Rights, in each case pursuant to Article 5 hereof.
(d) Books and Records. The Trustee shall keep available for inspection
by FutureLink and Riverview, at the Trustee's principal office in
Calgary, Alberta, correct and complete books and records of account
relating to the Trustee's actions under this Agreement, including
without limitation all information relating to mailings and
instructions to and from Holders and all transactions pursuant to the
Voting Rights, the Exchange Right and the Automatic Exchange Rights for
the term of this Agreement. On or before August 31, 1999, and on or
before August 31 in every year thereafter, so long as the Voting Share
is on deposit with the Trustee, the Trustee shall transmit to
FutureLink and Riverview a brief report with respect to:
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(i) the property and funds comprising the Trust Estate as of
that date;
(ii) the number of exercises of the Exchange Right, if any,
and the aggregate number of Exchangeable Shares received by
the Trustee on behalf of Holders in consideration of the issue
and delivery by FutureLink of shares of FutureLink Common
Stock in connection with the Exchange Right, during the
calendar year ended on such date; and
(iii) all other actions taken by the Trustee in the
performance of its duties at the expense of FutureLink under
this Agreement which it had not previously reported.
(e) Income Tax Returns and Reports. The Trustee shall, to the extent
necessary, prepare and file or cause to be prepared and filed on behalf
of the Trust appropriate United States and Canadian income tax returns
and any other returns or reports as may be required by applicable law,
may obtain the advice and assistance of such experts as the Trustee may
consider necessary or advisable. If requested by the Trustee,
FutureLink shall retain such experts for purposes of providing such
advice and assistance.
(f) Actions by Holders. No Holder shall have the right to institute any
action, suit or proceeding or to exercise any other remedy authorized
by this Agreement for the purpose of enforcing any of its rights or for
the execution of any trust or power hereunder unless the Holder has
requested the Trustee to take or institute such action, suit or
proceeding and furnished the Trustee with the funding, security and
indemnity referred to in Section 7(f) hereof and the Trustee shall have
failed to act within a reasonable time thereafter. In such case, but
not otherwise, the Holder shall be entitled to take proceedings in any
court of competent jurisdiction such as the Trustee might have taken;
it being understood and intended that no one or more Holders shall have
any right in any manner whatsoever to affect, disturb or prejudice the
rights hereby created by any such action, or to enforce any right
hereunder or under the Voting Rights, the Exchange Right or the
Automatic Exchange Rights, except subject to the conditions and in the
manner herein provided, and that all powers and trusts hereunder shall
be exercised and all proceedings at law shall be instituted, had and
maintained by the Trustee, except only as herein provided, and in any
event for the equal benefit of all Holders.
(g) Reliance upon Declarations. The Trustee shall not be considered to
be in contravention of any of its rights, powers, duties and
authorities hereunder if, when required, it acts and relies in good
faith upon lists, mailing labels, notices, statutory declarations,
certificates, opinions, reports or other papers or documents furnished
pursuant to the provisions hereof or required by the Trustee to be
furnished to it in the exercise of its rights, powers, duties and
authorities hereunder and such lists, mailing labels, notices,
statutory declarations, certificates, opinions, reports or other papers
or documents comply with the provisions of Section 7(i) hereof, if
applicable, and with any other applicable provisions of this Agreement.
<PAGE> 81
19
(h) Evidence and Authority to Trustee. Riverview and/or FutureLink
shall furnish to the Trustee evidence of compliance with the conditions
provided for in this Agreement relating to any action or step required
or permitted to be taken by Riverview and/or FutureLink or the Trustee
under this Agreement or as a result of any obligation imposed under
this Agreement, including, without limitation, in respect of the Voting
Rights or the Exchange Right or the Automatic Exchange Rights and the
taking of any other action to be taken by the Trustee at the request of
or on the application of Riverview and/or FutureLink forthwith if and
when:
(i) such evidence is required by any other section of this
Agreement to be furnished to the Trustee in accordance with
the terms of this Section 7(h); or
(ii) the Trustee, in the exercise of its rights, powers,
duties and authorities under this Agreement, gives Riverview
and/or FutureLink written notice requiring it to furnish such
evidence in relation to any particular action or obligation
specified in such notice.
Such evidence shall consist of an Officers' Certificate of Riverview
and/or FutureLink or a statutory declaration or a certificate made by persons
entitled to sign an Officer's Certificate stating that any such condition has
been complied with in accordance with the terms of this Agreement.
Whenever such evidence relates to a matter other than the Voting Rights
or the Exchange Right or the Automatic Exchange Rights, and except as otherwise
specifically provided herein, such evidence may consist of a report or opinion
of any solicitor, auditor, accountant, appraiser, valuer, engineer or other
expert or any other person whose qualifications give authority to a statement
made by him provided that if such report or opinion is furnished by a director,
officer or employee of Riverview and/or FutureLink it shall be in the form of an
Officers' Certificate or a statutory declaration.
Each statutory declaration, certificate, opinion or report furnished to
the Trustee as evidence of compliance with a condition provided for in this
Agreement shall include a statement by the person giving the evidence:
(iii) declaring that he has read and understands the
provisions of this Agreement relating to the condition in
question;
(iv) describing the nature and scope of the examination or
investigation upon which he based the statutory declaration,
certificate, statement or opinion; and
(v) declaring that he has made such examination or
investigation as he believes is necessary to enable him to
make the statements or give the opinions contained or
expressed therein.
(i) Experts, Advisors and Agents. The Trustee may:
<PAGE> 82
20
(i) in relation to these presents act and rely on the opinion
or advice of or information obtained from or prepared by any
solicitor, auditor, accountant, appraiser, valuer, engineer or
other expert, whether retained by the Trustee or by Riverview
and/or FutureLink or otherwise, and may employ such assistants
as may be necessary to the proper determination and discharge
of its powers and duties and determination of its rights
hereunder and may pay proper and reasonable compensation for
all such legal and other advice or assistance as aforesaid;
and
(ii) employ such agents and other assistants as it may
reasonably require for the proper determination and discharge
of its powers and duties hereunder, and may pay reasonable
remuneration for all services performed for it (and shall be
entitled to receive reasonable remuneration for all services
performed by it) in the discharge of the trusts hereof and
compensation for all disbursements, costs and expenses made or
incurred by it in the determination and discharge of its
duties hereunder and in the management of the Trust.
(j) Investment of Monies Held by Trustee. Unless otherwise provided in
this Agreement, any monies held by or on behalf of the Trustee which
under the terms of this Agreement may or ought to be invested or which
may be on deposit with the Trustee or which may be in the hands of the
Trustee may be invested and reinvested in the name or under the control
of the Trustee in securities in which, under the laws of the Province
of Alberta trustees are authorized to invest trust unit monies,
provided that such securities are stated to mature within two years
after their purchase by the Trustee, and the Trustee shall so invest
such monies on the written direction of Riverview. Pending the
investment of any monies as hereinbefore provided, such monies may be
deposited in the name of the Trustee in any chartered bank in Canada
or, with the consent of Riverview, in the deposit department of the
Trustee or any other loan or company authorized to accept deposits
under the laws of Canada or any province thereof at the rate of
interest then current on similar deposits.
(k) Trustee Not Required to Give Security. The Trustee shall not be
required to give any bond or security in respect of the execution of
the trusts, rights, duties, powers and authorities of this Agreement or
otherwise in respect of the premises.
(l) Trustee Not Bound to Act on Request. Except as in this Agreement
otherwise specifically provided, the Trustee shall not be bound to act
in accordance with any direction or request of Riverview and/or
FutureLink or of the directors thereof until a duly authenticated copy
of the instrument or resolution containing such direction or request
shall have been delivered to the Trustee, and the Trustee shall be
empowered to act and rely upon any such copy purporting to be
authenticated and believed by the Trustee to be genuine.
(m) Conflicting Claims. If conflicting claims or demands are made or
asserted with respect to any interest of any Holder in any Exchangeable
Shares, including any disagreement between the heirs, representatives,
successors or assigns succeeding to all or any part of the
<PAGE> 83
21
interest of any Holder in any Exchangeable Shares resulting in
conflicting claims or demands being made in connection with such
interest, then the Trustee shall be entitled, at its sole discretion,
to refuse to recognize or to comply with any such claim or demand. In
so refusing, the Trustee may elect not to exercise any Voting Rights,
Exchange Right or Automatic Exchange Rights subject to such conflicting
claims or demands and, in so doing, the Trustee shall not be or become
liable to any person on account of such election or its failure or
refusal to comply with any such conflicting claims or demands. The
Trustee shall be entitled to continue to refrain from acting and to
refuse to act until:
(i) the rights of all adverse claimants with respect to the
Voting Rights, Exchange Right or Automatic Exchange Rights
subject to such conflicting claims or demands have been
adjudicated by a final judgment of a court of competent
jurisdiction; or
(ii) all differences with respect to the Voting Rights,
Exchange Right or Automatic Exchange Right subject to such
conflicting claims or demands have been conclusively settled
by a valid written agreement binding on all such adverse
claimants, and the Trustee shall have been furnished with an
executed copy of such agreement.
If the Trustee elects to recognize any claim or comply with any demand
made by any such adverse claimant, it may in its discretion require such
claimant to furnish such surety bond or other security satisfactory to the
Trustee as it shall deem appropriate fully to indemnify it as between all
conflicting claims or demands.
(n) Acceptance of Trust. The Trustee hereby accepts the Trust created
and provided for by and in this Agreement and agrees to perform the
same upon the terms and conditions herein set forth and to hold all
rights, privileges and benefits conferred hereby and by law in trust
for the various persons who shall from time to time be Holders, subject
to all the terms and conditions herein set forth.
8. Compensation
FutureLink and Riverview jointly and severally agree to pay to the
Trustee reasonable compensation for all of the services rendered by it under
this Agreement and will reimburse the Trustee for all reasonable expenses
(including but not limited to taxes, compensation paid to experts, agents and
advisors and travel expenses) and disbursements, including the cost and expense
of any suit or litigation of any character and any proceedings before any
governmental agency reasonably incurred by the Trustee in connection with its
rights and duties under this Agreement; provided that FutureLink and Riverview
shall have no obligation to reimburse the Trustee for any expenses or
disbursements paid, incurred or suffered by the Trustee in any suit or
litigation in which the Trustee is determined to have acted in bad faith or with
negligence or willful misconduct.
9. INDEMNIFICATION AND LIMITATION OF LIABILITY
<PAGE> 84
22
(a) Indemnification of the Trustee. FutureLink and Riverview jointly
and severally agree to indemnify and hold harmless the Trustee, its
partners, employees, agents, successors and assigns (collectively, the
"Indemnified Parties") against all claims, losses, damages, costs,
penalties, fines and reasonable expenses (including reasonable expenses
of the legal counsel on a solicitor and his own client basis) which,
without fraud, negligence, willful misconduct or bad faith on the part
of such Indemnified Party, may be paid, incurred or suffered by the
indemnified Party by reason of or as a result of the Trustee's
acceptance or administration of the Trust, its compliance with its
duties set forth in this Agreement, or any written or oral instructions
delivered to the Trustee by FutureLink or Riverview pursuant hereto. In
no case shall FutureLink or Riverview be liable under this indemnity
for any claim against any of the Indemnified Parties unless FutureLink
and Riverview shall be notified by the Trustee of the written assertion
of a claim or of any action commenced against the Indemnified Parties,
promptly after any of the Indemnified Parties shall have received any
such written assertion of a claim or shall have been served with a
summons or other first legal process giving information as to the
nature and basis of the claim. Subject to (ii), below, FutureLink and
Riverview shall be entitled to participate at their own expense in the
defense and, if FutureLink or Riverview so elect at any time after
receipt of such notice, either of them may assume the defense of any
suit brought to enforce any such claim. The Trustee shall have the
right to employ separate counsel in any such suit and participate in
the defense thereof but the fees and expenses of such counsel shall be
at the expense of the Trustee unless: (i) the employment of such
counsel has been authorized by FutureLink or Riverview, such
authorization not to be unreasonably withheld; or (ii) the named
parties to any such suit include both the Trustee and FutureLink or
Riverview and the Trustee shall have been advised by counsel acceptable
to FutureLink or Riverview that there may be one or more legal defenses
available to the Trustee that are different from or in addition to
those available to FutureLink or Riverview and that an actual or
potential conflict exists (in which case FutureLink and Riverview shall
not have the right to assume the defense of such suit on behalf of the
Trustee but shall be liable to pay the reasonable fees and expenses of
counsel for the Trustee).
(b) Limitation of Liability. The Trustee shall not be held liable for
any loss which may occur by reason of depreciation of the value of any
part of the Trust Estate or any loss incurred on any investment of
funds pursuant to this Agreement except to the extent that such loss is
attributable to the fraud, willful misconduct or bad faith on the part
of the Trustee.
10. Change of Trustee
(a) Resignation. The Trustee, or any trustee hereafter appointed, may
at any time resign by giving written notice of such resignation to
FutureLink and Riverview specifying the date on which it desires to
resign, provided that such notice shall not be given less than 30 days
before such desired resignation date unless FutureLink and Riverview
otherwise agree. Upon receiving such notice of resignation, FutureLink
and Riverview shall promptly appoint a successor trustee by written
instrument in duplicate, one copy of which shall be delivered to
<PAGE> 85
23
the resigning trustee and one copy to the successor trustee. Failing
acceptance by a successor trustee, a successor trustee may be appointed
by an order of the Alberta Court of Queen's Bench upon application of
one or more of the parties hereto.
(b) Removal. The Trustee, or any Trustee hereafter appointed, may be
removed with or without cause, at any time on 30 days prior notice by
written instrument executed by FutureLink and Riverview, in duplicate,
one copy of which shall be delivered to the trustee so removed and one
copy to the successor trustee, provided that, in connection with such
removal, provision is made for a replacement trustee similar to that
contemplated in Section 10(a).
(c) Successor Trustee. Any successor trustee appointed as provided
under this Agreement shall execute, acknowledge and deliver to
FutureLink and Riverview and to its predecessor trustee an instrument
accepting such appointment. Thereupon the resignation or removal of the
predecessor trustee shall become effective and such successor trustee,
without any further act, deed or conveyance, shall become vested with
all the rights, powers, duties and obligations of its predecessor under
this Agreement, with like effect as if originally named as trustee in
this Agreement. However, on the written request of FutureLink and
Riverview or of the successor trustee, the trustee ceasing to act
shall, upon payment of any amounts then due it pursuant to the
provisions of this Agreement, execute and deliver an instrument
transferring to such successor trustee all the rights and powers of the
trustee so ceasing to act. Upon the request of any such successor
trustee, FutureLink, Riverview and such predecessor trustee shall
execute any and all instruments in writing for more fully and certainly
vesting in and confirming to such successor trustee all such rights and
powers.
(d) Notice of Successor Trustee. Upon acceptance of appointment by a
successor trustee as provided herein, FutureLink and Riverview shall
cause to be mailed notice of the succession of such trustee hereunder
to each Holder specified in a List. If FutureLink or Riverview shall
fail to cause such notice to be mailed within 10 days after acceptance
of appointment by the successor trustee, the successor trustee shall
cause such notice to be mailed at the expense of FutureLink and
Riverview.
11. FutureLink Successors
(a) Certain Requirements in Respect of Combination, etc. FutureLink
shall not enter into any transaction (whether by way of reconstruction,
reorganization, consolidation, merger, transfer, sale, lease or
otherwise) whereby all or substantially all of its undertaking,
property and assets would become the property of any other Person or,
in the case of a merger, of the continuing corporation resulting
therefrom unless:
(i) such other Person or continuing corporation (the
"FutureLink Successor"), by operation of law, becomes, without
further action, bound by the terms and provisions of this
Agreement or, if not so bound, executes, prior to or
contemporaneously with the consummation of such transaction an
agreement
<PAGE> 86
24
supplemental hereto and such other instruments (if any) as are
satisfactory to the Trustee and in the opinion of legal
counsel to the Trustee are necessary or advisable to evidence
the assumption by the FutureLink Successor of liability for
all monies payable and property deliverable hereunder and the
covenant of such FutureLink Successor to pay and deliver or
cause to be delivered the same and its agreement to observe
and perform all the covenants and obligations of FutureLink
under this Agreement; and
(ii) such transaction shall, to the satisfaction of the
Trustee and in the opinion of legal counsel to the Trustee, be
upon such terms as substantially to preserve and not to impair
in any material respect any of the rights, duties, powers and
authorities of the Trustee or of the Holders hereunder.
(b) Vesting of Powers in Successor. Whenever the conditions of Section
11 (a) hereof have been duly observed and performed, the Trustee, if
required, by Section 11 (a) hereof, the FutureLink Successor and
Riverview shall execute and deliver the supplemental agreement provided
for in Article 12 hereof and thereupon the FutureLink Successor shall
possess and from time to time may exercise each and every right and
power of FutureLink under this Agreement in the name of FutureLink or
otherwise and any act or proceeding by any provision of this Agreement
required to be done or performed by the board of directors of
FutureLink or any officers of FutureLink may be done and performed with
like force and effect by the directors or officers of such FutureLink
Successor.
(c) Wholly-Owned Subsidiaries. Nothing herein shall be construed as
preventing the amalgamation or merger of any wholly-owned subsidiary of
FutureLink with or into FutureLink or the winding-up, liquidation or
dissolution of any wholly-owned subsidiary of FutureLink provided that
all of the assets of such subsidiary are transferred to FutureLink or
another wholly-owned subsidiary of FutureLink, and any such
transactions are expressly permitted by this Article 11.
12. Amendments and Supplemental Agreements
(a) Amendments, Modifications, etc. This Agreement may not be amended
or modified except by an agreement in writing executed by Riverview,
FutureLink and the Trustee and approved by the Holders in accordance
with Section 9.2 of the Exchangeable Share Provisions.
(b) Ministerial Amendments. Notwithstanding the provisions of Section
12(a) hereof, the parties to that agreement may in writing, at any time
and from time to time, without the approval of the Holders, amend or
modify this Agreement for the purposes of:
(i) adding to the covenants of any or all of the parties
hereto for the protection of the Holders hereunder;
(ii) making such amendments or modifications not inconsistent
with this Agreement as may be necessary or desirable with
respect to matters or questions which, in the opinion of the
board of directors of each of FutureLink and Riverview and in
the opinion of the Trustee and its counsel having in mind the
best interests of
<PAGE> 87
25
the Holders as a whole, it may be expedient to make, provided
that such boards of directors and the Trustee and its counsel
shall be of the opinion that such amendments and modifications
will not be prejudicial to the interests of the Holders as a
whole; or
(iii) making such changes or corrections which, on the advice
of counsel to Riverview, FutureLink and the Trustee, are
required for the purpose of curing or correcting any ambiguity
or defect or inconsistent provision or clerical omission or
mistake or manifest error, provided that the Trustee and its
counsel and the board of directors of each of Riverview and
FutureLink shall be of the opinion that such changes or
corrections will not be prejudicial to the interests of the
Holders as a whole.
(c) Meeting to Consider Amendments. Riverview, at the request of
FutureLink, shall call a meeting or meetings of the Holders for the
purpose of considering any proposed amendment or modification requiring
approval pursuant hereto. Any such meeting or meetings shall be called
and held in accordance with the bylaws of Riverview, the Exchangeable
Share Provisions and all applicable laws.
(d) Changes in Capital of FutureLink and Riverview. At all times after
the occurrence of any event effected pursuant to Section 2(e) or
Section 2(f) of the Support Agreement, as a result of which either
FutureLink Common Stock or the Exchangeable Shares or both are in any
way changed, this Agreement shall forthwith be amended and modified as
necessary in order that it shall apply with full force and effect,
mutatis mutandis, to all new securities into which FutureLink Common
Stock or the Exchangeable Shares or both are so changed and the parties
hereto shall execute and deliver a supplemental agreement giving effect
to and evidencing such necessary amendments and modifications.
(e) Execution of Supplemental Agreements. No amendment to or
modification or waiver of any of the provisions of this Agreement
otherwise permitted hereunder shall be effective unless made in writing
and signed by all of the parties hereto. From time to time Riverview
(when authorized by a resolution of its Board of Directors), FutureLink
(when authorized by a resolution of its board of directors) and the
Trustee may, subject to the provisions of these presents, and they
shall, when so directed by these presents, execute and deliver by their
proper officers, agreements or other instruments supplemental hereto,
which thereafter shall form part hereof, for any one or more of the
following purposes:
(i) evidencing the succession of any FutureLink Successors to
FutureLink and the covenants of and obligations assumed by
each such FutureLink Successors in accordance with the
provisions of Article 11, and the successor of any successor
trustee in accordance with the provisions of Article 10;
(ii) making any additions to, deletions from or alterations of
the provisions of this Agreement or the Voting Rights, the
Exchange Right or the Automatic Exchange
<PAGE> 88
26
Rights which, in the opinion of the Trustee and its counsel,
will not be prejudicial to the interests of the Holders as a
whole or are in the opinion of counsel to the Trustee
necessary or advisable in order to incorporate, reflect or
comply with any legislation the provisions of which apply to
FutureLink, Riverview, the Trustee or this Agreement; and
(iii) for any other purposes not inconsistent with the
provisions of this Agreement, including without limitation to
make or evidence any amendment or modification to this
Agreement as contemplated hereby, provided that, in the
opinion of the Trustee and its counsel, the rights of the
Trustee and the Holders as a whole will not be prejudiced
thereby.
13. Termination
(a) Term. The Trust created by this Agreement shall continue until the
earliest to occur of the following events:
(i) no outstanding Exchangeable Shares are held by a Holder;
(ii) each of Riverview and FutureLink elects in writing to
terminate the Trust and such termination is approved by the
Holders of the Exchangeable Shares in accordance with Section
9.2 of the Exchangeable Share Provisions; and
(iii) twenty-one (21) years after the death of the last
survivor of the descendants of His Majesty King George VI of
the United Kingdom of Great Britain and Northern Ireland
living on the date of the creation of the Trust.
(b) Survival of Agreement. This Agreement shall survive any termination
of the Trust and shall continue until there are no Exchangeable Shares
outstanding held by a Holder, provided, however, that the provisions of
Articles 8 and 9 hereof shall survive any such termination of this
Agreement.
14. General
(a) Severability. If any provision of this Agreement is held to be
invalid, illegal or unenforceable, the validity, legality or
enforceability of the remainder of this Agreement shall not in any way
be affected or impaired thereby and the agreement shall be carried out
as nearly as possible in accordance with its original terms and
conditions.
(b) Inurement. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and
permitted assigns and to the benefit of the Holders.
<PAGE> 89
27
(c) Notices to Parties. All notices and other communications between
the parties hereunder shall be in writing and shall be deemed to have
been given if delivered personally or by confirmed telecopy to the
parties at the following addresses (or at such other address for such
party as shall be specified in like notice):
(i) if to FutureLink at:
550, 603 - 7 Avenue S.W.
Calgary, Alberta T2P 2T5
Attention: Chairman of the Board
(ii) if to Riverview at:
550, 603 - 7 Avenue S.W.
Calgary, Alberta T2P 2T5
Attention: President
(iii) if to the Trustee at:
Howard, Mackie
1000, 400 - 3rd Avenue S.W.
Calgary, Alberta T2P 4H2
Attention: John Poetker
Any notice or other communication given personally shall be deemed to
have been given and received upon delivery thereof and if given by telecopy
shall be deemed to have been given and received on the date of receipt thereof
unless such day is not a Business Day in which case it shall be deemed to have
been given and received upon the immediately following Business Day.
(d) Notice of Holders. Any and all notices to be given and any
documents to be sent to any Holders may be given or sent to the address
of such Holder shown on the register of Holders of Exchangeable Shares
in any manner permitted by the Exchangeable Share Provisions and shall
be deemed to be received (if given or sent in such manner) at the time
specified in such Exchangeable Share Provisions, the provisions of
which the Exchangeable Share Provisions shall apply mutatis mutandis to
notices or documents as aforesaid sent to such Holders.
(e) Risk of Payments by Post. Whenever payments are to be made or
documents are to be sent to any Holder by the Trustee, by Riverview or
by FutureLink or by such Holder to the Trustee or to FutureLink or
Riverview, the making of such payment or sending of such document sent
through the post shall be at the risk of Riverview or FutureLink, in
the case of payments made or documents sent by the Trustee or Riverview
or FutureLink, and the Holder, in the case of payments made or
documents sent by the Holder.
<PAGE> 90
28
(f) Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which taken together
shall constitute one and the same instrument.
(g) Jurisdiction. This Agreement shall be construed and enforced in
accordance with the laws of the Province of Alberta and the laws of
Canada applicable therein.
<PAGE> 91
29
(h) Attornment. FutureLink agrees that any action or proceeding arising
out of or relating to this Agreement may be instituted in the courts of
Alberta, waives any objection which it may have now or hereafter to the
venue of any such action or proceeding, irrevocably submits to the
jurisdiction of the said courts in any such action or proceeding,
agrees to be bound by any judgment of the said courts and agrees not to
seek, and hereby waives, any review of the merits of any such judgment
by the courts of any other jurisdiction and hereby appoints Riverview
at its registered office in the Province of Alberta as FutureLink's
attorney for service of process.
IN WITNESS WHEREOF, the parties hereby have caused this Agreement to be duly
executed as of the date first above written.
FUTURELINK DISTRIBUTION CORP.
Per:________________________________
Per:________________________________
RIVERVIEW MANAGEMENT CORP.
Per:________________________________
Per:________________________________
HOWARD, MACKIE
Per:________________________________
Per:________________________________
<PAGE> 92
SECTION 86
SHARE EXCHANGE AGREEMENT
THIS AGREEMENT made effective as of the _____ day of August, 1998.
BETWEEN:
OLIVIA B. BIALIK, an individual residing at Calgary, Alberta
(hereinafter referred to as the "Shareholder")
OF THE FIRST PART
AND
RIVERVIEW MANAGEMENT CORPORATION, a body corporate with offices at
Calgary, Alberta (hereinafter referred to as the "Corporation")
OF THE SECOND PART
WHEREAS the Corporation is in the course of reorganizing the share
capital of the Corporation and has filed Articles of Amendment to create an
unlimited number of Exchangeable Shares;
AND WHEREAS the Shareholder owns 100 Class "B" Shares and 2,989,165
Class "K" Shares in the capital stock of the Corporation (the "Shares") and
desires to exchange the Shares for Exchangeable Shares of the Corporation being
created;
AND WHEREAS the parties desire to effect the exchange of shares on the
terms and conditions hereinafter set forth.
NOW THEREFORE in consideration of the mutual covenants and agreements
contained herein, the parties hereto agree as follows:
<PAGE> 93
2
1. The Shareholder agrees to dispose of and transfer to the Corporation the
Shares, and in exchange therefor the Corporation agrees to issue to the
Shareholder 2,831,916 Exchangeable Shares (the "Exchange").
2. The Corporation shall add the stated capital of the Shares to the stated
capital of the 2,831,916 Exchangeable Shares;
3. The Shareholder covenants that the Shares represent all of the Class "B"
Shares and all of the Class "K" Shares held by the Shareholder in the
Corporation.
4. The Corporation and Shareholder agree that the fair market value of the
Exchangeable Shares received on the Exchange by the Shareholder equals the fair
market value of the Shares received by the Corporation.
5. The Shareholder agrees to deliver to the Corporation the Class "B" and Class
"K" share certificates, duly endorsed for the transfer to the Corporation of the
Shares, whereupon the Corporation agrees to issue to the Shareholder a share
certificate evidencing the 2,831,916 Exchangeable Shares.
6. The Shareholder and Corporation agree that the provisions of Subsection 86(1)
of the Income Tax Act (Canada) are intended to apply to the Exchange.
<PAGE> 94
3
7. This Agreement shall be construed in accordance with the laws in force in the
Province of Alberta.
IN WITNESS WHEREOF the parties have executed this agreement as of the
date first above mentioned.
_____________________________ ____________________________________
WITNESS OLIVIA B. BIALIK
RIVERVIEW MANAGEMENT CORPORATION
Per:________________________________
Donald A. Bialik, President
<PAGE> 1
EXHIBIT 5
[JEFFER, MANGELS, BUTLER & MARMARO LLP LETTERHEAD]
November 23, 1998 59720-0001
FutureLink Distribution Corp.
603-7th Avenue S.W.
Suite 550
Calgary, Alberta
CANADA T2P 2T5
Re: FutureLink Distribution Corp. -
Amendment No. 2 to
Registration Statement on Form SB-2
Gentlemen:
At your request, we have examined Amendment No. 2 to the Registration
Statement on Form SB-2, No. 333-62133 (the "Registration Statement"), that
FutureLink Distribution Corp., a Colorado corporation (the "Company") has filed
with the Securities and Exchange Commission in connection with the registration
under the Securities Act of 1933, as amended (the "Act"), of: (i) 4,250,000
shares of common stock of the Company underlying the Exchangeable Shares as
defined in that certain Agreement dated August 4, 1998 between the Company,
Donald A. Bialik, Olivia B. Bialik, Bialik Family Trust, Riverview Management
Corporation and Sysgold Ltd., as amended by an Agreement dated August 21, 1998
(collectively, the "Sysgold Agreement"), (ii) 9,615,385 Shares of common stock
underlying up to $5,000,000 principal amount of 10% Convertible Debentures as
defined in that certain Debenture Acquisition Agreement between the Company and
Thompson Kernaghan & Co., Ltd. ("TK Agreement") and (iii) 1,000,000 Shares of
common stock underlying Thomas Kernaghan & Co., Ltd. warrants as defined in the
TK Agreement, all such shares to be offered for resale by certain
securityholders of the Company. The total number of shares of common stock of
the Company registered under the Registration Statement equals 14,865,385 shares
(the "Shares").
<PAGE> 2
JEFFER, MANGELS, BUTLER & MARMARO LLP
FutureLink Distribution Corp.
November 23, 1998
Page 2
Subject to the qualifications stated herein, it is our opinion that upon
receipt of consideration for the Shares, the Shares will be validly issued,
fully paid and non-assessable. We are not opining as to the validity or due
issuance of any shares which may be deemed senior to the common shares of the
Company or to create a new class of shares of the Company, without shareholder
approval.
We express no opinion as to compliance with the securities or "blue sky"
laws of any state in which the Shares are proposed to be offered and sold or as
to the effect, if any, which non-compliance with such laws might have on the
validity of issuance of the Shares.
We hereby consent to the filing of this opinion as an exhibit to Amendment
No. 2 to the Registration Statement and to the filing of this opinion in
connection with such filings of applications by the Company as may be necessary
to register, qualify or establish eligibility for an exemption from registration
or qualification of the Shares under the blue sky laws of any state or other
jurisdiction. In giving this consent, we do not admit that we are in the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended, or the rules and regulations of the Securities and
Exchange Commission promulgated thereunder.
The opinions set forth herein are based upon the federal laws of the
United States of America. We express no opinion as to whether the laws of any
particular jurisdiction apply, and no opinion to the extent that the laws of any
jurisdiction other than those identified above are applicable to the subject
matter hereof.
The information set forth herein is as of the date of this letter. We
disclaim any undertaking to advise you of changes which may be brought to our
attention after the date of this opinion.
Respectfully submitted,
/s/ JEFFER, MANGELS, BUTLER & MARMARO LLP
JEFFER, MANGELS, BUTLER & MARMARO LLP
<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. 2 of the Form SB-2
Registration Statement of FutureLink Distribution Corp. as filed with the
Securities and Exchange Commission on November 24, 1998.
/s/ JEFFER, MANGELS, BUTLER & MARMARO LLP
<PAGE> 1
[ERNST & YOUNG LETTERHEAD]
EXHIBIT 23.2.1
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.2 (dated November 23, 1998) to the
registration statement on Form SB-2 of FutureLink Distribution Corp., a Colorado
corporation.
Calgary, Canada /s/ ERNST & YOUNG LLP
November 23, 1998 Chartered Accountants
<PAGE> 1
[HALPIN o ANTONY o OWEN o MAYER LETTERHEAD]
EXHIBIT 23.2.2
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. 2 (dated November 23, 1998) to
the registration statement on Form SB-2 of Futurelink Distribution Corp., a
Colorado Corporation.
/s/ HALPIN ANTONY OWEN MAYER
Calgary, Canada Chartered Accountants
November 23, 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 included in the prospectus
filed as part of Amendment No. 2 (dated November 23, 1998) to the registration
statement on Form SB-2 of FutureLink Distribution Corp., a Colorado Corporation.
/s/ BUCHANAN, BARRY & CO.
Chartered Accountants
Calgary, Alberta
November 23, 1998
