<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
FUTURELINK DISTRIBUTIO CORPORATION
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
COMMON STOCK
----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
6,000,000
----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
$51,750,000.00
----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$10,350.00
----------------------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------------------
<PAGE> 2
FUTURELINK DISTRIBUTION CORP.
NOTICE OF ANNUAL AND EXTRAORDINARY MEETING
OF HOLDERS OF COMMON STOCK
TO BE HELD ON SEPTEMBER 23, 1999
- AND -
MANAGEMENT INFORMATION CIRCULAR
- AND -
PROXY STATEMENT
This Management Information Circular and Proxy Statement is furnished in
connection with the solicitation of proxies by and on behalf of the management
of FutureLink Distribution Corp. ("FutureLink") for use at the Annual and
Extraordinary Meeting of securityholders of FutureLink to be held on September
23, 1999 at the time and place and for the purposes set out in the accompanying
Notice of Annual and Extraordinary Meeting and any adjournment thereof.
No person has been authorized to give any information or make any representation
in connection with any matters to be considered at the Annual and Extraordinary
Meeting other than as contained in this Management Information Circular and
Proxy Statement and, if given or made, any such information or representation
must not be relied upon as having been authorized.
AUGUST 24, 1999
<PAGE> 3
FUTURELINK DISTRIBUTION CORP.
SUITE 300, 250 - 6TH AVENUE S.W.
CALGARY, ALBERTA CANADA T2P 3H7
NOTICE OF ANNUAL AND EXTRAORDINARY MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 23, 1999
NOTICE IS HEREBY GIVEN that the Annual and Extraordinary Meeting (the "Meeting")
of holders of common stock ("Common Shares") of FutureLink Distribution Corp.
("FutureLink" or the "Company") will be held at the Costa Mesa Marriott Suites
Hotel, 500 Anton Boulevard, Costa Mesa California, 92626 at 11:00 a.m., Pacific
Standard Time, on Thursday, September 23, 1999, for the following purposes:
1. to consider and, if thought fit, approve the Company's acquisition,
through its wholly-owned subsidiary, FutureLink California Acquisition
Corp. ("Acquisition Co."), of Executive LAN Management, Inc., carrying
on business as Micro Visions ("Micro Visions"), the total consideration
payable by the Company for all of the issued and outstanding shares of
Micro Visions being $12,000,000 cash consideration and 6,000,000 Common
Shares, as well as provisions for the current shareholders of Micro
Visions to earn an additional 2,400,000 Common Shares should certain
performance criteria be met and the subsequent merger of Acquisition
Co. and Micro Visions;
2. to consider and, if thought fit, approve the merger of the Company with
its wholly-owned subsidiary, Acquisition Co, a Delaware corporation
(the "Reincorporation") substantially on the terms set out in Agreement
and Plan of Merger dated as of August 1, 1999 between the Company and
Acquisition Co., with the reincorporated corporation to survive as a
Delaware corporation;
3. to consider and, if thought fit, approve the Company's Amended and
Restated Stock Option Plan and those stock options granted by the
Company in excess of the Company's existing Stock Option Plan but in
accordance with the Amend and Restated Stock Option Plan;
4. to consider, ratify and confirm the one (1) for five (5) reverse stock
split the Company effected on June 1, 1999;
5. to set the number of directors at nine (9) and to elect the Board of
Directors for the ensuing year;
6. to appoint auditors of the Company for the ensuing year, at a
remuneration to be fixed by the Board of Directors;
7. to receive and consider the audited financial statements of the Company
for the year ended December 31, 1998 and the report of the auditors
thereon, as well as the unaudited interim financial statements for the
period ended June 30, 1999; and
8. To transact other such business as may be properly brought before the
meeting.
Specific details of the matters proposed to be put before the Meeting are set
forth in the accompanying Management Information Circular and Proxy Statement
(the "Proxy Statement") accompanying this Notice of Annual and Extraordinary
Meeting, including the full text of the extraordinary resolutions approving both
the Acquisition and the Reincorporation, which are annexed as Schedules to the
Proxy Statement. A copy of the Reincorporation Agreement is attached as Schedule
"A" to the Proxy Statement .
<PAGE> 4
2
FutureLink Shareholders have the right to dissent from the resolution approving
the Acquisition and the Amalgamation in accordance with Article 113 of the
Colorado Business Corporations Act (the "CBCA"), and, if the Acquisition and the
Reincorporation become effective, to be paid the fair value of their Common
Shares by FutureLink. A Shareholder wishing to exercise rights of dissent with
respect to the Acquisition or the Reincorporation must send to FutureLink a
written objection to the resolution approving the Acquisition or the
Reincorporation, which written objection must be received by FutureLink at its
principal office (at Suite 300, 250 - 6th Avenue S.W., Calgary, Alberta T2P 3H7)
or by the Chairman of the Meeting at or before the Meeting. This dissent right
is more particularly described in Article113 of the CBCA, and set forth in
Schedule "C", to the accompanying Proxy Statement. FAILURE TO STRICTLY COMPLY
WITH THE REQUIREMENTS SET FORTH IN ARTICLE 113 OF THE CBCA MAY RESULT IN THE
LOSS OF ANY RIGHT OF DISSENT. BENEFICIAL HOLDERS OF COMMON SHARES REGISTERED IN
THE NAME OF A BROKER, CUSTODIAN, NOMINEE OR OTHER INTERMEDIARY WHO WISH TO
DISSENT SHOULD BE AWARE THAT ONLY THE REGISTERED HOLDERS OF SUCH COMMON SHARES
ARE ENTITLED TO DISSENT. ACCORDINGLY, A BENEFICIAL OWNER OF COMMON SHARES
DESIRING TO EXERCISE HIS RIGHT OF DISSENT MUST MAKE ARRANGEMENTS FOR THE COMMON
SHARES BENEFICIALLY OWNED BY HIM TO BE REGISTERED IN HIS NAME PRIOR TO THE TIME
THE WRITTEN OBJECTION TO THE RESOLUTION APPROVING THE ACQUISITION OR THE
REINCORPORATION IS REQUIRED TO BE RECEIVED OR, ALTERNATIVELY, MAKE ARRANGEMENTS
FOR THE REGISTERED HOLDER OF HIS COMMON SHARES TO DISSENT ON HIS BEHALF.
The record date for the determination of FutureLink Shareholders entitled to
receive notice of the Meeting is August 23, 1999 (the "Record Date"). FutureLink
Shareholders whose names have been entered in the register of FutureLink
Shareholders at the close of business on that date will be entitled to receive
notice of and to vote at the Meeting and any adjournment thereof.
DATED at the City of Irvine, California, this 24th day of August, 1999.
BY ORDER OF THE BOARD OF DIRECTORS
OF FUTURELINK DISTRIBUTION CORP.
"Philip R. Ladouceur"
PHILIP R. LADOUCEUR
EXECUTIVE CHAIRMAN
<PAGE> 5
3
IMPORTANT
It is desirable that as many shares as possible be represented at the Meeting.
If you do not expect to attend and would like your shares represented, please
complete the enclosed instrument of proxy and return it as soon as possible in
the envelope provided for that purpose. In accordance with the bylaws of the
Company, all proxies, to be valid, must be deposited with the Company's Proxy
Solicitation Agent, Georgeson & Co., Wall Street Plaza, New York, N.Y. 10005 or
at the current principal office of the Company, Suite 300, 250 - 6th Avenue
S.W., Calgary, Alberta, CANADA T2P 3H7, no later than 5:00 p.m., local time, on
the day prior to the Meeting or any adjournment thereof.
THE RESOLUTIONS TO BE CONSIDERED BY SHAREHOLDERS FOR THEIR APPROVAL HAVE VARIOUS
VOTING REQUIREMENTS, AS FOLLOWS:
RESOLUTIONS 1 AND 2, ABOVE, REGARDING THE REINCORPORATION OR THE ACQUISITION
REQUIRE THE APPROVAL OF NO LESS THAN 2/3 OF THE OUTSTANDING COMMON SHARES.
RESOLUTIONS 3, 4, 5 AND 6 ABOVE, REGARDING THE AMENDED AND RESTATED STOCK OPTION
PLAN, THE RATIFICATION OF THE ONE (1) FOR FIVE (5) REVERSE STOCK SPLIT, ELECTION
OF DIRECTORS AND APPOINTMENT OF AUDITORS, RESPECTIVELY, REQUIRES THE APPROVAL OF
THE MAJORITY (50% PLUS ONE) OF THE COMMON SHARES REPRESENTED AT SUCH
SHAREHOLDERS' MEETING ASSUMING A QUORUM OF SHAREHOLDERS PRESENT AT THE MEETING
IN PERSON OR BY PROXY HOLDING NO LESS THAN 50% OF THE ISSUED AND OUTSTANDING
COMMON SHARES.
GIVEN THE HIGH VOTER TURNOUT (AND VOTING) REQUIREMENTS SET FORTH ABOVE, ALL
SHAREHOLDERS ARE ENCOURAGED TO TAKE STEPS TO VOTE THEIR COMMON SHARES, EITHER IN
PERSON OR BY PROXY.
<PAGE> 6
FUTURELINK DISTRIBUTION CORP.
MANAGEMENT INFORMATION CIRCULAR AND PROXY STATEMENT
ANNUAL AND EXTRAORDINARY MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 23, 1999
This Management Information Circular and Proxy Statement ("Proxy Statement") is
furnished in connection with the solicitation of proxies by the Management of
FutureLink Distribution Corp., a Colorado corporation (the "Company"), for use
at the Annual and Extraordinary Meeting of the holders of shares of the
Company's common stock (the "Common Shares") to be held at the Costa Mesa
Marriott Suites Hotel, 500 Anton Boulevard, Costa Mesa, California, 92626, on
Thursday, the 23rd day of September, 1999 at 11:00 a.m. (Pacific time), or at
any adjournment thereof (the "Meeting"), for the purposes set forth in the
Notice of Meeting. There is enclosed herewith a form of proxy for use at the
Meeting, together with the audited financial statements of the Company for the
fiscal year ended December 31, 1998 as well as the unaudited interim financial
statements for the period ended June 30, 1999 to be presented for discussion at
the Meeting. Each shareholder of the Company ("Shareholder") who is entitled to
attend at meetings of Shareholders is encouraged to participate in the Meeting
and Shareholders are urged to vote in person or by proxy on matters to be
considered.
All capitalized terms used herein but not otherwise defined herein have the
meanings set forth under the headings "Glossary of Terms". In this Proxy
Statement, unless otherwise specified, all dollar amounts are expressed in
United States dollars. All summaries of, and references to, the Reincorporation
Agreement and the Acquisition Agreement in this Proxy Statement are qualified in
their entirety by reference to the complete text of the Reincorporation
Agreement and the Acquisition Agreement. A copy of the Reincorporation Agreement
is annexed as Schedule "A" to this Information Circular. The Acquisition
Agreement has been filed with the Securities Exchange Commission in the United
States and forms a part of this Proxy Statement. Copies of the Acquisition
Agreement or Reincorporation Agreement can be obtained by contacting Kyle Scott,
General Counsel to the Company, at (403) 509-5015. YOU ARE URGED TO CAREFULLY
READ THE FULL TEXT OF THE REINCORPORATION AGREEMENT AND THE ACQUISITION
AGREEMENT.
<PAGE> 7
TABLE OF CONTENTS
NOTICE OF ANNUAL AND EXTRAORDINARY MEETING OF SHAREHOLDERS........... .........1
MANAGEMENT INFORMATION CIRCULAR AND PROXY STATEMENT............................1
GLOSSARY OF TERMS..............................................................2
SUMMARY........................................................................5
PART I - GENERAL PROXY INFORMATION...........................................8
SOLICITATION OF PROXIES.............................................8
APPOINTMENT AND REVOCATION OF PROXIES...............................8
VOTING OF SECURITIES................................................9
EXERCISE OF DISCRETION.............................................11
PART II - ACQUISITION OF MICRO VISIONS.......................................11
BACKGROUND TO THE ACQUISITION......................................11
EFFECT OF THE ACQUISITION..........................................13
DETAILS AND CONDITIONS OF THE ACQUISITION..........................13
COVENANTS..........................................................14
PURPOSE AND BENEFITS OF THE ACQUISITION............................14
FUTURELINK SHAREHOLDER APPROVAL....................................15
RECOMMENDATION OF THE BOARD OF DIRECTORS...........................16
PART III - REINCORPORATION IN DELAWARE........................................16
BACKGROUND TO THE REINCORPORATION..................................16
THE REINCORPORATION................................................16
VOTE REQUIRED FOR THE REINCORPORATION..............................18
PRINCIPAL REASONS FOR THE REINCORPORATION..........................18
NO CHANGE IN THE NAME, BOARD MEMBERS, BUSINESS, MANAGEMENT, STOCK
OPTION PLAN OR PHYSICAL LOCATION OF THE COMPANY....................19
ANTITAKEOVER IMPLICATIONS..........................................19
POSSIBLE DISADVANTAGES.............................................20
COMPARISON OF THE CORPORATION LAWS OF COLORADO AND DELAWARE AND
OF THE CHARTER DOCUMENTS OF FUTURELINK COLORADO AND
FUTURELINK DELAWARE................................................20
FEDERAL INCOME TAX CONSEQUENCES....................................25
DELAWARE FRANCHISE TAX.............................................26
HOLDING PERIOD FOR PURPOSES OF RULE 144............................26
PART IV - FURTHER MATTERS TO BE ACTED ON.....................................26
APPROVAL OF AMENDMENT TO STOCK OPTION PLAN AND GRANT OF OPTIONS....26
<PAGE> 8
Terms of the Amended Stock Option Plan......................29
RATIFICATION OF REVERSE STOCK SPLIT..................................31
Purposes And Effects of The Reverse Stock Splits............32
ELECTION OF DIRECTORS................................................32
Audit Committee.............................................35
Director Compensation.......................................36
APPOINTMENT OF AUDITORS..............................................36
PART V - RIGHTS OF DISSENTING SHAREHOLDERS....................................36
DISSENTING SHAREHOLDERS..............................................36
A. Actions To Be Taken Before the Meeting.............37
B. Actions To Be Taken Upon Or After Approval Of The
Acquisition or Reincorporation.....................37
PART VI - OTHER MATTERS TO BE ACTED UPON......................................38
PART VII - INFORMATION CONCERNING FUTURELINK..................................38
HISTORY OF THE COMPANY...............................................38
VOTING SHARES AND PRINCIPAL SHAREHOLDERS.............................40
EXECUTIVE COMPENSATION...............................................40
Summary of Cash and Certain Other Compensation .............40
Summary Compensation Table..................................40
Stock Option Plan...........................................41
Option Grants in Last Fiscal Year...........................41
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT....................43
CERTAIN RELATIONSHIPS AND RECENT RELATED TRANSACTIONS................43
Indemnity Agreement.........................................43
Willson Stationers Contract.................................43
Other Related Party Transactions............................44
STOCK OPTIONS........................................................45
SHARE CAPITAL........................................................45
CAPITALIZATION.......................................................45
AUDITORS.............................................................45
FINANCIAL STATEMENTS.................................................46
TRANSFER AGENT.......................................................46
RISK FACTORS.........................................................46
PART VII - INFORMATION CONCERNING MICRO VISIONS...............................46
MICRO VISIONS AND ITS CAPITAL STRUCTURE..............................46
MICRO VISIONS SHAREHOLDERS...........................................46
BUSINESS OF MICRO VISIONS............................................47
CORPORATE OFFICES....................................................49
INTELLECTUAL PROPERTY................................................49
COMPETITION..........................................................49
MANAGEMENT OF MICRO VISIONS..........................................50
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-iii-
EXECUTIVE COMPENSATION...............................................51
INDEBTEDNESS OF MICRO VISIONS DIRECTORS AND SENIOR OFFICERS..........51
INTEREST OF CERTAIN PERSONS AND COMPANIES IN MATTERS TO BE ACTED
UPON BY MICRO VISIONS................................................51
FINANCIAL STATEMENTS OF MICRO VISIONS................................52
RISK FACTORS.........................................................52
LEGAL PROCEEDINGS....................................................52
YEAR 2000............................................................52
APPROVAL AND CERTIFICATION....................................................54
MICRO VISIONS CERTIFICATE.....................................................55
SCHEDULE "A" - AGREEMENT AND PLAN OF MERGER...................................56
EXHIBIT "1" - TO THE AGREEMENT AND PLAN OF MERGER DATED
AUGUST 1, 1999.......................................................62
EXHIBIT "2" - TO THE AGREEMENT AND PLAN OF MERGER DATED AUGUST 1, 1999........66
SCHEDULE "B" - AMENDED AND RESTATED STOCK OPTION PLAN.........................89
SCHEDULE "C" - DISSENT RIGHTS.................................................97
SCHEDULE "D" - ACQUISITION RESOLUTION........................................105
SCHEDULE "E" - RESOLUTION FOR REINCORPORATION................................106
SCHEDULE "F" - RESOLUTION APPROVING AMENDED AND RESTATED STOCK OPTION PLAN...107
SCHEDULE "G" - RATIFICATION OF 1 FOR 5 REVERSE STOCK SPLIT...................108
SCHEDULE "H" - AUDITED FINANCIAL STATEMENTS AND INTERIM UNAUDITED FINANCIAL
STATEMENTS FOR FUTURELINK...........................................109
SCHEDULE "I" - AUDITED FINANCIAL STATEMENTS AND INTERIM UNAUDITED FINANCIAL
STATEMENTS FOR MICRO VISIONS........................................110
SCHEDULE "J" - PRO FORMA FINANCIAL STATEMENTS SHOWING IMPACT OF THE
MICRO VISIONS ACQUISITION ON FUTURELINK AS AT JUNE 30, 1999 AND
DECEMBER 31, 1998...................................................111
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2
GLOSSARY OF TERMS
Unless the context indicates otherwise, the following terms shall have the
meanings set out below when used in this Proxy Statement, including the Summary.
Words importing the singular number may include the plural and vice versa and
words importing any gender include all genders.
"ACQUISITION" means the acquisition of Micro Visions by the Company, involving
the acquisition of all MV Shares by the Company through the Company's
wholly-owned subsidiary, Acquisition Co., and the subsequent merger of
Acquisition Co. and Micro Visions in accordance with the provisions of the
Acquisition Agreement, which is subject to Shareholder approval.
"ACQUISITION AGREEMENT" means the Agreement and Plan of Reorganization and
Merger dated June 2, 1999 by and between the Company, Acquisition Co., Micro
Visions and the MV Shareholders whereby the Company is to purchase all of the
issued and outstanding MV Shares, in accordance with the terms thereof and
subject to certain conditions, including Shareholder approval.
"ACQUISITION CO." or "FUTURELINK DELAWARE" means FutureLink California
Acquisition Corp., a Delaware corporation, which is a wholly-owned subsidiary of
the Company.
"ACQUISITION RESOLUTION" refers to the extraordinary resolution to be presented
to the Shareholders at the Meeting for approval of the Acquisition and is set
out in Schedule "D" attached hereto.
"AMALCO" or "AMALGAMATED COMPANY" means the continuing company to be constituted
upon the Reincorporation becoming effective. Amalco will continue using the name
"FutureLink Corp." or such other similar name as the Board of Directors may deem
appropriate.
"AMALCO SHARES" means common shares in the authorized capital of Amalco to be
issued in exchange for the Common Shares upon Reincorporation.
"AMENDED STOCK OPTION PLAN" means the Amended and Restated Stock Option Plan,
amended such that Options may be granted to consultants and other persons
important to the Company, for the number of unissued Common Shares issuable upon
exercise of outstanding Options to be set at 20% of the outstanding Common
Shares, on a fully-diluted basis (not including Common Shares underlying
Options), and setting minimum limits for vesting of Options, which is subject to
approval by the Shareholders at the Meeting--see "Approval of Amended Stock
Option Plan and Grant of Options".
"BOARD OF DIRECTORS" refers to the board of directors of FutureLink.
"CBCA" means the Colorado Business Corporation Act, Colorado Revised Statutes
1997, Title 7 (Corporations and Associations), Articles 101 to 117, as amended,
including the regulations promulgated thereunder.
"COMMON SHARES" means shares of common stock, $0.0001 par value, in the
currently authorized capital of the Company, as constituted following the one
(1) for five (5) reverse split of the Company's common stock effected June 1,
1999.
"COMPANY" or "FUTURELINK" or "FUTURELINK DELAWARE" means FutureLink Distribution
Corp., a Colorado corporation.
<PAGE> 11
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"CONTROL PERSON" means a person or company that owns more than 20% of the
voting shares of the Company, or a sufficient number of shares so as to
materially affect its control.
"DISSENTING SHAREHOLDER" means any shareholder who chooses to dissent to
the proposed Acquisition and reincorporation in accordance with Article 113 of
the CBCA. See "Rights of Dissenting Shareholders".
"DOLLARS" or "$" means U.S. dollars.
"EFFECTIVE DATE" means the proposed effective date of September 30, 1999
for the Acquisition, if approved, or such other date as may be approved by the
Board of Directors. See "Acquisition of Micro Visions".
"MEETING" means the annual and extraordinary meeting of Shareholders of the
Company scheduled for September 23, 1999.
"MICRO VISIONS" means Executive LAN Management, Inc., doing business as
"Micro Visions", a California Subchapter "S" corporation.
"MV SHARES" means the shares of common stock in the capital of Micro Visions.
"MV SHAREHOLDERS" means the current shareholders of issued and outstanding MV
Shares.
"M$" means thousands of Dollars.
"MERGER" means the proposed merger of the Company with Acquisition Co., which
company is to merge with Micro Visions under the provisions of the Acquisition
Agreement, assuming Shareholders approve the Acquisition, which may be effected
by the Board of Directors on or before June 30, 2000.
"NOTICE OF DISSENT" means the formal notice to be given by a Dissenting
Shareholder to the Company in order to claim the right of dissent with respect
to either the proposed Acquisition or the proposed Amalgamation in accordance
with Article 113 of the CBCA. See "Rights of Dissenting Shareholders".
"OPTION HOLDER" means a person who has been granted Options in accordance with
the Stock Option Plan.
"OPTIONS" means options to purchase previously unissued Common Shares granted
pursuant to the Stock Option Plan (or upon amendment, the Amended Stock Option
Plan).
"PERFORMANCE SHARES" means the up to 2,400,000 additional Common Shares which
may be issuable to Micro Visions Shareholders should Micro Visions achieve
certain performance criteria as set forth in "Acquisition of Micro Visions".
"PROXY STATEMENT" means this Management Information Circular and Proxy Statement
dated August 24, 1999 providing information to Shareholders with regard to the
Meeting.
"REINCORPORATION" refers to the process whereby the Company merges with
Acquisition Co. pursuant to the Reincorporation Agreement with the
reincorporated entity surviving as a Delaware corporation.
"REINCORPORATION AGREEMENT" means the Agreement and Plan of Merger dated as of
August 1, 1999 between the Company and its wholly-owned subsidiary, Acquisition
Co., whereby the two companies formally agreed to
<PAGE> 12
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merge such that the reincorporated entity survives as a Delaware
corporation. See "Reincorporation in Delaware".
"REINCORPORATION RESOLUTION" refers to the extraordinary resolution to be
presented to the shareholders at the Meeting for approval of the Amalgamation
and set out in Schedule "E" attached hereto.
"SHAREHOLDER" or "SHAREHOLDERS" means the shareholder or shareholders of
issued and outstanding Common Shares.
"STOCK OPTION PLAN" means the Company's stock option plan dated June 28, 1998
and amended on December 1, 1998 which permits the Board of Directors, or a
committee thereof, to grant Options to directors, officers and employees of the
Company.
<PAGE> 13
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SUMMARY
The following is a summary only of the more detailed information appearing
elsewhere in this Information Circular and is qualified by and must be read in
conjunction with such information. Terms with initial capital letters used in
this Summary are defined in the "Glossary of Terms" section.
THE ANNUAL AND EXTRAORDINARY MEETING
The Meeting of the Shareholders of FutureLink will be held at the times, dates
and places and for the purposes as described in the Notice of Annual and
Extraordinary Meeting accompanying the Proxy Statement
THE ACQUISITION
BACKGROUND TO THE ACQUISITION
- - --
EFFECT OF THE ACQUISITION ON FUTURELINK
- - --
PROCEDURE FOR THE ACQUISITION
Procedural Steps
--
Approvals of FutureLink Shareholders
--
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors has unanimously determined that the Acquisition is in the
best interests of FutureLink and is fair to the Shareholders and, as such, has
authorized the submission of the Acquisition to the Shareholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT FUTURELINK
SHAREHOLDERS VOTE FOR THE EXTRAORDINARY RESOLUTION APPROVING THE
ACQUISITION.
REINCORPORATION
- - --
BACKGROUND TO THE REINCORPORATION
<PAGE> 14
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- - --
EFFECT OF THE REINCORPORATION ON THE SHAREHOLDERS
- - --
PROCEDURE FOR THE REINCORPORATION
Procedural Steps
--
Approvals of FutureLink Shareholders
--
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors has unanimously determined that the Reincorporation is in
the best interests of FutureLink and is fair to the Shareholders and, as such,
has authorized the submission of the Reincorporation Resolution to the
Shareholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT FUTURELINK
SHAREHOLDERS VOTE FOR THE EXTRAORDINARY RESOLUTION APPROVING THE
REINCORPORATION.
RIGHT OF DISSENT
A registered Shareholder has the right to dissent with respect to the
Acquisition Resolution and Amalgamation Resolution if the Company's principal
office (at Suite 300, 250 - 6th Avenue S.W., Calgary, Alberta T2P 3H7), or the
Chairman of the Meeting, at or prior to the Meeting receives from such
Shareholder a written objection and the Shareholder otherwise complies with
Article 113 of the CBCA. Provided that the Acquisition or the Reincorporation,
respectively, becomes effective, each Dissenting Shareholder will be entitled to
be paid by FutureLink the fair value of the Common Shares in respect of which
such Shareholder dissents in accordance with Article 113 of the CBCA. Beneficial
owners of Common Shares registered in the name of a broker, custodian, nominee
or other intermediary who wish to dissent should be aware that only the
registered holders of such shares are entitled to dissent. Accordingly, a
beneficial owner of Common Shares desiring to exercise his or her dissent right
must make arrangements for the Common Shares beneficially owned by such
Shareholder to be registered in his name prior to the time the written objection
to the Acquisition Resolution or the Reincorporation Resolution is required to
be received, or alternatively, make arrangements for the registered holder of
his Common Shares to dissent on his behalf. See " Rights of Dissenting
Shareholders".
REGULATORY APPROVALS
The Company has filed the Proxy Statement with the Securities Exchange
Commission (the "SEC") and the SEC has the authority and jurisdiction to review
the Proxy Statement, with regard to the proposed Acquisition and Reincorporation
transactions and the disclosure relating to such transactions and may require
the Company to provide further disclosure including the results of a fairness
opinion with respect to the Acquisition.
<PAGE> 15
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OTHER MATTERS TO BE CONSIDERED
Stock Option Plan
The Company has a Stock Option Plan dated June 28,1998 and amended December 1,
1998 which was prepared by the Board of Directors and approved and adopted by
the Shareholders on November 30, 1998. The Stock Option Plan was amended and
restated by the Board of Directors on July 16, 1999 (the "Amended Stock Option
Plan") to correct errors and otherwise make the Amended Stock Option Plan
reflect the Company's current capital structure and to reduce the Options which
may be granted in the long term. The Shareholders are now asked to consider and,
if thought fit, approve the Amended Stock Option Plan and those Options granted
by the Company in excess of the Stock Option Plan but in accordance with the
Amended Stock Option Plan.
Ratification of Reverse Stock Split
On June 1, 1999, the Company effected a one (1) for five (5) reverse stock split
of its Common Shares. FutureLink's Shareholders voted to authorize the directors
to effect up to a one (1) for thirty (30) reverse stock split, to be executed on
or before June 1, 1999, at the annual meeting of shareholders held November 30,
1998. A further resolution will be put before the Shareholders to ratify and
confirm this reverse stock split.
Appointment of Directors
The Shareholders are to set the number of directors at nine (9) and to elect the
Board of Directors for the ensuing year.
Appointment of Auditors
The Shareholders are to appoint auditors of the Company for the ensuing
year, at a remuneration to be fixed by the Board of Directors
<PAGE> 16
8
PART I - GENERAL PROXY INFORMATION
SOLICITATION OF PROXIES
THIS PROXY STATEMENT IS FURNISHED IN CONNECTION WITH THE SOLICITATION OF PROXIES
BY THE MANAGEMENT OF FUTURELINK FOR USE AT THE MEETING, AT THE TIME AND PLACE
AND FOR THE PURPOSES SET OUT IN THE ACCOMPANYING NOTICE OF ANNUAL AND
EXTRAORDINARY MEETING.
The solicitation of proxies will be primarily by mail but proxies may also be
solicited personally or by telephone or other methods of communication by
regular employees of FutureLink without additional compensation or by such
agents as FutureLink may appoint. The cost of solicitation will be borne by
FutureLink. FutureLink may retain the services of agents to solicit proxies from
FutureLink Shareholders on behalf of management for the Meeting. In such event,
FutureLink may compensate any such agents so retained for such services,
including reimbursement for reasonable out-of-pocket expenses, including legal
costs, and may indemnify them in respect of certain liabilities which may be
incurred by them in performing their services.
It is desirable that as many shares as possible be represented at the meeting.
If you do not expect to attend and would like your shares represented, please
complete the enclosed instrument of proxy and return it as soon as possible in
the envelope provided for that purpose. All proxies, to be valid, must be
deposited with the Company's proxy solicitation agent (the "Solicitation
Agent"), Georgeson & Co., Wall Street Plaza, New York, NY 10005 or at the
current principal office of the Company, Suite 300, 250 - 6th Avenue S.W.,
Calgary, Alberta, CANADA T2P 3H7, no later than 5:00 p.m., local time, on the
date before the meeting or any adjournment thereof.
No person is authorized to give any information or to make any representations
other than those contained in this Proxy Statement and if given or made, such
information must not be relied upon as having been authorized.
APPOINTMENT AND REVOCATION OF PROXIES
Each Shareholder submitting a proxy has the right to appoint a person to
represent him, her or it at the Meeting other than the person designated in the
form of proxy furnished by the Company. The Shareholder may exercise this right
by striking out the names of the persons so designated and inserting the name of
the desired representative in the blank space provided, or by completing another
form of proxy and in either case depositing the proxy with the Solicitation
Agent or with the Company, at the places and within the times specified above
for the deposit of proxies.
An instrument of proxy may be revoked by the person giving it at any time prior
to the exercise thereof. If a person who has given a proxy attends personally at
the Meeting at which such proxy is to be voted, such person may revoke the proxy
and vote in person. In addition to revocation in any other manner permitted by
law, a proxy may be revoked by instrument in writing executed by the Shareholder
or his attorney authorized in writing, or if the Shareholder is a Company, under
seal or by an officer or attorney thereof duly authorized, and deposited with
the Company's solicitation agent, Georgeson & Co., Wall Street Plaza, New York,
NY 10005 or with the Company, under its seal or by an officer or attorney
thereof duly authorized, and deposited with the Company at its principal office,
300, 250 - 6th Avenue S.W., Calgary, Alberta, CANADA T2P 3H7 before the close of
business (local time) on the last business day preceding the date of the
Meeting. THE CLOSE OF BUSINESS ON AUGUST 23, 1999 IS THE RECORD DATE FOR THE
DETERMINATION OF HOLDERS OF COMMON SHARES WHO ARE ENTITLED TO NOTICE OF AND TO
ATTEND AND VOTE AT THE MEETING.
<PAGE> 17
9
VOTING OF SECURITIES
As at August 1, 1999 there were 6,441,913 Common Shares issued and outstanding.
Each Common Share entitles the holder to one vote on any ballot at the Meeting.
FutureLink will prepare, as of the Record Date, a list of Shareholders entitled
to receive the Notice of Annual and Extraordinary Meeting which also shows the
number of Common Shares held by each such holder. A Shareholder named in the
list is entitled to vote the Common Shares shown opposite his or her name at the
Meeting.
The following table sets forth the number and percentage of the outstanding
shares of Common Shares owned beneficially as of August 1, 1999, by each
director as of such date, by the Company's Chief Executive Officer (the "CEO")
Cameron Chell, by the four other most highly compensated executive officers
other than the CEO, being Philip Ladauceur, Radju Kilambi, bill Arnet and
Vincent Romano and by each person who, to the knowledge of the Company,
beneficially owned more that 5% of any class of the Company's voting stock on
such date.
<TABLE>
<CAPTION>
OPTIONS,
SHARES OF COMMON PERCENTAGE WARRANTS AND PERCENTAGE
NAME AND ADDRESS STOCK BENEFICIALLY OF COMMON SHARES ISSUABLE BASED ON
OF BENEFICIAL OWNER OWNED STOCK(1) ON CONVERSION FULL
FOR DEBT(2) DILUTION (3)
--------------------- -------------- ------------------ --------------
<S> <C> <C> <C> <C>
Cameron B. Chell
306 B 20th Street NW
Calgary, Alberta T2N 2K3
115,550 1.8% 641,976(4) 2.3%
--------------------- -------------- ------------------ --------------
Raghu Kilambi 1306, 804 3rd - Street S.W.
Calgary, Alberta T2P 0G9
60,000 0.9% 373,750(5) 1.3%
--------------------- -------------- ------------------ --------------
Philip R. Ladouceur
119 Valley Ridge Green NW
Calgary, Alberta T3B 5L5
48,000 0.8% 275,000(6) 1.0%
--------------------- -------------- ------------------ --------------
F. Bryson Farrill
305 Old Oaks Road
Fairfield, Connecticut 06432
45,000 0.7% 62,500(7) 0.3%
--------------------- -------------- ------------------ --------------
Robert J. Kubbernus
300 Water Stone Crescent
Airdrie, Alberta T4B 1H4
46,000 0.7% 62,500(8) 0.3%
--------------------- -------------- ------------------ --------------
Michael S. Falk
One Beekman Place
New York, New York
10022 0 0.0% 1,033,361(9) 3.2%
--------------------- -------------- ------------------ --------------
Timothy P. Flynn
1517 Champion Hills
Las Vegas, Nevada
89134 0 0.0% 607,647(10) 1.9%
--------------------- -------------- ------------------ --------------
William (Bill) V. Arnett
5 Sunlake Street S.E.
Calgary, Alberta T2X 3J1
0 0.0% 75,000(11) 0.2%
--------------------- -------------- ------------------ --------------
</TABLE>
<PAGE> 18
<TABLE>
<CAPTION>
OPTIONS,
SHARES OF COMMON PERCENTAGE WARRANTS AND PERCENTAGE
NAME AND ADDRESS STOCK BENEFICIALLY OF COMMON SHARES ISSUABLE BASED ON
OF BENEFICIAL OWNER OWNED STOCK(1) ON CONVERSION FULL
FOR DEBT(2) DILUTION (3)
--------------------- -------------- ------------------ --------------
<S> <C> <C> <C> <C>
Vincent L. Romano Jr.
7410 Walton Lane
Annandale, Virgina
22003 232,829 3.6% 62,500(12) 0.9%
--------------------- -------------- ------------------ --------------
Directors and Highest Paid executives, as a
Group 547,379 8.5% 3,194,234 11.5%
--------------------- -------------- ------------------ --------------
Other Principal Securityholders
Commonwealth Associates, L.P.
830 Third Avenue
New York, New York
10022 0 0.0% 2,582,431 8.0%
--------------------- -------------- ------------------ --------------
</TABLE>
NOTES:
(1) Based upon 6,441,983 Common Shares outstanding (and paid for) as of
August 1, 1999 on a post 1 for 5 reverse split basis. Does not include
any Common Shares issued underlying convertible debentures, warrants or
Options not yet converted or exercised.
(2) Does not include Options granted prior to August 1, 1999 that vest more
than 60 days following the date of this Proxy Statement (on or before
October 24, 1999, only 1,427,900 of 4,129,700 Common Shares underlying
Options granted prior to August 1, 1999 will be issuable upon exercise
of Options which will have vested).
(3) Based upon 32,476,819 of Common Shares outstanding after all Options
(which vest before October 24, 1999), warrants and convertible debt
outstanding as at August 1, 1999 have been exercised or converted.
(4) Includes Options for the purchase of 100,000 Common Shares exercisable
at $3.80 per share which vested on June 29, 1998 and 1999 and Options
for the purchase of 175,000 Common Shares exercisable at $3.15 per
share which vested on June 1, 1999. Also includes Warrants for the
purchase of 75,310 Common Shares at $2.00 per share prior to February
22, 2000, $3.00 per share prior to February 22, 2001 and $4.00 per
share prior to February 22, 2002. Also includes warrants for the
purchase of 125,000 Common Shares at $1.50 per share expiring April 29,
2006 and 166,666 Common Shares issuable on conversion of a $250,000
convertible note due April 29, 2000 which is convertible at $1.50 per
share.
(5) Includes Options for the purchase of 100,000 Common Shares exercisable
at $3.80 per share which vested on June 29, 1998 and 1999 and Options
for the purchase of 125,000 Common Shares exercisable at $3.15 per
share which vested on June 1, 1999. Also includes warrants for the
purchase of 63,750 Common Shares at $1.50 per share expiring April 29,
2006 and 85,000 Common Shares issuable on conversion of a $127,000
convertible note due April 29, 2000 which is convertible at $1.50 per
share.
(6) Includes Options for the purchase of 100,000 Common Shares exercisable
at $3.80 per share which vested on July 16, 1998 and 1999 plus Options
to acquire 175,000 Common Shares exercisable at $3.15 per share which
vested on June 1, 1999.
(7) Includes Options for the purchase of 50,000 Common Shares exercisable
at $3.80 per share which vested on June 29, 1998 and 1999 plus Options
for the purchase of 12,500 Common Shares exercisable at $3.15 per
share which vested on June 1, 1999.
(8) Includes Options for the purchase of 50,000 Common Shares exercisable
at $3.80 per share which vested on June 29, 1998 and 1999 plus Options
for the purchase of 12,500 Common Shares exercisable at $3.15 per
share which vested on June 1, 1999.
(9) Includes Options to purchase 25,000 Common Shares exercisable at $3.15
per share which vested on May 6, 1999. Also includes warrants to
purchase 745,527 Common Shares at $1.25 per share expiring April 29,
2006 and 225,000 Common Shares issuable on conversion of a $225,000
convertible note due April 29, 2000 which is convertible at $1.00 per
share. Also includes warrants to purchase 31,952 Common Shares at $8.50
per share expiring July 31, 2001 and 5,882 Common Shares (estimated)
issuable on conversion of a $50,000 convertible note due July 31, 2001.
Does not include the shares
<PAGE> 19
11
of common stock issuable to Commonwealth Associates, L.P. on
conversion of debt (convertible notes) or exercise of warrants.
Mr. Falk is the Chairman, controlling equity owner and CEO of the
corporate general partner of Commonwealth Associates and may be
deemed the beneficial owner of Commonwealth=s shares.
(10) Includes Options to purchase 25,000 Common Shares at an exercise price
of $5.00 per share which vested May 14, 1999. Also includes warrants to
purchase 100,000 Common Shares at $1.25 per share expiring April 29,
2006 and 200,000 Common Shares issuable on conversion of a $200,000
convertible note due April 29, 2000 which converts at $1.00 per share.
Also includes warrants to purchase 165,000 Common Shares at an exercise
price of $8.50 per share and 117,647 Common Shares (estimated) issuable
on conversion of a $1,000,000 convertible note due July 31, 2001.
(11) Includes Options for the purchase of 30,000 Common Shares exercisable
at $5.85 per share which vested on January 5, 1999 and August 5, 1999
and Options for the purchase of 10,000 Common Shares exercisable at
$1.40 per share which vested on April 9, 1999. Also includes warrants
to purchase 15,000 Common Shares at an exercise price of $1.50 per
share expiring April 29, 2006 and 20,000 Common Shares issuable on
conversion of a $30,000 convertible note due April 29, 2000 which
converts at $1.50 per share.
(12) Includes Options to purchase 62,500 Common Shares at an exercise price
of $6.08 per share which vested June 29, 1999.
A quorum for the transaction of most business at the Meeting is two persons
present in person or by proxy and holding or representing not less than majority
of the Common Shares entitled to be voted thereat. If no quorum is present
within one-half (2) hour of the appointed time for the Meeting, the Meeting
shall stand adjourned to a day which is not less than seven (7) days nor more
than 30 days thereafter, as determined by the Chairman of the Meeting, and at
such adjourned meeting, quorum will again be assessed and, if not present, the
Meeting may be further adjourned in accordance with the above.
EXERCISE OF DISCRETION
The Common Shares represented by the enclosed form of proxy will be voted or
withheld from voting in accordance with the instructions of the Shareholder. The
persons appointed under the enclosed form of proxy are conferred with
discretionary authority with respect to amendments or variations of those
matters specified in the proxy and Notice of Meeting and with respect to any
other matters which may properly be brought before the Meeting or any
adjournment thereof. If any such matters should come before the Meeting, it is
the intention of the persons named in the enclosed form of proxy to vote such
proxy in accordance with their best judgement unless the Shareholder has
specified to the contrary or that shares are to be withheld from voting. At the
time of printing this Proxy Statement, the Management of the Company is not
aware of any such amendment, variation, or other matter.
UNLESS OTHERWISE SPECIFIED, PROXIES IN THE ACCOMPANYING FORM WILL BE VOTED IN
FAVOR OF THE APPROVAL OF ALL MATTERS SET OUT IN THE FORM OF PROXY.
PART II - ACQUISITION OF MICRO VISIONS
BACKGROUND TO THE ACQUISITION
FutureLink's principal business is acting as an Application Service Provider
("ASP"), offering software on-line, over the Internet and/or dedicated telecom
bandwidth, for rent. The Company hosts clients' software, builds and maintains
the network servers necessary to run the software, provides the necessary
infrastructure to deliver the software application directly to users' desktops
and employs highly trained IT staff to implement upgrades to clients' software
and to provide support and maintenance.
<PAGE> 20
12
Citrix Software Inc.'s Independent Computing Architecture (ICA) and its
Metaframe technology is used by the Company as its platform to host applications
from its server. Citrix technology is quickly becoming a standard for
server-based computing.
In 1998, the Company acquired FutureLink Alberta and SysGold (see "PART VII -
INFORMATION CONCERNING FUTURELINK"). These acquisitions established FutureLink
as a Calgary, Alberta Canada-based company with sufficient IT staff and revenue
base to expand in the fledgling ASP industry.
The Company's focus is to expand geographically to cover key centres in the
North American market in its next phase of growth. Given the growing shortage of
IT professionals, which in itself is one of the factors driving the growth of
ASPs, it is more efficient to grow the Company through horizontal acquisitions
of existing businesses. A focus is on IT service companies which are
strategically positioned both geographically and technically to complement
FutureLink. To properly function as an ASP, FutureLink management believes that
the Company must be able to offer a full range of IT services. Businesses with a
good knowledge base in server-based computing, preferably with Citrix software,
a reputation for delivering excellent service to clients and an emphasis on
systems engineers and IT consultants over administrative and marketing
functions, located in geographic regions where FutureLink currently lacks a
presence, are prime candidates under FutureLink's strategy.
Micro Visions, originally established by Glen Holmes in 1987, has a solid
reputation as a provider of server-based computing solutions to clients. An
early adopter of Citrix technology, Micro Visions was Citrix's number one
software reseller in 1998 (number two in 1997). Headquartered in Irvine,
California, Micro Visions has grown to five additional offices in the "sunbelt"
of the United States: Los Angeles, CA; Phoenix, AZ; Las Vegas, NV; Atlanta, GA
and Raleigh-Durham, NC. Micro Visions fits perfectly with FutureLink's expansion
strategy.
Management of the two companies initially met in late 1998 at an industry
conference and soon began to explore the benefits to both companies of combining
their operations to build a leading position in the ASP sector. More formal
overtures and negotiations gradually led to a general idea of the cash and stock
consideration to be paid to MV Shareholders should the parties decide to go
forward (which figures were basically settled by early April 1999). On June 2,
1999, the parties settled all final points and entered into the formal, binding
Acquisition Agreement, the details and conditions of which are discussed below.
The basic consideration to be paid to Micro Vision Shareholders in this
transaction is $12,000,000 cash and 6,000,000 Common Shares. In April 1999, this
structure would have been valued at approximately $25,000,000 (less than two
times Micro Visions 1998 revenue). With the increase in the Company's stock
price to June 2, 1999, this transaction is valued at $45,375,000, which is
approximately 3.3 times Micro Visions' 1998 revenues of approximately $13.7
million.
The Board of Directors does not feel the consideration to be paid to MV
Shareholders in this transaction, even at the June 2, 1999 share value, to be
excessive, considering the geographic coverage opened to FutureLink, the skilled
employees, the reputation of Micro Visions in the industry, Micro Visions
historical revenue growth and the general "fit" of Micro Visions with FutureLink
and current market conditions.
At the Meeting, Shareholders of the Company will be asked to consider
resolutions to approve the proposed Acquisition and to approve the proposed
share exchange / plan of merger. The Acquisition will result in the MV
Shareholders holding the largest single block of Common Shares, constituting
almost 20% of the Company's fully diluted Common Shares following the
Acquisition if the Performance Shares are included. The Acquisition Agreement
provides that the completion of the proposed merger between the Company and
<PAGE> 21
13
Micro Visions is subject to the receipt of all necessary approvals, including
approval of the SEC (if necessary) and the approval of the Shareholders of the
Company.
EFFECT OF THE ACQUISITION
Under the Acquisition, as of the Effective Date the MV Shareholders will become
shareholders of the Company receiving 6 million Common Shares and the right to
earn Performance Shares.
On a pro forma basis, as at June 30, 1999 after giving effect to the Acquisition
and the Amalgamation, after the Effective Date the Company will have 12,441,913
Common Shares outstanding of which former Shareholders of the Company will own
approximately 58 % and MV shareholders will own the balance.
On a fully diluted basis, the Company will have 41,721,519 Common Shares issued,
or issuable on exercise or conversion of outstanding share acquisition rights
(options, warrants and convertible debt conversion rights), of which current
Micro Visions' Shareholders will own 14.4% at closing, with the possibility of
earning Performance Shares, which would increase the Micro Visions Shareholders'
position to 19% of 44,121,519 fully diluted Common Shares.
DETAILS AND CONDITIONS OF THE ACQUISITION
Pursuant to the provisions of the Acquisition Agreement, the Company has agreed
to acquire all of the issued and outstanding shares of Executive LAN Management,
Inc., doing business as Micro Visions. Under the agreement, Micro Visions
shareholders (the family of Glen Holmes) will receive $12,000,000 in cash and
6,000,000 Common Shares upon closing. In addition, Micro Visions' shareholders
could earn an additional 2,400,000 shares based on achievement of certain
performance criteria in 1999 (the "Performance Shares"). The Company advanced
$1,000,000 of the cash portion of the acquisition price in conjunction with the
signing of the acquisition agreement and an additional $500,000 deposit was paid
at the end of July, 1999. A further $500,000 deposit is payable by August 31,
1999.
The consideration is based upon the achievement of the following performance
criteria as described in the agreement for the period from January 1, 1999 to
December 31, 1999:
(1) 1,200,000 Performance Shares shall be issued to Micro Vision
Shareholders if Micro Visions achieves sales in excess
of $18,000,000;
(2) 720,000 Performance Shares shall be issued if Micro Visions enlists
100 new customers; and
(3) 480,000 Performance Shares shall be issued if Micro Visions installs
and integrates at least 200 new servers.
The Company currently plans to complete the Acquisition on or about October 1,
1999.
The issued and outstanding shares of Micro Visions are set out below (see
"Capitalization of Micro Visions").
If the Acquisition does not close by October 15, 1999 the Company may extend the
closing date to no later than December 15, 1999 by paying to Micro Visions'
shareholders an additional $1,000,000 at closing by way of $500,000 cash and
$500,000 of common stock issued "at market" (10 day average closing prices). If
the closing is extended and the Company fails to secure sufficient financing to
enable it to pay the full cash portion
<PAGE> 22
14
of the purchase consideration prior to December 15, 1999, or fail to secure
the approval of the Acquisition by its shareholders prior to that date, Micro
Visions shall be entitled to terminate the agreement and retain all deposit
funds paid to date. The parties are free to extend the time for performance of
any obligations or actions set forth in the agreement.
Except where the Micro Visions Acquisition Agreement is terminated by Micro
Visions (without cause), by Micro Visions' shareholders failing to deliver all
Micro Visions stock "free and clear" at closing, or by the Company as a result
of a fraudulent misrepresentation made by Micro Visions or its shareholders,
$500,000 of the deposit shall not be repaid if this agreement terminates prior
to October 15, 1999 and $1,500,000 shall not be repaid to the Company if the
Micro Visions Acquisition Agreement is terminated after October 15, 1999. The
Company can terminate this agreement and demand prompt repayment of the (balance
of the) deposit funds if: Micro Visions finds the financing arrangements
regarding the balance of the cash portion of the purchase price to be
unacceptable; in the event of any material misrepresentation by Micro Visions in
the Acquisition Agreement; or in the event of a material adverse change in Micro
Visions' condition, etc.
The Acquisition Agreement will be effected by the Company's issuance of the
purchase consideration to the MV Shareholders and the merger of Micro Visions
into Acquisition Co. The Acquisition is conditional on Shareholders approval and
if required, regulatory approval.
COVENANTS
The Company and Micro Visions have agreed to certain terms and conditions
relating to the Acquisition Agreement. In particular, the Parties have agreed to
be bound by certain material conditions. Specifically, without the permission of
the other party:
(a) neither party shall declare or pay any dividends after the Closing
Date of the Acquisition Agreement;
(b) neither party shall repurchase, redeem or acquire any shares of each
party's company stock;
(c) the parties can not enter into any new line of business not
contemplated by the Acquisition Agreement;
(d) neither party shall dispose of any material assets except in the
ordinary of business;
(e) the parties are restricted from borrowing money except in the ordinary
course of business; and
(f) the parties can not alter or amend any employment compensation
agreements required by law.
In essence, the Parties agreed to continue operating their respective businesses
in the ordinary course of business, consistent with past practice, pending
closing.
PURPOSE AND BENEFITS OF THE ACQUISITION
As discussed in "Background to the Acquisition", the acquisition of Micro
Visions gives the Company a firm foothold in several major U.S. markets,
partnering with a recognized leader in server-based computing installation and
integration services. FutureLink, which has accepted Citrix Metaframe software
as the primary
<PAGE> 23
15
delivery mechanism for its ASP services, views Micro Visions
expertise with Citrix software and dedication to server-based computing as a
strong addition to the Company's skill set in delivering complete ASP service.
Micro Visions, currently the number one Citrix reseller in the United States,
has experienced strong revenue growth and profitability, exceeding the Company's
performance in these areas to date. Selected financial information for Micro
Visions is as follows:
<TABLE>
<CAPTION>
6 months ended 12 months ended
June 30, 1999 December 31, 1998 December 31, 1997
(unaudited) (audited)
<S> <C> <C> <C>
Revenues 9,322,000 13,669,000 9,565,000
------------------------------------------------------------------------
Expenses (9,008,000) (12,814,000) (8,632,000)
------------------------------------------------------------------------
Income before tax 314,000 855,000 933,000
------------------------------------------------------------------------
Taxes (104,000) (178,000) (395,000)
------------------------------------------------------------------------
Net income after tax 210,000 677,000 538,000
------------------------------------------------------------------------
Total Assets 5,169,000 3,587,000 2,162,000
------------------------------------------------------------------------
</TABLE>
The complete financial statements for the above period are attached as Schedule
"I" to this Proxy Statement.
Pro forma financial information showing the impact of the Acquisition based on
historical figures for the two companies as at June 30, 1999 (and December 31,
1998) is attached in Schedule "L" to this Proxy Statement. The Acquisition is
being accounted for using the purchase method.
Through acquiring Micro Visions, the Company adds six U.S. offices, including
major offices in Irvine, CA which will become the Company's head office, over 80
staff, roughly half of whom are additional IT professionals, well-versed in
server-based computing and Citrix software, the Company's revenue base almost
triples and dilution to Shareholders, on a fully diluted basis in this
transaction, is not overly high.
Overall, this Acquisition should serve as a turning point in the Company's
history, moving from an $8 to $10 million (revenue) business with primary
operations in Canada, to a $25 to $30 million (revenue) business with the
majority of its revenues earned within the United States, with offices "coast to
coast".
For additional information concerning micro Visions, its business, customers,
employees, please refer to Part VII of this Proxy Statement "INFORMATION
CONCERNING MICRO VISIONS."
FUTURELINK SHAREHOLDER APPROVAL
The board of directors have determined that the proposed Acquisition is of
sufficient importance as to require the approval of Shareholders. In order to
complete the proposed share exchange/plan of merger, the Company must obtain the
approval by way of a resolution of the Shareholders of the Company at a duly
constituted meeting. THIS RESOLUTION, REGARDING A PLAN OF MERGER OR SHARE
EXCHANGE TO ACQUIRE MICRO VISIONS, REQUIRES THE APPROVAL OF SHAREHOLDERS HOLDING
NO LESS THAN TWO-THIRDS (2/3) OF THE COMPANY=S OUTSTANDING COMMON SHARES.
<PAGE> 24
16
In accordance with the foregoing, at the Meeting, the holders of Common Shares
of the Company will be asked to consider and, if thought fit, pass the
extraordinary resolution to approve the Company=s proposed Acquisition as set
out in Schedule "D".
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors has unanimously determined that the Acquisition is in the
best interests of FutureLink and is fair to the Shareholders and, as such, has
authorized the submission of the Acquisition Resolution to the Shareholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT FUTURELINK
SHAREHOLDERS VOTE FOR THE EXTRAORDINARY RESOLUTION APPROVING THE
ACQUISITION.
PART III - REINCORPORATION IN DELAWARE
BACKGROUND TO THE REINCORPORATION
At the last meeting of Shareholders held November 30, 1998, management of the
Company requested Shareholder approval to reincorporate and continue the Company
as a Delaware corporation. Unfortunately, too few Shareholders were in
attendance, either in person or by proxy, to consider the matter. Management
still believes that continuing in Delaware would be beneficial, given that most
publicly traded U.S. corporate entities are incorporated in Delaware and
Delaware corporate law is more familiar than Colorado law. In order to continue
in Delaware, a corporation must amalgamate with a Delaware corporation. As such,
the Company incorporated FutureLink California Acquisition Corp. in Delaware as
a wholly-owned subsidiary to both assist in achieving the structure of the
Acquisition and to allow for the possibility of amalgamating with this
subsidiary to continue in Delaware, subject to Shareholder approval.
THE REINCORPORATION
The Board of Directors believes that the best interests of the Company and its
shareholders will be served by changing the state of incorporation of the
Company from Colorado to Delaware. The Company believes that its shareholders
will benefit from the well-established principles of corporate governance that
Delaware law affords.
As discussed below, the principal reasons for reincorporation are the greater
flexibility under Delaware corporate law, the substantial body of case law
interpreting that law, and the increased ability of the Company to attract and
retain qualified directors. Although Delaware law provides the opportunity for
the Board of Directors to adopt various mechanisms which may enhance the Board's
ability to negotiate favorable terms for the shareholders in the event of an
unsolicited takeover attempt, the Company is not aware of any such attempt and
the Reincorporation is not being proposed in order to prevent a current
unsolicited takeover attempt. The Reincorporation is also not being undertaken
in response to any present attempt known to the Board of Directors to acquire
control of the Company, obtain representation on the Board of Directors, or take
significant action that affects the Company.
Shareholders are urged to read carefully the following sections of this Proxy
Statement, including the related exhibits, before voting on the Reincorporation.
Throughout the Proxy Statement, the term the "FutureLink Colorado" refers to the
existing Colorado corporation and the term "FutureLink Delaware" refers to the
new Delaware corporation, the proposed successor to the Company. The term
"Company" in Part III refers to
<PAGE> 25
17
FutureLink regardless of whether it is incorporated in the state of
Colorado or Delaware. Please note that in Colorado a holder of stock is referred
to as "shareholder" and in Delaware a holder of stock is referred to as a
"stockholder." This difference is one in terminology only and does not effect
the ownership of the shares or the rights granted to stockholders or
shareholders, as the case may be.
The Reincorporation will be effected by merging FutureLink Colorado into
FutureLink Delaware (the "Merger"). Upon completion of the Merger, FutureLink
Colorado will cease to exist and FutureLink Delaware will continue to operate
the business of the Company under the name FutureLink Corp.. As part of the
transaction, certain changes in the Company's governance structure will be
effected as described below. Pursuant to the Reincorporation Agreement between
FutureLink Colorado and FutureLink Delaware, a copy of which is attached as
Schedule "A", the proposed Reincorporation will be effected as follows:
- If the proposal for Reincorporation is adopted, each
outstanding share of FutureLink Colorado common stock, par
value at $.0001 per share, will automatically be converted
into one share of FutureLink Delaware common stock, par value
$.0001 per share. Shareholders will receive instructions from
the Company's transfer agent regarding the exchange of their
certificate for FutureLink Colorado common stock for
FutureLink Delaware common stock. Until such time, stock
certificates which previously represented shares of FutureLink
Colorado common stock will represent the number of shares of
common stock of FutureLink Delaware into which such shares
convert upon the Reincorporation.
- FutureLink Colorado's Amended Stock Option Plan, if approved
by the Shareholders at the Meeting, shall be assumed by
FutureLink Delaware. Each outstanding option to purchase a
share of FutureLink Colorado common stock under the Amended
Stock Option Plan or any other option or warrant will
automatically be assumed by FutureLink and will become an
option or warrant, as the case may be to acquire the like
number of shares of FutureLink Delaware common stock, par
value $0.0001 per share.
- FutureLink Colorado's Preferred Stock, having no par value, if
any is issued and outstanding as of the date of
Reincorporation, will automatically be converted into one
share of FutureLink Delaware Preferred Stock, par value
$0.0001 per share, having the same rights, privileges and
obligations granted under the FutureLink Colorado Articles of
Incorporation.
The Reincorporation has been unanimously approved by FutureLink Colorado's Board
of Directors. If approved by the Shareholders, it is anticipated that the
effective date of the Reincorporation will be as soon as reasonably practicable
following the Meeting(the "Effective Date"). However, pursuant to the
Reincorporation Agreement, the Reincorporation may be abandoned or the
Reincorporation Agreement may be amended by the Board of Directors (except that
certain principal terms may not be amended without shareholder approval) either
before or after shareholder approval has been obtained and prior to the
Effective Date of the Reincorporation if, in the opinion of the Board of
Directors of either company, circumstances arise that make it inadvisable to
proceed.
Shareholders of FutureLink Colorado will have dissenters' rights of appraisal
with respect to the Reincorporation. See "Comparison of the Corporation Laws of
Colorado and Delaware and of the Charter Documents of FutureLink Colorado and
FutureLink DelawareBDissenter/Appraisal Rights" and "Rights of Dissenting
Sharehodlers". The discussion set forth below is qualified in its entirety by
reference to the Reincorporation Agreement and the Amended and Restated
Certificate of Incorporation of FutureLink Delaware (the "Delaware Certificate")
and Bylaws of FutureLink Delaware (the "Delaware Bylaws"), copies of which are
attached hereto as Schedule "A", and Exhibit 1 and 2 to Schedule "A",
respectively.
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18
VOTE REQUIRED FOR THE REINCORPORATION
Approval of the Reincorporation will require the affirmative vote of the holders
of a 2/3 majority of the issued and outstanding shares of FutureLink Colorado
Common Shares as of the Record Date. Approval of the Reincorporation will also
constitute approval of (i) the Reincorporation Agreement, (ii) the Amended and
Restated Certificate of Incorporation, (iii) the Bylaws of FutureLink Delaware,
including the authorization of the Company's Board of Directors to alter the
number of directors without stockholder approval, the authorization of a
classified Board of Directors, the continued denial of cumulative voting, and
the elimination of the right of stockholders holding 10% of the voting power of
all stockholders to call a special meeting of stockholders, and (iv) the
assumption of FutureLink Colorado's Amended Stock Option Plan.
PRINCIPAL REASONS FOR THE REINCORPORATION
As the Company plans for the future, the Board of Directors and management
believe that it is essential to be able to draw upon well-established principles
of corporate governance in making legal and business decisions. The prominence
and predictability of Delaware corporate law provide a reliable foundation on
which the Company's governance decisions can be based, and the Company believes
that shareholders will benefit from the responsiveness of Delaware corporate law
and Delaware courts to their needs and to those of the corporation they own.
Prominence, Predictability and Flexibility of Delaware Law. For many years,
Delaware has followed a policy of encouraging incorporation in that state and,
in furtherance of that policy, has been a leader in adopting, construing and
implementing comprehensive, flexible corporate laws responsive to the legal and
business needs of corporations organized under its laws. Many corporations have
chosen Delaware initially as a state of incorporation or have subsequently
changed corporate domicile to Delaware in a manner similar to that proposed by
the Company. Because of Delaware's prominence as the state of incorporation for
many major corporations, both the legislature and courts in Delaware have
demonstrated an ability and a willingness to act quickly and effectively to meet
changing business needs. Moreover, the Delaware courts have developed
considerable expertise in dealing with corporate issues and a substantial body
of case law construing Delaware law and establishing public policies with
respect to corporate legal affairs.
Well-Established Principles of Corporate Governance. There is substantial
judicial precedent in the Delaware courts as to the legal principles applicable
to actions that may be taken by a corporation and as to the conduct of the Board
of Directors that is permissible under the business judgment rule. The Company
believes that its shareholders will benefit from the well-established principles
of corporate governance that Delaware law affords.
Increased Ability to Attract and Retain Qualified Directors. Both Colorado and
Delaware law permit a corporation to include a provision in its articles or
certificate of incorporation which reduces or eliminates the monetary liability
of directors for breaches of fiduciary duty in certain circumstances. The
increasing frequency of claims and litigation directed against directors and
officers has greatly expanded the risks facing directors and officers of
corporations in exercising their respective duties. The amount of time and money
required to respond to such claims and to defend such litigation can be
substantial. It is the Company's desire to reduce these risks to its directors
and officers, and to limit situations in which monetary damages can be recovered
against directors so that the Company may continue to attract and retain
qualified directors who otherwise might be unwilling to serve because of the
risks involved. The Company believes that Delaware case law regarding a
corporation's ability to limit director liability is more developed and provides
more guidance than Colorado law.
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19
NO CHANGE IN THE NAME, BOARD MEMBERS, BUSINESS, MANAGEMENT, STOCK OPTION
PLAN OR PHYSICAL LOCATION OF THE COMPANY
The Reincorporation will effect only a change in the legal domicile of the
Company and certain other changes of a legal nature, certain of which changes
are described in this Proxy Statement. The Reincorporation will not result in
any change in the name, business, management, fiscal year, assets or liabilities
(except to the extent of legal and other costs of effecting the
Reincorporation), or location of the principal facilities of the Company. The
Amended Stock Option Plan, if aproved, will be continued by FutureLink Delaware,
and each option to purchase FutureLink Colorado common stock issued pursuant to
such plans will automatically be converted into an option or right to purchase
the appropriate number of shares of FutureLink Delaware common stock, upon the
same terms, and subject to the same conditions as set forth in such plan.
FutureLink Colorado's other employee benefit arrangements will also be continued
by FutureLink Delaware upon the terms and subject to the conditions currently in
effect.
ANTITAKEOVER IMPLICATIONS
Delaware, like many other states, permits a corporation to adopt a number of
measures, through amendment of its certificate of incorporation or bylaws or
otherwise, which are designed to reduce a corporation's vulnerability to
unsolicited takeover attempts. While the Reincorporation is not being proposed
primarily to prevent an unsolicited takeover attempt, nor is it in response to
any present attempt known to the Board of Directors to acquire control of the
Company, obtain representation on the Board of Directors or take significant
action that affects the Company, certain effects of the Reincorporation may be
considered to have antitakeover implications. Section 203 of the General
Corporation Law of Delaware ("Section 203"), from which FutureLink Delaware does
not intend to opt out, restricts certain "business combinations" with
"interested stockholders" for three years following the date that a person or
entity becomes an interested stockholder, unless the Board of Directors approves
the business combination and/or other requirements are met. See "Comparison of
the Corporation Laws of Colorado and Delaware and of the Charter Documents of
FutureLink Colorado and FutureLink DelawareBStockholder Approval of Certain
Business Combinations." For example, the FutureLink Delaware Bylaws will
continue to deny cumulative voting and will eliminate the right of stockholders
controlling 10% or more of the voting shares to call a special meeting. The
continued denial of cumulative voting could be viewed as having an antitakeover
effect in that it can make it more difficult for a minority stockholder to gain
a seat on the Board. The elimination of the right of holders controlling ten
percent (10%) or more of the voting shares to call a special meeting of
stockholders, which is mandatory under Colorado law, could be viewed as a way to
limit the ability of a significant stockholder to obtain approval by the other
stockholders in a takeover situation. In addition, both Colorado and Delaware
law permit the establishment of a staggered Board of Directors, which FutureLink
Delaware will implement. For a detailed discussion of many of the differences
between the laws of Colorado and Delaware and of the changes that will be
implemented as part of the Reincorporation, see "Comparison of the Corporation
Laws of Colorado and Delaware and of the Charter Documents of FutureLink
Colorado and FutureLink Delaware." Both Colorado and Delaware law also permit a
corporation to adopt measures such as stockholder rights plans (sometimes called
poison pills). There is substantial judicial precedent in the Delaware courts as
to the legal principles applicable to such defensive measures and as to the
conduct of a Board of Directors under the business judgment rule with respect to
unsolicited takeover attempts.
The Board of Directors has no present intention following the Reincorporation to
adopt a stockholder rights plan (which would not require stockholder approval)
or amend the Certificate of Incorporation or Bylaws (which might require
stockholder approval) to include provisions which might deter an unsolicited
takeover attempt. However, in the discharge of its fiduciary obligations to its
shareholders, the Board of Directors of the Company will continue to evaluate
the Company's vulnerability to potential unsolicited bids to acquire the
<PAGE> 28
20
Company on unfavorable terms and to consider strategies to enhance the
Board's ability to negotiate with an unsolicited bidder.
POSSIBLE DISADVANTAGES
Despite the unanimous belief of the Board of Directors that the Reincorporation
is in the best interests of FutureLink Colorado and its shareholders, such
proposal may be disadvantageous to the extent that (i) certain antitakeover
measures available under Delaware law can be adopted by the Board of Directors
acting without stockholder approval, and (ii) the Reincorporation could have the
effect of discouraging a future takeover attempt which is not approved by the
Board of Directors, but which a majority of the stockholders may consider to be
in their best interests, or in which stockholders may receive a substantial
premium for their shares over the then current market value or over their cost
basis in such shares. For example, stockholders who might wish to participate in
a tender offer opposed by the Board of Directors may not have an opportunity to
do so. As a result, to the extent that such provisions enable the Board of
Directors to resist a takeover or a change in control of the Company, they may
strengthen the tenure and authority of the Board of Directors and enable the
Board of Directors to thwart the desires of a majority of the stockholders.
For a comparison of shareholders' rights and the powers of management under
Delaware and Colorado law, see "Comparison of the Corporation Laws of Colorado
and Delaware and of the Charter Documents of FutureLink Colorado and FutureLink
Delaware" below.
The Reincorporation will also result in the Company incurring additional taxes
in Delaware. See "Delaware Franchise Tax".
The Board of Directors has considered these potential disadvantages and has
concluded that the potential benefits of the Reincorporation outweigh the
possible disadvantages for the Company and its shareholders.
COMPARISON OF THE CORPORATION LAWS OF COLORADO AND DELAWARE AND OF THE CHARTER
DOCUMENTS OF FUTURELINK COLORADO AND FUTURELINK DELAWARE
In general, the Company's corporate affairs are governed at present by the
corporate law of Colorado, the Company's state of incorporation, and by the
Articles of Incorporation of FutureLink Colorado (the "Colorado Articles") and
the Bylaws of FutureLink Colorado (the "Colorado Bylaws"), which have been
adopted pursuant to Colorado law. The Colorado Articles and Colorado Bylaws are
available for inspection during business hours at the principal executive
offices of the Company. In addition, copies may be obtained by writing to the
Company at its principal office, suite 300, 250-6th Avenue S.W.,, Calgary,
Alberta CANADA T2P 3H7.
If the Reincorporation Resolution is adopted, FutureLink Colorado will merge
into, and its business will be continued by, FutureLink Delaware. Following the
Reincorporation, issues of corporate governance and control will be controlled
by Delaware law rather than Colorado law. The Colorado Articles and Colorado
Bylaws will, in effect, be replaced by the Delaware Certificate and the Delaware
Bylaws, copies of which are attached as Exhibit 1 and 2 to Schedule "A" to this
Proxy Statement. Accordingly, the differences among these documents between
Delaware and Colorado law are relevant to your decision whether to approve the
proposal.
The corporate laws of Colorado and Delaware and the provisions of the Colorado
and Delaware charter documents differ in many respects. Although it is not
practical to summarize all of such differences in this Proxy Statement, the
principal differences which could materially affect the rights of shareholders
are discussed
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21
below. Shareholders are requested to read the following discussion in
conjunction with the Reincorporation Agreement, the Delaware Certificate and the
Delaware Bylaws attached to this Proxy Statement.
Size of Board of Directors. Colorado law requires that the number of persons
constituting the corporation's Board of Directors, whether a specific number or
a range of size, be fixed by or in accordance with the Bylaws. Colorado law
permits either the Board of Directors or the shareholders to amend the provision
in the Bylaws that establishes the number of directors, although a bylaw adopted
by the shareholders fixing the size of the board might prohibit further
amendment by the directors. Presently, the Board of Directors consists of seven
(7) members and that number could be changed by the directors.
Delaware law permits the fixing of the number of directors in the certificate of
incorporation, in which case the number of directors may be changed only by the
manner specified in the certificate of incorporation or by amendment of the
certificate of incorporation, which would require approval of both the
stockholders and the Board. The Delaware Certificate provides (i) that the
number of directors shall be designated in the Delaware Bylaws, and (ii) that
the Board of Directors acting alone is authorized to amend the Delaware Bylaws
fixing the number of directors. The Delaware Bylaws currently provide that the
number of directors shall be between three (3) and nine (9).
Cumulative Voting for Directors. Under Colorado law, there is no cumulative
voting in the election of directors unless it is so specified in the Articles of
Incorporation. Similarly, cumulative voting is not available under Delaware law
unless provided in the corporation's certificate of incorporation, and, like the
FutureLink Colorado's Articles of Incorporation, the Delaware Certificate does
not provide for cumulative voting.
The continued denial of cumulative voting in the Delaware Certificate will make
it more difficult for minority stockholder or stockholders to obtain
representation on the Board of Directors without the concurrence of holders of a
majority of the shares. In addition, while the proposal is not intended as an
antitakeover device, the denial of cumulative voting may also have certain
antitakeover effects.
Under Delaware law, in the case of a corporation having cumulative voting, if
less than the entire Board of Directors is to be removed, no director may be
removed without cause if the votes cast against such director's removal would be
sufficient to elect such director if then cumulatively voted at an election of
the entire board. The continued denial of cumulative voting set forth in this
proposal will make it more difficult for minority stockholders to prevent the
removal of a director without cause and may make the Company more vulnerable to
takeover attempts in that respect.
Removal of Directors. Under Colorado law, shareholders may remove directors
without cause if corporation's Articles of Incorporation do not provide
otherwise and if the number of votes cast in favor of removal exceeds the number
of votes cast against removal. The Colorado Articles allow such removal without
cause because they do not provide otherwise. In addition, the Colorado Bylaws
specifically provide that the Company's directors may be removed without cause
by the shareholders. A director may be removed only if the votes cast in favor
of removal exceed the votes cast against.
Under Delaware law, stockholders may not remove directors on a classified Board
of Directors without cause unless the corporation's Certificate of Incorporation
provides for removal without cause. The Delaware Certificate and Bylaws do not
provide that directors may be removed by the stockholders without cause. The
term "cause" with respect to the removal of directors is not defined in the
General Corporation Law of Delaware, and its meaning has not been precisely
delineated by the Delaware courts.
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Filling Vacancies on the Board of Directors. Under Colorado law, any vacancy on
the board of directors, including a vacancy resulting from an increase in the
number of directors and a vacancy resulting from a removal of a director with or
without cause, may be filled by the shareholders or the board of directors. If
the number of directors remaining in office constitute fewer than a quorum of
the board, the remaining board members may fill the vacancy by the affirmative
vote of a majority of all the directors remaining in office. Under the Colorado
Bylaws, any vacancy on the board of directors, including an increase in the
number of directors and vacancies occurring in the board for any reason other
than removal of a director without cause may be filled by a vote of a majority
of the directors then in office, even if less than a quorum exists. Vacancies
occurring by reason of the removal of a directors without cause shall be filled
by a vote of the stockholders.
Under Delaware law, vacancies and newly created directorships may be filled by a
majority of the directors then in office (even though less than a quorum) unless
otherwise provided in the certificate of incorporation or bylaws (and unless the
certificate of incorporation directs that a particular class is to elect such
director, in which case any other directors elected by such class, or a sole
remaining director, shall fill such vacancy). Like the Colorado Bylaws, the
Delaware Bylaws provide that any vacancy created by the removal of a director by
the stockholders of FutureLink Delaware or by court order may be filled only by
the stockholders. Following the Reincorporation, the Board of Directors could,
although it has no current intention to do so, amend the Delaware Bylaws to
provide that directors may fill any vacancy created by removal of directors by
the stockholders.
Shareholder Power to Call Special Meeting of Shareholders. Under Colorado law, a
special meeting of shareholders may be called by the Board of Directors, persons
authorized by the Bylaws or the Board of Directors, or holders of at least 10%
of all shares entitled to be cast at such a meeting. Under Delaware law, a
special meeting of stockholders may be called by the Board of Directors or by
any other person authorized to do so in the Certificate of Incorporation or the
Bylaws. The Delaware Certificate provides that such a meeting may be called only
by the Board, the Chairman of the Board, or the President. Eliminating the
ability of stockholders holding 10% of the voting power of all stockholders to
call a special meeting may lengthen the amount of time required to take
stockholder actions because the Company and the Board of Directors are only
required to hold one meeting of stockholders per year. Such elimination of a
stockholder power to call special meetings is a limitation on stockholder rights
but may deter hostile takeover attempts because, without the ability to call a
special meeting, a holder or group of holders controlling a majority in interest
of the corporation's capital stock will not be able to amend the Bylaws or
remove directors until the annual meeting of stockholders is held.
Right to Inspect Corporate Records. The right to inspect corporate records is
more limited by Colorado law than by Delaware law.
Under Delaware law, any stockholder has the right to inspect for "any proper
purpose" the corporation's stock ledger, list of stockholders and other books
and records. A "proper purpose" means a purpose reasonably related to such
person's interest as a stockholder. If the stockholder has complied with the
notice requirement, the burden of proof is on the corporation to establish that
the inspection is for an "improper purpose."
Under Colorado law, a shareholder is entitled to inspect, upon five days notice,
the following:
(a) Articles of Incorporation;
(b) Bylaws;
(c) Minutes of shareholder's meeting for the past three years;
(d) Written communications within the past three years to
shareholders;
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23
(e) Names and business addresses of current directors and
officers;
(f) Most recent corporate report; and
(g) Annual and published financial statements for the past three
years.
In addition to the above, the shareholder is entitled to inspect excerpts from
board, shareholders and committee minutes, accounting records and the
shareholder list. The right is limited to a shareholder who has been a
shareholder for at least three months preceding the demand or holds at least 5%
of all the outstanding shares of any class of shares and if the demand is made
in good faith and for a proper purpose, and the records are directly connected
with the described purpose.
Stockholder approval of Certain Business Combinations. In recent years, a number
of states have adopted special laws designed to make certain kinds of
"unfriendly" corporate takeovers, or other transactions involving a corporation
and one or more of its significant stockholders, more difficult. Under Section
203 of the General Corporation law of Delaware ("Section 203"), certain
"business combinations" of a Delaware corporation with "any interested
stockholder" are subject to a three-year moratorium unless specified conditions
are met. Colorado has no comparable statute.
Section 203 prohibits a Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for three years following the date
that such person or entity becomes an interested stockholder. With certain
exceptions, an interested stockholder is a person or entity who or which owns,
individually or with or through any rights to acquire stock pursuant to an
option, warrant, agreement, arrangement or understanding, or upon the exercise
of conversion or exchange rights, and stock with respect to which the person has
voting rights only), or is an affiliate or associate of the corporation and was
the owner, individually or with or through certain other persons or entities, of
fifteen percent (15%) or more of such voting stock at any time within the
previous three years, or is an affiliate or associate of any of the foregoing.
For purposes of Section 203, the term "business combination" is defined broadly
to include mergers with or caused by the interested stockholder, sales or other
dispositions to the interested stockholder (except proportionately with the
corporation's other stockholders) of assets of the corporation or a direct or
indirect majority-owned subsidiary equal in aggregate market value equal to ten
percent (10%) or more of the aggregate market value of either the corporation's
consolidated assets or all of its outstanding stock; the issuance or transfer by
the corporation or a direct or indirect majority-owned subsidiary of stock of
the corporation or such subsidiary to the interested stockholder (except for
certain transfers in a conversion or exchange or a pro rata distribution or
certain other transactions, none of which increase the interested stockholder's
proportionate ownership of any class or series of the corporation's or such
subsidiary's stock or of the corporation's voting stock); any transaction
involving the corporation or any direct or indirect majority owned subsidiary of
the corporation which has the effect, directly or indirectly, of increasing the
proportionate share of the stock of any class or series, or securities
convertible to such stock, of the corporation or the majority-owned subsidiary
which is owned by the interested stockholder (except as a result of immaterial
changes due to fractional share adjustments or as a result of purchases or
redemptions not caused, directly or indirectly, by the interested stockholder);
or receipt by the interested stockholder (except proportionately as a
stockholder), directly or indirectly, of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation or a
subsidiary.
Section 203 only applies to certain publicly held corporations that have a
voting stock that is (i) listed on a national securities exchange, (ii)
authorized for quotation on the Nasdaq National Market or (iii) held of record
by more than 2,000 stockholders. If the Company were to reincorporate as of the
Record Date, FutureLink Delaware would not be subject to Section 203.
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Loans to Officers, Directors and Employees. Colorado law provides that a
corporation may not authorize any loan or guaranty for the benefit of any
director until at least 10 days after providing written notice of the proposed
authorization to shareholders who would be entitled to vote if the issue of the
loan or guaranty were submitted to a vote of the shareholders.
Under Delaware law, a corporation may make loans to, or guarantee the
obligations of, officers or other employees when in the judgment of the board of
directors, the loan or guaranty may reasonably be expected to benefit the
corporation. Both Colorado law and Delaware law permit such loans or guaranties
to be unsecured and without interest.
Dissenter/Appraisal Rights. Under both Colorado and Delaware law, a shareholder
of a corporation participating in certain major corporate transactions may,
under varying circumstances, be entitled to dissent from the transaction and
exercise rights to receive cash in the amount of the fair market value of his or
her shares in lieu of the consideration he or she otherwise would receive in the
transaction.
Shareholders of a Colorado corporation are entitled to dissenters' rights in the
event of most mergers or share exchanges and the consummation of a sale, lease,
exchange or other disposition of all, or substantially all, of the property of
the corporation other than in the usual and regular course of its business. In
connection with the Reincorporation, shareholders of FutureLink Colorado are
entitled to exercise dissenters' rights. Strict compliance with the procedures
for exercise of dissenters' rights must follow closely the procedures described
in the summary of dissenters' rights in "FutureLink Colorado Dissenters'
Rights."
Under Delaware law, the rights described are referred to as "appraisal rights."
Appraisal rights are not available (i) with respect to the sale, lease or
exchange of all or substantially all of the assets of a corporation, (ii) with
respect to a Amalgamation or consolidation by a corporation the shares of which
are either listed on a national securities exchange or are held of record by
more than 2,000 holders if such stockholders receive only shares of the
surviving corporation or shares of any other corporation which are either listed
on a national securities exchange or held of record by more than 2,000 holders,
plus cash in lieu of fractional shares, or (iii) to stockholders of a
corporation surviving a Amalgamation if no vote of the stockholders of the
surviving corporation is required to approve the Amalgamation because the
Amalgamation Agreement does not amend the existing certificate of incorporation,
each share of the surviving corporation outstanding prior to the Amalgamation is
an identical outstanding or treasury share after the merger, and the number of
shares to be issued in the Amalgamation does not exceed 20% of the shares of the
surviving corporation outstanding immediately prior to the Amalgamation and if
certain other conditions are met. Under Delaware law, the Court of Chancery will
determine the fair value of shares exercising appraisal rights.
Amendment of Bylaws. The Delaware Bylaws may be amended or repealed either by
the Board of Directors or by the holders of a majority of the outstanding stock
of the Company. Under Colorado law the bylaws may be amended by the shareholders
by a majority vote at a meeting at which a quorum is present, unless otherwise
provided.
Dissolution. Under Colorado law, dissolution must be authorized by the board of
directors and recommended to the shareholders for approval. Unless a greater
vote is required, shareholder approval requires a majority of the votes entitled
to be cast on the proposal, voting by classes. Under Delaware law, unless the
board of directors approves the proposal to dissolve, the dissolution must be
approved by stockholders holding 100% of the total voting power of the
corporation. Only if the dissolution is initiated by the board of directors may
it be approved by a simple majority of the corporation's stockholders. In the
event of such a board-initiated dissolution, Delaware law allows a Delaware
corporation to include in its certificate of incorporation a supermajority
voting requirement in connection with dissolutions. However, FutureLink
Delaware's Certificate
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of Incorporation contains no such supermajority voting requirement, and a
majority of shares voting at a meeting at which a quorum is present would be
sufficient to approve a dissolution of FutureLink Delaware which had previously
been approved by its Board of Directors.
FEDERAL INCOME TAX CONSEQUENCES
The discussion under this heading summarizes certain anticipated federal income
tax consequences of the Reincorporation applicable to holders of FutureLink
Colorado common stock. The following discussion is only a general description of
certain anticipated federal income tax consequences to such holders, and does
not deal with all federal income tax considerations that may be relevant to
specific FutureLink Colorado shareholders in light of their particular
circumstances, such as shareholders that are dealers in securities, exempt
organizations, foreign persons, or shareholders that acquired their shares in
connection with an employee stock option or other compensatory transaction.
Furthermore, no foreign, state, or local tax considerations are addressed
herein. Accordingly, in view of the varying nature of such tax consequences, ALL
FUTURELINK COLORADO COMMON STOCK SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE REINCORPORATION, INCLUDING
THE APPLICABILITY OF FEDERAL, STATE, LOCAL OR FOREIGN TAX LAWS.
The Company has not and does not intend to request a ruling from the Internal
Revenue Service (the "IRS") regarding any anticipated federal income tax
consequences of the Reincorporation. However, FutureLink Colorado will receive
an opinion from its legal counsel to the effect that the Reincorporation will
qualify as a "reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended ("Code"). This opinion (the "Tax
Opinion") is not a condition to consummation of the Reincorporation. The Tax
Opinion will not bind the IRS and thus there can be no assurance, and none is
given, that the IRS will not take a position contrary to one or more positions
reflected in this discussion or in the Tax Opinion, or that the Tax Opinion will
be upheld by the courts if challenged by the IRS. In addition, the Tax Opinion
will be subject to certain assumptions and qualifications and will be based on
the truth and accuracy of representations made by FutureLink Delaware,
FutureLink Colorado, and certain shareholders of FutureLink Colorado. The Tax
Opinion will be based on the Code, Treasury regulations now in effect, current
administrative rulings and practice and judicial authority, all of which are
subject to change, possibly with retroactive effect.
Subject to the limitations, qualifications, and exceptions described in this
discussion, and assuming the Reincorporation qualifies as a reorganization
within the meaning of Section 368(a) of the Code, the following federal income
tax consequences generally should result to holders of FutureLink Colorado
common stock who receive FutureLink Delaware common stock pursuant to the
Reincorporation.
(a) No gain or loss should be recognized by a FutureLink Colorado
shareholder that exchanges all of such shareholder's
FutureLink Colorado common stock solely for FutureLink
Delaware common stock in the Reincorporation;
(b) The aggregate tax basis of the FutureLink Delaware common
stock received by a shareholder who exchanges all of his
FutureLink Colorado common stock solely for FutureLink
Delaware common stock pursuant to the Reincorporation will be
the same as the aggregate tax basis of the FutureLink Colorado
common stock surrendered in exchange therefor; and
(c) The holding period of the FutureLink Delaware common stock
received in the Reincorporation solely in exchange for
FutureLink Colorado common stock should include the period
during which such FutureLink Colorado common stock was held
provided that such FutureLink Colorado common stock was held
as a capital asset in the hands of the exchanging shareholder
at the time of the Reincorporation.
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26
A successful IRS challenge to the status of the Reincorporation as a
reorganization would result in a FutureLink Colorado shareholder recognizing
gain or loss with respect to each share of FutureLink Colorado common stock
exchanged in the Reincorporation, in an amount equal to the difference between
the shareholder's basis in such share and the fair market value of the
FutureLink Delaware common stock received in exchange therefor. If such gain is
recognized, a shareholder's aggregate basis in the FutureLink Delaware common
stock so received would equal the stock's fair market value at the time of the
Reincorporation and the shareholder's holding period for such stock would begin
the day after the Reincorporation.
DELAWARE FRANCHISE TAX
If the Company reincorporates in Delaware then, in addition to the Colorado
franchise tax to which the Company is currently subject, the Company will also
be subject to the Delaware franchise tax. The Delaware franchise tax is, in
general, calculated based on the amount of a corporation's gross assets (on an
unconsolidated basis), and number of authorized and issued shares of stock of a
corporation. Based on the Company's gross assets, its authorized shares under
the Certificate of Incorporation of FutureLink Delaware, and its issued shares
as of the Record Date, the Company's annual franchise tax in Delaware for the
first year will be $76.00. The amount of the franchise tax must be computed each
year.
HOLDING PERIOD FOR PURPOSES OF RULE 144
For purposes of Rule 144 (which governs public resales of Company securities by
affiliates of the Company and certain resales of restricted securities) under
the Securities Act of 1933, as amended (the "Securities Act"), the holders of
FutureLink Delaware shares will be able to "tack" (i.e., add together) the
holding period of their FutureLink Colorado shares to the holding period of
their FutureLink Delaware shares. This means that, for purposes of Rule 144, a
stockholder will be deemed to have held such person's shares of FutureLink
Delaware at least since the date on which such stockholder acquired and paid for
the FutureLink Colorado shares that were converted into FutureLink Delaware
shares as part of the Reincorporation. The holding period of the FutureLink
Delaware common stock received in the Reincorporation solely in exchange for
FutureLink Colorado common stock should include the period during which such
FutureLink Colorado common stock was held provided that such FutureLink Colorado
common stock was held as a capital asset in the hands of the exchanging
shareholder at the time of the Reincorporation.
A successful IRS challenge to the status of the Reincorporation as a
reorganization would result in a FutureLink Colorado shareholder recognizing
gain or loss with respect to each share of FutureLink Colorado common stock
exchanged in the Reincorporation, in an amount equal to the difference between
the shareholder's basis in such share and the fair market value of the
FutureLink Delaware common stock received in exchange therefor. If such gain is
recognized, a shareholder's aggregate basis in the FutureLink Delaware common
stock so received would equal the stock's fair market value at the time of the
Reincorporation and the shareholder's holding period for such stock would begin
the day after the Reincorporation.
PART IV - FURTHER MATTERS TO BE ACTED ON
APPROVAL OF AMENDMENT TO STOCK OPTION PLAN AND GRANT OF OPTIONS
FutureLink=s Stock Option Plan adopted 1998 provides for the granting of either
incentive stock options or non-qualified stock options to officers, other key
employees and directors of the Company. The Stock Option Plan is to be
administered by the Board=s "outside directors" and the Stock Option Plan is
administered by the Compensation Committee of the Board of Directors.
<PAGE> 35
27
Stock Options granted under the Stock Option Plan can have a term of up to ten
years and must have an exercise price equal to at least the fair market value of
the stock subject to the option on the date of the grant (or 110% with respect
to holders of more than 10% of the voting power of FutureLink=s outstanding
shares of Common Shares with a five year maximum term). Stock options granted
under the Stock Option Plan are non-transferable and generally expire ninety
days after the termination of an optionee=s service to the Company (one year in
the case of disability or death of the optionee). Upon the dissolution or
liquidation of FutureLink or upon any reorganization, merger or consolidation in
which the Company does not survive, the Stock Option Plan, and each outstanding
stock option granted thereunder may terminate, provided that each optionee to
whom no substitute option has been tendered by the surviving corporation in any
such transaction shall have the right to exercise, in whole or in part, any
unexpired stock option or options issued to him or her, without regard to any
applicable vesting provisions.
The Stock Option Plan, which became effective June 29, 1998, originally placed a
fixed maximum of 3,400,000 shares (now 680,000 Common Shares) which could be
issued pursuant to the exercise of Options granted under the Stock Option Plan.
At the Annual Meeting held November 30, 1998, Shareholders approved an amendment
to the Stock Option Plan setting a floating maximum of 30% of the total issued
and outstanding shares of Common Shares which may be issued pursuant to the
exercise of Options granted under the (amended) Stock Option Plan. The number of
Common Shares issuable on the exercise of stock options granted to December 31,
1998 by the Company, being 832,500 shares, is well within this 30% maximum. Of
those outstanding stock options at December 31, 586,000 shares of Common Shares
are issuable at an exercise price of $3.80 per share, 800,000 shares at an
exercise price of $5.85 per share and 432,500 shares at $2.25 per share.
The number of Common Shares allocated to the Stock Option Plan was determined by
the Board of Directors from time to time. The aggregate number of shares
reserved for issuance under the current Stock Option Plan could not exceed 30
percent of the Company=s issued and outstanding Common Shares.
The Common Shares, when fully paid for by a participant, are not included in the
calculation of Common Shares allocated to or within the Stock Option Plan.
Should a participant cease to be eligible due to the loss of corporate office
(being that of an officer or director) or employment, the Option shall cease for
varying periods not exceeding three months. The Stock Option Plan also provides
that disabled participants or the estates of deceased participants can exercise
their options for a period not exceeding one year following the end of their
service due to disability or death.
The Board of Directors or a committee thereof delegated with such authority may
from time to time make rules, regulations and amendments to the Stock Option
Plan. Should any rule, regulation or amendment materially differ from the
provisions set out in the Amended Stock Option Plan attached to this Proxy
Statement, the Company shall obtain the necessary regulatory or shareholder
approvals.
The table below describes the number of Options to acquire Common Shares granted
since June, 1998 to the directors, officers and employees of the Company under
the Stock Option Plan, the number of the Company=s Common Shares reserved under
unexercised Options as of the date of this Proxy Statement, the exercise price
of the Options, and the expiration date of the Options:
OPTION PLAN SUMMARY
<TABLE>
<CAPTION>
PLAN PARTICIPANT NO. OF OPTIONS EXERCISE PRICE(S) PER SHARE % OF TOTAL OPTIONS
- - ---------------- -------------- --------------------------- ------------------
<S> <C> <C> <C>
TOP 5 EXECUTIVE OFFICERS:
Cameron Chell, CEO 800,000 $3.15 to $3.80 19.4%
</TABLE>
<PAGE> 36
28
OPTION PLAN SUMMARY
<TABLE>
<CAPTION>
PLAN PARTICIPANT NO. OF OPTIONS EXERCISE PRICE(S) PER SHARE % OF TOTAL OPTIONS
- - ---------------- -------------- --------------------------- ------------------
<S> <C> <C> <C>
Philip Ladouceur, Exec Chmn 800,000 $3.15 to $3.80 19.4%
Raghu Kilambi, CFO 600,000 $3.15 to $3.80 14.5%
Bill Arnett, COO 70,000 $1.40 to $5.85 1.7%
Vincent Romano, Exec-VP 250,000 $6.08 6.1%
All Executive Officers as a 2,710,000 $1.40 to $6.08 65.6%
Group
All Directors not Executive 400,000 $3.15 to $5.00 9.7%
Officers (4 total)
All Other Employees (including 519,700 $1.40 to $5.85 12.6%
Officers not Executive
Officers)
Senior Officers of Micro 500,000 $5.00 12.1%
Visions (whose options are
contingent on closing of the
Acquisition)(1)
TOTAL OPTIONS: 4,129,700 $1.40 to $6.08 100%
-------------- --------------------------- ------------------
</TABLE>
NOTE:
(1) Under the terms of the Acquisition Agreement and employment contracts
for key micro Visions personnel to be entered into thereunder, the
Company reserved for issuance a certain number of Common Shares for
underlying Options granted but conditional upon closing the
Acquisition.
Until May 6, 1999, all Options granted under the Stock Option Plan, as amended
December 1, 1998 following ratification of amendments to the plan by the
Shareholders, had been granted in accordance with the maximum limits (30% of
issued and outstanding Common Shares) under the Stock Option Plan. On that date,
the Compensation Committee of the Board of Directors, which administrates the
Stock Option Plan under the authority of the Board of Directors, authorized
grants of Options in excess of the parameters of the Stock Option Plan. The
Compensation Committee took this step, understanding that Options granted in
excess of the limits in the Stock Option Plan would be subject to Shareholder
ratification.
The Committee was prompted to issue additional Options to attract or retain key
employees, but hampered by the static number of issued and outstanding Common
Shares upon which the current Stock Option Plan is based. While the Company
issued securities in various private placements to raise capital, these
securities have consisted of convertible debt with warrants. Given the
conversion terms of such securities, it is anticipated that virtually all such
convertible debt instruments or warrants will convert or be exercised for Common
Shares, but as of May 6, 1999 (and August 1, 1999) these share acquisition
rights remain unconverted or unexercised thereby restricting the number of
Options the Board of Directors could grant under the Stock Option Plan..
All together, 2,595,000 Options in excess of the current Stock Option Plan were
granted subject to Shareholder ratification and Shareholder approval of the
Amended Stock Option Plan. Management of the Company believes it is in the best
interests of the Company, both short and long term, to approve and ratify the
Amended Stock Option Plan and these Option grants. If Shareholders do not
approve the Amended Stock Option Plan, the Company would face some short term
difficulties, including problems associated with the re-issuance of
<PAGE> 37
29
Options in accordance with the current Stock Option Plan, which could be
effected given the expected additional Common Shares to be issued in the
Acquisition and the likely conversion of outstanding share acquisition rights in
the near future. Failure to approve the Amended Stock Option Plan , would also
be an inconvenience to the Company in restricting the pool of Options
immediately available to ensure the retention of key Micro Visions employees
following the Acquisition.
Upon closing of the Acquisition, if approved, the Company (or Amalco) would have
12,441,913 shares outstanding. The current Stock Option Plan would allow 30% of
such number of shares for Options to be issued, with no provision for share
acquisition right conversions. Long term, by adopting the Amended Stock Option
Plan with a maximum 20% of full diluted Common Shares (exclusive of Options), as
convertible debt and warrants convert and share acquisition rights diminish as a
proportion of the Company's capital structure, the number of Options issuable
should be lower long term.
Management believes that in order to effectively entice highly qualified and
talented officers, directors and employees to remain with and/or join the
Company, it is necessary to amend the Stock Option Plan in a manner that will
increase the number of Options available for grant. Specifically, management
believes that the Common Shares available for grant pursuant to the Stock Option
Plan should be increased (effectively, in the short term) to an amount of up to
twenty percent of the Company's issued and outstanding share capital on a
fully-diluted basis (not including Common Shares reserved for exercise of
Options) as calculated on the date of each grant.
Whether or not the Stock Option Plan is amended as recommended to Shareholders,
upon completion of the Acquisition and Reincorporation these existing options
shall become options to acquire Amalco Shares on identical terms, including
expiry date. The Company or Amalco intends to grant further Options to officers,
directors, employees of and consultants to the Company or Amalco following the
Acquisition to maximize retention of Micro Visions staff.
Shareholders will be asked to consider and approve a resolution to approve the
Amended Stock Option Plan and approve the grant of Options to certain Officers,
Directors and Employees made by the Company which exceed the limits set forth in
the Stock Option Plan but comply with the Amended Stock Option Plan. To be
adopted, this ordinary resolution requires approval of the holders of Common
Shares representing a majority of the votes cast at the Meeting. The form of
resolution is set out in Schedule "D".
In the absence of contrary directions, the management designees named in the
accompanying form of proxy intend to vote such proxies in favour of approving
the Amended Stock Option Plan and the Options granted in excess of the current
Stock Option Plan on and after May 6, 1999.
TERMS OF THE AMENDED STOCK OPTION PLAN
Types of Options. Includes two types of options: options intended to qualify as
Incentive Stock Options under Section 422 of the Internal Revenue Code of 1986,
as amended from time to time (the "Code") and Non-qualified Stock Options as not
specifically authorized or qualified for favorable income tax treatment by the
Code.
Administration. The Amended Stock Option Plan is administered by the Board of
Directors, or in the discretion of the Board, by a Committee ("Committee")
consisting of two or more directors of the Company where each such director is a
"non-employee director" (within the meaning of amended Rule 16b-3 under the
Securities Exchange Act of 1934). The Amended Stock Option Plan administrator
shall have exclusive authority to determine employees to whom options will be
granted, the timing and manner of the grant of options, the exercise price, the
number of shares covered by and all of the terms of options, the duration and
purpose of leaves of absence which may be granted to optionees without
constituting termination of employment for
<PAGE> 38
30
purposes of the Amended Stock Option Plan and all other determinations
necessary or advisable for administration of the Amended Stock Option Plan.
Members of the Committee are appointed by and serve at the pleasure of the Board
and may be removed by the Board at its discretion.
Eligibility. Any employee, director of or consultant to the Company or any of
its subsidiaries who does not own stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or any of its
parent or subsidiary corporations is eligible to receive an option under the
Amended Stock Option Plan.
Shares Subject to the Amended Stock Option Plan. The aggregate number of shares
of Common Stock of the Company which may be issued pursuant to exercise of
options granted under the Amended Stock Option Plan, including shares which have
previously been issued, shall not exceed twenty percent (20%) of the Common
Shares issued or reserved for issuance on conversion of other securities of the
Company (the fully diluted Common Shares), not including any Common Shares
reserved for the exercise of Options. The maximum number of Common Shares with
respect to which option may be granted to an employee in any one calendar year
is 500,000 shares.
Option Price. The purchase price for the shares subject to any Option shall be
determined by the Plan Administrator at the time of grant, but shall not be less
than par value per share. Anything to the contrary notwithstanding, the purchase
price for the shares subject to any Incentive Stock Option shall not be less
than 100% of the Fair Market Value of the shares of Common Stock of the Company
on the date the Stock Option is granted (as such term is defined in the Amended
Stock Option Plan). In the case of an Incentive Stock Option granted to an
employee who owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or any of its parent or subsidiary
corporations, the Option price shall not be less than 110% of the fair market
value per share of the Common Stock of the Company on the date the Option is
granted.
Term of Option. No Option shall be exercisable after the expiration of the
earliest of (a) ten years after the date the Option is granted, (b) three months
after the date the Optionee's employment with the Company and its subsidiaries
terminates if such termination is for any reason other than Disability or death,
(c) one year after the date the Optionee's employment with the Company and its
subsidiaries terminates if such termination is a result of death or Disability;
provided, however, that the Option agreement for any Option may provide for
shorter periods in each of the foregoing instances. In the case of an Incentive
Stock Option granted to an employee who owns stock possessing more than 10% of
the total combined voting power of all classes of stock of the Company or any of
its parent or subsidiary corporations, the term set forth in (a), above, shall
not be more than five years after the date the Option is granted.
Exercise of Option. No Option shall be exercisable during the lifetime of an
Optionee by any person other than the Optionee. Subject to the foregoing, the
Plan Administrator shall have the power to set the time or times within which
each Option shall be exercisable and to accelerate the time or times of
exercise. Unless otherwise provided by the Plan Administrator, each Option
granted under the Plan shall become exercisable on a cumulative basis as to
one-third (1/3) of the total number of shares covered thereby at any time after
one year from the date the Option is granted and an additional one-third (1/3)
of such total number of shares at any time after the end of each consecutive
one-year period thereafter until the Option has become exercisable as to all of
such total number of shares. The minimum vesting provision which can be imposed
by the Plan Administrator for any Option granted under the Plan shall be
one-quarter (1/4) of the total number of shares covered thereby at the time of
grant and additional one-quarter (1/4) of such total number of shares at any
time after the end of each consecutive one-year period thereafter until the
Option has become exercisable as to all of such total number of shares. To the
extent that an Optionee has the right to exercise an Option and purchase shares
pursuant thereto, the Option may be exercised from time to time by written
notice to the Company,
<PAGE> 39
31
stating the number of shares being purchased and accompanied by payment in
full of the exercise price for such shares.
Limit on Incentive Options. The aggregate fair market value (determined at the
time the Option is granted) of the stock with respect to which Incentive Options
granted after 1986 are exercisable for the first time by an Optionee during any
calendar year (under all Incentive Option plans of the Company and its
subsidiaries) shall not exceed $100,000. To the extent that the aggregate Fair
Market Value (determined at the time the Option is granted) of the Common Shares
with respect to which Incentive Options are exercisable for the first time by an
Optionee during any calendar year (under all Incentive Option plans of the
Company and any parent or subsidiary corporations) exceeds $100,000, such
Options shall be treated as Non-Qualified Stock Options. The determination of
which Options shall be treated as Non-Qualified Stock Options shall be made by
taking Options into account in the order in which they were granted.
Termination or Amendment of the Amended Stock Option Plan. The Board may at any
time terminate or amend the Stock Option Plan; provided that, without approval
of the holders of a majority of the shares of Common Stock of the Company
represented and voting at a duly held meeting at which a quorum is present
(which shares voting affirmatively also constitute a majority of the required
quorum) or by the written consent of a majority of the outstanding shares of
Common Stock, there shall be, no increase in the total number of shares covered
by the Employee Plan, no change in the class of persons eligible to receive
Options granted under the Amended Stock Option Plan, and no extension of the
term of the Stock Option Plan beyond ten (10) years after the earlier of the
date the Stock Option Plan is adopted or the date the Stock Option Plan is
approved by the Company's shareholders.
Effective Date and Term of Plan. The Stock Option Plan was first effective (the
"Effective Date") June 29, 1998. Unless sooner terminated by the Board in its
sole discretion, the Amended Stock Option Plan will expire on June 28, 2008. The
Stock Option Plan was amended effective December 1, 1998 (which amendment was
approved in advance by Shareholders) and on July 16, 1999, the latter amendment
remaining subject to Shareholder approval and ratification.
RATIFICATION OF REVERSE STOCK SPLIT
FutureLink has authorized capital of 100,000,000 shares of common stock, $0.0001
par value, as well as preferred stock. By May 7, 1999, the Company=s outstanding
share acquisition rights (warrants, options, conversion rights), if exercised,
would have resulted in a fully diluted common stock amount in excess of
150,000,000 shares, exceeding FutureLink=s authorized capital.
On June 1, 1999, the Company effected a 1 for 5 reverse stock split of its
Common Shares. Shareholders had previously voted to authorize the directors to
effect up to a 1 for 30 reverse stock split, to be executed on or before June 1,
1999, at the Annual Meeting held November 30, 1998.
The reverse stock split resulted in the Company having 6,207,784 shares of
common stock issued and outstanding and 30,746,522 shares on a fully diluted
basis as at June 1, 1999, well within the continuing 100,000,000 share
authorized common stock limit.
Management asks that Shareholders to ratify the 1 for 5 reverse stock split of
the Common Shares, which was a significantly lower reverse split than the
maximum 1 for 30 split authorized.
<PAGE> 40
32
PURPOSES AND EFFECTS OF THE REVERSE STOCK SPLITS
Consummation of the reverse stock split did not alter the number of authorized
shares of Common Stock, which remained 100,000,000 Common Shares (no change to
the 5,000,000 authorized shares of Preferred Stock). Proportionate voting rights
and other rights of shareholders were not altered by the reverse stock split and
the par value of the Common Shares remained $0.0001 per share. Consummation of a
reverse stock split will have no material federal tax consequences to
shareholders.
Holders of old Common Stock certificates issued prior to the reverse split are
encourages to forward their old certificates to the Company's Transfer Agent for
surrender and exchange for certificates representing whole shares of New Common
Stock.
ELECTION OF DIRECTORS
The board of directors presently consists of seven (7) directors: Philip R.
Ladouceur, Cameron B. Chell, Raghu Kilambi, F. Bryson Farrill, Robert J.
Kubbernus, Michael S. Falk and Timothy P. Flynn. The By-Laws of the Company
provide that the number of directors shall not be less than three (3). The CBCA
requires the Company to have a minimum of three (3) directors.
If the Shareholders approve the proposed Acquisition described in this Proxy
Statement at the Meeting, it is proposed that nine (9) directors be elected
until the next annual meeting of Amalco Shareholders or until their successors
are elected or appointed. Pursuant to the CBCA and the Company's By-Laws, the
current directors of the Company cease to hold office at the close of the
Meeting. These nine (9) nominees (if the Acquisition is approved) are also the
first directors proposed for Amalco under the Amalgamation Agreement. The nine
(9) nominees to serve as directors include the seven (7) current directors plus
two additional directors, Mr. Glen C. Holmes and --.
Each of the nominees named hereunder has advised management that he will be
willing to serve as a director if elected. Management of the Company proposes to
nominate, as directors, the persons named below. Management of the Company does
not contemplate that any of the nominees will be unable to serve as a director,
but if that should occur for any reason prior to the Meeting, the persons named
in the enclosed form of proxy reserve the right to vote for another nominee at
their discretion. Each nominee elected as a director will, effective on the
closing of the Acquisition, hold office until the next annual general meeting or
until his successor is duly elected, unless he ceases to hold office pursuant to
the CBCA or his office is earlier vacated pursuant to the By-Laws of the
Company.
If the Shareholders do not approve the Acquisition, the Shareholders will
be asked to re-elect the Company's seven (7) current directors, being Philip R.
Ladouceur, Cameron B. Chell, Raghu Kilambi, F. Bryson Farrill, Robert J.
Kubbernus, Michael S. Falk and Timothy P. Flynn.
Unless specified otherwise, the persons named in the enclosed form of proxy will
vote for the election of the nominees proposed for election as Directors if the
Acquisition is approved or the nominees proposed for election as Directors if
the Acquisition is not approved.
The following are the names and municipalities of residence of the current
directors and officers of the Company, their positions and offices with the
Company, their ages and their principal occupations during at least the last
five years.
PHILIP R. LADOUCEUR
Calgary, Alberta CANADA
<PAGE> 41
33
Executive Chairman since June, 1999
Director since August, 1998
Age: 58
Mr. Ladouceur served MetroNet Communications Corp. as a director from
October 1996 until its recent acquisition by AT&T Canada in May, 1999. He also
served as President of MetroNet from October 1996, to October 1997. When Mr.
Ladouceur joined MetroNet, the company was a local Calgary, Alberta, CANADA
telecommunications concern. He has led the company through equity and debt
financings of more than CDN$2,000,000,000 as well as the company's initial
public offering on the NASDAQ and Toronto Stock Exchanges. Mr. Ladouceur guided
MetroNet through its recent acquisition by AT&T Canada, a transaction valued at
approximately CDN$4 billion. Mr. Ladouceur continues as a director of AT&T
Canada and is also on the board of directors of TeleHub, Inc.
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$75,000,000
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 with Rogers, he oversaw the completion of over CDN$3,000,000,000 in public
and private financings.
CAMERON B. CHELL
Calgary, Alberta CANADA
Chief Executive Officer since April, 1998, President since March, 1999
Director since January, 1998
Age: 30
Mr. Chell has served as Chief Executive Officer since April 24, 1998. His
primary responsibility has been to assemble a leading edge professional
technology and business team to implement the business plans of the Company and
each of its subsidiaries. His secondary responsibility is to seek financing for
FutureLink Alberta and FutureLink. Mr. Chell has helped build several technology
companies over the past 10 years. He is a director of JAWS Technologies Inc., an
Internet-based encryption technology company (OTC-BB: symbol JAWZ) and a
director of Esupplies, Inc. (formerly Willson Stationers Ltd.). From 1994 to May
1997, Mr. Chell was employed as a registered representative of a brokerage firm
in Calgary, Alberta, CANADA. Prior to 1994, Mr. Chell was self-employed in
computer sales and other non-related positions.
On November 6, 1998, Cameron Chell entered into a Settlement Agreement with The
Alberta Stock Exchange (the "ASE") to resolve a pending investigation into
alleged breaches by Mr. Chell of ASE rules and by-laws. 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
ASE approval for a five year period, subjected to a CDN$25,000 fine and a three
year period of enhanced supervision. The Company is not entirely certain whether
the Settlement Agreement with the ASE represents "closure" with regard to these
matters.
RAGHU KILAMBI, C.A.
<PAGE> 42
34
Calgary, Alberta CANADA
Vice-President, Corporate Finance and CFO since March, 1998
Director since June, 1998
Age: 34
Mr. Kilambi has served as Vice President of Corporate Finance and Chief
Financial Office of the Company since March 1998, with primary responsibilities
including corporate finance, acquisitions, financial reporting and compliance.
As President of New Economy Capital Inc., Mr. Kilambi 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 of CPC International (now known as Bestfoods) and the Chief
Accountant for a financial services company, Morgan Financial Corporation. Mr.
Kilambi graduated from McGill University with a Bachelor of Commerce in Finance
and Accounting and commenced his career as a Chartered Accountant with the
international accounting firm of Touche Ross & Co. (now Deloitte & Touche). Mr.
Kilambi is also a director of Advanced Vision Systems Corp. (ASE: AVD).
F. BRYSON FARRILL
Fairfield, Connecticut
Director since January, 1998
Age: 71
Until 1989, Mr. Farrill had various positions with Scotia McLeod and McLeod
Young Weir including acting in the capacity as the former Chairman of Scotia
McLeod (USA) Inc. and McLeod Young Weir Ltd. Mr. Farrill brings to FutureLink
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-PTHR), Devine Entertainment Inc. (TSE-BBD), and Home Life Inc.
(OTC-BB-LMF).
ROBERT J. KUBBERNUS
Calgary, Alberta CANADA
Director since January, 1998
Age: 40
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 served as the President of Bankton Financial Corporation,
which specializes in the placement of debt instruments with institutional and
private lenders. Bankton Financial is also involved in corporate restructuring
and planning. In addition, Mr. Kubbernus has served as the President of JAWS
Technologies, Inc. since 1998.
MICHAEL S. FALK
New York, New York
Director since May, 1999
Age: 37
Mr. Falk is the co-founder of Commonwealth Associates, a New York-based merchant
bank and investment bank established in 1988, and remains that firm's Chairman
and CEO. Over the past 15 years, Mr. Falk has led the successful consummation of
more than 60 public and private equity financings raising in excess of $1
billion for early stage and emerging growth companies in the technology,
telecommunications, leisure, healthcare and consumer services fields. More
recently, Mr. Falk has led Commonwealth's transition into the
<PAGE> 43
35
Internet sector and various related businesses. Mr. Falk is a graduate of
the Stanford University Executive Program for Smaller Companies and holds a B.A.
degree with honors in Economics from Queen's College.
TIMOTHY P. FLYNN
Las Vegas, Nevada
Director since May, 1999
Age: 49
From 1992 when it was founded until November, 1997, Mr. Flynn was a director of
ValuJet Airlines, having previously served almost 10 years as a senior executive
and director of WestAir Holdings, Inc., a company which operated WestAir, a
California-based commuter airline affiliated with United Airlines (a United
Express partner). Many are familiar with ValuJet's remarkable growth earlier
this decade, while WestAir expanded to become an airline with 90 aircraft
operating in 28 states with $250,000,000 in annual revenue under Mr. Flynn's
direction. Mr. Flynn is currently a director of MGC Communications Inc. (NASD:
MGCX).
NOTE: ALL OF THE SEVEN (7) CURRENT DIRECTORS LISTED ABOVE HAVE BEEN NOMINATED
FOR RE-ELECTION AT THE MEETING, AND TWO ADDITIONAL NOMINEES HAVE BEEN PLACED ON
THE BALLOT FOR ELECTION SHOULD THE SHAREHOLDERS APPROVE THE MICRO VISIONS, AS
FOLLOWS:
GLEN C. HOLMES
Irvine, California
Director Nominee
Age: 42
Mr. Holmes is the founder of Micro Visions, building that company from humble
beginnings in 1987 into a leading provider of server-based computing solutions
for a wide range of customers, including a number of Fortune 500 companies. Over
the past three years, under Mr. Holmes' direction, Micro Visions has grown from
10 to over 80 employees, with annual revenues more than quadrupling to nearly
$13.7 million for the 12 month period ended December 31, 1998. Micro Visions is
well on track to exceed 1998 annual revenue by a healthy margin.
[Nominee No. 9 to be inserted]
AUDIT COMMITTEE
The Company is required to have an audit committee of the board of directors.
The audit committee is presently comprised of Robert J. Kubbernus as Chairman
and F. Bryson Farrill and Timothy P. Flynn as members. Whether the Acquisition
is or is not approved by the Shareholders, no change is anticipated in the
composition of the audit committee. The Company also has a compensation
committee of the board of directors made up of F. Bryson Farrill as Chairman
with Robert J. Kubbernus and Michael S. Falk as members. Whether the Acquisition
is or is not approved by the Shareholders, no change is anticipated in the
composition of the compensation committee. For details on the duties of this
committee, please see "Stock Option Plan" and "Executive Compensation". The
Company currently has an Executive Committee of the board of directors made up
of Philip R. Ladouceur, Cameron B. Chell, Michael S. Falk and Timothy P. Flynn,
with Mr. Glen C. Holmes invited to all meetings as a guest pending closing of
the Acquisition. If the Acquisition is approved by the Shareholders, Mr. Holmes
will be added as a full member of this committee.
<PAGE> 44
36
DIRECTOR COMPENSATION
The Company's outside directors currently receive nominal cash compensation of
$250 per meeting of the Board of Directors and any committee thereof which they
attend. Outside directors may also be reimbursed for certain expenses in
connection with attendance at Board and committee meetings and may receive
grants of options to purchase shares of Common Shares upon their initial joining
of the Board and any re-election as a director thereafter.
Pursuant to an agreement dated July 16, 1998, FutureLink agreed to nominate Mr.
Philip Ladouceur to the Board of Directors on or before November 30, 1998. Under
the terms of this agreement, Mr. Ladouceur's service company, Mardale
Investments Ltd., was paid a fee of CDN$100,000 and Mr. Ladouceur was granted
stock options to purchase 100,000 shares of Common Shares at an exercise price
of $3.80 per share until June 29, 2001. Half of these stock options vested upon
execution of the agreement and the other half on the first anniversary of the
date of execution of the agreement with Mr. Ladouceur. An outside director until
recently, Mr. Ladouceur was entitled to receive $250 per meeting attended as
well as reimbursement for meeting-related expenses. This agreement also
anticipated the payment of consulting fees to Mr. Ladouceur should he provide
additional services to the Company. This agreement has been superseded by Mr.
Ladouceur's employment agreement with the Company dated as of June 1, 1999 (see
above).
Stock options have also been granted to the other outside directors of the
Company upon their election to FutureLink's Board. Mr. Farrill, Mr. Kubbernus,
Mr. Falk and Mr. Flynn each hold 100,000 non-qualified Options exercisable at
various prices from $3.15 to $5.00 per share.
APPOINTMENT OF AUDITORS
Unless otherwise directed, it is management's intention to vote the proxies in
favor of an ordinary resolution to re-appoint the firm of Ernst & Young LLP of
Calgary, Alberta, to serve as auditors of the Company or Amalco until the next
annual meeting of Shareholders and to authorize the directors to fix their
remuneration as such. Ernst & Young LLP has served as auditors of the Company
since July, 1998.
The persons named in the enclosed form of proxy intend to have nominated and to
vote for the reappointment of Ernst & Young LLP as auditors of the Company at a
remuneration to be approved by the management of the Company.
PART V - RIGHTS OF DISSENTING SHAREHOLDERS
DISSENTING SHAREHOLDERS
As indicated above, Shareholders of the Company have certain Dissenters' Rights
under Article 113 of the CBCA ("Article 113") in connection with the Acquisition
or Reincorporation. Upon strict compliance with the notice and abstention from
voting requirements summarized below, Shareholders may be entitled, pursuant to
Article 113, to receive in cash the fair market value of their shares as of a
time immediately preceding the effectiveness of the Acquisition or
Reincorporation, and excluding any appreciation or depreciation attributable to
the announcement of the Acquisition and Reincorporation, of all their Common
Shares of the Company (the "Dissenting Shares"). Shareholders who comply with
such requirements are hereafter referred to as "Dissenting Shareholders" and the
validly exercised rights of Dissenting Shareholders to dissent from the
Acquisition or Reincorporation and to receive the fair market value of
Dissenting Shares are referred to herein as "Dissenters' Rights."
The following summary does not purport to be a complete statement of the law
relating to payment rights and is qualified in its entirety by Article 113, a
copy of which is attached hereto as Schedule "C". This summary
<PAGE> 45
37
and Article 113 should be reviewed carefully by any shareholder who wishes
to exercise Dissenters' Rights or who wishes to preserve the right to do so,
since failure to comply strictly with the procedures set forth in Article 113
will result in loss of such rights. Any shareholder who is considering
dissenting should consult such shareholder's legal advisor.
A. ACTIONS TO BE TAKEN BEFORE THE MEETING
Notice to the Company. A shareholder who wishes to dissent must cause the
Company to receive a written notice of intent to demand payment (the "Notice of
Intent") for the Dissenting Shares before the vote on the Reincorporation or
Acquisition at the Annual Meeting. The Notice of Intent must reasonably inform
the Company of the identity of the shareholder and of the shareholder's intent
to demand payment for the shareholder's shares if the Reincorporation or
Acquisition is effectuated. Neither a vote against the Reincorporation or
Acquisition nor any proxy directing such vote, nor abstention from voting on the
Reincorporation or Acquisition will satisfy the requirement for a written Notice
of Intent. All Notices of Intent should be mailed to the Company, Suite 300, 250
- - - 6th Avenue S.W., Calgary, Alberta CANADA T2P 3H7, Attn: Kyle Scott, General
Counsel.
No Voting in Favor of Reincorporation. In addition to delivering a Notice of
Intent, each Dissenting Shareholder must not vote any Dissenting Shares in favor
of the Acquisition and Reincorporation, either by proxy or at the Meeting.
Exercise of Dissenter's Rights by Record Shareholders. Dissenters' Rights must
be exercised by the record shareholders. Thus persons who hold their interest in
Dissenting Shares through a nominee must require the record shareholder to cause
the Company to receive the Notice of Intent, and otherwise to comply with the
requirements (including the requirement to cause the record shareholder to
refrain from voting in favor of the Reincorporation) as to all Dissenting Shares
held for such beneficial owner.
B. ACTIONS TO BE TAKEN UPON OR AFTER APPROVAL OF THE ACQUISITION OR
REINCORPORATION.
Dissenter's Notice. If the Acquisition or Reincorporation is authorized at the
Meeting, then, within ten days thereafter, the Company will provide each
Dissenting Shareholder a written notice (the "Dissenters' Notice") stating that
the proposed effective date of the Acquisition or Reincorporation, the address
where the Payment Demand Form (as defined below) must be sent and where the
certificate(s) representing Dissenting Shares must be deposited, supplying each
Dissenting Shareholder with a form for the making of a payment demand (the
"Payment Demand Form"), and setting the date by which all Payment Demand Forms
and certificates representing the Dissenting Shares must be received which date
shall be not less than 30 days after the date of the Dissenters' Notice.
Dissenting Shareholders shall, within the time and according to the procedures
set forth in the Dissenters' Notice:
(1) Cause the Company to receive a duly completed Payment Demand
Form concerning the Dissenting Shares; and
(2) Deposit with the party named in the Dissenters' Notice the
share certificates representing the Dissenting Shares.
Unless the Acquisition or Reincorporation does not become effective within sixty
days of the deadline for Payment Demands or the Company does not make payment on
such Payment Demand within sixty days, the delivery of a Payment Demand and the
deposit of certificates representing Dissenting Shares are irrevocable.
Failure to comply strictly with the Dissenters' Notice, as described in this
section, will cause the loss of Dissenters' Rights under Article 113.
<PAGE> 46
38
Payment. Upon the effective date of the Reincorporation or the receipt of the
Payment Demand, whichever is later, the Company will pay to all holders of
Dissenting Shares who have validly exercised their Dissenters' Rights under
Article 113 at the address shown on the Payment Demand Form the amount the
Company estimates is the fair value of the Dissenting Shares plus interest at
the rate provided in Article 113 from the Effective Date of the Acquisition or
Reincorporation until the payment date.
Notice of Dissatisfaction With Response to Payment Demand. If, with regard to
any Dissenting Shares for a shareholder who has validly exercised Dissenters'
Rights under Article 113: (i) the Dissenting Shareholder believes the amount
offered or paid pursuant to the delivered Payment Demand Form is less than the
fair value of the Dissenting Shares or that the interest was incorrectly
calculated; (ii) the Company has failed within sixty days to make the Payment
offered, or (iii) the Company does not return deposited certificates when
required to do so, of the shareholder's estimate of the fair market value of the
Dissenting Shares and the amount of interest due and demand payment of such
estimate, less any payment previously made under the Payment Demand, or the
dissenting shareholder may reject the Company's offer and demand payment of the
fair value of the shares and interest due. Any Dissenters' Payment Objection
must be received by the Company within thirty days after the Company makes or
offered payment for the Dissenting Shares.
Resolution of Dissenters' Payment Objections. If a Dissenters' demand for
payment pursuant to the Dissenters' Payment Objection remains unresolved, then
the Company may, within sixty days of receipt thereof, request that a court
determine the fair market value of the Dissenting Shares and interest due
thereon. If the Company does not timely make such a request, it must pay the
Dissenting Shareholder the amount set forth in the Dissenters' Payment
Objection. In a proceeding described in this paragraph, the court shall appraise
the Dissenting Shares and enter judgment in any amount by which the value of the
Dissenting Shares plus interest exceeds the amount paid by the Company for the
fair value thereof. The court shall assess costs of the appraisal proceeding
against the Company, except that it may assess costs against Dissenters if it
finds they acted not in good faith. The court may also assess fees and expenses
of experts and counsel against the Company or against any party which it finds
did not comply with requirements or acted not in good faith.
This summary and the attached copy of Article 113 of the CBCA should be reviewed
carefully by any shareholder who wishes to exercise Dissenters' Rights or who
wishes to preserve the right to do so. Failure to comply strictly with all the
conditions for asserting rights as a Dissenting Shareholder, including the time
limits referred to herein, will result in loss of such Dissenters' Rights, and
such Dissenters' Shares will be entitled only to the payment (consisting of
stock of Acquireco in exchange for stock of the Company), as provided in the
Reincorporation Agreement.
PART VI - OTHER MATTERS TO BE ACTED UPON
Management knows of no matters to come before the Meeting other than the matters
referred to in the Notice of Meeting. However, if any other matters properly
come before the Meeting, the accompanying proxy will be voted on such matters in
the best judgement of the person or persons voting the proxy.
PART VII - INFORMATION CONCERNING FUTURELINK
HISTORY OF THE COMPANY
FutureLink 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.
<PAGE> 47
39
The head office of the Company is located at Suite 300, Bow Valley Square IV,
250 - 6th Avenue S.W., Calgary, Alberta CANADA T2P 3H7 and the Company's
registered office is located at 5025 S. Federal Boulevard, Englewood, Colorado
80110.
The Company's Common Shares was registered pursuant to Section 12(g) of the
Securities and Exchange Act on January 6, 1999 and trades over-the-counter on
the NASD regulated Bulletin Board under the symbol "FLNK".
In 1998, FutureLink has made two significant acquisitions. On January 19, 1998,
the stockholders of the Company ratified a share purchase agreement between
FutureLink, FutureLink Distribution Corp., an Alberta corporation ("FutureLink
Alberta"), Cameron Chell, Linda Carling, Colleen Rudolph, Bernie March, and
Gerald Albert whereby the Company agreed to acquire 308,000 Class "A" Common
Voting Shares of FutureLink Alberta (46% of the outstanding shares of such
company) in consideration of the issuance of 308,000 Common Shares. The shares
were issued subject to an escrow agreement which has since expired. The
agreement also provided that 700,000 FutureLink 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
the Company to enter into the agreement.
On September 28, 1998, the Company issued a take-over bid circular offering to
purchase the remaining 54% of FutureLink Alberta on the basis of one FutureLink
Common Share for each FutureLink Alberta Class "A" Common Voting Share.
Management of FutureLink Alberta was identical to that of the Company and
certain security holders of FutureLink Alberta were also security holders of
FutureLink at the time of such takeover bid.
In addition, by agreement among the Company, FutureLink Alberta, Donald A.
Bialik, Olivia B. Bialik, Bialik Family Trust, Riverview Management Corporation
which become known as FutureLink/SysGold Ltd., since amalgamated into FutureLink
Alberta, and that company's subsidiaries, SysGold Ltd. and SysGold Inc., dated
August 4, 1998, as amended by agreement dated August 24, 1998, FutureLink
acquired all of the issued and outstanding shares of FutureLink/SysGold Ltd.
(the "SysGold Acquisition Agreement"). The consideration was CDN$7,600,015 paid
by CDN$3,100,000 cash on closing, CDN$585,000 in promissory notes payable on
demand before 90 days following closing, and by the issuance of 850,000
FutureLink/SysGold shares exchangeable into 850,000 FutureLink Common Shares
(attributed value $3.00/share). Subsequent to this transaction, SysGold Ltd. and
SysGold Inc. were wound up into FutureLink/SysGold Ltd.. The CDN$585,000
promissory notes plus all interest on same have since been paid in full by the
Company.
Effective June 1, 1999, the Company effected a one (1) for five (5) reverse
split of its Common Shares as authorized by Shareholders at their Annual Meeting
of November 30, 1998.
On June 2, 1998, the Company entered into the Acquisition Agreement to acquire
Micro Visions from the MV Shareholders, which agreement also involved a
wholly-owned Delaware subsidiary of the Company, Acquisition Co., which was
set-up for assisting with the Acquisition. Micro Visions is based in Irvine,
California with offices in Los Angeles, CA, Atlanta, GA, Raleigh-Durham, NC,
Phoenix, AZ and Las Vegas, NV. Please refer to Part II - "Acquisition of Micro
Visions" for further details.
Effective August 1, 1999, the Company merged its three existing wholly-owned
Canadian subsidiaries, FutureLink Alberta, FutureLink/SysGold Ltd. and
FutureLink Acquisition Corp. (the latter two companies also incorporated in
Alberta) into a single wholly-owned subsidiary continuing under the name
FutureLink Distribution Corp. in Alberta (also referred to hereafter as
"FutureLink Alberta"). This amalgamation was completed to simplify the
administration of the Company's Canadian operations.
<PAGE> 48
40
VOTING SHARES AND PRINCIPAL SHAREHOLDERS
The authorized capital of the Company consists of 100,000,000 shares of common
stock ("Common Shares"), $0.0001 par value, and 5,000,000 shares of preferred
stock ("Preferred Shares") with no par value. As of the date of this Proxy
Statement, the Company has 6,441,913 Common Shares issued and outstanding and no
issued and outstanding Preferred Shares. As at August 16, 1999, the Company has
29,279,606 Common Shares reserved for issuance on the exercise of share
acquisition rights, including Options and warrants, or upon the conversion of
convertible debt. To the best of the knowledge of the Company, no person
currently owns 10% or more of the issued and outstanding Common Shares of the
Company as of the date hereof.
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth all compensation received for services rendered
to FutureLink in all capacities for the years ended December 31, 1998 and 1997,
by (i) Cameron Chell, who has served as Chief Executive Officer of FutureLink
during the years ended December 31, 1998 and 1997 and (ii) for the most highly
compensated executive officers of FutureLink who were serving as executive
officers as at July 1, 1999.
SUMMARY COMPENSATION TABLE
The following table sets forth compensation in respect of the four most highly
paid senior executive and other officers of the Company and its subsidiaries for
the fiscal year ended December 31, 1998 and for the first six months of 1999 to
June 30th:
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION PAID COMPENSATION
----------------------------------------------- ----------------
SECURITIES
NAME AND PRINCIPAL PERIOD SALARY BONUS OTHER ANNUAL UNDER OPTIONS ALL OTHER
POSITION ENDED(1) ($) ($) COMPENSATION GRANTED COMPENSATION
($)(2) (#) ($)(3)
--------- ----------------- ------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Cameron Chell 1998 CDN$125,000 Nil Nil 100,000 CDN$10,417
CEO and President 1999 CDN$84,650 Nil Nil 700,000
Raghu Kilambi(4) 1998 CDN$100,000 Nil Nil 100,000 CDN$7,000
CFO and VP-Finance 1999 CDN$84,650 Nil Nil 500,000
Bill Arnett(5) 1998 CDN$45,625 CDN$3,000 CDN$9,173 30,000 CDN$39,310
COO 1999 CDN$63,500 Nil -- 40,000 CDN$67,569
Doug Evans 1998 -- -- -- 25,000 --
VP Business Practices 1999 CDN$63,000 -- -- 25,000 CDN$26,437
</TABLE>
NOTES:
(1) Period ended 1999 is for the period January 1, through June 30, 1999,
being the end of the Company's second fiscal quarter.
(2) Other Annual Compensation represents Registered Retirement Savings Plan
contributions made on behalf of the employee by the Company. This
program was a carry over from the FutureLink/SysGold acquisition and is
calculated at 5% of the gross T4 income less previous year's RRSP
payment.
(3) Other Compensation:
(a) for Cameron Chell consisted of consulting fees;
(b) for Raghu Kilambi was for consulting fees; and
<PAGE> 49
41
(c) for Bill Arnett and Doug Evans was part of a Profit Sharing
Program which carried over from the FutureLink/SysGold
acquisition which is based upon a negotiated percentage of
consulting revenue earned by that particular person (see the
discussion of Mr. Arnett's compensation in "Employment
Agreements", below).
(4) Raghu Kilambi's 1998 compensation is for the period March 1 to
December 31.
(5) The 1998 compensation figures for Bill Arnett and Doug Evans reflect
the period August 24 through December 31, following the acquisition
of FutureLink/SysGold by the Company.
STOCK OPTION PLAN
See Part IV - "Further Matters to be Acted OnBApproval to Amendment of Stock
Option Plan and Grant of Options".
OPTION GRANTS IN LAST FISCAL YEAR
The Company's Option Plan became effective on June 29, 1998 and Options have
been granted up to and including June 29, 1999. Options to acquire 2,100 Common
Shares have been exercised by non-executives to date. Options granted to, and
held by, the most highly paid executive officers of the Company, including
Cameron Chell, FutureLink's CEO, serving the Company as at July 1, 1999, are as
follows:
OPTION/SAR GRANTS TO JUNE 30, 1999
(INDIVIDUAL GRANTS)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF SECURITIES PERCENT OF OUTSTANDING EXERCISE OR
NAME UNDERLYING OPTIONS/SARS OPTIONS/SARS GRANTED TO BASE PRICE EXPIRATION DATE
GRANTED (#) ALL EMPLOYEES ($(SH)
- - ---------------------------- --------------------------- -------------------------- -------------- -------------------
<S> <C> <C> <C> <C> <C>
Cameron Chell, 100,000 19.2% $3.80 June 29, 2001
President & CEO 700,000 $3.15 June 1, 2004
Raghu Kilmabi, CFO 100,000 14.4% $3.80 June 29, 2001
500,000 $3.15 June 1, 2004
Bill Arnett, COO 30,000 1.7% $5.85 August 5, 2001
40,000 $1.40 April 1, 2004
Doug Evans 25,000 1.2% $5.85 August 5, 2001
VP Business Practices 25,000 $1.40 April 1, 2004
</TABLE>
EMPLOYMENT AGREEMENTS
FutureLink has, through its subsidiaries, FutureLink Alberta and
FutureLink/SysGold, entered into formal employment agreements with certain key
executives, as follows:
<PAGE> 50
42
Philip Ladouceur entered into an Employment Agreement with the Company effective
June 1, 1999 upon assuming the office of Executive Chairman. In this role, Mr.
Ladouceur has primary responsibility for public company aspects of the Company's
business and affairs, with an emphasis on financings, mergers and acquisitions,
regulatory compliance and general corporate strategy. Mr. Ladouceur's base
salary under this agreement is US$180,000 per annum, five weeks paid vacation
per year, a maximum of 200% of base salary performance bonus, the grant of
700,000 additional Options with 175,000 vesting immediately and 175,000 each
year hereafter for three years, subject to certain performance related early
vesting provisions, and standard benefits. Mr. Ladouceur may resign on one
month's notice and the Company may terminate his services with obligations to
pay twelve months' severance unless the termination is for improper activities.
The Employment Agreement also includes a separate confidentiality and
non-competition agreement which is effective during the term of the Employment
Agreement plus twelve months thereafter.
Cameron Chell executed a Services and Compensation Agreement with FutureLink
Alberta (then Coffee.com interactive c@fe corp.) July 1, 1997 to serve as
President and Chief Executive Officer of that company. From May 1, 1998 to May
31, 1999 Mr. Chell's annual base salary was set at CDN$150,000 per annum.
Additional terms include notice provisions (Mr. Chell must provide 60 days'
notice, FutureLink Alberta must provide Mr. Chell 30 days' notice). A more
recent Employment Agreement, dated effective June 1, 1999, between Mr. Chell,
FutureLink Alberta and the Company now supercedes the prior arrangements. The
financial terms and other conditions of this Employment Agreement include a base
salary of US$180,000 per annum as CEO, four weeks paid vacation per year, a
maximum 100% of base salary performance bonus, the grant of 700,000 additional
Options with 175,000 vesting shares immediately and 175,000 each year thereafter
for three years, and standard benefits. Mr. Chell will be able to resign on one
month's notice and FutureLink must pay one year's severance if it terminates Mr.
Chell's employment prior to the end of the term, unless the termination is for
improper activities. The Employment Agreement also includes a separate
confidentiality and non-competition agreement which is effective for the term of
the Employment Agreement plus twelve months thereafter.
Mr. Kilambi entered into a formal Employment Agreement with FutureLink Alberta
(and the Company) on December 1, 1998 as Vice-President - Corporate Finance and
Chief Financial Officer for both FutureLink and FutureLink Alberta for a two
year term. Base salary under that agreement was CDN$150,000 per year, which
could be adjusted upward in subsequent years. Effective June 1, 1999, Mr.
Kilambi entered into a revised Employment Agreement with the Company whereby his
base salary was raised to US$180,000 per annum. Additional terms include four
weeks paid vacation per year, a maximum performance bonus of 100% of annual base
salary, the grant of 500,000 additional Options, 125,000 of which vest
immediately and 125,000 each year hereafter for three years, plus standard
benefits. Mr. Kilambi can resign on one month's notice and FutureLink must pay
one year's severance if it terminates Mr. Kilambi unless the termination is for
improper activities. The Employment Agreement also includes a separate
confidentiality and non-competition agreement which is effective for the term
plus twelve months thereafter.
Bill Arnett's formal Employment Agreement is dated July 29, 1996 and is with
SysGold Ltd., which was wound-up into FutureLink/SysGold in August, 1998. Mr.
Arnett began with SysGold as Manager - Information Technology and has risen to
the position of Chief Operating Officer of FutureLink and FutureLink/SysGold.
The terms of the agreement include base salary of CDN$115,000 per year
(increased to CDN$127,000 per year in July, 1998), annual paid vacation of four
weeks per year, profit sharing incentives based on direct consulting billing,
supervisory work and marketing, as well as a discretionary bonus. Termination is
four weeks notice by Mr. Arnett with no specified severance or notice period
should the Company (or FutureLink/SysGold) terminate the agreement. The
non-competition clause sets a nine month following date of termination period
and the agreement also addresses confidentiality issues. With the recent
promotion of Mr. Arnett to COO of FutureLink, a revised Employment Agreement is
being negotiated and it is expected that it will be executed in the
not-too-distant future.
<PAGE> 51
43
The Company recently completed a set of agreements whereby Vincent Romano agreed
to serve as the FutureLink's Executive Vice-President, Sales and Marketing. The
agreements, all effective August 1, 1999, Mr. Romano's first day of employment,
provide for a base salary of US$180,000 per year with the ability to earn
performance bonuses totalling up to 100% of base salary. Other provisions
include the grant of 250,000 Options, a US$100,000 signing bonus, an agreement
that no severance is payable on termination, four weeks paid vacation per year,
standard benefits, and a separate confidentiality and non-competition agreement
effective during Mr. Romano's employment and for twelve months thereafter. Mr.
Romano was provided with a US$2,000,000 loan by the company which he used to
purchase 232,829 previously unissued Common Shares, which shares were deposited
in escrow. Under the terms of a separate loan agreement and escrow agreement,
one-eighth of the shares are released quarterly from escrow following each of
the next eight fiscal quarters beginning October 1, 1999 and one-eighth of the
loan principal is correspondingly forgiven, to long as Mr. Romano remains
employed.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
FutureLink's directors and executive officers and individuals owning more than
10 percent of the Company's Common Shares are required to file initial reports
of ownership and changes in ownership with the Securities and Exchange
Commission under Section 16(a) of the Securities Exchange Act of 1934, as
amended. The Securities and Exchange Commission regulations also require those
persons to provide copies of all filed Section 16(a) reports to FutureLink. The
Company has reviewed the report copies filed in 1998, and based also on written
representations from those persons, the Company believes that there was
compliance with Section 16(a) filing requirements for 1998 and through July 31,
1999.
CERTAIN RELATIONSHIPS AND RECENT RELATED TRANSACTIONS
INDEMNITY AGREEMENT
The Company, 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 FutureLink/SysGold has
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 the SysGold Subsidiaries 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 became a senior officer and director of the Company until his
recent resignation. At the time of resigning, Mr. Bialik confirmed his
obligations under this Indemnity Agreement.
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 and Raghu
Kilambi. Both Mr. Chell and Mr. Kilambi are directors of Willson Stationers Ltd.
During the year ended December 31, 1998, the Company provided services and
products of $63,561 (CDN$94,267) to Willson Stationers Ltd. Included in accounts
receivable is an amount of $58,909 (CDN$90,325) owing from Willson Stationers
Ltd. These transactions are on normal commercial terms and conditions. In
addition, the Company purchased office products from Willson Stationers Ltd.
Included in
<PAGE> 52
44
accounts payable is an amount of $4,976 (CDN$7,630). These transactions are
on normal commercial terms and conditions.
OTHER RELATED PARTY TRANSACTIONS
During 1998, two of the Company's stockholders advanced the Company $289,264
(CDN$440,000). Simple interest at a rate of prime plus 1%, totaling $10,145 to
December 31, 1998 has been added to the principal amount owing. In addition, one
of the Company's stockholders advanced the Company $17,609 (CDN$27,000) of which
$19,662 (CDN$30,147), including interest, is outstanding at December 31, 1998.
The amount bears interest at the bank's prime rate.
During 1998, Linear Strategies Ltd., a stockholder, advanced the Company
$729,802. Interest incurred on the loan to July 2, 1998 in the amount of $2,904
has been added to the principal amount owing. $350,000 of the loan was assigned
to another stockholder on July 2, 1998. On the same date, both portions of the
loan were converted into 225,450 FutureLink Common Shares with an ascribed value
of $732,706, and an equal number of Common Share purchase warrants. Each warrant
entitles the holder to purchase one share of Common Share at $1.00 on or before
June 30, 1999 and at $1.25 on or before June 30, 2000.
Accounts payable include $39,840 (CDN$61,087) due to stockholders and employees
of the Company at December 31, 1998. The amounts do not carry interest and have
no set repayment terms.
Accounts receivable includes $10,138 (CDN$14,545) owing from a stockholder of
the Company as at December 31, 1998. The amount does not carry interest and has
no set repayment terms. An allowance for doubtful accounts has been recorded for
the full amount due to the uncertainty of collection.
An amount of $11,040 (CDN$16,927) is owed by an entity of which a certain
stockholder is also a Director and stockholder of the Company. The amount does
not carry interest and has no set repayment terms.
During the year end December 31, 1998, the Company provided services and
products of $40,277 (CDN$59,735) to Jaws Technologies Inc., an entity of which
certain Directors are also Directors of the Company. An amount of $37,002
(CDN$56,735) is owed by Jaws Technologies Inc. at December 31, 1998, which has
been provided as an allowance for doubtful accounts due to the uncertainty of
collection. The amounts charged for services and products are on normal
commercial terms and conditions.
During the year end December 31, 1998, the Company provided services and
products of $9,471 (CDN$14,047) to NextClick Ltd. Certain Directors of the
Company were also Directors of NextClick Ltd. until December 1, 1998. These
transactions are on normal commercial terms and conditions. The full amount
remains outstanding at year end but has been provided as an allowance for
doubtful accounts due to the uncertainty of collection.
During the year ended December 31, 1998, the Company provided services and
products of $10,199 (CDN$15,126) to Sheraton Business Forms Ltd., an entity of
which a stockholder is also a stockholder of the Company. Included in accounts
receivable is an amount of $4,434 (CDN$6,799) owing to the Company. These
transactions are on normal commercial terms and conditions.
<PAGE> 53
45
STOCK OPTIONS
See Part IV - "Further Matters to be Acted On--Approval of Amendment to Stock
Option Plan and Grant of Options".
SHARE CAPITAL
The Company is authorized to issue 100,000,000 Common Shares with a par value of
$0.0001 per share, of which 6,441,913 Common Shares were issued and outstanding
as fully paid and non-assessable as at August 1, 1999. As well, 4,172,600 Common
Shares were reserved for issuance under the Stock Option Plan, 12,333,140 Common
Shares were reserved for issuance upon exercise of outstanding warrants and
12,773,867 Common Shares underlying outstanding convertible debt securities were
also reserved for issuance. The Company is also authorized to issue an unlimited
number of preferred shares, without nominal or par value. To date, no preferred
shares have been issued.
The Common Shares commenced quotation on the NASD Over-the-Counter Bulletin
Board ("OTC-BB") under the symbol "CVNK" in early 1995. Subsequent to the share
acquisition agreement of January 20, 1998 between Core Ventures, Inc and the
five major stockholders of FutureLink Distribution Corp., an Alberta
corporation, the Company changed its name from Core Ventures, Inc. to FutureLink
Distribution Corp. and trading commenced under the symbol "FLNK" in early 1998.
The Company's Common Shares were temporarily assigned the trading symbol "FLNKD"
on June 1, 1999 for twenty trading days to draw attention to the reverse stock
split of the Common Shares. The trading symbol is currently "FLNK".
CAPITALIZATION
<TABLE>
<CAPTION>
Outstanding as at December Outstanding as at
Authorized 31, 1998(1) June 30, 1999
------------ -------------------------- -----------------
<S> <C> <C> <C>
Long-Term Debt(1) -- -- --
Common Shares(2) 100,000,000 $10,264,326 $25,304,065
(4,908,071 Shares) (6,207,784 Shares)
Preferred Shares 5,000,000 Nil Nil
NOTES:
(1) Adjusted to reflect the 1 for 5 reverse stock split effected June 1, 1999.
(2) At August 1, 1999, there were Options outstanding to purchase, in the
aggregate 4,129,800 Common Shares, warrants outstanding to purchase, in
the aggregate 12,333,140 Common Shares and $26,399,176 of various
convertible debt instruments which, in the aggregate, can be converted
into 12,773,867 Common Shares.
(3) At June 30, 1999 FutureLink had an accumulated deficit of $21,682,463
and total shareholders' equity of $3,411,352.
</TABLE>
AUDITORS
The auditor of the Company is Ernst & Young LLP, at Suite 1300, 707-7th Avenue
S.W., Calgary, Alberta T2P 3H6.
<PAGE> 54
46
FINANCIAL STATEMENTS
The audited financial statements of the Company for the year ended December 31,
1998 and the unaudited interim financial statements of the Company for the six
months ended June 30, 1999 are attached hereto as Schedule "H". The December 31,
1998 financial statements were audited by Ernst & Young LLP, chartered
accountants, of Calgary, Alberta.
TRANSFER AGENT
General Securities Transfer Agency, Inc., at 3614 Calle Del Sol N.E.,
Albuquerque, New Mexico 87110-6112 is the transfer agent and registrar for the
Common Shares of the Company.
RISK FACTORS
Please refer to the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1999, as updated by the Quarterly Reports on Form 10-QSB for the
quarterly periods ended March 31, 1999 and June 30, 1999, previously filed with
the SEC, for full disclosure of risk factors faced by FutureLink.
YEAR 2000
Please refer to the Company's Quarterly Report on Form 10-QSB for the quarterly
period ended June 30, 1999 recently filed by the Company with the SEC, which
provides the most up-to-date disclosure regarding the Company's Year 2000
readiness.
PART VII - INFORMATION CONCERNING MICRO VISIONS
MICRO VISIONS AND ITS CAPITAL STRUCTURE
Micro Visions was founded in 1987 by Glen Holmes. The business was incorporated
under the California Corporations Act on September 8, 1993 as Executive LAN
Management, Inc. doing business under the name "Micro Visions" and uses "Micro
Visions" as an unregistered trade name. The head office and principal office of
Micro Visions is located at #100, 6 Morgan, Irvine, California, 92618 and its
registered office is located at the same address.
Micro Visions is authorized to issue an unlimited number of common shares and an
unlimited number of preferred shares, issuable in series. As at the date of this
Proxy Statement, 200 common shares and no preferred shares were issued and
outstanding in the capital of Micro Visions.
MICRO VISIONS SHAREHOLDERS
The sole shareholder of Micro Visions is the Holmes Trust, a trust for the
benefit of the family of Glen and Christine Holmes, which owns 200 issued and
outstanding shares of Micro Visions.
<PAGE> 55
47
BUSINESS OF MICRO VISIONS
Micro Visions, is one of North America's leading server-based network
integration firms. In January of 1999, the company was also recognized as the
number one reseller of Citrix Systems computing solutions in North America.
Micro Visions has built its success upon the effective utilization of industry
leading vendor partnerships. In bringing together its clients with appropriate
vendor partners, Micro Visions delivers highly technical business-oriented
computing systems that reduce clients' total cost of ownership (TCO) while
providing the most effective solutions.
In 1994, Micro Visions developed a partnership with Citrix Systems, Inc., a
world leader in server-based computing software, which crossed the boundaries to
enable access to virtually any application - regardless of client hardware or
network connection. Since then, Micro Visions' revenues have increased from
$800,000 in 1994 to $20 million in 1998. One of only 28 Citrix Platinum
Resellers in the world, Micro Visions is leading the expansion of the
server-based computing market in North America.
Based in Irvine, CA, Micro Visions employs approximately 80 people. Utilizing
its extensive in-house expertise, Micro Visions operates a world class Training
Centre renowned for its "real-world" technical training of front line systems
engineers. It also holds ongoing "Invitation to the Future" seminars designed to
put the server-based computing technology into focus for current and future
clients.
Micro Visions' client list is extensive and varied. Numbering over 36,000 server
based computing seats, Micro Visions' solutions are being utilized by Fortune
100 companies and small, regional organizations alike. Ranging from financial
and health institutions to electronics, aerospace and chemical companies, Micro
Visions' clients include such notable names a Avery Dennison, Motorola, Amgen,
Allergan, Bank of America, Nestle USA, Toshiba, Deutsche Financial and Universal
Alloy.
Micro Visions delivers highly technical business-oriented solutions to its
clients nationwide by using server-based computing solutions. Micro Visions has
extensive expertise in server-based computing technology, infrastructure
analysis and design, centralized management of 32-bit desktops, and Internet and
Intranet deployment strategies.
Micro Visions:
- - - Has sold 30,000+ Citrix seats (licenses) seats, installed over 1,000+
servers (base licences), and completed 350+ customer deployments since
its incorporation.
- - - Is a leading Microsoft Solution Provider Partner, providing extensive
Microsoft TSE integration experience.
- - - Is currently the leading worldwide Citrix reseller. Its Irvine location
is a Platinum reseller (29 out of 5,000 resellers qualify as a Platinum
reseller), while all other Micro Visions offices are Citrix Gold
resellers. Micro Visions has the potential to establish multiple Citrix
Platinum Reseller locations, a first, given its growth in its Atlanta,
GA and Las Vegas, NV offices.
<PAGE> 56
48
Micro Visions' server-based computing solutions provide companies with the
services to accomplish all of those tasks. Micro Visions provides:
1. Management and user support in a timely and cost-effective
manner;
2. Access to business-critical applications to dispersed
user-regardless of connection, location or device;
3. Exceptional application performance; and
4. Tight security for enterprise-level computing.
Micro Visions is able to deliver these services by utilizing server-based
computing (SBC). SBC is a model in which applications are deployed, managed,
supported and executed 100% on a server. It uses a multi-user operating system
and distributes the presentation of an application's interface to a client
device.
As part of the Company's SBC service offering, it offers:
Internetworking Analysis and Design
Consists of technology refresh consulting for Local Area Network (LAN) and Wide
Area Network (WAN) infrastructures, network health inspections to optimize
performance and reduce network downtime, and business continuity consulting to
sustain businesses following a disaster.
32-bit Application Deployment and Desktop Management
Consists of centrally managing Windows 95, 98 and NT desktops, which shortens
the implementation cycle for new applications, controls IT department costs to
deliver applications updates, and reduces the customers total cost of ownership.
Project Management Methodologies
Micro Visions' project management team uses the Microsoft Solutions Framework -
a suite of models, concepts and guides for building and deploying enterprise
systems. These align business and technology objectives, reveal risk, important
planning assumptions and key interdependencies that are critical to a successful
project deployment, and to reducing the total cost of ownership.
Remote Access
As a leading Citrix integrator, Micro Visions helps companies simplify their
ability to configure, manage and lower the costs associated with connecting
various offices, branches or telecommuting sites. This is accomplished by using
Citrix's ICA(R) and MetaFrame(R) technology.
<PAGE> 57
49
Computer Training Courses
As a Citrix authorized learning center and a Microsoft certified technical
education center, Micro Visions offers 35 courses ranging from one-day workshops
to five-day training courses at both its Atlanta, GA and Irvine, CA offices. The
courses range from Citrix WinFrame and MetaFrame training to Microsoft SQL
Server training. Micro Visions also offers highly technical, custom SbC classes.
The center is capable of training 12 students per class. In addition, Micro
Visions does dedicated, on-site training for a variety of clients.
Procurement of Hardware and Software
Micro Visions will procure hardware and software for customers. Micro Visions
offers: drop-ship deliveries and ability to custom configuration computer
equipment.
CORPORATE OFFICES
From its current headquarters in Irvine, California, Micro Visions has expanded
to offices in Atlanta, Las Vegas, Los Angeles, Phoenix and Raleigh/Durham N.C.
INTELLECTUAL PROPERTY
Micro Visions does not have any existing patents, patent rights, computer
software, trademarks, trademark rights, service mark rights, trade names, trade
name rights or copyrights. No applications are currently pending for any of the
aforementioned intellectual property categories. Micro Visions' business is
dependant on licencing and reselling agreements with software developers such as
Citrix and Microsoft.
COMPETITION
Micro Visions' direct competition includes Citrix resellers operating in
the geographical area of any Micro Visions office. Key resellers include:
Computer Networks, Inc. ("CNI"), of Pleasanton, CA, NATIONAL BUSINESS GROUP,
INC. ("NBG"), of Atlanta, GA, Integration Technologies, Inc. ("IT") of Newport
Beach, CA, and Data Transit Inc., of Norcross, GA.
Micro Visions' indirect competition includes any other IT system integration
provider, but Micro Visions does not really consider them competition, as none
have the server-based computing skills that clients require to solve their IT
problems. Upon joining FutureLink and expanding its offerings to include ASP
services, Micro Visions will expand its client base and its list of competitors,
which will include ASP companies which will compete with FutureLink.
MAJOR CUSTOMERS
Major Customers of Micro Visions, based on annual sales for the twelve months
ended December 31, 1998, are primarily southern California-based, and weighted
towards the financial services sector. Micro Visions top 10 customers in
Calender 1998 consists of the following:
<PAGE> 58
50
Long Beach Mortgage Daikin America
Ameriquest Mortgage Company Onyx Acceptance Corp.
Advanced Systems Farmers Insurance
Colonial Savings Bank of America
Santa Barbara Cottage Hospital Kneedler-Fauchere
Revenues from Long Beach Mortgage and its affiliates represented approximately
10% of Micro Visions total revenues in calender 1998. No other single customer
accounted for 10% or more of Micro Visions' revenues in 1998.
MANAGEMENT OF MICRO VISIONS
The following is a brief resume of the management and key personnel of Micro
Visions.
Glen Holmes
President
Mr. Holmes has been focused on solving business problems through the use of
network integration technology since 1985. Micro Visions, founded in 1987,
concentrates on solutions that provide access to any applications, to any user,
located anywhere. Mr. Holmes, a former systems engineer, now directs
approximately 80 employees to focus on solving a vast array of business problems
using server-based computing solutions. This focus has allowed Micro Visions to
implement solutions throughout the country for numerous Fortune 500 businesses
and achieve the distinction of being the number one Citrix Reseller in North
America in 1998.
Roger Gallego
Chief Operating Officer
Mr. Gallego joined Micro Visions in 1992 as a fledgling company and has
been instrumental in its growth. Mr. Gallego is currently involved in the
strategic management of Micro Visions, as well as heading the development of
that company's new ASP offerings, in conjunction with FutureLink. Mr. Gallego's
vast technical and marketing experience has been invaluable in his ability to
offer customers perspective from both the business and technical aspects of a
complete server-based solution.
Terry Malone
VP National Solutions Group
Mr. Malone has been with Micro Visions since 1993. As Vice President of the
National Solutions Group, he oversees all branch operations at Micro Visions'
six branch office across the US, from Los Angeles to Atlanta. In addition to the
broad technical expertise he brings the table (he is a Novell Certified NetWare
Engineer and a Microsoft Certified Professional), Mr. Malone also has
wide-ranging project management experience and has extensive business knowledge
in the real estate, mortgage banking and construction industries.
Cindy Storkson, MSS
Vice President of Sales and Marketing
<PAGE> 59
51
Ms. Storkson joined Micro Visions in 1996, as one of Micro Visions' first
Account Development Managers. As a Washington State native graduate University
of Washington, she joined Micro Visions with more than nine years experience in
corporate sales. She has successfully developed Micro Visions' Business Alliance
Program to include a list of partners such as AT&T, Cisco, Microsoft, FiTECH,
Compaq and various elite software developers in the nation. Ms. Storkson has
effectively earned and managed such accounts as Bank of America, Disney,
Motorola, Western Digital and Toshiba.
Ms. Storkson has developed a valuable and unique sales training course that
reaches all departments at Micro Visions. Ms. Storkson's vast experience in
sales, customer services and information systems make her a valuable member of
the Micro Visions Executive Team.
EXECUTIVE COMPENSATION
Micro Visions currently has two executive officers and two other members of
management. Remuneration of $21,400 per month is paid to the President, Glen C.
Holmes.
No amounts are paid to directors in their capacity as directors of Micro
Visions.
The aggregate remuneration paid by Micro Visions to its directors and officers
during the twelve month period ending December 31, 1998 was $1,213,226. Of this
amount, $586,786.07 represents salary paid to Glen C. Holmes.
For the six months ended June 30, 1999, Micro Visions has paid salaries or
consulting fees to the following material persons:
<TABLE>
<CAPTION>
Remuneration for six
Name Capacity months to June 30, 1999
---- --------------------------- -----------------------
<S> <C> <C>
Glen C. Holmes President $118,708.37
Christine Holmes Director $50,000.00
Roger J. Gallego COO $65,191.17
Terry P. Malone V.P. Professional Services $55,000.00
Cindy Storkson V.P. Sales $94,960.11
</TABLE>
The above amounts do not include discretionary bonuses.
INDEBTEDNESS OF MICRO VISIONS DIRECTORS AND SENIOR OFFICERS
None of the directors or senior officers of Micro Visions are indebted to Micro
Visions in any manner.
INTEREST OF CERTAIN PERSONS AND COMPANIES IN MATTERS TO BE ACTED UPON BY
MICRO VISIONS
Management of Micro Visions is not aware of any material interest of any
director, senior officer or of any associate or affiliate or any of the
foregoing in any matter to be acted on at the Meeting other than as described
herein.
<PAGE> 60
52
FINANCIAL STATEMENTS OF MICRO VISIONS
The audited financial statements for Micro Visions for the twelve month periods
ended December 31, 1997 and 1998 along with the Auditor's Report thereon and the
unaudited financial statements for the six month periods ended June 30, 1998 and
1999 are attached hereto as Schedule "K". Micro Visions's twelve month financial
statements were audited by Ernst & Young LLP of Irvine, California.
SHAREHOLDERS ARE CAUTIONED TO CAREFULLY REVIEW THE ATTACHED FINANCIAL STATEMENTS
FOR MICRO VISIONS, INCLUDING THE NOTES THERETO.
RISK FACTORS
Micro Visions, being a provider of server based computer network integration,
faces substantially the same risks associated with high technology companies as
FutureLink (see "Information Concerning the Company -- Risk Factors"). As a
closely held company, however, Micro Visions does not face certain risks
associated with being a publicly held company. Micro Visions also faces minimal
foreign exchange risks since most of its operations are carried on within the
United States. Please refer to FutureLink's Annual Report on Form 10-KSB for the
year ended December 31, 1999, as updated by the Quarterly Reports on Form 10-QSB
for the quarterly periods ended March 31, 1999 and June 30, 1999, previously
filed with the SEC, for full disclosure of risk factors faced by FutureLink.
LEGAL PROCEEDINGS
To the best of the knowledge of the Company and of Micro Visions' management,
Micro Visions does not currently have any material lawsuit or action pending or
threatened against it or its assets.
YEAR 2000
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Micro Visions has
completed an assessment of its IT systems as well as the software and hardware
sold to its customers noting that they are Year 2000 compliant. Micro Visions'
IT systems primarily consist of its financial reporting system. In July 1998,
Micro Visions purchased and implemented a Year 2000 compliant financial
reporting software package totalling $42,000. Micro Visions' non-IT systems
primarily consist of heating, sprinklers and security equipment at its
facilities. Micro Visions will complete its review and remediation of its non-IT
systems and its IT systems other than the financial reporting system by October
1, 1999.
Micro Visions estimates that the total remaining costs to complete any required
modifications, upgrades or replacements of its IT and non-IT systems will not
have a material adverse effect on its business or results of operations. Micro
Visions has obtained Year 2000 compliant certification letters from its major
software and hardware vendors noting that the software and hardware sold by
Micro Visions are Year 2000 compliant. However, the failure of Micro Visions'
other vendors and suppliers to be fully Year 2000 compliant with regards to
their products by January 1, 2000 could result in interruptions in Micro
Visions' normal business work operations. Micro Visions is currently developing
contingency plans to address the year 2000 issues that may pose a significant
risk to Micro Visions' ongoing operations. Micro Visions expects to complete the
contingency plans by October 31, 1999.
<PAGE> 61
53
<PAGE> 62
54
APPROVAL AND CERTIFICATION
The contents and distribution of this Proxy Statement have been approved by the
board of directors of the Company.
Where information contained in this Proxy Statement rests particularly within
the knowledge of a person other than the Company, the Company has relied upon
information furnished by such person. The Company, its board of directors and
management have relied on the representations and warranties of Micro Visions
and its management as to the information set out in this Proxy Statement
concerning Micro Visions and its business.
The foregoing contains no untrue statement of a material fact and does not omit
to state a material fact that is required to be stated or that is necessary to
make a statement not misleading in light of the circumstances in which it was
made.
"Cameron B. Chell" "Raghu Kilambi"
CAMERON B. CHELL RAGHUNATH KILAMBI
Chief Executive Officer Chief Financial Officer
Calgary, Alberta CANADA
August 23, 1999
<PAGE> 63
55
MICRO VISIONS CERTIFICATE
The information contained in the Management Information Circular and Proxy
Statement of FutureLink Distribution Corp. dated August 23, 1999 relating to
Executive LAN Management, Inc., doing business as "Micro Visions" contains no
untrue statement of a material fact and does not omit to state a material fact
that is required to be stated or that is necessary to make a statement not
misleading in light of circumstances in which it was made.
"Glen C. Holmes"
GLEN C. HOLMES
President & Director
Irvine, California
August 23, 1999
<PAGE> 64
56
SCHEDULE "A" - AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER
OF
FUTURELINK CALIFORNIA ACQUISITION CORP.
(A DELAWARE CORPORATION)
AND
FUTURELINK DISTRIBUTION CORP.
(A COLORADO CORPORATION)
THIS AGREEMENT AND PLAN OF MERGER dated as of August 1, 1999 (the "Agreement")
is between FutureLink California Acquisition Corp., a Delaware corporation
("FutureLink Delaware") and FutureLink Distribution Corp., a Colorado
corporation ("FutureLink Colorado"). FutureLink Delaware and FutureLink Colorado
are sometimes referred to herein as the "Constituent Corporations."
RECITALS
A. FutureLink Delaware is a corporation duly organized and existing under the
laws of the State of Delaware and has an authorized capital of 1,500 shares, all
of which are designated "common stock," no par value. As of the date hereof, 500
shares of common stock or Preferred Stock are issued and outstanding.
B. FutureLink Colorado is a corporation duly organized and existing under the
laws of the State of Colorado and has an authorized capital of 105,000,000
shares, 100,000,000 of which are designated "common stock," par value $0.0001
per share, and 5,000,000 of which are designated "Preferred Stock," no par
value, undesignated as to series, rights, preferences, privileges or
restrictions. As of August 1, 1999, 6,441,913 shares of common stock and no
Preferred Stock were issued and outstanding.
C. The Board of Directors of FutureLink Colorado has determined that, for the
purpose of effecting the reincorporation of FutureLink Colorado in the State of
Delaware, it is advisable and in the best interests of FutureLink Colorado and
its shareholders that FutureLink Colorado merge with and into FutureLink
Delaware upon the terms and conditions herein provided.
D. The respective Boards of Directors of FutureLink Delaware and FutureLink
Colorado have approved this Agreement and have directed that this Agreement be
submitted to a vote of their respective sole stockholder and shareholders and
executed by the undersigned officers.
NOW, THEREFORE, in consideration of the mutual agreements and covenants
set forth herein, FutureLink Delaware and FutureLink Colorado hereby agree,
subject to the terms and conditions hereinafter set forth, as follows:
<PAGE> 65
57
I. MERGER
I.1 MERGER. In accordance with the provisions of this Agreement, the
Delaware General Corporation Law and the Colorado Business Corporation Act,
FutureLink Colorado shall be merged with and into FutureLink Delaware in a
transaction qualifying as a reorganization within the meaning of Section
368(a)(1)(F) of the Internal Revenue Code (the "Merger"), the separate existence
of FutureLink Colorado shall cease and FutureLink Delaware shall survive the
Merger and shall continue to be governed by the laws of the State of Delaware.
FutureLink Delaware shall be, and is herein sometimes referred to as, the
"Surviving Corporation." The name of the Surviving Corporation shall be
FutureLink Corp. or some other such name as the Board of Directors of the
Surviving Corporation shall choose.
I.2 FILING AND EFFECTIVENESS. The Merger shall become effective when the
following actions have been completed:
(a) This Agreement and Merger have been adopted and approved by
the stockholders of each Constituent Corporation in accordance
with the requirements of the Delaware General Corporation Law
and the Colorado Business Corporation Act;
(b) All of the conditions precedent to the consummation of the
Merger specified in this Agreement have been satisfied or duly
waived by the party entitled to satisfaction thereof; and
(c) An executed Certificate of Merger or an executed counterpart
of this Agreement meeting the requirements of the Delaware
General Corporation Law has been filed with the Secretary of
State of the State of Delaware.
(d) An executed Certificate of Merger or an executed counterpart
of this Agreement meeting the requirements of the Colorado
Business Corporation Act has been filed with the Secretary of
State of the State of Colorado.
The date and time when the Merger shall become effective, as aforesaid,
is herein called the "Effective Date of the Merger."
I.3 EFFECT OF THE MERGER. Upon the Effective Date of the Merger, the
separate existence of FutureLink Colorado shall cease and FutureLink
Delaware, as the Surviving Corporation, (i) shall continue to possess all of its
assets, rights, powers and property as constituted immediately prior to the
Effective Date of the Merger, (ii) shall be subject to all actions previously
taken by its and FutureLink Colorado's Board of Directors, (iii) shall succeed,
without other transfer, to all of the assets, rights, powers and property of
FutureLink Colorado in the manner more fully set forth in Section 259 of the
Delaware General Corporation Law, (iv) shall continue to be subject to all of
the debts, liabilities and obligations of FutureLink Delaware as constituted
immediately prior to the Effective Date of the Merger, and (v) shall succeed,
without other transfer, to all of the debts, liabilities and obligations of
FutureLink Colorado in the same manner as if FutureLink Delaware had itself
incurred them, all as more fully provided under the applicable provisions of the
Delaware General Corporation Law and the Colorado Business Corporation Act.
<PAGE> 66
58
II. CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
II.1 CERTIFICATE OF INCORPORATION. The Certificate of Incorporation as set
forth in Exhibit "1" hereto shall be the Certificate of Incorporation of
the Surviving Corporation until duly amended in accordance with the provisions
thereof and applicable law.
II.2 BYLAWS. The Bylaws attached as Exhibit "2" hereto shall be the Bylaws
of the Surviving Corporation until duly amended in accordance with the
provisions thereof and applicable law.
II.3 DIRECTORS AND OFFICERS. The directors and officers of FutureLink
Colorado immediately prior to the Effective Date of the Merger shall be the
directors and officers of the Surviving Corporation until their successors shall
have been duly elected and qualified or until as otherwise provided by law, or
the Certificate of Incorporation of the Surviving Corporation or the Bylaws of
the Surviving Corporation.
III. MANNER OF CONVERSION OF STOCK
III.1 FUTURELINK COLORADO COMMON STOCK. Upon the Effective Date of the
Merger, each share of FutureLink Colorado common stock issued and outstanding
immediately prior thereto shall, by virtue of the Merger and without any action
by the Constituent Corporations, the holder of such shares or any other person,
be converted into and exchanged for one (1) fully paid and nonassessable share
of common stock, par value $0.0001 per share, of the Surviving Corporation.
III.2 FUTURELINK COLORADO OPTIONS, STOCK PURCHASE RIGHTS AND CONVERTIBLE
SECURITIES.
(a) Upon the Effective Date of the Merger, the Surviving
Corporation shall assume and continue the stock option plans
and all other employee benefit plans of FutureLink Colorado.
Each outstanding and unexercised option or other right to
purchase or security convertible into FutureLink Colorado
common stock shall become an option or right to purchase or
a security convertible into the Surviving Corporation's
common stock on the basis of one share of the Surviving
Corporation's common stock for each share of FutureLink
Colorado common stock issuable pursuant to any such option,
stock purchase right or convertible security, on the same
terms and conditions and at an exercise price per share
equal to the exercise price applicable to any such
FutureLink Colorado option, stock purchase right or
convertible security at the Effective Date of the Merger.
There are no options, purchase rights for or securities
convertible into Preferred Stock of FutureLink Colorado.
(b) A number of shares of the Surviving Corporation's common stock
shall be reserved for issuance upon the exercise of options,
stock purchase rights and convertible securities equal to the
number of shares of FutureLink Colorado common stock so
reserved immediately prior to the Effective Date of the
Merger.
III.3 FUTURELINK DELAWARE COMMON STOCK. Upon the Effective Date of the Merger,
each share of common stock, no par value, of FutureLink Delaware issued and
outstanding immediately prior thereto shall, if any, by virtue of the Merger and
without any action by FutureLink Delaware, the holder of such shares or any
other person, be canceled and returned to the status of authorized but unissued
shares.
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III.4 EXCHANGE OF CERTIFICATES. After the Effective Date of the Merger, each
holder of an outstanding certificate representing shares of FutureLink Colorado
common stock may, at such stockholder's option, surrender the same for
cancellation to, as exchange agent (the "Exchange Agent"), and each such holder
shall be entitled to receive in exchange therefor a certificate or certificates
representing the number of shares of the Surviving Corporation's common stock
into which the surrendered shares were converted as herein provided. Unless and
until so surrendered, each outstanding certificate theretofore representing
shares of FutureLink Colorado common stock shall be deemed for all purposes to
represent the number of shares of the Surviving Corporation's common stock into
which such shares of FutureLink Colorado common stock were converted in the
Merger.
The registered owner on the books and records of the Surviving
Corporation or the Exchange Agent of any shares of stock represented by such
outstanding certificate shall, until such certificate shall have been
surrendered for transfer or conversion or otherwise accounted for to the
Surviving Corporation or the Exchange Agent, have and be entitled to exercise
any voting and other rights with respect to and to receive dividends and other
distributions upon the shares of common stock of the Surviving Corporation
represented by such outstanding certificate as provided above.
Each certificate representing common stock of the Surviving Corporation
so issued in the Merger shall bear the same legends, if any, with respect to the
restrictions on transferability as the certificates of FutureLink Colorado so
converted and given in exchange therefore, unless otherwise determined by the
Board of Directors of the Surviving Corporation in compliance with applicable
laws, or other such additional legends as agreed upon by the holder and the
Surviving Corporation.
If any certificate for shares of FutureLink Delaware stock is to be
issued in a name other than that in which the certificate surrendered in
exchange therefor is registered, it shall be a condition of issuance thereof
that the certificate so surrendered shall be properly endorsed and otherwise in
proper form for transfer, that such transfer otherwise be proper and comply with
applicable securities laws and that the person requesting such transfer pay to
FutureLink Delaware or the Exchange Agent any transfer or other taxes payable by
reason of issuance of such new certificate in a name other than that of the
registered holder of the certificate surrendered or establish to the
satisfaction of FutureLink Delaware that such tax has been paid or is not
payable.
IV. GENERAL
IV.1 COVENANTS OF FUTURELINK DELAWARE. FutureLink Delaware covenants and
agrees that it will, on or before Effective Date of the Merger:
(3) file any and all documents with the Colorado Franchise Tax
Board necessary for the assumption by FutureLink Delaware of
all of the franchise tax liabilities of FutureLink Colorado;
and
(4) take such other actions as may be required by the Colorado
Business Act.
IV.2 FURTHER ASSURANCES. From time to time, as and when required by
FutureLink Delaware or by its successors or assigns, there shall be
executed and delivered on behalf of FutureLink Colorado such deeds and other
instruments, and there shall be taken or caused to be taken by FutureLink
Delaware and FutureLink Colorado such further and other actions as shall be
appropriate or necessary in order to vest or perfect in or conform of record or
otherwise by FutureLink Delaware the title to and possession of all the
property, interests, assets, rights, privileges, immunities, powers, franchises
and authority of FutureLink Colorado and otherwise
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to carry out the purposes of this Agreement, and the officers and directors
of FutureLink Delaware are fully authorized in the name and on behalf of
FutureLink Colorado or otherwise to take any and all such action and to execute
and deliver any and all such deeds and other instruments.
IV.3 ABANDONMENT. At any time before the Effective Date of the Merger, this
Agreement may be terminated and the Merger may be abandoned for any reason
whatsoever by the Board of Directors of either FutureLink Colorado or of
FutureLink Delaware, or of both, notwithstanding the approval of this Agreement
by the shareholders of FutureLink Colorado or by the sole stockholder of
FutureLink Delaware, or by both.
IV.4 AMENDMENT. The Boards of Directors of the Constituent Corporations may
amend this Agreement at any time prior to the filing of this Agreement (or
certificate in lieu thereof) with the Secretaries of State of the States of
Delaware and Colorado, provided that an amendment made subsequent to the
adoption of this Agreement by the stockholders of either Constituent Corporation
shall not: (a) alter or change the amount or kind of shares, securities, cash,
property and/or rights to be received in exchange for or on conversion of all or
any of the shares of any class or series thereof of such Constituent
Corporation; (b) alter or change any term of the Certificate of Incorporation of
the Surviving Corporation to be effected by the Merger; or (c) alter or change
any of the terms and conditions of this Agreement if such alteration or change
would adversely affect the holders of any class or series of capital stock of
any Constituent Corporation.
IV.5 REGISTERED OFFICE. The registered office of the Surviving Corporation
in the State of Delaware is 15 E. Street, Dover, Delaware 19901, County of
Kent and Incorporating Services, Ltd. is the registered agent of Surviving
Corporation at such address.
IV.6 AGREEMENT. Executed copies of this Agreement will be on file at the
principal place of business of the Surviving Corporation at 300, 250 - 6th
Avenue S.W., Calgary, Alberta, CANADA T2P 3H7 and copies thereof will be
furnished to any stockholder of either Constituent Corporation, upon request and
without cost.
IV.7 GOVERNING LAW. This Agreement shall in all respects be construed,
interpreted and enforced in accordance with and governed by the laws of the
State of Delaware and, so far as applicable, the merger provisions of the
Colorado Business Corporation Act.
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61
IV.8 COUNTERPARTS. In order to facilitate the filing and recording of this
Agreement, the same may be executed in any number of counterparts, each of which
shall be deemed to be an original and all of which together shall constitute one
and the same instrument.
IN WITNESS WHEREOF, this Agreement having first been approved by the
resolutions of the Board of Directors of FutureLink Distribution Corp., a
Delaware corporation, and FutureLink Distribution Corp., a Colorado corporation,
is hereby executed on behalf of each of such two corporations and attested by
their respective officers thereunto duly authorized.
FUTURELINK CALIFORNIA ACQUISITIONS CORP.,
a Delaware corporation
By: _________________________________________________
CAMERON B. CHELL
Chief Executive Officer
ATTEST:
_____________________________________________________
KYLE B.A. SCOTT
Secretary
FUTURELINK DISTRIBUTION CORP.,
a Colorado corporation
By: _________________________________________________
CAMERON B. CHELL
Chief Executive Officer
ATTEST:
_____________________________________________________
KYLE B.A. SCOTT
Secretary
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EXHIBIT "1" - TO THE AGREEMENT AND PLAN OF MERGER
DATED AUGUST 1, 1999
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
FutureLink Corp.
ARTICLE I
The name of this corporation is FutureLink Corp. (the "Corporation").
ARTICLE 11
The address of the Corporation's registered office in the State of
Delaware is 15 E. North Street, Dover, Delaware 19901, County of Kent. The name
of its registered agent at such address is Incorporating Services, Ltd.
ARTICLE III
The nature of the business or purposes to be conducted or promoted by
the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of Delaware.
ARTICLE IV
The Corporation is authorized to issue two classes of stock to be
designated, respectively, Preferred Stock, no par value ("Preferred"), and
common stock, par value $0.0001 per share ("Common"). The total number of shares
of common stock that the Corporation shall have authority to issue is
300,000,000. The total number of shares of Preferred Stock that the Corporation
shall have authority to issue is 20,000,000. The Preferred Stock may be issued
from time to time in one or more series.
The Corporation shall from time to time in accordance with the laws of
the State of Delaware increase the authorized amount of its Common if at any
time the number of Common shares remaining unissued and available for issuance
shall not be sufficient to permit conversion of the Preferred.
The Board of Directors is hereby authorized, subject to limitations
prescribed by law and the provisions of this Article IV, by resolution to
provide for the issuance of the shares of Preferred in one or more series, and
to establish from time to time the number of shares to be included in each such
series, and to fix the designation, powers, privileges, preferences, and
relative participating, optional or other rights, if any, of the shares of each
such series and the qualifications, limitations or restrictions thereof.
The authority of the Board with respect to each series shall include,
but not be limited to, determination of the following:
A. The number of shares constituting that series (including an increase
or decrease in the number of shares of any such series (but not below the number
of shares in any such series then outstanding)) and the distinctive designation
of that series;
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B. The dividend rate on the shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that series;
C. Whether that series shall have the voting rights (including multiple
or fractional votes per share) in addition to the voting rights provided by law,
and, if so, the terms of such voting rights;
D. Whether that series shall have conversion privileges, and, if so,
the terms and conditions of such privileges, including provision for adjustment
of the conversion rate in such events as the Board of Directors shall determine;
E. Whether or not the shares of that series shall be redeemable, and,
if so, the terms and conditions of such redemption, including the date or dates
upon or after which they shall be redeemable, and the amount per share payable
in case of redemption, which amount may vary under different conditions and at
different redemption rates;
F. Whether that series shall have a sinking fund for the redemption
or purchase of shares of that, and, if so, the terms and the amount of such
sinking funds;
G. The rights of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, and the
relative rights of priority, if any, of payment of shares of that series; and
H. Any other relative rights, preferences and limitations of that
series.
No holders of shares of the corporation of any class, now or hereafter
authorized, shall have any preferential or preemptive rights to subscribe for,
purchase or receive any shares of the corporation of any class, now or hereafter
authorized, or any options or warrants for such shares, or any rights to
subscribe for, purchase or receive any securities convertible to or exchangeable
for such shares, which may at any time be issued, sold or offered for sale by
the corporation, except in the case of any shares of Preferred Stock to which
such rights are specifically granted by any resolution or resolutions of the
Board of Directors adopted pursuant to this Article IV.
ARTICLE V
The Corporation is to have perpetual existence.
ARTICLE VI
For the management of the business and for the conduct of the affairs
of the Corporation, and in further definition, limitation and regulation of the
powers of the Corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A. The management of the business and the conduct of the affairs of the
Corporation shall be vested in its Board of Directors. The number of directors
of this Corporation shall be as set forth in the Bylaws of the Corporation.
B. In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware, the Board of Directors is expressly authorized to
make, alter, amend, or repeal the Bylaws of the Corporation.
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64
C. The directors of the Corporation need not be elected by written
ballot unless the Bylaws of the so provide.
D. Advance notice of stockholder nomination for the election of
directors and of any other business to be brought by stockholders before any
meeting of the stockholders of the Corporation shall be given in the manner
provided in the Bylaws of the Corporation.
E. No action shall be taken by the stockholders of the Corporation
except at an annual or special meeting of the stockholders called in accordance
with the Bylaws and no action shall be taken by the stockholders by written
consent.
ARTICLE VII
At the election of directors of the Corporation, each holder of stock
of any class or series shall be entitled to cumulative voting rights as to the
directors to be elected by each class or series in accordance with the
provisions of Section 214 of the General Corporation Law of the State of
Delaware.
ARTICLE VIII
The name and mailing address of the incorporator are as follows:
Jeffrey Sultan
2121 Avenue of the Stars
Tenth Floor
Los Angeles, California
90067
ARTICLE IX
The Corporation reserves the right to amend, alter, change, or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by the laws of the State of Delaware, and all rights
conferred herein are granted subject to this reservation.
ARTICLE X
A. To the fullest extent permitted by the Delaware General Corporation
Law as the same exists or as may hereafter be amended, no director of the
Corporation shall be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director.
B. The Corporation may indemnify to the fullest extent permitted by law
any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he, his testator or intestate is or was a director, officer or employee of
the Corporation or any predecessor of the Corporation or serves or served at any
other enterprise as a director, officer or employee at the request of the
Corporation or any predecessor to the Corporation.
C. Neither any amendment nor repeal of this Article X, nor the adoption
of any provision of the Corporation's Certificate of Incorporation inconsistent
with this Article X, shall eliminate or reduce the effect of this Article X,
with respect of any matter occurring, or any action or proceeding accruing or
arising or that, but for this Article X, would accrue or arise, prior to such
amendment, repeal, or adoption of an inconsistent provision.
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ARTICLE XI
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the laws of the State of Delaware)
outside of the State of Delaware at such place or places as may be designated
from time to time by the Board of Directors or in the Bylaws of the Corporation.
IN WITNESS WHEREOF, the undersigned incorporator hereby acknowledges
that the foregoing Certificate of Incorporation is her act and deed and that the
facts stated herein are true.
__________________________________
Incorporator
Dated:_________________________, 1998
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EXHIBIT "2" -TO THE AGREEMENT AND PLAN OF MERGER
DATED AUGUST 1, 1999
BYLAWS
OF
FUTURELINK CORP.
(a Delaware corporation)
I. CORPORATE OFFICES
I.1 REGISTERED OFFICE
The registered office of the corporation shall be fixed in the
certificate of incorporation of the corporation.
I.2 OTHER OFFICES
The board of directors may at any time establish branch or
subordinate offices at any place or places where the corporation is qualified to
do business.
II. MEETINGS OF STOCKHOLDERS
II.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place within or
outside the State of Delaware designated by the board of directors. In the
absence of any such designation, stockholders' meetings shall be held at the
principal executive office of the corporation.
II.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year on a
date and at a time designated by the board of directors. In the absence of such
designation, the annual meeting of stockholders shall be held on the third
Tuesday in June in each year at 10:00 a.m. However, if such day falls on a legal
holiday, then the meeting shall be held at the same time and place on the next
succeeding full business day. At the meeting, directors shall be elected, and
any other proper business may be transacted if brought before the meeting in
accordance with Section 2.5 of these Bylaws.
II.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by
the board of directors, or by the chairman of the board, or by the chief
executive officer.
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II.4 NOTICE OF STOCKHOLDERS' MEETINGS
Except as otherwise provided by the General Corporation Law of
Delaware, all notices of meetings of stockholders shall be sent or otherwise
given in accordance with Section 2.6 of these bylaws not less than ten (10) nor
more than sixty (60) days before the date of the meeting. The notice shall
specify the place, date and hour of the meeting and (i) in the case of a special
meeting, the purpose or purposes for which the meeting is called (no business
other than that specified in the notice may be transacted) or (ii) in the case
of the annual meeting, those matters which the board of directors, at the time
of giving the notice, intends to present for action by the stockholders (but any
proper matter may be presented at the meeting for such action). The notice of
any meeting at which directors are to be elected shall include the name of any
nominee or nominees who, at the time of the notice, the board intends to present
for election.
II.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS
(a) To be properly brought before an annual meeting, nominations for the
election of directors or other business must be (i) specified in the
notice of meeting (or any supplement thereto) given by or at the
direction of the board of directors, (ii) otherwise properly brought
before the meeting by or at the direction of the board of directors or
(iii) otherwise properly brought before the meeting by a stockholder
in accordance with Section 2.5 (b). To be properly brought before a
special meeting, nominations for the election of directors or other
business must be specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the board of directors.
(b) For business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in
writing to the Secretary of the corporation. To be timely, such
stockholder's notice must be delivered to or mailed and received by
the secretary of the corporation not less than 60 days prior to the
meeting; provided, however, that in the event that less than 60 days
notice or prior public disclosure of the date of the meeting is given
or made to stockholders, notice by the stockholder to be timely must
be so received not later than the close of business on the seventh day
following the day on which such notice of the date of the meeting was
mailed or such public disclosure was made. A stockholder's notice to
the Secretary shall set forth as to each matter the stockholder
proposes to bring before the annual meeting: (i) a brief description
of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii)
the name and address, as they appear on the corporation's books, of
the stockholder proposing such business, (iii) the class and number of
shares of the corporation which are beneficially owned by the
stockholder, (iv) any material interest of the stockholder in such
business and (v) any other information that is required to be provided
by the stockholder pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), in his capacity
as a proponent to a stockholder proposal. Notwithstanding the
foregoing, in order to include information with respect to a
stockholder proposal in the proxy statement and form of proxy for a
stockholder's meeting, stockholders must provide notice as required by
the regulations promulgated under the Exchange Act. Notwithstanding
anything in these bylaws to the contrary, no business shall be
conducted at any annual meeting except in accordance with the
procedures set forth in this Section 2.5. The chairman of the annual
meeting shall, if the facts warrant,
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determine and declare at the meeting that business was not properly
brought before the meeting and in accordance with the provisions of
this Section 2.5, and, if he or she should so determine, he or she
shall so declare at the meeting that any such business not properly
brought before the meeting shall not be transacted.
(c) Only persons who are nominated in accordance with the procedures set
forth in this paragraph (c) shall be eligible for election as
directors. Nominations of persons for election to the Board of
Directors of the corporation may be made at a meeting of stockholders
by or at the direction of the Board of Directors or by any stockholder
of the corporation entitled to vote in the election of directors at
the meeting who complies with the notice procedures set forth in this
paragraph (c). Such nominations, other than those made by or at the
direction of the Board of Directors, shall be made pursuant to timely
notice in writing to the Secretary of the corporation in accordance
with the provisions of paragraph (b) of this Section 2.5. Such
stockholder's notice shall set forth (i) as to such stockholder giving
notice, the information required to be provided pursuant to paragraph
(b) of this Section 2.5; and (ii) as to each person, if any, whom the
stockholder proposes to nominate for election or re-election as a
director: (A) the name, age, business address and residence address of
such person, (B) the principal occupation or employment of such
person, (C) the class and number of shares of the corporation which
are beneficially owned by such person, (D) a description of all
arrangements or understandings between the stockholder and each
nominee and any other person or persons (naming such person or
persons) pursuant to which the nominations are to be made by the
stockholder and (E) any other information relating to such person that
is required to be disclosed in solicitations of proxies for elections
of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Exchange Act (including without limitation
such person's written consent to being named in the proxy statement,
if any, as a nominee and to serving as a director if elected). At the
request of the Board of Directors, any person nominated by a
stockholder for election as a director shall furnish to the Secretary
of the corporation that information required to be set forth in the
stockholder's notice of nomination which pertains to the nominee. No
person shall be eligible for election as a director of the corporation
unless nominated in accordance with the procedures set forth in this
paragraph (c). The chairman of the meeting shall, if the facts
warrants, determine and declare at the meeting that a nomination was
not made in accordance with the procedures prescribed by these bylaws,
and if he should so determine, he shall so declare at the meeting, and
the defective nomination shall be disregarded.
II.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders shall be given
either personally or by first-class mail or by telegraphic or other written
communication. Notices not personally delivered shall be sent charges prepaid
and shall be addressed to the stockholder at the address of that stockholder
appearing on the books of the corporation or given by the stockholder to the
corporation for the purpose of notice. Notice shall be deemed to have been given
at the time when delivered personally or deposited in the mail or sent by
telegram or other means of written communication. If any notice addressed to a
stockholder at the address of that stockholder appearing on the books of the
corporation is returned to the corporation by the United States Postal Service
marked to indicate that the United States Postal Service is unable to deliver
the notice to the stockholder at that address, then all future notices or
reports shall be deemed to have been duly given without further mailing if the
same shall be
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available to the stockholder on written demand of the stockholder at the
principal executive office of the corporation for a period of one (1) year from
the date of the giving of the notice.
An affidavit of the mailing or other means of giving any notice of
any stockholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
II.7 QUORUM
The holders of one-third in voting power of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. Where a separate vote by a class or classes is
required, one-third, present in person or by proxy, of the shares of such class
or classes entitled to take action with respect to that vote on that matter
shall constitute a quorum. If, however, such quorum is not present or
represented at any meeting of the stockholders, then either (i) the chairman of
the meeting or (ii) the holders of a majority of the shares represented at the
meeting and entitled to vote thereat, present in person or represented by proxy,
shall have power to adjourn the meeting in accordance with Section 2.8 of these
bylaws.
When a quorum is present at any meeting, the vote of the holders
of a majority of the stock having voting power present in person or represented
by proxy shall decide any question brought before such meeting, unless the
question is one upon which, by express provision of the laws of the State of
Delaware or of the certificate of incorporation or these bylaws, a different
vote is required, in which case such express provision shall govern and control
the decision of the question.
If a quorum be initially present, the stockholders may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken is approved by a
majority of the stockholders initially constituting the quorum.
II.8 ADJOURNED MEETING; NOTICE
Any stockholders' meeting, annual or special, whether or not a
quorum is present, may be adjourned from time to time by (i) the chairman of the
meeting or (ii) the vote of the holders of a majority of the shares represented
at that meeting and entitled to vote thereat, either in person or by proxy. In
the absence of a quorum, no other business may be transacted at that meeting
except as provided in Section 2.7 of these bylaws.
When a meeting is adjourned to another time and place, unless
these bylaws otherwise require, notice need not be given of the adjourned
meeting if the time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting the corporation may transact any
business that might have been transacted at the original meeting. If the
adjournment is for more than thirty (30) days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
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II.9 VOTING
The stockholders entitled to vote at any meeting of stockholders
shall be determined in accordance with the provisions of Section 2.12 of these
bylaws, subject to the provisions of Sections 217 and 218 of the General
Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors
and joint owners, and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of
incorporation or these bylaws, each stockholder shall be entitled to one vote
for each share of capital stock held by such stockholder. Any stockholder
entitled to vote on any matter may vote part of the shares in favor of the
proposal, refrain from voting the remaining shares or, may vote them against the
proposal; but, if the stockholder fails to specify the number of shares which
the stockholder is voting affirmatively, it will be conclusively presumed that
the stockholder's approving vote is with respect to all shares which the
stockholder is entitled to vote.
II.10 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT
The transactions of any meeting of stockholders, either annual or
special, however called and noticed, and wherever held, shall be as valid as
though they had been taken at a meeting duly held after regular call and notice,
if a quorum be present either in person or by proxy, and if, either before or
after the meeting, each person entitled to vote, who was not present in person
or by proxy, signs a written waiver of notice or a consent to the holding of the
meeting or an approval of the minutes thereof. The waiver of notice or consent
or approval need not specify either the business to be transacted or the purpose
of any annual or special meeting of stockholders. All such waivers, consents,
and approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver
of notice of and presence at that meeting, except when the person objects at the
beginning of the meeting to the transaction of any business because the meeting
is not lawfully called or convened. Attendance at a meeting is not a waiver of
any right to object to the consideration of matters required by law to be
included in the notice of the meeting but not so included, if that objection is
expressly made at the meeting.
II.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise provided in the certificate of incorporation, any
action required or permitted to be taken at any annual or special meeting of
stockholders may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing setting forth the action so taken
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Such consents shall be delivered to the corporation by delivery to it
registered office in the state of Delaware, its principal place of business, or
an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to a
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested.
Every written consent shall bear the date of signature of each
stockholder who signs the consent, and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty (60) days
after the date the earliest dated consent is delivered to the corporation, a
written
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consent or consents signed by holders of a sufficient number of votes to
take action are delivered to the corporation in the manner prescribed in the
first paragraph of this section.
Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is consented
to is such as would have required the filing of a certificate under any section
of the General Corporation Law of Delaware if such action had been voted on by
stockholders at a meeting thereof, then the certificate filed under such section
shall state, in lieu of any statement required by such section concerning any
vote of stockholders, that written notice and written consent have been given as
provided in Section 228 of the General Corporation Law of Delaware.
II.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING
For purposes of determining the stockholders entitled to notice of
any meeting or to vote thereat the board of directors may fix, in advance, a
record date, which shall not precede the date upon which the resolution fixing
the record date is adopted by the board of directors and which shall not be more
than sixty (60) days nor less than ten (10) days before the date of any such
meeting, and in such event only stockholders of record on the date so fixed are
entitled to notice and to vote, notwithstanding any transfer of any shares on
the books of the corporation after the record date.
If the board of directors does not so fix a record date the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the business day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held.
A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting unless the board of directors fixes a new record date for the adjourned
meeting, but the board of directors shall fix a new record date if the meeting
is adjourned for more than thirty (30) days from the date set for the original
meeting.
In order that the corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the board
of directors may fix a record date, which record date shall neither precede nor
be more than ten (10) days after the date upon which such resolution is adopted
by the board of directors. Any stockholder of record seeking to have the
stockholders authorize or take action by written consent shall, by written
notice to the secretary, request the board of directors to fix a record date.
The board of directors shall promptly, but in all events within ten (10) days
after the date on which such notice is received, adopt a resolution fixing the
record date.
If the board of directors has not fixed a record date within such
time, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the board
of directors is required by law, shall be the first date on which a signed
written consent setting forth the action taken or proposed to be taken is
delivered to the corporation in the manner prescribed in the first paragraph of
Section 2.11 of these bylaws. If the board of directors has not fixed a record
date within such time and prior action by the board of directors is required by
law, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be at the close of business
on the date on which the board of directors adopts the resolution taking such
prior action.
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The record date for any other purpose shall be as provided in
Section 8.1 of these bylaws.
II.13 PROXIES
Every person entitled to vote for directors, or on any other
matter, shall have the right to do so either in person or by one or more agents
authorized by a written proxy signed by the person and filed with the secretary
of the corporation in accordance with the procedure established for the meeting
or taking of action in writing, as the case may be, but no such proxy shall be
voted or acted upon after three (3) years from its date, unless the proxy
provides for a longer period. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission, telefacsimile or otherwise) by the
stockholder or the stockholder's attorney-in-fact. The revocability of a proxy
that states on its face that it is irrevocable shall be governed by the
provisions of Section 212(e) of the General Corporation Law of Delaware
(relating to the irrevocability of proxies).
II.14 ORGANIZATION
The chairman of the board, or in the absence of the chairman of
the board, the chief executive officer, and in the absence of the chief
executive officer, the president, and in the absence of the president, the vice
presidents, in order of their rank as fixed by the board of directors, shall
call the meeting of the stockholders to order, and shall act as chairman of the
meeting. In the absence of the chairman of the board, the chief executive
officer, the president, and all of the vice presidents, the stockholders shall
appoint a chairman for such meeting. The chairman of any meeting of stockholders
shall determine the order of business and the procedures at the meeting,
including such matters as the regulation of the manner of voting and the conduct
of business. The date and time of the opening and closing of the polls for each
matter upon which the stockholders will vote at the meeting shall be announced
at the meeting. The secretary of the corporation shall act as secretary of all
meetings of the stockholders, but in the absence of the secretary at any meeting
of the stockholders, the chairman of the meeting may appoint any person to act
as secretary of the meeting.
II.15 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of the corporation
shall prepare and make, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list of stockholders or
the books of the corporation, or to vote in person or by proxy at any meeting of
stockholders and of the number of shares held by each such stockholder.
II.16 INSPECTORS OF ELECTION
The corporation may, and to the extent required by law, shall, in advance of any
meeting of stockholders, appoint one or more inspectors to act at the meeting
and make a written report thereof. The corporation may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. If no
inspector or alternate is able to act at a meeting of stockholders, the person
presiding at the meeting may, and to the extent required by law, shall, appoint
one or more inspectors to act at the meeting. Each inspector, before entering
upon the discharge of his duties, shall take and sign an oath faithfully to
execute the duties of inspector with strict
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impartiality and according to the best of his ability. Every vote taken by
ballots shall be counted by an inspector or inspectors appointed by the chairman
of the meeting.
Such inspectors shall:
(a) determine the number of shares outstanding and the voting
power of each, the number of shares represented at the
meeting, the existence of a quorum, and the authenticity,
validity, and effect of proxies;
(b) receive votes, ballots or consents;
(c) hear and determine all challenges and questions in any way arising in
connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
(f) determine and certify the result; and
(g) do any other acts that may be proper to conduct the election or vote
with fairness to all stockholders.
II.17 INSPECTORS OF ELECTION AND PROCEDURES FOR COUNTING WRITTEN CONSENTS
Within three (3) business days after receipt of the earliest dated
consent delivered to the corporation in the manner provided in Section 228(c) of
the General Corporation Law of Delaware or the determination by the board of
directors of the corporation that the corporation should seek corporate action
by written consent, as the case may be, the secretary may, but is not required
to, engage nationally recognized independent inspectors of elections for the
purpose of performing a ministerial review of the validity of the consents and
revocations. The cost of retaining inspectors of election shall be borne by the
corporation.
Consents and revocations shall be delivered to the inspectors upon
receipt by the corporation, the stockholder or stockholders soliciting consents
or soliciting revocations in opposition to action by consent proposed by the
corporation (the "Soliciting Stockholders") or their proxy solicitors or other
designated agents. As soon as consents and revocations are received, the
inspectors shall review the consents and revocations and shall maintain a count
of the number of valid and unrevoked consents. The inspectors shall keep such
count confidential and shall not reveal the count to the corporation, the
Soliciting Stockholders or their representatives or any other person or entity.
As soon as practicable after the earlier of W sixty (60) days after the date of
the earliest dated consent delivered to the corporation in the manner provided
in Section 228(c) of the General Corporation Law of Delaware or (ii) a written
request therefor by the corporation or the Soliciting Stockholders (whichever is
soliciting consents) (which request, except in the case of corporate action by
written consent taken pursuant to the solicitations of not more than ten (10)
persons, may be made no earlier than after such reasonable amount of time after
the commencement date of the applicable solicitation of consents as is necessary
to permit the inspectors to commence and organize their count, but in no event
less than five (5) days after such commencement date), notice of which request
shall be given to the party opposing the solicitation of consents, if any, which
request shall state that the corporation or Soliciting Stockholders, as the case
may be, have a good faith belief that the requisite number of valid and
unrevoked consents to authorize or take the action specified in the consents has
been received in accordance with these bylaws, the inspectors shall issue a
preliminary report to the corporation and the Soliciting Stockholders stating: W
the number of valid consents; (ii) the number of valid revocations; (iii) the
number of valid and unrevoked consents; (iv) the number of invalid consents; M
the
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number of invalid revocations; and (vi) whether, based on their preliminary
count, the requisite number of valid and unrevoked consents has been obtained to
authorize or take the action specified in the consents.
Unless the corporation and the Soliciting Stockholders shall agree
in writing to a shorter or longer period, the corporation and the Soliciting
Stockholders shall have 48 hours to review the consents and revocations and to
advise the inspectors and the opposing party in writing as to whether they
intend to challenge the preliminary report of the inspectors. If no written
notice of an intention to challenge the preliminary report is received within 48
hours after the inspectors' issuance of the preliminary report, the inspectors
shall issue to the corporation and the Soliciting Stockholders their final
report containing the information from the inspectors' determination with
respect to whether the requisite number of valid and unrevoked consents was
obtained to authorize and take the action specified in the consents. If the
corporation or the Soliciting Stockholders issue written notice of an intention
to challenge the inspectors' preliminary report within 48 hours after the
issuance of that report, a challenge session shall be scheduled by the
inspectors as promptly as practicable. A transcript of the challenge session
shall be recorded by a certified court reporter. Following completion of the
challenge session, the inspectors shall as promptly as practicable issue their
final report to the corporation and the Soliciting Stockholders, which report
shall contain the information included in the preliminary report, plus all
changes made to the vote totals as a result of the challenge and a certification
of whether the requisite number of valid and unrevoked consents was obtained to
authorize or take the action specified in the consents. A copy of the final
report of the inspectors shall be included in the book in which the proceedings
of meetings of stockholders are recorded.
III. DIRECTORS
III.1 POWERS
Subject to the provisions of the General Corporation Law of
Delaware and to any limitations in the certificate of incorporation or these
bylaws relating to action required to be approved by the stockholders or by the
outstanding shares, the business and affairs of the corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
board of directors.
III.2 NUMBER OF DIRECTORS
The board of directors shall consist of no less than three (3) and
no more than eleven (11) members. The number of directors may be changed by an
amendment to this bylaw, duly adopted by the board of directors or by the
stockholders, or by a duly adopted amendment to the certificate of
incorporation. No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office expires.
If for any cause, the directors shall not have been elected at an annual
meeting, they may be elected as soon thereafter as convenient at a special
meeting of the stockholders called for that purpose in the manner provided in
these Bylaws.
III.3 ELECTION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these bylaws, directors shall
hold office until the expiration of the term for which elected and until a
successor has been elected and qualified; except that if any such election shall
not be so held, such election shall take place at a stockholders' meeting called
and held in accordance with the General Corporation Law of Delaware.
Effective upon the effective date of the registration of any class
of securities of the corporation pursuant to the requirements of the Exchange
Act (the "Effective Date"), the directors of the corporation shall be divided
into three classes as nearly equal in size as is practicable, hereby designated
Class I, Class II and Class III. The term of office of the initial Class I
directors shall expire at the first regularly-scheduled annual meeting of the
stockholders following the Effective Date, the term of office of the initial
Class II directors shall expire at the second annual meeting of the stockholders
following the Effective Date and the term of office of the initial
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Class III directors shall expire at the third annual meeting of the
stockholders following the Effective Date. At each annual meeting of
stockholders, commencing with the first regularly-scheduled annual meeting of
stockholders following the Effective Date, each of the successors elected to
replace the directors of a Class whose term shall have expired at such annual
meeting shall be elected to hold office until the third annual meeting next
succeeding his or her election and until his or her respective successor shall
have been duly elected and qualified. If the number of directors is hereafter
changed, any newly created directorships or decrease in directorships shall be
so apportioned among the classes as to make all classes as nearly equal in
number as is practicable, provided that no decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
Directors need not be stockholders unless so required by the
certificate of incorporation or these bylaws, wherein other qualifications for
directors may be prescribed.
Elections of directors need not be by written ballot.
III.4 RESIGNATION AND VACANCIES
Any director may resign effective on giving written notice to the
chairman of the board, the president, the secretary or the board of directors,
unless the notice specifies a later time for that resignation to become
effective. If the resignation of a director is effective at a future time, only
a majority of the board of directors then in office, including those who have so
resigned (until the effective date of such resignation), shall have the power to
fill such vacancy or vacancies, the vote thereon to take effect when such
resignation or resignations shall become effective.
Vacancies in the board of directors may be filled by a majority of
the remaining directors, even if less than a quorum, or by a sole remaining
director; however, a vacancy created by the removal of a director by the vote of
the stockholders or by court order may be filled only by the affirmative vote of
a majority of the shares represented and voting at a duly held meeting at which
a quorum is present (which shares voting affirmatively also constitute a
majority of the required quorum). Each director so elected shall hold office
until the next annual meeting of the stockholders and until a successor has been
elected and qualified.
Unless otherwise provided in the certificate of incorporation or
these bylaws:
(i) Vacancies and newly created directorships resulting from
any increase in the authorized number of directors elected
by all of the stockholders having the right to vote as a
single class may be filled only by a majority of the
directors then in office, although less than a quorum, or
by a sole remaining director.
(ii) Whenever the holders of any class or classes of stock or
series thereof are entitled to elect one or more
directors by the provisions of the certificate of
incorporation, vacancies and newly created directorships
of such class or classes or series may be filled only by
a majority of the directors elected by such class or
classes or series thereof then in office, or by a sole
remaining director so elected. In the event that no
directors elected by such class or classes of stock or
series remain, the majority of the other directors then
in office, although less than a quorum, or a sole
remaining director may fill such vacancy or vacancies.
If at any time, by reason of death or resignation or other cause,
the corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
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If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten (10) percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office as aforesaid,
which election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
III.5 REMOVAL OF DIRECTORS
Unless otherwise restricted by statute, by the certificate of
incorporation or by these bylaws, any director or the entire board of directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors; provided, however,
that, if and so long as stockholders of the corporation are entitled to
cumulative voting, if less than the entire board is to be removed, no director
may be removed without cause if the votes cast against his removal would be
sufficient to elect him if then cumulatively voted at an election of the entire
board of directors. Whenever the holders of any class or series are entitled to
elect one or more directors by the certificate of incorporation, this Section
3.5 shall apply, in respect to the removal without cause of a director or
directors so elected, to the vote of the holders of the outstanding shares of
that class or series and not to the vote of the outstanding shares as a whole.
No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of such director's term
of office.
III.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
Regular meetings of the board of directors may be held at any
place within or outside the State of Delaware that has been designated from time
to time by resolution of the board. In the absence of such a designation,
regular meetings shall be held at the principal executive office of the
corporation. Special meetings of the board may be held at any place within or
outside the State of Delaware that has been designated in the notice of the
meeting or, if not stated in the notice or if there is no notice, at the
principal executive office of the corporation.
Any meeting of the board, regular or special, may be held by
conference telephone or similar communication equipment, so long as all
directors participating in the meeting can hear one another; and all such
participating directors shall be deemed to be present in person at the meeting.
III.7 FIRST MEETINGS
The first meeting of each newly elected board of directors shall
be held at such time and place as shall be fixed by the vote of the stockholders
at the annual meeting and no notice of such meeting shall be necessary to the
newly elected directors in order legally to constitute the meeting, provided a
quorum shall be present. In the event of the failure of the stockholders to fix
the time or place of such first meeting of the newly elected board of directors,
or in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.
III.8 REGULAR MEETINGS
Regular meetings of the board of directors may be held without
notice at such time as shall from time to time be determined by the board of
directors. If any regular meeting day shall fall on a legal holiday, then the
meeting shall be held at the same time and place on the next succeeding full
business day.
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III.9 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail,
telecopy or telegram, charges prepaid, addressed to each director at that
director's address as it is shown on the records of the corporation. If the
notice is mailed, it shall be deposited in the United States mail at least two
(2) days before the time of the holding of the meeting. If the notice is
delivered personally or by telephone, telecopy or telegram, it shall be
delivered personally or by telephone or telecopy or to the telegraph company at
least four (4) hours before the time of the holding of the meeting. Any oral
notice given personally or by telephone may be communicated either to the
director or to a person at the office of the director who the person giving the
notice has reason to believe will promptly communicate it to the director. If
the meeting is to be held at the principal executive office of the corporation,
the notice need not specify the place of the meeting. Moreover, a notice of
special meeting need not state the purpose of such meeting, and, unless
indicated in the notice thereof, any and all business may be transacted at a
special meeting.
III.10 QUORUM
A majority of the authorized number of directors shall constitute a
quorum for the transaction of business, except to adjourn as provided in Section
3.12 of these bylaws. Every act or decision done or made by a majority of the
directors present at a duly held meeting at which a quorum is present shall be
regarded as the act of the board of directors, subject to the provisions of the
certificate of incorporation and applicable law.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the quorum for that meeting.
III.11 WAIVER OF NOTICE
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice, whether before or after the meeting, or (ii) who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to such directors. All such waivers shall be filed with the corporate
records or made part of the minutes of the meeting. A waiver of notice need not
specify the purpose of any regular or special meeting of the board of directors.
III.12 ADJOURNMENT
A majority of the directors present, whether or not constituting a
quorum, may adjourn any meeting of the board to another time and place.
III.13 NOTICE OF ADJOURNMENT
Notice of the time and place of holding an adjourned meeting of the
board need not be given unless the meeting is adjourned for more than
twenty-four (24) hours. If the meeting is adjourned for more than twenty-four
(24) hours, then notice of the time and place of the adjourned meeting shall be
given before the adjourned meeting takes place, in the manner specified in
Section 3.9 of these bylaws, to the directors who were not present at the time
of the adjournment.
III.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
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Any action required or permitted to be taken by the board of directors
may be taken without a meeting, provided that all of the members of the board
individually or collectively consent in writing to that action. Such action by
written consent shall have the same force and effect as a unanimous vote of the
board of directors. Such written consent and any counterparts thereof shall be
filed with the minutes of the proceedings of the board of directors.
III.15 FEES AND COMPENSATION OF DIRECTORS
Directors and members of committees may receive such compensation, if
any, for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the board of directors. This Section 3.15 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services. Members of special or standing committees may be allowed
like compensation for attending committee meetings.
III.16 APPROVAL OF LOANS TO OFFICERS
The corporation may tend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or any of its
subsidiaries, including any officer or employee who is a director of the
corporation or any of its subsidiaries, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing contained in this section shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
III.17 SOLE DIRECTOR PROVIDED BY CERTIFICATE OF INCORPORATION
In the event only one director is required by these bylaws or the
certificate of incorporation, then any reference herein to notices, waivers,
consents, meetings or other actions by a majority or quorum of the directors
shall be deemed to refer to such notice, waiver, etc., by such sole director,
who shall have all the rights and duties and shall be entitled to exercise all
of the powers and shall assume all the responsibilities otherwise herein
described as given to the board of directors.
III.18 CONDUCT OF BUSINESS
At any meeting of the board of directors, business shall be
transacted in such order and manner as the board may from time to time
determine, and all matters shall be determined by the vote of a majority of the
directors present, except as otherwise provided herein or required by law.
IV. COMMITTEES
IV.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one or more committees, each
consisting of one or more directors, to serve at the pleasure of the board. The
board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. The appointment of members or alternate members of a committee
requires the vote of a majority of the authorized number of directors. Any
committee, to the extent provided in the resolution of the board, shall have and
may exercise all the powers and authority of the board, but no such committee
shall have the power or authority to (i) amend the certificate of incorporation
(except that a committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by the board
of directors as provided in Section 151 (a) of the General
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Corporation Law of Delaware, fix the designations and any of the preferences or
rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the corporation or the conversion into, or the
exchange of such shares for, shares of any other class or classes or any other
series of the same or any other class or classes of stock of the corporation or
fix the number of shares of any series of stock or authorize the increase or
decrease of the shares of any series), (ii) adopt an agreement of merger or
consolidation under Sections 251 or 252 of the General Corporation Law of
Delaware, (iii) recommend to the stockholders the sale, lease or exchange of all
or substantially all of the corporation's property and assets, (iv) recommend to
the stockholders a dissolution of the corporation or a revocation of a
dissolution or (v) amend the bylaws of the corporation; and, unless the board
resolution establishing the committee, a supplemental resolution of the board of
directors, the bylaws or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend, to
authorize the issuance of stock, or to adopt a certificate of ownership and
merger pursuant to Section 253 of the General Corporation Law of Delaware.
IV.2 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the following provisions of Article III of these
bylaws: Section 3.6 (place of meetings; meetings by telephone), Section 3.8
(regular meetings), Section 3.9 (special meetings; notice), Section 3.10
(quorum), Section 3.11 (waiver of notice), Section 3.12 (adjournment), Section
3.13 (notice of adjournment) and Section 3.14 (board action by written consent
without meeting), with such changes in the context of those bylaws as are
necessary to substitute the committee and its members for the board of directors
and its members; provided, however, that the time of regular meetings of
committees may be determined either by resolution of the board of directors or
by resolution of the committee, that special meetings of committees may also be
called by resolution of the board of directors, and that notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The board of directors
may adopt rules for the government of any committee not inconsistent with the
provisions of these bylaws.
IV.3 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report
the same to the board of directors when required.
V. OFFICERS
V.1 OFFICERS
The Corporate Officers of the corporation shall be a president, a
secretary and a chief financial officer. The corporation may also have, at the
discretion of the board of directors, a chairman of the board, a chief executive
officer, a chief operating officer, a chief technical officer, one or more vice
presidents (however denominated), one or more assistant secretaries, a
treasurer, one or more assistant treasurers and such other officers as may be
appointed in accordance with the provisions of Section 5.3 of these bylaws. Any
number of offices may be held by the same person.
In addition to the Corporate Officers of the Company described above,
there may also be such Administrative Officers of the corporation as may be
designated and appointed from time to time by the president of the corporation
in accordance with the provisions of Section 5.12 of these bylaws.
V.2 APPOINTMENT OF OFFICERS
The Corporate Officers of the corporation, except such officers as may
be appointed in accordance with the provisions of Section 5.3 or Section 5.5 of
these bylaws, shall be chosen by the board of directors, subject to the rights,
if any, of an officer under any contract of employment, and shall hold their
respective offices for such terms as the board of directors may from time to
time determine.
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V.3 SUBORDINATE OFFICERS
The board of directors may appoint, or may empower the president to
appoint, such other Corporate Officers as the business of the corporation may
require, each of whom shall hold office for such period, have such power and
authority, and perform such duties as are provided in these bylaws or as the
board of directors may from time to time determine.
The president may from time to time designate and appoint
Administrative Officers of the corporation in accordance with the provisions of
Section 5.12 of these bylaws.
V.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of a Corporate Officer under any
contract of employment, any Corporate Officer may be removed, either with or
without cause, by the board of directors at any regular or special meeting of
the board or, except in case of a Corporate Officer chosen by the board of
directors, by any Corporate Officer upon whom such power of removal may be
conferred by the board of directors.
Any Corporate Officer may resign at any time by giving written notice
to the corporation. Any resignation shall take effect at the date of the receipt
of that notice or at any later time specified in that notice; and, unless
otherwise specified in that notice, the acceptance of the resignation shall not
be necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the Corporate
Officer is a party.
Any Administrative Officer designated and appointed by the president
may be removed, either with or without cause, at any time by the president. Any
Administrative Officer may resign at any time by giving written notice to the
president or to the secretary of the corporation.
V.5 VACANCIES IN OFFICES
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these bylaws for regular appointments to that office.
V.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise such other
powers and perform such other duties as may from time to time be assigned to him
by the board of directors or as may be prescribed by these bylaws. If there is
no president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.
V.7 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the
board of directors to the chairman of the board, if there be such an officer,
the president shall, unless a separate chief executive officer be appointed by
the board of directors, be the chief executive officer of the corporation and
shall, subject to the control of the board of directors, have general
supervision, direction and control of the business and the officers of the
corporation. In the absence or nonexistence of a chairman of the board or a
separate chief executive officer, he or she shall preside at all meetings of the
stockholders and at all meetings of the board of directors. He or she shall have
the general powers and duties of management usually vested in the office of
president of a corporation, and shall have such other powers and perform such
other duties as may be prescribed by the board of directors or these bylaws.
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The president shall, without limitation, have the authority to execute
bonds, mortgages and other contracts requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the corporation.
V.8 VICE PRESIDENTS
In the absence or disability of the president, and if there is no
chairman of the board, the vice presidents, if any, in order of their rank as
fixed by the board of directors or, if not ranked, a vice president designated
by the board of directors, shall perform all the duties of the president and
when so acting shall have all the powers of, and be subject to all the
restrictions upon, the president. The vice presidents shall have such other
powers and perform such other duties as from time to time may be prescribed for
them respectively by the board of directors, these bylaws, the president or the
chairman of the board.
V.9 SECRETARY
The secretary shall keep or cause to be kept, at the principal
executive office of the corporation or such other place as the board of
directors may direct, a book of minutes of all meetings and actions of the board
of directors, committees of directors and stockholders. The minutes shall show
the time and place of each meeting, whether regular or special (and, if special,
how authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the board of
directors, a share register or a duplicate share register, showing the names of
all stockholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the board of directors required to be given by law or
by these bylaws. He or she shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the board of directors or by these bylaws.
V.10 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings and shares. The books of account shall at all reasonable times
be open to inspection by any director for a purpose reasonably related to his
position as a director.
The chief financial officer shall deposit all money and other valuables
in the name and to the credit of the corporation with such depositories as may
be designated by the board of directors. He or she shall disburse the funds of
the corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his or
her transactions as chief financial officer and of the financial condition of
the corporation, and shall have such other powers and perform such other duties
as may be prescribed by the board of directors or these bylaws.
V.11 ASSISTANT SECRETARY
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The assistant secretary, if any, or, if there is more than one, the
assistant secretaries in the order determined by the board of directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the secretary or in the event of his or her inability or refusal
to act, perform the duties and exercise the powers of the secretary and shall
perform such other duties and have such other powers as the board of directors
may from time to time prescribe.
V.12 ADMINISTRATIVE OFFICERS
In addition to the Corporate Officers of the corporation as provided in
Section 5.1 of these bylaws and such subordinate Corporate Officers as may be
appointed in accordance with Section 5.3 of these bylaws, there may also be such
Administrative Officers of the corporation as may be designated and appointed
from time to time by the president of the corporation. Administrative Officers
shall perform such duties and have such powers as from time to time may be
determined by the president or the board of directors in order to assist the
Corporate Officers in the furtherance of their duties. In the performance of
such duties and the exercise of such powers, however, such Administrative
Officers shall have limited authority to act on behalf of the corporation as the
board of directors shall establish, including but not limited to limitations on
the dollar amount and on the scope of agreements or commitments that may be made
by such Administrative Officers on behalf of the corporation, which limitations
may not be exceeded by such individuals or altered by the president without
further approval by the board of directors.
V.13 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing powers, authority and duties, all officers
of the corporation shall respectively have such authority and powers and perform
such duties in the management of the business of the corporation as may be
designated from time to time by the board of directors.
VI. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS
VI.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner
permitted by the General Corporation Law of Delaware as the same now exists or
may hereafter be amended, indemnify any person against expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement actually and
reasonably incurred in connection with any threatened, pending or completed
action, suit, or proceeding in which such person was or is a party or is
threatened to be made a party by reason of the fact that such person is or was a
director or officer of the corporation. For purposes of this Section 6. 1, a
"director" or "officer" of the corporation shall mean any person W who is or was
a director or officer of the corporation, (ii) who is or was serving at the
request of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise or (iii) who was a
director or officer of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
The corporation shall be required to indemnify a director or officer in
connection with an action, suit, or proceeding (or part thereof) initiated by
such director or officer only if the initiation of such action, suit, or
proceeding (or part thereof) by the director or officer was authorized by the
board of Directors of the corporation.
The corporation shall pay the expenses (including attorney's fees)
incurred by a director or officer of the corporation entitled to indemnification
hereunder in defending any action, suit or proceeding referred to in this
Section 6.1 in advance of its final disposition; provided, however, that payment
of expenses incurred by a director or officer of the corporation in advance of
the final disposition of such action, suit or proceeding shall be made only upon
receipt of an undertaking by the director or officer to repay all amounts
advanced if it should ultimately be determined that the director or officer is
not entitled to be indemnified under this Section 6.1 or otherwise.
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The rights conferred on any person by this Article shall not be
exclusive of any other rights which such person may have or hereafter acquire
under any statute, provision of the corporation's Certificate of Incorporation,
these bylaws, agreement, vote of the stockholders or disinterested directors or
otherwise.
Any repeal or modification of the foregoing provisions of this Article
shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
VI.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the maximum extent and in the
manner permitted by the General Corporation Law of Delaware as the same now
exists or may hereafter be amended, to indemnify any person (other than
directors and officers) against expenses (including attorneys' fees), judgments,
fines, and amounts paid in settlement actually and reasonably incurred in
connection with any threatened, pending or completed action, suit, or
proceeding, in which such person was or is a party or is threatened to be made a
party by reason of the fact that such person is or was an employee or agent of
the corporation. For purposes of this Section 6.2, an "employee" or "agent" of
the corporation (other than a director or officer) shall mean any person W who
is or was an employee or agent of the corporation, (ii) who is or was serving at
the request of the corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise or (iii) who was an
employee or agent of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
VI.3 INSURANCE
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify him or her
against such liability under the provisions of the General Corporation Law of
Delaware.
VII. RECORDS AND REPORTS
VII.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive office or at
such place or places as designated by the board of directors, keep a record of
its stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these bylaws as amended to date,
accounting books and other records of its business and properties.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
VII.2 INSPECTION BY DIRECTORS
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Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders and its other books and records for a purpose
reasonably related to his or her position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a director
is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
I.1 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, if any, the chief executive officer, if
separate from the president, the president, any vice president, the chief
financial officer, the secretary or any assistant secretary of this corporation,
or any other person authorized by the board of directors or the president or a
vice president, is authorized to vote, represent and exercise on behalf of this
corporation all rights incident to any and all shares of the stock of any other
corporation or corporations standing in the name of this corporation. The
authority herein granted may be exercised either by such person directly or by
any other person authorized to do so by proxy or power of attorney duly executed
by such person having the authority.
VII.4 CERTIFICATION AND INSPECTION OF BYLAWS
The original or a copy of these bylaws, as amended or otherwise altered
to date, certified by the secretary, shall be kept at the corporation's
principal executive office and shall be open to inspection by the stockholders
of the corporation, at all reasonable times during office hours.
VIII. GENERAL MATTERS
VIII.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
For purposes of determining the stockholders entitled to receive
payment of any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the board of directors may fix, in advance, a record date, which shall not
precede the date upon which the resolution fixing the record date is adopted and
which shall not be more than sixty (60) days before any such action. In that
case, only stockholders of record at the close of business on the date so fixed
are entitled to receive the dividend, distribution or allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date so fixed, except as
otherwise provided by law.
If the board of directors does not so fix a record date, then the
record date for determining stockholders for any such purpose shall be at the
close of business on the day on which the board of directors adopts the
applicable resolution.
VIII.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
VIII.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
The board of directors, except as otherwise provided in these bylaws,
may authorize and empower any officer or officers, or agent or agents, to enter
into any contract or execute any instrument in the name of and
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on behalf of the corporation; such power and authority may be general or
confined to specific instances. Unless so authorized or ratified by the board of
directors or within the agency power of an officer, no officer, agent or
employee shall have any power or authority to bind the corporation by any
contract or engagement or to pledge its credit or to render it liable for any
purpose or for any amount.
VIII.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES
The shares of the corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply to
shares represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and, upon request,
every holder of uncertificated shares, shall be entitled to have a certificate
signed by, or in the name of the corporation by, the chairman or vice-chairman
of the board of directors, or the president or vice-president, and by the
treasurer or an assistant treasurer, or the secretary or an assistant secretary
of such corporation representing the number of shares registered in certificate
form. Any or all of the signatures on the certificate may be a facsimile. In
case any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate has ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the corporation with the same effect as if he or she were such officer,
transfer agent or registrar at the date of issue.
Certificates for shares shall be of such form and device as the board
of directors may designate and shall state the name of the record holder of the
shares represented thereby; its number; date of issuance; the number of shares
for which it is issued; a summary statement or reference to the powers,
designations, preferences or other special rights of such stock and the
qualifications, limitations or restrictions of such preferences and/or rights,
if any; a statement or summary of liens, if any; a conspicuous notice of
restrictions upon transfer or registration of transfer, if any; a statement as
to any applicable voting trust agreement; if the shares be assessable, or, if
assessments are collectible by personal action, a plain statement of such facts.
Upon surrender to the secretary or transfer agent of the corporation of
a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, or upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
VIII.5 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences and the relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
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VIII.6 LOST CERTIFICATES
Except as provided in this Section 8.6, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The board of
directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
certificates on such terms and conditions as the board may require; the board
may require indemnification of the corporation secured by a bond or other
adequate security sufficient to protect the corporation against any claim that
may be made against it, including any expense or liability, on account of the
alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
VIII.7 TRANSFER AGENTS AND REGISTRARS
The board of directors may appoint one or more transfer agents or
transfer clerks, and one or more registrars, each of which shall be an
incorporated bank or trust company -- either domestic or foreign, who shall be
appointed at such times and places as the requirements of the corporation may
necessitate and the board of directors may designate.
VIII.8 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction and definitions in the General Corporation Law of Delaware shall
govern the construction of these bylaws. Without limiting the generality of this
provision, as used in these bylaws, the singular number includes the plural, the
plural number includes the singular, and the term "person" includes both an
entity and a natural person.
VIII.9 DIVIDENDS
The directors of the corporation, subject to any restrictions contained
in the certificate of incorporation, may declare and pay dividends upon the
shares of its capital stock pursuant to the General Corporation Law of Delaware.
Dividends may be paid in cash, in property, or in shares of the corporation's
capital stock.
The directors of the corporation may set apart out of any of the funds
of the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.
VIII.10 FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
VIII.11 SEAL
The corporation may adopt a corporate seal, which may be altered at
pleasure, and may use the same by causing it or a facsimile thereof to be
impressed or affixed or in any other manner reproduced.
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VIII.12 STOCK TRANSFER AGREEMENTS
The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of Delaware.
VIII.13 REGISTERED STOCKHOLDERS
The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
VIII.14 NOTICES
Except as otherwise specifically provided herein or required by law,
all notices required to be given to any stockholder, director, officer, employee
or agent shall be in writing and may in every instance be effectively given by
hand delivery, by mail, postage paid, or by facsimile transmission. Any such
notice shall be addressed to such stockholder, director, officer, employee or
agent at his last known address as it appears on the books of the corporation.
The time when such notice shall be deemed received, if hand delivered, or
dispatched, if sent by mail or facsimile, transmission, shall be the time of the
giving of the notice.
IX. AMENDMENTS
The original or other bylaws of the corporation may be adopted, amended
or repealed by the stockholders entitled to vote; provided, however, that the
corporation may, in its certificate of incorporation, confer the power to adopt,
amend or repeal bylaws upon the directors. The fact that such power has been so
conferred upon the directors shall not divest the stockholders of the power, nor
limit their power to adopt, amend or repeal bylaws.
Whenever an amendment or new bylaw is adopted, it shall be copied in
the book of bylaws with the original bylaws, in the appropriate place. If any
bylaw is repealed, the fact of repeal with the date of the meeting at which the
repeal was enacted or the filing of the operative written consent(s) shall be
stated in said book.
X. DISSOLUTION
If it should be deemed advisable in the judgment of the board of
directors of the corporation that the corporation should be dissolved, the
board, after the adoption of a resolution to that effect by a majority of the
whole board at any meeting called for that purpose, shall cause notice to be
mailed to each stockholder entitled to vote thereon of the adoption of the
resolution and of a meeting of stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the outstanding stock of the corporation entitled
to vote thereon votes for the proposed dissolution, then a certificate stating
that the dissolution has been authorized in accordance with the provisions of
Section 275 of the General Corporation Law of Delaware and setting forth the
names and residences of the directors and officers shall be executed,
acknowledged, and filed and shall become effective in accordance with Section
103 of the General Corporation Law of Delaware. Upon such certificate's becoming
effective in accordance with Section 103 of the General Corporation Law of
Delaware, the corporation shall be dissolved.
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Whenever all the stockholders entitled to vote on a dissolution consent
in writing, either in person or by duly authorized attorney, to a dissolution,
no meeting of directors or stockholders shall be necessary. The consent shall be
filed and shall become effective in accordance with Section 103 of the General
Corporation Law of Delaware. Upon such consent's becoming effective in
accordance with Section 103 of the General Corporation Law of Delaware, the
corporation shall be dissolved. If the consent is signed by an attorney, then
the original power of attorney or a photocopy thereof shall be attached to and
filed with the consent. The consent filed with the Secretary of State shall have
attached to it the affidavit of the secretary or some other officer of the
corporation stating that the consent has been signed by or on behalf of all the
stockholders entitled to vote on a dissolution; in addition, there shall be
attached to the consent a certification by the secretary or some other officer
of the corporation setting forth the names and residences of the directors and
officers of the corporation.
XI. CUSTODIAN
XI.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
The Court of Chancery, upon application of any stockholder, may appoint
one or more persons to be custodians and, if the corporation is insolvent, to be
receivers, of and for the corporation when:
(i) at any meeting held for the election of directors the
stockholders are so divided that they have failed to elect
successors to directors whose terms have expired or would have
expired upon qualification of their successors; or
(i) the business of the corporation is suffering or is threatened
with irreparable injury because the directors are so divided
respecting the management of the affairs of the corporation
that the required vote for action by the board of directors
cannot be obtained and the stockholders are unable to
terminate this division; or
(i) the corporation has abandoned its business and has failed
within a reasonable time to take steps to dissolve, liquidate
or distribute its assets.
XI.2 DUTIES OF CUSTODIAN
The custodian shall have all the powers and title of a receiver
appointed under Section 291 of the General Corporation Law of Delaware, but the
authority of the custodian shall be to continue the business of the corporation
and not to liquidate its affairs and distribute its assets, except when the
Court of Chancery otherwise orders and except in cases arising under Sections
226(a)(3) or 352(a)(2) of the General Corporation Law of Delaware.
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SCHEDULE "B" - AMENDED AND RESTATED STOCK OPTION PLAN
FUTURELINK DISTRIBUTION CORP.
AMENDED AND RESTATED STOCK OPTION PLAN
TO BE APPROVED BY FUTURELINK SHAREHOLDERS
1. Purpose
The purpose of this FutureLink Distribution Corp. Stock Option Plan
(the "Plan") is to further the growth and development of FutureLink
Distribution Corp. (the "Company") by providing, through ownership of
stock of the Company, an incentive to officers, other key employees,
directors and consultants who are in a position to contribute
materially to the prosperity of the Company, to increase such persons'
interests in the Company's welfare, to encourage them to continue their
services to the Company or its subsidiaries, and to attract individuals
of outstanding ability to enter the employment of the Company or its
subsidiaries, to remain or become directors of the Company and to
provide valuable services to the Company or its subsidiaries.
2. Incentive and Non-Qualified Stock Options
Incentive and Non-Qualified Stock Options. Two types of Stock Options
(referred to herein as "Options" without distinction between such two
types) may be granted under the Plan: Options intended to qualify as
Incentive Stock Options under Section 422 of the Code and Non-Qualified
Stock Options not specifically authorized or qualified for favourable
income tax treatment by the Code.
3. Definitions
The following definitions are applicable to the Plan:
(a) BOARD. The Board of Directors of the Company.
(b) CODE. The Internal Revenue Code of 1986, as amended from
time to time.
(c) COMMON STOCK. The shares of the $.0001 par value per share
common stock of the Company.
(d) COMPANY. FutureLink Distribution Corp., a Colorado
corporation. [NOTE: MAY BE REINCORPORATED AS A
DELAWARE CORPORATION]
(e) DISABLED OR DISABILITY. For the purposes of Section 7.4, a
disability of the type defined in Section 22(e)(3) of the
Code. The determination of whether an individual is disabled
or has a Disability is determined under procedures established
by the Plan Administrator for purposes of the Plan.
(f) FAIR MARKET VALUE. For purposes of the Plan, the "fair market
value" per share of the common stock of the Company at any
date shall be (a) if the common stock is listed on an
established stock exchange or exchanges or the NASDAQ National
Market System, the closing price per share on the last trading
day immediately preceding such date on the principal exchange
on which it is traded or as reported by NASDAQ, or (b) if the
common stock is not then listed on an exchange or the NASDAQ
National Market System, the closing price per share on the
last trading day immediately preceding such date reported by
NASDAQ, or if sales are not reported by NASDAQ, the average of
the closing bid and asked prices per share for the common
stock in the over-the-counter market as quoted on NASDAQ on
the last
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90
trading day immediately preceding such date, or (c)
if the common stock is not then listed on an exchange, the
NASDAQ National Market System or quoted on NASDAQ, an amount
determined in good faith by the Plan Administrator.
(g) INCENTIVE STOCK OPTION. Any Stock Option intended to be and
designated as an "incentive stock option" within the meaning
of Section 422 of the Code.
(h) NON-QUALIFIED STOCK OPTION. Any Stock Option that is not an
Incentive Stock Option.
(i) OPTIONEE. The recipient of a Stock Option.
(j) PLAN. The FutureLink Distribution Corp. Stock Option Plan,
as amended from to time.
(k) PLAN ADMINISTRATOR. The Board or the Compensation Committee
designated pursuant to Section 4.2 hereof to administer,
construe and interpret the terms of the Plan.
(l) STOCK OPTION OR OPTION. Any option to purchase shares of
common stock granted pursuant to Section 7 hereof.
4. Administration
(a) ADMINISTRATION BY BOARD. Subject to Section 4.2 hereof, the
Plan Administrator shall be the Board of Directors of the
Company (the "Board") during such periods of time as all
members of the Board are "outside directors" as defined in
Treas. Regs. Sec. 1.162-27(e)(3) ("outside directors").
Anything to the contrary notwithstanding, the requirement that
all members of the Board be outside directors shall not apply
for any period of time during which the Company's common stock
is not registered pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended. Subject to the provisions of
the Plan, the Plan Administrator shall have authority to
construe and interpret the Plan, to promulgate, amend, and
rescind rules and regulations relating to its administration,
from time to time to select from among the eligible employees
and directors (as determined pursuant to Section 5) of the
Company and its subsidiaries those employees and directors to
whom Stock Options will be granted, to determine the timing
and manner of the grant of the Options, to determine the
exercise price, the number of shares covered by and all of the
terms of the Stock Options, to determine the duration and
purpose of leaves of absence which may be granted to Stock
Option holders without constituting termination of their
employment for purposes of the Plan, and to make all of the
determinations necessary or advisable for administration of
the Plan. The interpretation and construction by the Plan
Administrator of any provision of the Plan, or of any
agreement issued and executed under the Plan, shall be final
and binding upon all parties. No member of the Board shall be
liable for any action or determination undertaken or made in
good faith with respect to the Plan or any agreement executed
pursuant to the Plan.
(b) ADMINISTRATION BY COMMITTEE. The Board may, in its sole
discretion, delegate any or all of its duties as Plan
Administrator and, subject to the provisions of Section 4.1 of
the Plan, at any time the Board includes any person who is not
an outside director, the Board shall delegate all of its
duties as Plan Administrator during such period of time to a
compensation committee (the "Committee") of not fewer than two
(2) members of the Board, all of the members of which
Committee shall be persons who, in the opinion of the counsel
to the Company are outside directors and "non-employee
directors" within the meaning of Rule 16b-3(b)(3)(i)
promulgated by the Securities and Exchange Commission, to be
appointed by and serve at the pleasure of the
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Board. Anything to the contrary notwithstanding, the
requirement that all members of the Committee be non-employee
directors and outside directors shall not apply for any period
of time during which the Company's common stock is not
registered pursuant to Section 12 of the Securities Exchange
Act of 1934, as amended. Those provisions of the Plan that
make express reference to Rule 16b-3 under the Securities
Exchange Act of 1934, as amended, shall apply only to
reporting persons. From time to time, the Board may increase
or decrease (to not less than two members) the size of the
Committee, and add additional members to, or remove members
from, the Committee. The Committee shall act pursuant to a
majority vote, or the written consent of a majority of its
members, and the minutes shall be kept of all of its meetings
and copies thereof shall be provided to the Board. Subject to
the provisions of the Plan and the directions of the Board,
the Committee may establish and follow such rules and
regulations for the conduct of its business as it may deem
advisable. No member of the Committee shall be liable for any
action or determination undertaken or made in good faith with
respect to the Plan or any agreement executed pursuant to the
Plan.
5. Eligibility
Any employee, director or consultant (including any officer or director
who is an employee) of the Company or any of its subsidiaries shall be
eligible to receive Options under the Plan; provided, however, that no
person who owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any of its
parent or subsidiary corporations shall be eligible to receive an
Incentive Stock Option under the Plan unless at the time such Incentive
Stock Option is granted the Option price (determined in the manner
provided in Section 7.2 hereof) is at least 110% of the Fair Market
Value of the shares subject to the Option and such Option by its terms
is not exercisable after the expiration of five years from the date
such Option is granted. An Optionee may receive more than one Option
under the Plan. However, non-employee directors are not eligible to
receive an Incentive Stock Option under the Plan.
6. Shares Subject to Options
The stock available for grant of Options under the Plan shall be shares
in the Company's authorized but unissued or reacquired, common stock.
The aggregate number of shares which may be issued pursuant to exercise
of Options granted under the Plan, as amended, shall not exceed twenty
percent of the shares of common stock, calculated on a fully diluted
basis, at the time of each grant (subject to adjustment as provided in
Section 7.13 hereof) including shares previously issued under the Plan.
The maximum number of shares with respect to which options may be
granted to any employee in any one calendar year shall be 500,000
shares. In the event that any outstanding Option under the Plan for any
reason expires, or is terminated, the shares of the common stock
allocable to the unexercised portion of the Option shall again be
available for Options under the Plan as if no Option had been granted
with respect to such shares.
7. Terms and Conditions of Options
Options granted under the Plan shall be evidenced by agreements (which
need not be identical) to such form and containing such provisions
which are consistent with the Plan as the Plan Administrator shall from
time to time approve. Such agreements may incorporate all or any of the
terms hereof by reference and shall comply with and be subject to the
following terms and conditions.
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92
(a) NUMBER OF SHARES SUBJECT TO OPTION. Each Option agreement
shall specify the number of shares subject to the Option.
(b) OPTION PRICE. The purchase price for the shares subject
to any option shall be determined by the Plan Administrator at
the time of grant, but shall not be less than par value per
share. Anything to the contrary notwithstanding, the purchase
price for the shares subject to any Incentive Stock Option
shall not be less than 100% of the Fair Market Value of the
shares of common stock of the Company on the date the Stock
Option is granted. In the case of an Incentive Stock Option
granted to an employee who owns stock possessing more than 10%
of the total combined voting power of all classes of stock of
the Company or any of its parent or subsidiary corporations,
the Option price shall not be less than 110% of the Fair
Market Value per share of the common stock of the Company on
the date the Option is granted.
(c) NOTICE AND PAYMENT. Any exercisable portion of a Stock
Option may be exercised only by:
(i) delivery of a written notice to the Company, prior to
the time when such Stock Option becomes unexercisable
under Section 7.4 hereof, stating the number of
shares being purchased and complying with all
applicable rules established by the Plan
Administrator;
(ii) payment in full of the exercise price of such Option
by, as applicable (i) cash or cheque for an amount
equal to the aggregate Option exercise price for the
number of shares being purchased, (ii) in the
discretion of the Plan Administrator, upon such
terms as the Plan Administrator shall approve, a
copy of instructions to a broker directing such
broker to sell the common stock for which such
Option is exercised, and to remit to the Company the
aggregate exercise price of such Options (a
"cashless exercise"), or (iii) in the discretion of
the Plan Administrator, upon such terms as the Plan
Administrator shall approve, the Optionee may pay
all or a portion of the purchase price for the
number of shares being purchased by tendering shares
of the Company's common stock owned by the Optionee,
duly endorsed for transfer to the Company, with a
Fair Market Value on the date of delivery equal to
the aggregate purchase price of the shares with
respect to which such Stock Option or portion is
thereby exercised (a "stock for stock exercise");
(iii) payment of the amount of tax required to be withheld
(if any) by the Company or any parent or subsidiary
corporation as a result of the exercise of a Stock
Option. At the discretion of the Plan Administrator,
upon such terms as the Plan Administrator shall
approve, the Optionee may pay all or a portion of the
tax withholding by (i) cash or cheque payable to the
Company, (ii) cashless exercise, (iii)
stock-for-stock exercise, or (iv) a combination of
one or more of the foregoing payment methods; and
(iv) delivery of a written notice to the Company
requesting that the Company direct the transfer agent
to issue to the Optionee (or to his designee) a
certificate for the number of shares of common stock
for which the Option was exercised or, in the case of
a cashless exercise, for any shares that were not
sold in the cashless exercise.
Notwithstanding the foregoing, the Company may extend and
maintain, or arrange for the extension and maintenance of,
credit to any Optionee to finance the Optionee's purchase of
shares pursuant to exercise of any Stock Option, on such terms
as may be approved by the Plan Administrator, subject to
applicable regulations of the Federal Reserve Board and any
other laws or regulations in effect at the time such credit is
extended.
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93
(d) TERM OF OPTION. No Option shall be exercisable after the
expiration of the earliest of (a) ten years after the date
the option is granted, (b) three months after the date the
Optionee's employment with the Company and its subsidiaries
terminates if such termination is for any reason other than
disability or death, (c) one year after the date the
Optionee's employment with the Company and its subsidiaries
terminates if such termination is a result of death or
disability; provided, however, that the Option agreement
for any Option may provide for shorter periods in each of
the foregoing instances. In the case of an Incentive Stock
Option granted to an employee who owns stock possessing
more than 10% of the total combined voting power of all
classes of stock of the Company or any of its parent or
subsidiary corporations, the term set forth in (a) above,
shall not be more than five years after the date the Option
is granted.
(e) EXERCISE OF OPTIONS. No Option shall be exercisable during
the lifetime of an Optionee by any person other than the
Optionee. Subject to the foregoing, the Plan Administrator
shall have the power to set the time or times within which
each Option shall be exercisable and to accelerate the time
or times of exercise. Unless otherwise provided by the Plan
Administrator, each Option granted under the Plan shall
become excisable on a cumulative basis as to one-third
(1/3) of the total number of shares covered thereby at any
time after one year from the date the Option is granted and
an additional one third (1/3) of such total number of
shares at any time after the end of each consecutive
one-year period thereafter until the Option has become
exercisable as to all of such total number of shares. The
minimum vesting provision which can be imposed by the Plan
Administrator for an Option granted under the Plan shall
become exercisable on a cumulative basis as to one-quarter
(1/4) of such total number of shares at any time after the
end of each consecutive one-year period from the date the
option is granted until the options have become exercisable
as to all of such total number of shares. To the extend
that an Optionee has the right to exercise an Option and
purchase shares pursuant thereto, the Option may be
exercised from time to time by written notice to the
Company, stating the number of shares being purchased and
accompanied by payment in full of the exercise price for
such shares.
(f) NO TRANSFER OF OPTION. No Option shall be transferable by
an Optionee otherwise than by will or the laws of decent
and distribution.
(g) LIMIT ON INCENTIVE STOCK OPTIONS. The aggregate Fair Market
Value (determined at the time the Option is granted) of the
stock with respect to which Incentive Stock Options granted
after 1986 are exerciseable for the first time by an
Optionee during any calendar year (under all Incentive
Stock Option plans of the Company and its subsidiaries)
shall not exceed $100,000. To the extent that the aggregate
Fair Market Value (determined at the time the Stock Option
is granted) of the common stock with respect to which
Incentive Stock Options are exercisable for the first time
by an Optionee during any calendar year (under all
Incentive Stock Option plans of the Company and any parent
or subsidiary corporations) exceeds $100,000 such Stock
Options shall be treated as Non-Qualified Stock Options.
The determination of which Stock Option shall be treated as
Non-Qualified Stock Options shall be made by taking Stock
Options into account in the order in which they were
granted.
(h) RESTRICTION ON ISSUANCE OF SHARES. The issuance of Options and
shares shall be subject to compliance with all of the
applicable requirements of law with respect to the issuance
and sale of securities, including, without limitation, any
required qualification under the securities laws of the United
States, Canada, any state of the United States or any province
of Canada. If an Optionee acquires shares of common stock
pursuant to the exercise of an Option at a time when the
shares are not registered pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended, the Plan
Administrator, in its sole discretion, may require as a
condition of issuance of shares covered by the Option that the
shares of common stock shall be subject to restrictions on
transfer. The Company may place a legend on the certificates
evidencing the shares, reflecting the fact that they are
subject to restrictions on transfer pursuant to the terms of
this Section. In addition, the Optionee may be required to
execute a shareholders' agreement in
<PAGE> 102
94
favour of the Company, its designee and/or other
shareholders with respect to all or any of the shares so
acquired. In such event, the terms of such agreement shall
apply to such shares.
(i) INVESTMENT REPRESENTATION. Each Option shall contain and any
Optionee may be required, as a condition of the grant of the
Option and the issuance of shares covered by his or her
Option, to represent that the Option and the shares to be
acquired pursuant to exercise of the Option will be acquired
for investment without a view to distribution thereof; and in
such case, the Company may place a legend on the certificate
evidencing the shares reflecting the fact that they were
acquired for investment and cannot be sold or transferred
unless registered under the Securities Act of 1933, as
amended, or unless counsel for the Company is satisfied that
the circumstances of the proposed transfer do not require such
registration.
(j) RIGHTS AS A SHAREHOLDER OR EMPLOYEE. An Optionee or
transferee of an Option shall have no right as a
shareholder of the Company with respect to any shares
covered by any Option until the date of the issuance of a
share certificate for such shares. No adjustment shall be
made for dividends (ordinary or extraordinary, whether
cash, securities, or other property) or distributions or
other rights for which the record date is prior to the date
such share certificate is issued, except as provided in
Section 7.13. Nothing in the Plan or in any Option
agreement shall confer upon any employee any right to
continue in the employ of the Company or any of its
subsidiaries or interfere in any way with any right of the
Company or any subsidiary to terminate the Optionee's
employment at any time.
(k) NO FRACTIONAL SHARES. In no event shall the Company be
required to issue fractional shares upon the exercise of
an Option.
(l) EXERCISEABILITY IN THE EVENT OF DEATH. In the event of the
death of the Optionee, any Option or unexercised portion
thereof granted to the Optionee, to the extent exercisable by
him or her on the date of death, may be exercised by the
Optionee's personal representatives, heirs, or legatees
subject to the provisions of Section 7.4 hereof.
(m) RECAPITALIZATION OR REORGANIZATION OF COMPANY. Except as
otherwise provided herein, appropriate and proportionate
adjustments shall be made in the number and class of shares
subject to the Plan, to the Option rights granted under the
Plan, including any formula grants or automatic grant
authorizations, and the exercise price of such Option rights,
in the event that the number of shares of common stock of the
Company are increased or decreased as a result of a stock
dividend (but only on common stock), stock split, reverse
stock split, recaptilization, reorganization, merger,
consolidation, separation, or like change in the corporate or
capital structure of the Company. In the event there shall be
any other change in the number or kind of the outstanding
shares of common stock of the Company, or any stock or other
securities into which such common stock shall have been
changed, or for which it shall have been exchanged, whether by
reason of a complete liquidation of the Company or a merger,
reorganization, or consolidation of the Company with any other
corporation in which the Company is not the surviving
corporation or the Company becomes wholly-owned subsidiary of
another corporation, then if the Plan Administrator shall, it
its sole discretion, determine that such change equitably
requires an adjustment to shares of the common stock currently
subject to Options under the Plan, or to prices or terms of
outstanding Options, such adjustment shall be made in
accordance with such determination.
To the extent that the foregoing adjustments relate to stock
or securities of the Company, such adjustments shall be made
by the Plan Administrator, the determination of which in that
respect shall be final, binding and conclusive. No right to
purchase fractional shares shall result from any adjustment of
Options pursuant to this Section. In case of any such
adjustment, the shares subject to the option shall be rounded
down to the nearest whole share. Notice of any adjustment
shall be given by the Company to each Optionee whose Options
shall have been so
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95
adjusted and such adjustment (whether or not notice is
given) shall be effective and binding for all purposes of
the Plan.
In the event of a complete liquidation of the Company or a
merger, reorganization, or consolidation of the Company with
any other corporation in which the Company is not the
surviving corporation or the Company becomes a wholly-owned
subsidiary of another corporation, any unexercised Options
theretofore granted under the Plan shall be deemed cancelled
unless the surviving corporation in any such merger,
reorganization, or consolidation elects to assume the Options
under the Plan or to issue substitute Options in place
thereof; provided, however, that, notwithstanding the
foregoing, if such Options would be cancelled in accordance
with the foregoing, the Optionee shall have the right,
exercisable during a ten-day period ending on the fifth day
prior to such liquidation, merger, or consolidation, to
exercise such Option in whole or in part without regard to any
installment exercise provisions in the Option Agreement.
(n) MODIFICATION, EXTENSION, AND RENEWAL OF OPTIONS. Subject to
the terms and conditions and within the limitations of the
Plan, the Plan Administrator may modify, extend, or renew
outstanding Options granted under the Plan, and accept the
surrender of outstanding Options (to the extent not
theretofore exercised). The Plan Administrator shall not,
however, modify any outstanding Incentive Stock Option in any
manner which would cause the Option not to qualify as an
Incentive Stock Option within the meaning of Section 422 of
the Code. Notwithstanding the foregoing, no modification of an
Option shall, without the consent of the Optionee, alter or
impair any rights of the Optionee under the Option. However, a
termination of the Option in which the Optionee receives a
cash payment equal to the difference between the Fair Market
Value and the exercise price for all shares subject to
exercise under any outstanding Option shall not alter or
impair any rights of the Optionee.
(o) OTHER PROVISIONS. Each Option may contain such other terms,
provisions, and conditions not inconsistent with the Plan as
may be determined by the Plan Administrator.
8. Termination or Amendment of the Plan
The Board may at any time terminate or amend the Plan; provided that,
without approval of the holders of a majority of the shares of common
stock of the Company represented and voting at a duly held meeting at
which a quorum is present (which shares voting affirmatively also
constitute a majority of the required quorum) or by the written consent
of a majority of the outstanding shares of common stock, there shall
be, except by operation of the provisions of Section 7.13, no increase
in the total number of shares covered by the Plan, no change in the
class of persons eligible to receive Options granted under the Plan,
and no extension of the term of the Plan beyond ten (10) years after
the earlier of the date the Plan is adopted or the date the Plan is
approved by the Company's shareholders; and provided further that,
without the consent of the Optionee or as provided by Section 7.14
hereof, no amendment may adversely affect any then outstanding Option
or any unexercised portion thereof.
9. Indemnification
To the extent permitted by law, the Certificate of Incorporation of the
Company, the Bylaws of the Company and any indemnity agreements between
the Company and its directors or employees, between the Company and its
directors or employees, the Company shall indemnify each member of the
Board and of the Plan Administrator, and any other employee of the
Company with duties under the Plan, against expenses (including any
amount paid in settlement) reasonably incurred by him in connection
with any claims against him by reason of his conduct in the performance
of his duties under the Plan.
10. Effective Date and Term of Plan
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96
The Plan originally became effective (the "Effective Date") on June 29,
1998 and amended with shareholder approval on December 1, 1998. This
amended and restated plan shall become effective upon ratification by
the Company's shareholders. No options granted under the Plan will be
effective unless the Plan is approved by shareholders of the Company
within 12 months of the date of adoption. Unless sooner terminated by
the Board in its sole discretion, the Plan will expire on June 28,
2008.
Amended and restated as of July 16, 1999.
FUTURELINK DISTRIBUTION CORP.
By: __________________________________
Cameron Chell
Chief Executive Officer
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SCHEDULE "C" - DISSENT RIGHTS
ARTICLE 113 OF THE COLORADO BUSINESS CORPORATIONS ACT
Under both the Acquisition and the Reincorporation, a holder of common
stock of the Company is entitled to dissent and be paid the fair value of his or
her shares if such transactions are completed and the holder provides the
Company with written objection to the Amalgamation at or before the Meeting and
otherwise complies with the procedures set out in Article 113 of the Colorado
Business Corporations Act ("CBCA"). Article 113 of the CBCA reads as follows:
PART I
RIGHT OF DISSENT -
PAYMENT FOR SHARES
7-113-101. DEFINITIONS. For the purposes of this article:
1. "BENEFICIAL SHAREHOLDER" means the beneficial owner of shares
held in a voting trust or by a nominee as the record shareholder.
2. "CORPORATION" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring domestic or foreign
corporation, by merger or share exchange of that issuer.
3. "DISSENTER" means a shareholder who is entitled to dissent from
corporate action under section 7-113-102 and who exercises that right
at the time and in the manner required by part 2 of this article.
4. "FAIR VALUE", with respect to a dissenter's shares, means the value of
the shares immediately before the effective date of the corporate
action to which the dissenter objects, excluding any appreciated or
depreciation in anticipation of the corporate action except to the
extent that exclusion would be inequitable.
5. "INTEREST" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by
the corporation on its principal bank loans, or, if non, at the legal
rate as specified in section 5-12-101, C.R.S.
6. "RECORD SHAREHOLDER" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of
shares that are registered in the name of a nominee to the extent such
owner is recognized by the corporation as the shareholder as provided
in section 7-107-204.
7. "SHAREHOLDER" means either a record shareholder or a beneficial
shareholder.
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7-113-102. RIGHT TO DISSENT.
1. A shareholder, whether or not entitled to vote, is entitled to dissent
and obtain payment of the fair value of the shareholder's shares in the
event of any of the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is
a party if:
(i) Approval by the shareholders of that corporation is
required for the merger by section 7-111-103
or 7-111-104 or by the articles of incorporation; or
(ii) The corporation is a subsidiary that is merged with
this parent corporation under section 7-11-104;
(b) Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares
will be acquired;
(c) Consummation of a sale, lease, exchange, or other disposition
of all, or substantially all, of the property of the
corporation for which a shareholder vote is required under
section 7-112-102(1) and;
(d) Consummation of a sale, lease, exchange, or other disposition
of all, or substantially all, of the property of an entity
controlled by the corporation if the shareholders of the
corporation were entitled to vote upon the consent of the
corporation to the disposition pursuant to section
7-112-102(2).
(1.3) A shareholder is not entitled to dissent and obtain payment, under
subsection (1) of this section, of the fair value of the shares of any class or
series of shares which either were listed on a national securities exchange
registered under the federal "Securities Exchange Act of 1934", as amended, or
on the national market system of the national association of securities dealers
automated quotation system, or were held of record by more than two thousand
shareholders at the time of:
(a) The record date fixed under section 7-107-107 to determine the
shareholders entitled to receive notice of the shareholders'
meeting at which the corporate action is submitted to a vote;
(b) The record date fixed under section 7-107-104 to determine
shareholders entitled to sign writings consenting to the
corporate action, or
(c) The effective date of the corporate action if the corporate
action is authorized other than by a vote of shareholders
(1.8) The limitation set forth in subsection (1.3) of this section shall not
apply if the shareholder will receive for the shareholder's shares, pursuant to
the corporate action, any thing except:
(a) Shares of the corporation surviving the consummation of the
plan of merger or share exchange;
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(b) Shares of any other corporation which at the effective date of
the plan of merger or share exchange either will be listed on
a national securities exchange registered under the federal
"Securities Exchange Act of 1934", as amended, or on the
national market system of the national association of
securities dealers automated quotation system or will be held
of record by more than two thousand shareholders;
(c) Cash in lieu of fractional shares; or
(d) Any combination of the foregoing described shares or cash
in lieu of shares.
2. (Deleted by amendment, L. 96, p. 1321, ss. 30, effective June 1, 1996.)
(2.5) A shareholder, whether or not entitled to vote is entitled to dissent and
obtain payment of the fair value of the shareholders shares in the event of a
reverse split that reduces the number of shares owned by the shareholder to a
fraction of a share or to scrip if the factional share or scrip so created is to
be acquired for cash or the scrip is to be voided under section 7-106-104.
7-113-103. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
1. A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in the record shareholders' name only if the
record shareholder dissents with respect to all shares beneficially
owned by any one person and causes the corporation to receive written
notice which states such dissent and the name, address and federal
taxpayer identification number, if any, of each person on whose behalf
the record shareholder asserts dissenters' rights. The rights of a
record shareholder under this subsection (1) are determined as if the
shares as to which the record shareholder dissents and the other shares
of the record shareholder were registered in the names of different
shareholders.
2. A beneficial shareholder may assert dissenters' rights as to the
shares held the beneficial shareholder's behalf only if:
(a) The beneficial shareholder causes the corporation to receive
the record shareholder's written consent to the dissent not
later than the time the beneficial shareholder asserts
dissenters' rights; and
(b) The beneficial shareholder dissents with respect to all
shares beneficially by the beneficial shareholder .
3. The corporation may require that, when a record shareholder dissents
with respect to the shares held by any one or more beneficial
shareholders, each such beneficial shareholder must certify to the
corporation that the beneficial shareholder and the record shareholder
or record shareholders of all shares owned beneficially by the
beneficial shareholder have asserted, or will timely assert,
dissenters' rights as to all such shares as to which there is no
limitation on the ability to exercise dissenters' rights. Any such
requirement shall stated in the dissenters' notice given pursuant to
section 7-113-203.
PROCEDURE FOR EXERCISE
OF DISSENTERS' RIGHTS
7-113-201 NOTICE OF DISSENTERS' RIGHTS.
1. If a proposed corporate action creating dissenters' rights under
section 7-113-102 is submitted to a vote at a shareholders' meeting,
the notice of the meeting shall be given to all shareholders, whether
or not
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100
entitled to vote. The notice shall state that shareholders are
or may be entitled to assert dissenters' rights under this article and
shall be accompanied by a copy of this article and the materials, if
any, that, under articles 101 - 117 of this title, are required to be
given to shareholders entitled to vote on the proposed action at the
meeting. Failure to give notice as provided by this subsection (1)
shall not affect any action taken at the shareholders' meeting for
which the notice was to have been given, but any shareholder who was
entitled to dissent but who was not given such notice shall not be
precluded from demanding payment for the shareholder's shares under
this article by reason of the shareholder's failure to comply with the
provisions of section 7-113-202(1).
2. If a proposed corporate action creating dissenters' rights under
section 7-113-102 is authorized without a meeting of shareholders
pursuant to section 7-107-104 any written or oral solicitation of a
shareholder to execute a writing consenting to such action
contemplated in section 7-107-104 shall be accompanied or preceded by
a written notice stating that shareholders are or may be entitled to
assert dissenters' rights under this article, by a copy of this
article and by the materials, if any, that under articles 101 to 117
of this title, would have been required to be given to shareholders
entitled to vote on the proposed action of the proposed action were
submitted to a vote at a shareholders' meeting. Failure to give notice
as provided by this subsection (2) shall not affect any action taken
pursuant to section 7-107-104 for which the notice was to have been
given, but any shareholder who was entitled to dissent but who was not
given such notice shall not be precluded from demanding payment for
the shareholder's shares under this article by reason of the
shareholder's failure to comply with the provisions of section
7-113-202 (2).
7-113-202. NOTICE OF INTENT TO DEMAND PAYMENT.
1. If a proposed corporate action creating dissenters' rights under
section 7-113-102 is submitted to a vote at a shareholders' meeting and
if notice of dissenters' rights has been given to such shareholder in
connection with the action pursuant to section 7-113-201 (1), a
shareholder who wishes to assert dissenters' rights shall:
(a) Cause the Corporation to receive, before the vote is taken,
written notice of the shareholder's intention to demand
payment for the shareholder's shares if the proposed corporate
action is effectuate; and
(b) Not vote the share in favor of the proposed corporate action.
2. If a proposed corporate action creating dissenters' rights under
section 7-113-102 is authorized without a meeting of shareholders
pursuant to section 7-107-104 and if notice of dissenters' rights has
been given to such shareholder in connection with the action pursuant
to Section 7-113-201 (2), a shareholder who wishes to assert
dissenters' rights shall not execute a writing consenting to the
proposed corporate action.
3. A shareholder who does not satisfy the requirements of
subsection (1) or (2) of this section is not entitled to demand
payment for the shareholder's shares under this article.
7-113-203. DISSENTERS' NOTICE.
1. If a proposed corporate action creating dissenters' rights under
section 7-113-102 is authorized, the corporation shall give a written
dissenters' notice to all shareholders who are entitled to demand
payment for their shares under this article.
2. The dissenters' notice required by subsection (1) of this section shall
be given no later than ten days after the effective date of the
corporate action creating dissenters' rights under section 7-113-102
and shall:
<PAGE> 109
101
(a) State that the corporate action was authorized and state the
effective date or proposed effective date of the corporate
action;
(b) State an address at which the corporation will receive payment
demands and the address of a place where certificates for
certificated shares must be deposited;
(c) Inform holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment
demand is received;
(d) Supply a form for demanding payment, which form shall request
a dissenter to state an address to which payment is to
be made;
(e) Set the date by which the corporation must receive the payment
demand and certificates for certificated shares, which date
shall not be less than thirty days after the date the notice
required by subsection (1) of this section is given;
(f) State the requirement contemplated in section 7-113-103(3),
if such requirement is imposed, and
(g) Be accompanied by a copy of this article.
7-113-204. PROCEDURE TO DEMAND PAYMENT.
1. A shareholder who is given a dissenters' notice pursuant to section
7-113-203 and who wishes to assert dissenters' rights shall, in
accordance with the terms of the dissenters' notice:
(a) Cause the corporation to receive a payment demand, which may
be the payment demand form contemplated in section
7-113-203(2)(d), duly completed or may be stated in another
writing; and
(b) Deposit the shareholder's certificates for certificated
shares.
2. A shareholder who demands payment in accordance with subsection (1) of
this action retains all rights of a shareholder, except the right to
transfer the shares, until the effective date of the proposed corporate
action giving rise to the shareholder's exercise of dissenters' rights
and has only the right to receive payment for the shares after the
effective date of such corporate action.
3. Except as provided in section 7-113-207 or 7-113-209(1)(b), the demand
for payment and deposit of certificates are irrevocable.
4. A shareholder who does not demand payment and deposit the shareholder's
share certificates as required by the date or dates set in the
dissenters' notice is not entitled to payment for the shares under this
article.
<PAGE> 110
102
7-113-205. UNCERTIFICATED SHARES.
1. Upon receipt of a demand for payment under section 7-113-204 from a
shareholder holding uncertificated shares, and in lieu of the deposit
of certificates representing the shares, the corporation may restrict
the transfer thereof.
2. In all other respects, the provisions of section 7-113-204 shall be
applicable to shareholders who own uncertificated shares.
7-113-206. PAYMENT.
1. Except as provided in section 7-113-208, upon the effective date of the
corporate action creating dissenters' rights under section 7-113-102 or
upon receipt of a payment demand pursuant to section 7-113-204,
whichever is later, the corporation shall pay each dissenter who
complied with section 7-113-204, at the address stated in the payment
demand, or if no such address is stated in the payment demand, at the
address shown on the corporation's current record of shareholders for
the record shareholder holding the dissenter's shares, the amount the
corporation estimates to be fair value of the dissenter's shares, plus
accrued interest.
2. The payment made pursuant to subsection (1) of this section shall be
accompanied by:
(a) The corporation's balance sheet as of the end of its most
recent fiscal year or, if that is not available, the
corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen months before the date of payment
an income statement for that year, and, if the corporation
customarily provides such statements to shareholders a
statement of changes in shareholders' equity for that year and
a statement of cash flow for that year, which balance sheet
and statements shall have been audited if the corporation
customarily provides audited financial statements to
shareholders, as well as the latest available financial
statements, if any, for the interim or full year period, which
financial statements need not be audited:
(b) A statement of the corporation's estimate of the fair value
of the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under
section 7-113-209 and
(e) A copy of this article.
7-113-207. FAILURE TO TAKE ACTION.
1. If the effective date of the corporate action creating dissenters'
rights under section 7-113-102 does not occur within sixty days after
the date set by the corporation by which the corporation must receive
the payment demand as provided for in section 7-113-203, the
corporation shall return the deposited certificates and released the
transfer restrictions imposed on uncertificated shares. (2) If the
effective date of the corporate action creating dissenters' rights
under section 7-113-102 occurs more than sixty days after the date set
by the corporation by which the corporation must receive the payment
demand as provided in section 7-113-203, then the corporation shall
send a new dissenters; notice, as provided in section 7-113-203, and
the provisions of sections 7-113-204 to 7-113-209 shall be applicable.
<PAGE> 111
103
6-112-208. SPECIAL PROVISIONS RELATING TO SHARES ACQUIRED AFTER ANNOUNCEMENT OF
PROPOSED CORPORATE ACTION.
1. The corporation may in or with the dissenters' notice given pursuant
to section 7-113-203, state the date of the first announcement to news
media or to shareholders of the terms of the proposed corporate action
creating dissenters' rights under section 7-113-102 and state that the
dissenter shall certify in writing, in or with the dissenters payment
demand under section 7-113-204, whether or not the dissenter (or the
person on whose behalf dissenters' rights are asserted) acquired
beneficial ownership of the shares before that date. With respect to
any dissenter who does not so certify in writing, in or with the
payment demand, that the dissenter or the person on whose behalf the
dissenter asserts dissenters' rights acquired beneficial ownership of
the share before such date, the corporation may, in lieu of making the
payment provided in section 7-113-206 offer to make such payment if
the dissenter agrees to accept it in full satisfaction of the demand.
(2). An offer to make payment under subsection (1) of this section
shall include or be accompanied by the information required by section
7-113-206(2).
6-11-209. PROCEDURE IF DISSENTER IS DISSATISFIED WITH PAYMENT OR OFFER.
1. A dissenter may give notice to the corporation in writing of the
dissenter's estimate of the fair value of the dissenter's shares and of
the amount of interest due and may demand payment of such estimate,
less any payment made under section 7-113-206 or reject the
corporation's offer under section 7-113-208 and demand payment of the
fair value of the shares and interest due, if:
(a) The dissenter believes that the amount paid under section
7-113-206 or offered under section 7-113-208 is less than the
fair value of the shares or that the interest due was
incorrectly calculated;
(b) The corporation fails to make payment under section 7-113-206
within sixty days after the date set by the corporation by
which the corporation must receive the payment demand; or
(c) The corporation does not return the deposited certificates or
release the transfer restrictions imposed on uncertificated
shares as required by section 7-113-207(1).
2. A dissenter waives the right to demand payment under this section
unless the dissenter causes the corporation to receive the notice
required by subsection (1) of this section within thirty days after the
corporation made or offered payment for the dissenter's shares.
PART 3
JUDICIAL APPRAISAL OF SHARES
7-113-301. COURT ACTION.
1. If a demand for payment under section 7-113-209 remains unresolved, the
corporation may, within sixty days after receiving the payment demand,
commence a proceeding and petition the court to determine the fair
value of the shares and accrued interest. If the corporation does not
commence the proceeding within the sixty day period, it shall pay to
each dissenter whose demand remains unresolved the amount demanded.
2. The corporation shall commence the proceeding described in subsection
(1) of this section in the district court of the county in this state
where the corporation's principal office is located or, if the
corporation has no principal office in this state, in the district
court of the county in which its registered office is located. If the
corporation is a foreign corporation without a registered office, it
shall commence the
<PAGE> 112
104
proceeding in the county where the registered office of the domestic
corporation merged into, or whose shares were acquired by the foreign
corporation was located.
3. The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unresolved parties to the proceeding
commenced under subsection (2) of this section as in an action against
their shares, and all parties shall be served with a copy of the
petition. Service on each dissenter shall be by registered or certified
mail to the address stated in such dissenter's payment demand, or if no
such address is stated in the payment demand, at the address shown on
the corporation's current record of shareholders for the record
shareholding holding the dissenter's shares, or as provided by law.
4. The jurisdiction of the court in which the proceeding is commenced
under subsection (2) of this section is plenary and exclusive. The
court may appoint one or more persons as appraisers to receive
evidence and recommend a decision on the question of fair value. The
appraisers have the powers described in the order appointing them, or
in any amendment to such order. The parties to the proceeding are
entitled to the same discovery rights as parties in other civil
proceedings. (5) Each dissenter made a party to the proceeding
commenced under subsection (2) of this section is entitled to judgment
for the amount, if any, by which the court finds the fair value of the
dissenter's shares, plus interest, exceeds the amount paid by the
corporation, or for the fair value, plus interest, of the dissenter's
shares for which the corporation elected to withhold payment under
section 7-113-208.
7-113-302. COURT COSTS AND COUNSEL FEES.
1. The court in an appraisal proceeding commenced under section 7-113-301
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The
court shall assess the costs against the corporation; except that the
court may assess costs against all or some or the dissenters, in
amounts the court finds equitable, to the extent the court finds the
dissenters acted arbitrarily, vexatiously, or not in good faith in
demanding payment under section 7-113-209.
2. The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any dissenters if the
court finds the corporation did not substantially comply with
the requirements of part 2 of this article, or
(b) Against either the corporation or one or more dissenters, in
favor of any other party, if the court finds that the party
against whom the fees and expenses are assessed acted
arbitrarily, vexatiously, or not in good faith with respect to
the rights provided by this article.
3. If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that
the fees for those services should not be assessed against the
corporation, the court may award to said counsel reasonable fees to be
paid out of the amounts awarded to the dissenters who were benefitted.
<PAGE> 113
105
SCHEDULE "D" - ACQUISITION RESOLUTION
RESOLVED AS A EXTRAORDINARY RESOLUTION THAT:
1. the Company's proposed acquisition of Executive LAN Management, Inc.,
dba Micro Visions ("Micro Visions") for total consideration of $12,000,000 cash
and 6,000,000 Common Shares, as well as earn-out provisions allowing for the
issuance of up to a further 2,400,000 Common Shares to the shareholders of Micro
Visions should Micro Visions meet certain performance criteria, to be effected
through the Company's wholly owned subsidiary, FutureLink California Acquisition
Corp. ("AcquireCo"), a Delaware corporation, and the subsequent merger of Micro
Visions and AcquireCo as provided for in an Agreement and Plan of Reorganization
and Merger dated June 2, 1999 among the Company, FutureLink California
Acquisition Corp., Micro Visions and the shareholders of Micro Visions (the
"Acquisition Agreement"), all as more particularly described in the Company's
Management Information Circular and Proxy Statement dated August 24, 1999, be
and is hereby approved and authorized;
2. the Acquisition Agreement be and is hereby ratified, approved and
authorized; and
3. any one (1) director or officer of the Company is hereby authorized and
empowered to execute or cause to be executed, deliver or cause to be delivered,
in the name of and on behalf of the Company, all such documents and instruments,
and to do or cause to be done all such acts and things, as may be deemed
necessary or desirable to implement this resolution and the matters authorized
hereby, including the transactions required upon the closing, that determination
to be conclusively evidenced by the execution and delivery of those documents or
other instruments or the taking of any of those actions.
<PAGE> 114
106
SCHEDULE "E" - RESOLUTION FOR REINCORPORATION
RESOLVED AS A EXTRAORDINARY RESOLUTION THAT:
1. the merger of the Company and FutureLink California Acquisition Corp. ,
a Delaware Corporation, and the reincorporation of the surviving corporation in
Delaware, as more particularly set forth in the Agreement and Plan of Merger
described in the Company's Management Information Circular and Proxy Statement
dated August 24, 1999, be and is hereby approved and authorized;
2. the Agreement and Plan of Merger between the Company and FutureLink
California Acquisition Corp. dated as of August 1, 1999, be and is hereby
approved and authorized;
3. any one (1) officer or director of the Company be and is hereby
authorized, for and on behalf of the Company, to execute and deliver Certificate
of Incorporation and all other documents and instruments and to take such other
actions as he or she may determine to be necessary or desirable to implement
this extraordinary resolution and the matters authorized hereby, such
determination to be conclusively evidenced by the execution and delivery of
those documents or other instruments or the taking of any of those actions; and
4. the directors of the Company may revoke this extraordinary resolution at
any time before it is acted upon without further approval of the Shareholders of
the Company.
On the foregoing motion, every shareholder entitled to vote at the Meeting
will be entitled to cast one vote for each Common Share held. As an
extraordinary resolution, not less than two-thirds of the total votes which may
be cast by Shareholders in person or by proxy must vote in favor in order to
make the resolution effective.
<PAGE> 115
107
SCHEDULE "F" -
RESOLUTION APPROVING AMENDED AND RESTATED STOCK OPTION PLAN
RESOLVED AS A RESOLUTION THAT:
1. subject to any necessary regulatory approval, the Amended and Restated
Stock Option Plan in the form set out in Schedule "B" to the Management
Information Circular and Proxy Statement of the Company dated August 24, 1999 is
hereby approved;
2. The Options granted since May 6, 1999 to certain officers, directors and
employees of the Company in excess of the previous Stock Option Plan dated
December 1, 1999, being Options to acquire a total of 2,595,000 Common Shares:
(i) 1,595,000 Common Shares at an exercise price of $3.15 per share (granted May
6, 1999), (ii) 600,000 Common Shares at an exercise price of $5.00 per share
(granted May 14, 1999) and (iii) 400,000 Common Shares at an exercise price of
$6.08 per share (granted June 29, 1999), which Options vest in portions over two
to four years following their grant, are hereby ratified and approved as if the
Amended and Restated Stock Option Plan had been effective prior to such grants;
and
3. Any one (1) director or officer of the Company be and is hereby
authorized, on behalf of and in the name of the Company, to take all necessary
steps and proceedings, to execute, deliver and to file any and all declarations,
agreements, documents and other instruments and to do all such other acts and
things (whether under corporate seal of the Company or otherwise) that may be
necessary or desirable to give effect to the provisions of this resolutions and
the intent herein, as more particularly described in the Company's Management
Information Circular and Proxy Statement dated August 24, 1999.
<PAGE> 116
108
SCHEDULE "G" - RATIFICATION OF 1 FOR 5 REVERSE STOCK SPLIT
RESOLVED AS A RESOLUTION THAT:
1. That the reverse stock split of the Company's common stock which was
effected by the Company on June 1, 1999 as a one-for-five reverse split within
the scope of the approval granted by the Shareholders at the Annual Meeting held
November 30, 1998 authorizing the Board of Directors, in its sole discretion, to
proceed with a reverse stock split not to exceed a one (1) for thirty (30)
split, without alteration of the Corporation's authorized share capital or the
par value per share of the common stock, and the cash payment by the Company for
fractional shares of its common stock in connection therewith, is hereby
ratified, approved and confirmed.
<PAGE> 117
109
SCHEDULE "H" - AUDITED FINANCIAL STATEMENTS AND INTERIM
UNAUDITED FINANCIAL STATEMENTS FOR FUTURELINK
<PAGE> 118
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
FUTURELINK DISTRIBUTION CORP.
We have audited the accompanying consolidated balance sheets of FUTURELINK
DISTRIBUTION CORP. as at December 31, 1998 and 1997 and the related consolidated
statements of loss and deficit and comprehensive loss, 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, 1998 and 1997 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.
As discussed in Note 1 to the financial statements, the Company's has incurred
recurring losses from operations, has a working capital deficiency, and has not
complied with certain covenants of its credit facility with the bank. These
conditions raise substantial doubts about its ability to continue as a going
concern. Management's plans as to these matters are also described in Note 1.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
Calgary, Canada Ernst & Young LLP
March 18, 1999 Chartered Accountants
H-1
<PAGE> 119
FUTURELINK DISTRIBUTION CORP.
CONSOLIDATED BALANCE SHEETS
(See basis of presentation - Note 1)
(All amounts stated in $U.S.)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1998 1997
$ $
--------- ---------
<S> <C> <C>
CURRENT
Cash 6,651 --
Accounts receivable, net of $57,101
allowance for doubtful account 1,458,314 --
Due from related parties, net of
$57,513 allowance for doubtful
accounts [note 11] 73,781 --
Prepaid expenses 116,219 --
Inventory and work in progress 22,205 --
Debenture receivable [note 5] 1 --
---------- ---------
1,677,171 --
---------- ---------
CAPITAL ASSETS, NET OF $203,455
ACCUMULATED DEPRECIATION [NOTE 6] 1,122,923 --
GOODWILL [NOTE 7] 5,027,939 --
EMPLOYEE AND CONSULTANTS BASE [NOTE 7] 2,817,778 --
---------- ---------
8,968,640 --
---------- ---------
10,645,811 --
========== =========
</TABLE>
H-2
<PAGE> 120
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1998 1997
$ $
---------- ----------
<S> <C> <C>
CURRENT
Bank indebtedness [note 15] 819,217 --
Accounts payable [notes 8 and 11] 2,190,098 23,932
Accrued Liabilities 663,201 --
Due to stockholders [notes 11 and 20] 319,071 --
Due to other related parties [note 11] 44,816 --
Notes payable [note 3] 387,795 --
---------- ----------
4,424,198 23,932
---------- ----------
CAPITAL LEASE OBLIGATIONS PAYABLE [NOTE 8] 30,262 --
CONVERTIBLE DEBENTURES [NOTES 9 AND 10] 2,153,457 --
DEFERRED TAXES [NOTE 13] 1,211,634 --
---------- ----------
3,395,353 --
---------- ----------
MINORITY INTEREST (11,141) --
COMMITMENTS AND CONTINGENCIES [NOTES 1,
8, 9 AND 19]
STOCKHOLDERS' EQUITY [NOTE 9]
Authorized
5,000,000 preferred shares without par
value 100,000,000 common shares with par
value of $0.0001
Issued and paid-up
20,175,105 and 10,203,500 common
shares issued and outstanding
at December 31, 1998 and
December 31, 1997, respectively 2,018 1,020
To be issued [note 9] 50,000 --
Exchangeable shares [note 3] 2,550,000 --
Issued in trust and unpaid [note 9] -- --
Capital in excess of par value 6,437,640 1,425,211
Contributed surplus 1,224,668 --
Cumulative translation adjustment (96,468) --
Deficit (7,330,457) (1,450,163)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 2,837,401 (23,932)
---------- ----------
10,645,811 --
========== ==========
</TABLE>
See accompanying notes
On behalf of the Board: /s/ Robert Kubbernus /s/ Robert H. Kohn
Director Director
H-3
<PAGE> 121
FUTURELINK DISTRIBUTION CORP.
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT AND
COMPREHENSIVE LOSS
(All amounts stated in $U.S.)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
---------------------------
1998 1997
$ $
---------- ----------
<S> <C> <C>
REVENUE [NOTE 11]
Consulting services 1,471,206 --
Hardware and software sales 962,751 --
Other 2,701 --
---------- ----------
2,436,658 --
---------- ----------
EXPENSES [NOTE 11]
Hardware and software purchases 879,927 --
Contracts, payroll and benefits [note 9] 3,661,606 --
Accounting and legal 80,591 109,992
Rent 77,035 --
General and administrative 613,965 12,057
Interest on long term debt 1,303,743 --
Amortization deferred financing fees [note 10] 29,052 --
Other financing fees 89,000 --
Bad debt expense [note 11] 125,833 --
Depreciation 119,236 --
Amortization of intangible assets [note 7] 667,617 --
---------- ----------
7,647,605 122,049
---------- ----------
Loss from operations (5,210,947) (122,049)
---------- ----------
Loss on sale of assets (47,596) --
Write-off mining related assets [note 6] -- (515,000)
Loss on non-refundable deposit [note 12] -- (100,000)
Equity in loss of affiliate [note 4] (860,131) --
Minority interest 33,771 --
---------- ----------
(873,956) (615,000)
---------- ----------
LOSS BEFORE INCOME TAXES (6,084,903) (737,049)
Deferred tax benefit [note 13] (204,609) --
---------- ----------
LOSS FOR THE YEAR (5,880,294) (737,049)
OTHER COMPREHENSIVE LOSS
Foreign currency translation adjustment (96,468) --
---------- ----------
COMPREHENSIVE LOSS (5,976,762) (737,049)
========== ==========
DEFICIT, BEGINNING OF YEAR (1,450,163) (713,114)
DEFICIT, END OF YEAR (7,330,457) (1,450,163)
========== ==========
LOSS PER COMMON SHARE (0.38) (1.65)
========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 15,846,571 447,445
========== ==========
</TABLE>
See accompanying notes
H-4
<PAGE> 122
FUTURELINK DISTRIBUTION CORP.
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY
(All amounts stated in $U.S.)
<TABLE>
<CAPTION>
CAPITAL IN
COMMON STOCK TO BE EXCHANGEABLE EXCESS OF CONTRIBUTED
----------------------- ISSUED SHARES PAR SURPLUS
SHARES $ $ $ $ $
---------- ----- ------ ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997 2,500 25 -- -- 1,216,712 --
Issuance of share capital for
cash 1,000 10 -- -- 9,990 --
---------- ----- ------ --------- --------- ---------
3,500 35 -- -- 1,226,702 --
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 stockholder
debt -- -- -- -- 39,494 --
Loss for the year -- -- -- -- -- --
---------- ----- ------ --------- --------- ---------
BALANCE, DECEMBER 31, 1997 10,203,500 1,020 -- -- 1,425,211 --
Issuance of share capital for
cash 255,813 26 -- -- 846,774 --
Forgiveness of stockholder debt -- -- -- -- 70,325 --
Issuance of share capital to
employees, officers and
directors of the company
[note 9] 3,500,000 350 -- -- 2,117,150 --
Warrants issued with
issuance of convertible
debentures [note 10] -- -- -- -- -- 562,500
Equity component of
convertible debentures
[note 10] -- -- -- -- -- 777,143
Equity component of
financing fees [note 10] -- -- -- -- -- (75,600)
Equity component of
financing fees [note 10] -- -- -- -- -- (39,375)
Shares issued upon
conversion of convertible
debt [note 10] 1,874,777 188 -- -- 506,553 --
Shares issued on conversion of
loan [note 11] 1,127,240 113 -- -- 732,538 --
Issuance of shares on
acquisition of FutureLink
Alberta [note 4] 3,213,775 321 -- -- 1,002,606 --
Share issue costs -- -- -- -- (218,992) --
Financing fees associated
with converted
debentures [note 10] (44,525)
----------
TOTAL OUTSTANDING SHARES 20,175,105
----------
Issuance of exchangeable
shares on acquisition of
FL/SysGold [note 3] 4,250,000 -- -- 2,550,000 -- --
Shares to be issued for
services [note 9] 115,253 -- 50,000 -- -- --
---------- ----- ------ --------- --------- ---------
BALANCE, DECEMBER 31, 1998 24,540,358 2,018 50,000 2,550,000 6,437,640 1,224,668
========== ===== ====== ========= ========= =========
</TABLE>
The above statement gives retroactive effect to share consolidations of 200 to 1
on July 20, 1997 and 30 to 1 on December 2, 1997.
See accompanying notes
H-5
<PAGE> 123
FUTURELINK DISTRIBUTION CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts stated in $U.S.)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
-------------------------
1998 1997
$ $
---------- --------
<S> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES
Net loss for the year (5,880,294) (737,049)
Adjustments to reconcile net loss to net cash provided by operating
activities
Write off mining related assets [note 6] -- 515,000
Non cash interest expense 1,294,098 --
Amortization financing fees 29,052 --
Non cash expenses included in contracts, payroll and benefits
expense [note 9] 2,114,000 --
Non cash consulting expense 10,109 --
Depreciation and amortization 786,853 --
Loss on refundable deposit [note 12] -- 100,000
Bad debt expense 125,832 --
Loss on sale of assets 47,596 --
Deferred tax recovery [note 13] (204,609) --
---------- ----------
(1,677,363) (122,049)
Changes in non-cash working capital [note 14] 1,187,747 17,059
Non cash working capital deficiency acquired [note 3 and 4] (518,076) --
Effect of foreign currency on operating activities (96,468) --
---------- ----------
(1,104,160) (104,990)
---------- ----------
CASH FLOWS USED IN INVESTING ACTIVITIES
Capital assets purchased (818,699) --
Proceeds from disposition of capital assets 33,411 --
Cash consideration on acquisition of subsidiaries [note 3] (2,019,149) --
Acquisition costs of subsidiaries (109,923) --
Cash advances to equity investee (990,305) --
Other (69,435) --
Loss on non-refundable deposit -- (100,000)
---------- ----------
(3,974,100) (100,000)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash received under demand credit facility 819,217 --
Advances from stockholders 1,036,674 (4,504)
Issuance of common stock [note 9] 850,300 170,000
Share issue costs (218,992) --
Repayment of capital lease obligations (67,404) --
Forgiveness of stockholder debt [note 9] 60,200 39,494
Issuance of convertible debentures 2,720,000 --
Financing fees on issue of convertible debentures (270,000) --
Other financing fees 89,000 --
Common stock to be issued [note 9] 50,000 --
Changes in non-cash working capital [note 14] 15,916 --
---------- ----------
5,084,911 204,990
---------- ----------
Increase in cash 6,651 --
Cash, beginning of year -- --
---------- ----------
CASH, END OF YEAR 6,651 --
========== ==========
</TABLE>
See accompanying notes
H-6
<PAGE> 124
FUTURELINK DISTRIBUTION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
1. BASIS OF PRESENTATION
The Company was incorporated 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. The Company ceased all mining
projects in 1997 and changed its name to FutureLink Distribution Corp. effective
February 17, 1998.
The Company is an information technology service provider focusing on providing
utility-like computing services to businesses.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements, the Company has accumulated accounting losses amounting to
$7,330,457, a working capital deficiency of $2,747,027 and total net operating
cash outflows of $1,209,150 relating to 1997 and 1998. The Company has also
violated its working capital ratio relating to its credit facility. The
Company's continuation as a going concern is in substantial doubt and dependent
on its ability to generate sufficient cash flow to meet its obligations on a
timely basis, to obtain additional financing as may be required, and ultimately
to attain successful operations. However, no assurance can be given at this time
as to whether the Company will achieve any of these conditions. The financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amounts and classification of
liabilities that might be necessary should the Company be unable to continue as
a going concern for a reasonable period of time.
During the period from January 1, 1998 to March 18, 1999, management has raised
$7,386,975 of capital in the form of convertible debt and equity (see notes
9,10, and 20), and plans to raise additional financing through future private or
public offerings of stock and through the exercise of stock options. The
Company's recent registration with the Securities and Exchange Commission is
expected to improve the Company's ability to raise such additional capital. In
addition, the Company will realize a full year of operations in 1999 relating to
the businesses acquired in 1998. This, combined with the significant marketing
efforts undertaken by the company and the expansion of operations to the United
States, is expected to generate increased sales and cashflows.
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.
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.
H-7
<PAGE> 125
FUTURELINK DISTRIBUTION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
INVENTORY AND WORK IN PROGRESS
Inventories of computer hardware held for re-sale and work in progress 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 as
follows:
<TABLE>
<S> <C>
Computers and equipment 30%
Leasehold improvements term of lease
Software 100%
Office equipment 20%
Equipment under capital lease 30%
</TABLE>
INTANGIBLE ASSETS
(a) Employee and consultants base
The employee and consultants base recorded on the acquisition of
FL/SysGold is recorded at cost and is being amortized on a straight-line
basis over three years. The recoverability of the employee and
consultants base is assessed periodically based on retention of
employees and consultants in relation to management estimates of
undiscounted future revenue provided from 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.
FINANCING FEES
Financing fees associated with that portion of the 10% convertible debentures
classified as debt are deferred and amortized over the life of the debentures,
unless the debentures have been converted. Financing fees associated with that
portion of the convertible debentures classified as contributed surplus is
charged to that account. The pro rata portion of financing fees associated with
converted debentures is charged to share capital in excess of par value.
CAPITAL LEASES
Leases in which substantially all the benefits and risks of ownership are
transferred to the Company are capitalized with an offsetting amount recorded as
a liability.
H-8
<PAGE> 126
FUTURELINK DISTRIBUTION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
REVENUE
Revenue from information technology services and outsourcing contracts is
recognized when the service is delivered over the term of the applicable
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.
CONSOLIDATION
These consolidated financial statements include the accounts of its wholly owned
subsidiary FutureLink/SysGold Ltd. ("FL/SysGold") and 96.4% owned subsidiary
FutureLink Distribution Corp. (Alberta), ("FutureLink Alberta").
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company's subsidiaries is the Canadian Dollar.
Adjustments arising from translating the subsidiaries' financial statements into
United States dollars are recorded in stockholders' equity as a cumulative
translation adjustment.
ADVERTISING COSTS
Advertising costs are expensed as incurred.
LOSS PER SHARE
Loss per common share is loss for the period divided by the weighted average
number of common shares outstanding after retroactive effect of the share
consolidation. The effect on earnings per share of the exercise of options and
warrants, and the conversion of the 10% convertible debentures is anti-dilutive.
STOCK OPTIONS
The Company applies the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and
related interpretations in accounting for its stock option plans. Accordingly,
no compensation cost is recognized in the accounts.
3. ACQUISITION OF RIVERVIEW MANAGEMENT CORPORATION
Effective August 24, 1998, the Company acquired all of the outstanding shares of
Riverview Management Corporation (since renamed FL/SysGold), an information
technology outsourcing and services firm. The consideration for the purchase,
totalling $5,003,887, including acquisition costs of $53,705, consisted of a
cash payment of $2,019,149, promissory notes payable for
H-9
<PAGE> 127
FUTURELINK DISTRIBUTION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
$381,033 ($585,000 Canadian) payable on demand on or before 90 days after August
24, 1998, and 4,250,000 exchangeable common shares of the Company with an
ascribed value of $2,550,000. The common shares issued are exchangeable shares
in FL/SysGold which are convertible at any time into shares of the Company. The
acquisition was accounted for using the purchase method. Net assets acquired are
as follows:
<TABLE>
<CAPTION>
$
----------
<S> <C>
NET ASSETS ACQUIRED
Non cash working capital deficiency (179,251)
Capital assets 135,291
Goodwill 3,275,687
Employee and consultants base 3,200,000
Deferred tax liability (1,427,840)
----------
NET ASSETS ACQUIRED 5,003,887
==========
</TABLE>
As at December 31, 1998, the promissory notes of $381,033 ($585,000 Canadian)
remain outstanding along with accrued interest of $6,762. These notes bear
interest at the simple rate of 7%. Subsequent to December 31, 1998 these notes
were paid in full.
The results of operations for FL/SysGold are consolidated as of August 24, 1998.
H-10
<PAGE> 128
FUTURELINK DISTRIBUTION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
4. ACQUISITION OF FUTURELINK DISTRIBUTION CORP. (ALBERTA)
On January 20, 1998 the Company issued 1,540,000 common shares in exchange for
1,540,000 common shares (46%) of FutureLink Alberta. The total value ascribed to
the investment was $15,400.
Effective November 23, 1998, the Company issued 1,673,775 common shares in
exchange for an additional 1,673,775 common shares (50.4%) of FutureLink
Alberta. The total value ascribed to the investment was $987,527. The 1,673,775
shares were issued pursuant to an exemption from registration under Regulation S
of the Securities Act of 1933.
As a result of these two transactions the Company acquired 96.4% of FutureLink
Alberta for a total purchase price of $1,059,145, including acquisition costs of
$56,218. Net assets acquired are as follows:
<TABLE>
<CAPTION>
$
---------
<S> <C>
NET ASSETS ACQUIRED
Non cash working capital deficiency (338,825)
Capital assets 350,619
Goodwill 2,037,656
Tax loss carryforwards 288,194
Valuation allowance (288,194)
Other obligations (990,305)
---------
NET ASSETS ACQUIRED 1,059,145
=========
</TABLE>
From January 20, 1998 to November 23, 1998 the Company's share in FutureLink
Alberta's loss, accounted for using the equity method, was $860,131. FutureLink
Alberta was consolidated from November 24, 1998 to December 31, 1998.
On February 26, 1999, FutureLink Alberta became a wholly owned subsidiary when
the Company purchased the remaining 117,500 shares (3.6%) of FutureLink Alberta
(see note 20).
H-11
<PAGE> 129
FUTURELINK DISTRIBUTION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
5. DEBENTURE RECEIVABLE
During the year, the Company's subsidiary, FutureLink Alberta, disposed of
certain assets and operations in exchange for a 50% equity investment in
NextClick Ltd. valued at $1. On November 30, 1998 the Company sold its
investment in exchange for a debenture receivable in the amount of $100,000
Canadian. The debenture is due on demand on or after March 31, 1999. A first
floating charge against the assets of the issuer has been pledged as security.
Due to the uncertainty of collectibility, the $100,000 debenture is carried at
the book value of the exchanged common shares, being $1. The debenture is
non-interest bearing.
6. CAPITAL ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
$ $ $
--------- ------------ ---------
<S> <C> <C> <C>
Computers and equipment 605,830 80,872 524,958
Leasehold improvements 218,018 16,720 201,298
Software 185,406 69,405 116,001
Office equipment 181,384 17,706 163,678
Equipment under capital lease 135,740 18,752 116,988
--------- ------------ ---------
1,326,378 203,455 1,122,923
========= ============ =========
</TABLE>
During 1997 the Company wrote off its mining assets.
7. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
$ $ $
--------- ------------ ---------
<S> <C> <C> <C>
Goodwill 5,313,334 285,395 5,027,939
Employee and consultants base 3,200,000 382,222 2,817,778
--------- ------------ ---------
8,513,334 667,617 7,845,717
========= ============ =========
</TABLE>
The $3,200,000 relating to employee and consultants base represents the
valuation placed on the knowledge, expertise, and sales contacts of employees
and consultants of FL/SysGold.
8. CAPITAL AND OPERATING LEASE OBLIGATIONS PAYABLE
The future minimum lease payments at December 31, 1998 under capital and
operating leases are as follows:
H-12
<PAGE> 130
FUTURELINK DISTRIBUTION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
$ $
------- -------
<S> <C> <C>
1999 65,916 265,111
2000 33,466 244,205
2001 13,748 243,654
2002 -- 20,289
2003 -- --
------- -------
Total future minimum lease payments 113,130 773,259
Less: imputed interest (16,952)
-------
Balance of obligations under capital lease 96,178
Less: current portion included in
accounts payable and accrued liabilities (65,916)
-------
Long term obligation under capital lease 30,262
-------
</TABLE>
9. SHARE CAPITAL
AUTHORIZED
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.
ISSUED AND PAID-UP
During the year, the Company issued 255,813 shares for $846,800 cash, as well as
a further 1,127,240 shares for $732,651 cash.
On July 7, 1998, the Company issued 3,500,000 shares to employees, officers and
directors of the Company for $3,500 as had been previously approved by
stockholders in January, 1998. The fair value of these shares at the time of the
share issuance was $2,117,500. The difference between the fair value and the
cash consideration received has been included in capital in excess of par and in
contracts, payroll and benefits expense.
H-13
<PAGE> 131
FUTURELINK DISTRIBUTION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
TO BE ISSUED
The company has entered into agreements for consulting services which provides
for the payment of $33,000 in total per month. Of these agreements, one relates
to consulting services obtained from the agent of the 10% convertible debenture
agreement (see note 10). This agreement is for a period of six months and
provides for the settlement of fees by way of shares in the Company's stock. The
number of shares to be issued is based on 95% of the average closing price of
the Company's stock during the trading days in the month in question as quoted
on the Nasdaq Over the Counter Bulletin Board. As at December 31, 1998, $50,000
was owing for consulting services in relation to this agreement, equating to
115,253 shares.
ISSUED IN TRUST AND UNPAID
On August 20, 1998, a share certificate for 11,000,000 unpaid common shares was
issued in trust for the common stock underlying the 10% convertible debenture
and warrants issued on that date (see note 10). Of these 11,000,000 shares,
9,125,223 shares continue to be in trust and 1,874,777 outstanding at December
31, 1998. On January 6, 1999, the 1,874,777 outstanding shares became
unrestricted.
RESTRICTED SHARES
Of the 20,175,105 shares issued and paid-up at December 31, 1998, 8,209,535 are
restricted including 1,874,777 relating to the 10% convertible debenture. The
remaining 11,965,569 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 subject
to any subsequent registration of such shares which could be affected by the
Company.
The 1,540,000 common shares issued in January, 1998 to purchase the 46%
investment in FutureLink Alberta, are subject to a hold period. One half of the
shares given to the vendors was released from escrow on July 20, 1998 and the
balance released on January 20, 1999.
WARRANTS
Attached to the 255,813 shares issued for cash during the year were warrants
detailed as follows:
a.) 83,334 warrants were issued to the share subscribers who were issued shares
on February 6, 1998. The warrants allow the holder to purchase additional
shares at $3.00 per share on or before one year and $3.10 before two years
from the date of acquisition.
b.) 105,813 warrants were issued to the share subscribers who were issued
shares on April 4, 1998. The warrants allow the holder to purchase
additional shares at $3.75 per share on or before one year and $4.00 before
two years from the date of acquisition.
c.) 66,666 warrants were issued to the share subscribers who were issued shares
on April 22, 1998 and April 24, 1998. The warrants allow the holder to
purchase additional shares at $3.25 per share on or before two years from
May 4, 1998.
On July 2, 1998 1,127,250 share purchase warrants were issued with the same
number of shares as disclosed in note 11.
H-14
<PAGE> 132
FUTURELINK DISTRIBUTION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
Share purchase warrants totalling 1,041,667 were issued during the year under
the 10% convertible debenture agreement as disclosed in note 10.
None of the outstanding warrants have been exercised as at December 31, 1998.
OPTIONS
As of December 31, 1998, the Company has issued 4,162,500 options to purchase
common stock to the Company's directors, officers and employees. Of the total
issued, none have been exercised as at December 31, 1998. Details of the stock
options outstanding at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTIONS EXERCISE PRICE EXPIRY DATE
----------------- -------------- ----------------
<S> <C> <C>
2,930,000 0.76 June 29, 2001
800,000 1.17 August 5, 2001
25,000 0.45 December 1, 2001
50,000 0.45 December 1, 2002
357,500 0.45 April 1, 2004
------------- ---------- ----------------
4,162,500
-------------
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees", and related interpretations in accounting for its
stock option plans. The fair value of each option granted during 1998 is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following assumptions: expected volatility of 164%; risk-free interest rate
of 4.0%; no payment of common share dividends; and expected life of 1 to 5
years. Had compensation cost for these plans been determined based upon the fair
value at grant date, consistent with the methodology prescribed in Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (FAS 123), the Company's net loss and net loss per common share
for the year ended December 31, 1998 would have been $9,406,724 and $0.59
respectively.
H-15
<PAGE> 133
FUTURELINK DISTRIBUTION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
10. CONVERTIBLE DEBENTURES
<TABLE>
<CAPTION>
$
----------
<S> <C>
PRINCIPLE
Funds advance during the year 2,720,000
Debentures converted during the year (500,000)
----------
2,220,000
----------
FINANCING FEES
Fees paid on funds advanced during the year (270,000)
Intrinsic value associated with equity component of debentures 75,600
Fees paid through issuance of warrants to agent (140,625)
Intrinsic value associated with equity component of debentures 39,375
Amortization of financing fees 29,052
Financing fees associated with debentures converted during the year 44,525
----------
(222,073)
----------
INTEREST EXPENSES
Accrued interest expense 155,530
----------
NET BALANCE 2,153,457
----------
</TABLE>
During the year the Company entered into a 10% convertible debenture agreement
to provide up to $5,000,000 of financing ("10% convertible debenture
agreement").
As at December 31, 1998, the Company issued $2,720,000 10% convertible
debentures due August 20, 2001. The debenture 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 per share and 78% of the average closing bid price of the Company's
common stock for the three trading days immediately preceding the conversion.
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 debenture holders' election, interest can be settled in
common stock of the Company based on market prices.
Of the total principal amount of the debentures of $2,720,000, an amount of
$777,143 has been attributed to the intrinsic value of the conversion option at
the issue date and included with contributed surplus.
The amount attributed to the conversion option of $777,143, has been included in
interest on long term debt as the conversion option was exercisable upon
issuance.
Upon entering into the agreement, the Company issued 1,041,667 common share
purchase warrants, 260,417 to the agent and 781,250 to the ultimate subscriber
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 in contributed surplus as the estimated intrinsic value attributed
to these warrants as they were exercisable upon issuance. In addition, the
warrants issued to the agent have been treated as a financing fee in the amount
of $140,625. The intrinsic value of these fees associated with the equity
component of the 10% convertible debentures has been charged to contributed
surplus in the amount of $39,375. The remaining balance is being amortized over
the life of the 10% convertible debentures.
H-16
<PAGE> 134
FUTURELINK DISTRIBUTION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
For each issuance of 10% convertible debentures, the Company must pay a
financing fee of approximately 10%. The value of the fees associated with the
equity component of the 10% convertible debentures in the amount of $75,600 has
been charged to contributed surplus. The remaining amount is being amortized
over the life of the 10% convertible debentures, unless the debentures are
converted. If converted, the pro rata portion of the financing fees associated
with the converted debentures is charged to capital in excess of par value.
During the period, $44,525 has been charged to capital in excess of par value
relating to $500,000 of convertible debentures which were converted.
During the year, $500,000 of the convertible debentures, together with $6,741 of
accrued interest, were converted into 1,874,777 common shares. An amount of
$2,375,530, including accrued interest and fees of $155,530 remains outstanding
as at December 31, 1998.
Subsequent to December 31, 1998, the Company issued an additional $2,280,000 10%
convertible debentures under the 10% convertible debenture agreement. In
addition, $1,500,000 of the 10% convertible debentures were converted into
common shares of the Company (see note 20).
11. RELATED PARTY TRANSACTIONS
During 1998, two of the Company's stockholders advanced the Company $289,264
($440,000 Canadian). Simple interest at a rate of prime plus 1%, totalling
$10,145 to December 31, 1998 has been added to the principal amount owing. In
addition, one of the Company's stockholders advanced the Company $17,609
($27,000 Canadian) of which $19,662 ($30,147) including interest is outstanding
at year end. The amount bears interest at the bank's prime rate.
During 1998, Linear Strategies Ltd., a stockholder, advanced the Company
$729,802. Interest incurred on the loan to July 2, 1998 in the amount of $2,849
has been added to the principal amount owing. $350,000 of the loan was assigned
to another stockholder on July 2, 1998. On the same date, both portions of the
loan were converted into 1,127,240 common shares with an ascribed value of
$732,651, and an equal number of common share purchase warrants. Each warrant
entitles the holder to purchase one common share at $1.00 on or before June 30,
1999 and at $1.25 on or before June 30, 2000.
An amount of $39,840 ($61,087 Canadian) due to stockholders and employees of the
Company exists at December 31, 1998. The amount does not carry interest and have
no set repayment terms.
An amount of $10,138 ($14,545 Canadian) is owing from a stockholder of the
Company as at December 31, 1998. The amount does not carry interest and has no
set repayment terms. An allowance for doubtful accounts has been recorded for
the full amount due to the uncertainty of collection.
An amount of $11,040 ($16,927 Canadian) is owing from an entity of which a
certain stockholder is also a Director and stockholder of the Company. The
amount does not carry interest and has no set repayment terms.
During the year end December 31, 1998, the Company provided services and
products of $40,277 ($59,735 Canadian) to Jaws Technologies Inc., an entity of
which certain Directors are also Directors of the Company. An amount of $37,002
($56,735 Canadian) is owing from Jaws Technologies Inc. at December 31, 1998
which has been provided as an allowance for doubtful accounts due to the
uncertainty of collection. The amounts charged for services and products are on
normal commercial terms and conditions.
H-17
<PAGE> 135
FUTURELINK DISTRIBUTION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
During the year end December 31, 1998, the Company provided services and
products of $63,561 ($94,267 Canadian) to Willson Stationers Ltd., an entity of
which certain Directors are also Directors of the Company. Included in accounts
receivable is an amount of $58,909 ($90,325 Canadian) owing from Willson
Stationers Ltd. These transactions are on normal commercial terms and
conditions. In addition, the Company purchased office products from Willson
Stationers Ltd. Included in accounts payable is an amount of $4,976 ($7,630
Canadian). These transactions are on normal commercial terms and conditions.
During the year end December 31, 1998, the Company provided services and
products of $9,471 ($14,047 Canadian) to NextClick Ltd. Certain Directors of the
Company were also Directors of NextClick Ltd. until December 1, 1998. These
transactions are on normal commercial terms and conditions. The full amount
remains outstanding at year end but has been provided as an allowance for
doubtful accounts due to the uncertainty of collection.
During the year end December 31, 1998, the Company provided services and
products of $10,199 ($15,126 Canadian) to Sheraton Business Forms Ltd., an
entity of which a stockholder is also a stockholder of the Company. Included in
accounts receivable is an amount of $4,434 ($6,799 Canadian) owing to the
Company. These transactions are on normal commercial terms and conditions.
12. LOSS ON NON-REFUNDABLE DEPOSIT
During 1997, the previous management entered into an agreement which included
payment of a $100,000 non-refundable deposit to purchase Printscan International
Inc. The Company did not raise sufficient funds to complete the purchase, and
the deposit was forfeited.
H-18
<PAGE> 136
FUTURELINK DISTRIBUTION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
INCOME TAXES
The income tax benefit differs from the amount computed by applying the U.S.
federal statutory tax rates to loss before income taxes for the following
reasons:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
$ $
---------- ------------
<S> <C> <C>
Tax benefit at U.S. statutory rate (34%) (2,068,868) (250,597)
Increase (decrease) in taxes resulting from:
Deferred tax asset valuation allowance 1,690,192 294,820
U.S. state taxes, net of federal tax benefit (120,665) (44,223)
Non-deductible expenses 541,030 --
Foreign tax rate differences (257,895) --
Other 11,597 --
---------- ----------
Deferred tax benefit (204,609) --
========== ==========
</TABLE>
H-19
<PAGE> 137
FUTURELINK DISTRIBUTION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The components of the
Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
$ $
------------ ------------
<S> <C> <C>
Deferred tax liabilities:
Employee and consultants base 1,211,634 --
---------- ----------
Deferred tax assets:
Net operating loss carryforwards 1,904,583 40,000
Start-up costs 39,715 48,820
Write-off of mining related assets 206,000 206,000
Depreciation 77,017 --
Debt issue costs 23,327 --
Debenture receivable 22,564 --
---------- ----------
Total deferred tax assets 2,273,206 294,820
Valuation allowance (2,273,206) (294,820)
---------- ----------
Net deferred tax assets -- --
---------- ----------
Net deferred tax liabilities 1,211,634 --
========== ==========
</TABLE>
The Company has provided a valuation allowance for the full amount of deferred
tax assets in light of its history of operating losses since its inception.
$288,194 of the valuation allowance increase for 1998 of $1,978,386 will reduce
goodwill when recognized. The remaining $1,690,192 may be available to offset
future income taxes if the Company achieves profitability.
The Company has U.S. net operating losses carried forward of $2,563,000 which
expire as follows: $100,000 in 2012 and $2,463,000 in 2018. The availability of
these loss carryforwards to reduce future taxable income could be subject to
limitations under the Internal Revenue Code of 1986, as amended. Certain
ownership changes can significantly limit the utilization of net operating loss
carryforwards in the period following the ownership change. The Company has not
determined whether such changes have occurred and the effect such changes could
have on its ability to carry forward all or some of the U.S. net operating
losses.
H-20
<PAGE> 138
FUTURELINK DISTRIBUTION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
The Company has non-capital losses carried forward for Canadian income tax
purposes of $3,071,000. These losses expire as follows:
<TABLE>
<CAPTION>
$
---------
<S> <C>
2002 117,000
2003 539,000
2004 1,507,000
2005 908,000
</TABLE>
14. NET CHANGE IN NON-CASH WORKING CAPITAL
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
$ $
----------- ------------
<S> <C> <C>
(Increase) decrease in non-cash working capital:
Accounts receivable (1,532,095) --
Inventory (22,206) --
Prepaid expenses and deposits (116,219) --
Accounts payable and accrued liabilities 2,874,183 17,059
---------- ------
1,203,663 17,059
---------- ------
The change relates to the following activities:
Operating activities 1,187,747 --
Financing activities 15,916 --
---------- ------
1,203,663 --
---------- ------
</TABLE>
BANK INDEBTEDNESS
FL/SysGold has a demand credit facility with a Canadian chartered bank for
$1,000,000 Canadian for which the Company has provided a guarantee and
postponement of claim. The facility provides for a first floating charge over
all assets of FL/SysGold as well as an assignment of the shares of the
subsidiary. FL/SysGold's net assets at December 31, 1998 are carried at $99,770
in the Company's accounts. Interest on the facility is based on a range of the
bank's prime rate plus 1% to the bank's prime rate plus 3% depending on the
Company's debt to equity ratio. $9,645 is the amount of cash interest expensed
during the period.
As at December 31, 1998 FL/SysGold was in deficiency with respect to a covenant
relating to its current ratio. The lender has not waived these deficiencies and
has not indicated its intention to do so. In addition, as per the terms of the
agreement, should the Company be in default, a penalty interest rate may be
applied.
The Company is currently working with the bank and undertaking efforts to
rectify the covenant deficiencies. To March 18, 1999, the bank has not formally
given notice of the covenant deficiencies, has not given an indication of plans
to call the loan, and has not imposed the penalty interest.
H-21
<PAGE> 139
FUTURELINK DISTRIBUTION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
16. SEGMENTED INFORMATION
The Company's activities are conducted in one operating segment with all
activities relating to the sales and support of information technology. These
activities are carried out in two geographic segments, being Canada and the
United States.
As at December 31, 1997 and during the year ended December 31, 1997, all of the
Company's activities were carried out in the United States.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------------------
Canada U.S. Total
$ $ $
--------- --------- ---------
<S> <C> <C> <C>
Revenue 2,436,658 -- 2,436,658
========= ========= =========
Capital assets, goodwill and
employee and consultants base 1,119,736 7,930,136 9,049,872
========= ========= =========
</TABLE>
17. FINANCIAL INSTRUMENTS
Financial instruments comprising cash, accounts receivable, bank indebtedness,
accounts payable, accrued liabilities, due to stockholders, capital lease
obligations payable and notes payable approximate their fair value. It is
management's opinion that the Company is not exposed to significant currency or
credit risks arising from these financial instruments.
The Company's sales have been primarily derived from customers in Calgary,
Alberta, Canada. In addition, approximately 22% of revenues for the year ended
December 31, 1998 were derived from one customer.
The estimated fair value as at December 31, 1998 of the 10% convertible
debentures is $2,150,000. This is based on the estimated present value of the
principle and interest under the debenture plus the estimated fair value of the
conversion option (exclusive of the intrinsic value of the conversion option and
the detachable warrants at the issue date of the debenture). The carrying amount
of the 10% convertible debentures is $2,375,530.
The Company is subject to interest rate risk to the extent of the fixed 10%
simple interest rate being charged on the convertible debentures. The effective
annual interest rate realized by the Company, exclusive of the amounts booked
relating to the conversion feature of the 10% convertible debentures and the
warrants was 9.4%.
18. RECENT PRONOUNCEMENTS
In June, 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities". The Company does not acquire derivatives or engage in
hedging activities.
19. CONTINGENCIES
A statement of claim has been filed against the Company in the amount of
approximately $326,000 ($500,000 Canadian) plus costs. 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. The Company has entered into an indemnity
agreement with a former principal whereby such former principal directs the
H-22
<PAGE> 140
FUTURELINK DISTRIBUTION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
action on behalf of the Company, bears the costs of legal counsel and agrees to
indemnify the Company for any losses arising. Management believes the claim is
without merit; consequently, no liability in respect of the claim has been
recorded in the financial statements.
A statement of claim has been filed against the Company's subsidiary, FutureLink
Alberta in the amount of $185,571 ($285,000 Canadian) plus costs seeking damages
and loss of rent related to a purported lease agreement with respect to a
building in Calgary, Alberta, Canada. The Company is counter claiming an amount
of approximately $254,000 ($390,000 Canadian) against the claimant. It is
impossible at this time for the Company to predict with any certainty the
outcome of such litigation. Management believes the claim is without merit and
will defend the Company's position vigorously. However, should the matter
proceed to trial, costs may be in excess of $65,000 ($100,000 Canadian). These
financial statements contain no provision for loss related to the claims.
A statement of claim was filed against the Company's subsidiary, FL/SysGold by
TAP Consulting Ltd. in the amount of $97,828 ($150,000 Canadian). The claim
seeks damages and loss of compensation relating to services provided to the
Company. It is management's position that the claim is without merit. An
indemnity agreement has been obtained from the previous stockholders of
FL/SysGold.
20. SUBSEQUENT EVENTS
Subsequent to December 31, 1998, the Company issued $2,280,000 10% convertible
debentures, due August 20, 2001, under the 10% convertible debenture agreement.
In addition, $1,500,000 of the 10% convertible debentures, together with accrued
interest, were converted into 5,985,269 common shares of the Company. These
shares, representing a portion of the unpaid issued shares held in trust at
December 31, 1998, were re-issued as fully paid shares in relation to this
conversion.
Subsequent to December 31, 1998, the Company repaid the $381,033 promissory
notes plus accrued interest of $6,762 existing at December 31, 1998 in relation
to the acquisition of FL/SysGold.
On February 16, 1999 an additional share certificate for 8,000,000 common shares
was issued in trust as coverage in relation to the 10% convertible debenture.
On February 22, 1999 the Company issued $301,241 10% convertible debentures, due
on June 30, 1999 in exchange for stockholders advances of $289,264 ($440,000
Canadian) including interest existing at December 31, 1998. The holders have the
right to convert the debentures in increments of at least $10,000, at a price
per share equal to $0.40. The Company may prepay any and 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. Upon entering
into the convertible debenture agreement, the Company issued 753,104 common
share purchase warrants to the holders of the debentures. Each warrant gives the
holders the right to purchase one common share of the Company for $0.40 per
share on or before February 22, 2000, for $0.60 per share between February 23,
2000 and February 22, 2001 and $0.80 per share between February 23, 2001 and
February 22, 2002.
On February 26, 1999, FutureLink Alberta became a wholly owned subsidiary when
the Company completed its purchase of the remaining 117,500 shares (3.6%) of
FutureLink Alberta
H-23
<PAGE> 141
FUTURELINK DISTRIBUTION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
that it did not already own, in exchange for 117,500 common shares of the
Company at an ascribed value of $42,300. These shares were issued pursuant to an
exemption from registration under Regulation S of the Securities Act of 1933.
On February 26, 1999 the Company issued a letter of intent in which to amend the
terms of the 10% convertible debentures such that the total financing available
would increase from $5,000,000 to $6,000,000. In addition, under the new terms a
share certificate is to be issued in trust for unpaid shares of common stock
representing 125% of the common stock underlying the $1,000,000 10% convertible
debenture. In addition, the Company is to issue an additional $250,000 of
warrants at a price to be determined based on a formula to be agreed upon.
On March 2, 1999, the Company issued an aggregate of $500,000 8% convertible
debentures, due February 28, 2002. The holders have the right to convert the
debentures at a price per share equal to 80% of the closing prices for the three
days prior to either the initial funding date or the date of conversion,
whichever is less. The Company may prepay any and 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.
Upon entering into the March 2, 1999 convertible debenture agreement, the
Company issued warrants to purchase 132,767 of common stock of the Company to
the holder of the debentures. Common stock can be purchased at a price per share
equal to the average closing price of the common stock for the three trading
days prior to the initial funding date. The warrants expire on February 28,
2001.
On March 2, 1999, a share certificate for 2,621,659 unpaid shares of common
stock was issued in escrow for the common stock underlying the $500,000 8%
convertible debentures and warrants issued on that date.
H-24
<PAGE> 142
FUTURELINK DISTRIBUTION CORP.
CONSOLIDATED BALANCE SHEETS
(See basis of presentation - Note 1)
(All amounts stated in $U.S.)
<TABLE>
<CAPTION>
JUNE 30
---------------------------------
1999 1998
$ $
------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT
Cash 257,551 --
Accounts receivable, net of
$195,338 allowance for doubtful
account 2,068,305 --
Due from related parties, net of
$29,350 allowance for doubtful
accounts 48,626 --
Prepaid expenses and other 1,701,676 --
Inventory and work in progress 126,907 --
---------- ---------
4,203,065 --
---------- ---------
CAPITAL ASSETS, NET OF $572,372
ACCUMULATED DEPRECIATION 2,297,782 --
INVESTMENTS [NOTE 2] 1,220,189 1,269,259
GOODWILL, NET OF $712,581
ACCUMULATED AMORTIZATION 4,627,690 --
EMPLOYEE AND CONSULTANTS BASE,
NET OF $915,556 ACCUMULATED
AMORTIZATION 2,284,444 --
---------- ---------
10,430,105 1,269,259
---------- ---------
14,633,170 1,269,259
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Bank indebtedness [note 4] 638,945 --
Accounts payable 937,108 24,981
Accrued Liabilities 678,725 --
Deferred Revenues 50,000 --
Notes payable 151,756 --
Convertible debentures [note 3] 88,161 --
Due to related party -- --
Interest payable 112,515 --
---------- ---------
2,657,210 24,981
---------- ---------
CAPITAL LEASE OBLIGATIONS PAYABLE 35,018 --
CONVERTIBLE DEBENTURES [NOTE 3] 7,555,930 --
DUE TO STOCKHOLDER -- 504,802
DEFERRED TAXES 973,660 --
---------- ---------
11,221,818 529,783
========== =========
</TABLE>
3
<PAGE> 143
FUTURELINK DISTRIBUTION CORP.
CONSOLIDATED BALANCE SHEETS
(See basis of presentation - Note 1)
(All amounts stated in $U.S.)
<TABLE>
<CAPTION>
JUNE 30
----------------------------
1999 1998
$ $
----------- -----------
(unaudited)
<S> <C> <C>
MINORITY INTEREST -- --
STOCKHOLDERS' EQUITY
Authorized
5,000,000 preferred shares without par value
100,000,000 common shares with par value of $0.0005
Issued and paid-up 3,102 1,200
6,207,784 and 2,399,863 common
shares issued and outstanding at
June 30, 1999 and June 30, 1998,
respectively
To be issued 1,800 --
Exchangeable shares -- --
Capital in excess of par value 10,662,863 2,670,831
Contributed surplus 14,636,300 --
Cumulative translation adjustment (210,250) --
Deficit (21,682,463) (1,932,555)
----------- ----------
TOTAL STOCKHOLDERS' EQUITY 3,411,352 739,476
----------- ----------
14,633,170 1,269,259
=========== ==========
</TABLE>
See accompanying notes:
On behalf of the Board: /s/ Robert Kubbernus /s/ F. Bryson Farrill
---------------------- -------------------------
Robert J. Kubbernus F. Bryson Farrill
Director Director
4
<PAGE> 144
FUTURELINK DISTRIBUTION CORP.
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT AND
COMPREHENSIVE LOSS
(All amounts stated in $U.S.)
<TABLE>
<CAPTION>
3 MONTH PERIOD ENDED 6 MONTH PERIOD ENDED
JUNE 30 JUNE 30
------------------------- ------------------------
1999 1998 1999 1998
$ $ $ $
------------------------- ------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
REVENUE
Consulting services 1,148,682 -- 2,345,530 --
Hardware and software sales 501,189 -- 883,890 --
Other 61,577 -- 225,653 --
----------- ----------- ----------- ----------
1,711,448 -- 3,455,073 --
----------- ----------- ----------- ----------
EXPENSES
Hardware and software purchases 469,600 -- 822,130 --
Contracts, payroll and benefits 1,738,920 -- 3,223,962 --
Accounting and legal 97,382 10,000 146,846 40,158
Consulting expenses 425,416 -- 891,238 --
General and administrative 1,060,819 5,351 1,830,891 30,918
Other 9,500 -- 9,500 --
Interest expense 6,408,353 -- 7,406,143 --
Amortization of deferred financing
fees and debt discount [note 3] 1,437,668 -- 1,466,517 --
Bad debt expense/(recovery) (91,023) -- 92,504 --
Depreciation 218,416 -- 350,250 --
Amortization of intangible assets 460,515 -- 960,520 --
----------- ----------- ----------- ----------
12,235,566 15,351 17,200,501 71,076
----------- ----------- ----------- ----------
Loss from operations (10,524,118) (15,351) (13,745,428) (71,076)
----------- ----------- ----------- ----------
Extinguishment of debt [note 3a] (844,552) -- (844,552) --
Equity in loss of affiliate [note 2b] -- (270,089) -- (411,316)
----------- ----------- ----------- ----------
(844,552) (270,089) (844,552) (411,316)
----------- ----------- ----------- ----------
LOSS BEFORE INCOME TAXES (11,368,670) (285,440) (14,589,980)
Deferred tax benefit 118,987 -- 237,974 --
----------- ----------- ----------- ----------
NET LOSS FOR THE PERIOD (11,249,683) (285,440) (14,352,006) 482,392
OTHER COMPREHENSIVE LOSS
Foreign currency translation
adjustment (72,063) -- (113,782) --
----------- ----------- ----------- ----------
COMPREHENSIVE LOSS (11,321,746) (285,440) (14,465,787) 482,392
=========== =========== =========== ==========
DEFICIT, BEGINNING OF PERIOD (10,432,780) (1,647,115) (7,330,457) (1,450,163)
DEFICIT, END OF PERIOD (21,682,463) (1,932,555) (21,682,463) (1,932,555)
=========== =========== =========== ==========
LOSS PER COMMON SHARE $(1.82) $(0.12) $(2.39) $(0.20)
=========== =========== =========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 6,175,671 2,395,709 5,995,831 2,392,824
=========== =========== =========== ==========
</TABLE>
The above statement gives retroactive effect to share consolidations of 5 to 1
on June 1, 1999.
See accompanying notes
5
<PAGE> 145
FUTURELINK DISTRIBUTION CORP.
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY
(All amounts stated in $U.S.)
<TABLE>
<CAPTION>
CAPITAL IN
TO BE EXCESS OF CONTRIBUTED
(UNAUDITED) COMMON STOCK ISSUED PAR SURPLUS
------------------- ------ ---------- -----------
SHARES $ $ $ $
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 2,040,700 1,020 -- 1,425,211 --
Issuance of shares on acquisition
of 46% of FutureLink Alberta 308,000 154 -- 338,646 --
Forgiveness of stockholder debt -- -- -- 60,200 --
Issuance of share capital for cash 51,163 26 -- 846,774 --
--------- ----- ------ --------- ---------
BALANCE, JUNE 30, 1998 2,399,863 1,200 -- 2,670,831 --
Forgiveness of stockholder debt -- -- -- 10,125 --
Issuance of share capital to
employees, officers and directors
of the company 700,000 350 -- 2,117,150 --
Warrants issued with issuance of
convertible debentures -- -- -- -- 562,500
Equity component of convertible
debentures [note 3a] -- -- -- -- 777,143
Equity component of financing fees -- -- -- -- (75,600)
Equity component of financing fees -- -- -- -- (39,375)
Shares issued upon conversion of
convertible debt 374,955 188 -- 506,553 --
Shares issued on conversion of loan 225,448 113 -- 732,538 --
Issuance of shares on acquisition
of 50.4% of FutureLink Alberta 334,755 167 -- 663,960 --
Share issue costs -- -- -- (218,992) --
Financing fees associated
with converted debentures -- -- (44,525) --
---------
TOTAL OUTSTANDING SHARES 4,035,021
---------
Issuance of exchangeable shares on
acquisition of FL/SysGold 850,000 -- -- -- --
Shares to be issued for services 23,051 -- 50,000 -- --
--------- ----- ------ --------- ---------
BALANCE, DECEMBER 31, 1998 4,908,072 2,018 50,000 6,437,640 1,224,668
========= ===== ====== ========= =========
</TABLE>
The above statement gives retroactive effect to share consolidations of 5 to 1
on June 1, 1999.
See accompanying notes
6
<PAGE> 146
FUTURELINK DISTRIBUTION CORP.
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY
(All amounts stated in $U.S.)
<TABLE>
<CAPTION>
CAPITAL IN
(UNAUDITED) TO BE EXCESS OF CONTRIBUTED
COMMON STOCK ISSUED PAR SURPLUS
------------------ ------ ---------- ----------
SHARES $ $ $ $
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1998 4,035,021 2,018 -- 6,437,640 1,224,668
Equity components of
10% convertible debentures [note 3a] -- -- -- -- 911,990
Warrants issued with issuance of
convertible debentures -- -- -- -- 129,500
Equity component of financing fees -- -- -- -- (91,194)
Shares issued on conversion of
convertible debt [note 3a] 1,197,054 599 -- 1,560,887 --
Financing fees associated with
converted debentures -- -- -- (96,834) --
Discount associated with converted
debentures -- -- -- (26,747) --
Warrants issued with issuance of 10%
convertible debentures [note 3b] -- -- -- -- 20,000
Equity component of 8% convertible
debentures [note 3e] -- -- -- -- 125,000
Warrants issued with issuance of 8%
convertible debentures [note 3e] -- -- -- -- 35,847
Issuance of shares on 3.6%
acquisition of FutureLink Alberta
[note 2] 23,500 12 -- 42,288 --
Issuance of common stock for services 64,703 32 -- 124,968 --
Issuance of common stock relating to
exchange of exchangeable shares on
acquisition of FL/SysGold in 1998 850,000 424 -- 2,549,576 --
Issuance of common stock for
interest [note 3a] 36,706 18 -- 76,347 --
Warrants issued with issuance of
convertible debentures under amended
agreement [note 3a] -- -- -- -- 1,200,000
Equity component of convertible
debentures under amended agreement
[note 3a] -- -- -- -- 1,015,000
Warrants issued with issuance of
senior subordinated convertible
promissory notes [note 3c] -- -- -- -- 3,126,620
Equity component of senior
subordinated convertible promissory
notes [note 3c] -- -- -- -- 4,911,880
Warrants issued as placement fee on
issuance of senior subordinated
convertible promissory note [note 3c] -- -- -- -- 1,800,000
Placement fee attributable to equity
component of senior subordinated
convertible promissory notes [note 5] -- -- -- -- (1,800,000)
Warrants issued for advisory
services [note 5] -- -- -- -- 1,800,000
Warrants issued for advisory
services [note 5] -- -- -- -- 40,320
Warrants issued for advisory
services [note 5] -- -- -- -- 228,950
Finance fees attributable to equity
component of senior subordinated
convertible promissory notes -- -- -- -- (159,722)
Equity component of 10% convertible
debentures [note 3d] -- -- -- -- 79,821
Warrants issued with issuance of 10%
convertible debentures [note 3d] -- -- -- -- 41,800
Financing fees associated with 10%
convertible debentures [note 3d] -- -- -- -- (4,180)
Exercise of employee stock options 800 -- 1,800 -- --
Stock issue costs -- -- -- (5,262) --
--------- ----- ----- ---------- ----------
BALANCE, JUNE 30, 1999 6,207,784 3,102 1,800 10,662,863 14,636,300
========= ===== ===== ========== ==========
</TABLE>
The above statement gives retroactive effect to share consolidations 5 to 1 on
June 1, 1999.
See accompanying notes
7
<PAGE> 147
FUTURELINK DISTRIBUTION CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts stated in $U.S.)
<TABLE>
<CAPTION>
6 MONTH PERIOD ENDED
(UNAUDITED) JUNE 30
------------------------
1999 1998
$ $
------------------------
(unaudited)
<S> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES
Net loss for the period (14,352,006) (482,392)
Adjustments to reconcile net loss to net cash provided by
operating activities
Equity in loss of affiliate [note 2b] -- 411,316
Non cash interest expense 7,235,169 --
Non cash consulting expense 125,000 --
Depreciation 350,250 --
Amortization of deferred financing fees and debt discount 1,466,517 --
Amortization of intangible assets 960,520 --
Bad debt expense 92,504 --
Extinguishment of debt 432,952 --
Other (50,000) --
Deferred tax recovery (237,974) --
----------- ----------
(3,977,068) (71,076)
Changes in non-cash working capital (1,264,698) 1,049
Effect of foreign currency on operating activities (67,424) --
----------- ----------
(5,309,190) (70,027)
----------- ----------
CASH FLOWS USED IN INVESTING ACTIVITIES
Capital assets purchased (1,543,777) --
Cash advances to equity investee -- (1,341,775)
Investment [note 2a] (1,220,189) --
Other investments (40,016) --
Changes in non-cash working capital (289,451) --
Other (125,193) --
----------- ----------
(3,218,626) (1,341,775)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash received under demand credit facility (180,272) --
Issuance of common stock -- 846,800
Share issue costs (5,262) --
Shares to be issued 1,800
Repayment of capital lease obligations (17,704) --
Forgiveness of stockholder debt -- 60,200
Issuance of 8% convertible debentures net of issue costs [note 3a] 2,925,000 --
Repayment of 8% convertible debentures [note 3a] (1,470,000) --
Repayment of 10% convertible debentures [note 3b] (218,725) --
Issuance of 8% senior subordinated convertible debentures net of
issue costs [note 3c] 7,258,327 --
Issuance of 10% convertible debentures net of issue costs [note 3d] 247,500 --
Issuance of 8% convertible debentures net of issue costs [note 3e) 490,000 --
Issuance of note payable net of issue costs 125,000 --
Issuance of promissory note 150,000 --
Repayment of promissory note (150,000) --
Repayment of note payable (381,033) --
Other financing fees (89,000) --
Advances from stockholders -- 504,802
Changes in non-cash working capital 93,085 --
----------- ----------
8,778,716 1,411,802
----------- ----------
INCREASE IN CASH 250,900 --
Cash, beginning of period 6,651 --
----------- ----------
CASH, END OF PERIOD 257,551 --
=========== ==========
</TABLE>
See accompanying notes
8
<PAGE> 148
FUTURELINK DISTRIBUTION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998 (unaudited)
1. BASIS OF PRESENTATION
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements, the Company has an accumulated deficit amounting to $21,682,463 and
total net operating cash outflows of $3,977,068. Although it has a positive
working capital balance of $1,545,855, the Company's continuation as a going
concern is in substantial doubt and dependent on its ability to generate
sufficient cash flow to meet its obligations on a timely basis, to obtain
additional financing as may be required, and ultimately to attain successful
operations. However, no assurance can be given at this time as to whether the
Company will achieve any of these conditions. The financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts or the amounts and classification of liabilities that
might be necessary should the Company be unable to continue as a going concern
for a reasonable period of time.
During the period from June 30, 1999 to August 16, 1999, management has raised
$15,000,000 of capital in the form of convertible debt which will primarily be
used to finance operations. These funds have further improved the Company's
working capital position of $1,545,855 as at June 30, 1999.
The accompanying financial statements reflect all adjustments which are, in the
opinion of management, necessary to reflect a fair presentation for the periods
being presented.
2. INVESTMENTS
A) PROPOSED ACQUISITION OF EXECUTIVE LAN MANAGEMENT, INC.
On June 2, 1999, the Company signed an Agreement and Plan of Reorganization and
Merger with Executive LAN Management, Inc., operating as Micro Visions ("Micro
Visions"). The agreement provides for a merger of the Company with Micro
Visions such that all of Micro Visions' outstanding stock shall be sold to the
Company in exchange for $12,000,000 cash and 6,000,000 common shares, as well as
contingent consideration of 2,400,000 common shares subject to the achievement
of certain targets. The merger is to take place as soon as practicable after
the satisfaction or waiver of the conditions set forth in the Agreement and is
anticipated to be completed by October 1, 1999.
The additional share consideration is based upon the achievement of the
following performance criteria as described in the agreement for the period
from January 1, 1999 to December 31, 1999:
i) 1,200,000 common shares to be issued if Micro Visions achieves sales in
excess of $18,000,000;
ii) 720,000 common shares to be issued if Micro Visions enlists 100 new
customers; and
iii) 480,000 common shares to be issued if Micro Visions installs and integrates
at least 200 new servers.
Upon signing the agreement, a deposit of $1,000,000 was paid by the Company for
the purchase of Micro Visions. As per the agreement, a further $500,000
deposit was paid July 31, 1999, and an additional $500,000 is due August 31,
1999.
The Company has incurred costs relating to this proposed acquisition of
$220,189 to June 30, 1999.
9
<PAGE> 149
The acquisition, upon completion will be accounted for by the purchase method.
The purchase price will be allocated to the net assets acquired based on their
estimated fair values. As at June 30, 1999, the purchase allocation would be
as follows:
<TABLE>
<CAPTION>
$
----------
<S> <C>
NET ASSETS ACQUIRED
Working capital 904,826
Capital and other assets 708,512
Goodwill 44,085,005
----------
NET ASSETS ACQUIRED 45,698,343
==========
CONSIDERATION:
Cash 12,000,000
Common shares of FutureLink 33,375,000
Acquisition costs 323,343
----------
45,698,343
==========
</TABLE>
Additional consideration payable to the former shareholders of Micro Visions
has not been reflected in the purchase allocation or the proforma results of
operations as the outcome of the contingency cannot be reasonably determined at
this time. The additional share consideration, will be recorded as additional
purchase price consideration (goodwill) if and when it becomes payable.
The following proforma results of operations give effect to the acquisition of
Micro Visions as if the transaction had occurred January 1, 1999 and 1998,
respectively, and includes the amortization of goodwill calculated on a straight
line basis over a period of 5 years.
<TABLE>
<CAPTION>
June 30
1999 1998
------------ -----------
<S> <C> <C>
Revenue 12,776,661 5,461,238
Expenses
Contracts, payroll and benefits 6,300,981 1,753,780
General, administration, and other 4,147,463 810,637
Hardware and software purchases 5,527,345 2,606,371
Interest expense 7,413,483 -
Depreciation 391,068 3,342
Goodwill and other amortization 6,835,538 4,413,905
----------- ----------
30,615,878 9,588,035
=========== ==========
Loss from operations (17,839,217) (4,126,797)
Extinguishment of debt (844,552) -
Equity in loss of affiliate - (411,316)
Net profit/(loss) before tax (18,683,769) (4,538,113)
Deferred tax benefit/(expense) 133,707 (143,274)
----------- ----------
Net profit/(loss) after tax (18,550,062) (4,681,387)
=========== ==========
Loss per common share $ (1.55) $ (0.56)
=========== ==========
</TABLE>
10
<PAGE> 150
B) FUTURELINK DISTRIBUTION CORP. (ALBERTA)
On February 26, 1999, FutureLink Alberta became a wholly owned subsidiary when
the Company purchased the remaining 23,500 shares (3.6%) of FutureLink Alberta
in exchange for 23,500 common shares of the Company at an ascribed value of
$42,300. Net assets acquired are as follows:
<TABLE>
<CAPTION>
$
-------
<S> <C>
NET ASSETS ACQUIRED
Non cash working capital deficiency (49,208)
Capital assets 66,657
Goodwill 26,937
Other obligations (2,086)
-------
NET ASSETS ACQUIRED 42,300
=======
</TABLE>
As at June 30, 1998, the Company held a 46% interest in FutureLink Alberta
which had been accounted for on an equity basis since the period of ownership
commencing January 20, 1998. The Company acquired the interest in FutureLink
Alberta by issuing 308,000 common shares in exchange for 308,000 common share
of FutureLink Alberta. The value ascribed to the investment was $338,800 and
was based on an independent valuation report. The Company's investment in
FutureLink Alberta at June 30, 1998 was as follows:
<TABLE>
<CAPTION>
$
---------
<S> <C>
308,000 common shares 338,800
Advances to equity investee 1,341,775
Equity loss in investee (411,316)
---------
1,269,259
=========
</TABLE>
The advances to FutureLink Alberta were non-interest bearing and had no
repayment terms.
3. CONVERTIBLE DEBENTURES
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
$ $
--------- ------------
<S> <C> <C>
CURRENT
Stockholder 10% convertible debentures (b) 88,161 --
-------- ------------
88,161 --
======== ============
LONG TERM
10% TK convertible debentures (a) 1,477,084 2,153,457
8% Senior subordinated convertible
promissory notes (c) 5,386,406 --
10% convertible debentures (d) 220,439 --
8% convertible debentures (e) 472,001 --
--------- ------------
7,555,930 2,153,457
========= ============
</TABLE>
A) 10% TK CONVERTIBLE DEBENTURES
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
$ $
---------- ------------
<S> <C> <C>
Principal 2,500,000 2,220,000
Discount on debt (1,108,109) --
Deferred financing fee -- (222,073)
Accrued interest 85,103 155,530
---------- ------------
NET BALANCE AT JUNE 30, 1999 1,477,084 2,153,457
========== ============
</TABLE>
11
<PAGE> 151
During 1998 the Company entered into a 10% convertible debenture agreement with
Thomson Kernaghan & Co. Ltd. as agent, to provide up to $5,000,000 of
financing. In February, 1999 the company amended the terms of the 10% TK
convertible debentures which increased the total financing from $5,000,000 to
$6,000,0000.
Of the total principal amount of the debentures of $6,000,000, a total of
$1,689,133 has been attributed to the intrinsic value of the conversion option
at the issue date and included with contributed surplus. Of this amount,
$911,990 relates to debentures received during the six months to June 30, 1999.
The amount attributed to the conversion option has been included in interest
on long term debt as the conversion option was exercisable upon issuance.
On April 26, 1999, the Company amended the terms of the 10% TK convertible
debenture agreement. The amendment supersedes all prior amendments.
Previously the debenture holders had the right to convert the debentures at a
price equal to the lower of $3.75 per share and 78% of the average closing bid
price of the Company's common stock for the three trading days immediately
preceding the conversion. Under the terms of the amendment, the debenture
conversion price was fixed at $1.00 per common share. In addition, the common
share purchase warrants of 208,334 and 129,534 issued under prior agreements
were repriced such that their exercise price became $1.25 per common share.
The Company also issued an additional 862,132 share purchase warrants at an
exercise price of $1.25 per common share such that a total of 1,200,000 share
purchase warrants are outstanding relating to this convertible debenture
agreement. In addition, the Company paid $1,881,600 as consideration for the
cancellation of $1,470,000 of the principal balance such that $2,500,000 of the
convertible debentures remain outstanding.
An amount of $844,552 has been recorded as a loss on the extinguishment of
debt and includes $259,318 unamortized finance fees and $173,634 unamortized
debt discount associated with the prior debt, as well as $411,600 relating to
the cost of settling $1,470,000 of debt. In addition, an amount of $1,015,000
attributable to the intrinsic value of the conversion feature of the amended
debt has been included as interest expense with a corresponding credit to
contributed surplus as the conversion option was exercisable upon issuance.
An amount of $1,200,000 has been included in contributed surplus as the
estimated value attributed to the 1,200,000 warrants as they were exercisable
upon issuance. The amount is being amortized over the remaining life of the
debentures of which $91,981 has been amortized to June 30, 1999. The warrants
expire August 20, 2001.
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 debenture holders' election, interest can be settled in
common stock of the Company based on market prices. During the period, the
Company issued 36,700 shares as payment for $76,347 of accrued interest.
B) STOCKHOLDER 10% CONVERTIBLE DEBENTURES
<TABLE>
<CAPTION>
$
------
<S> <C>
Principal 82,517
Accrued interest 5,644
------
NET BALANCE AT JUNE 30, 1999 88,161
======
</TABLE>
During the first quarter of 1999 the Company issued $301,241 10% convertible
debentures, due on June 30, 1999 in exchange for stockholders advances of
$289,264 ($440,000 Canadian) including interest existing at December 31, 1998.
The holders have the right to convert the debentures in increments of at least
$10,000, at a price per share equal to $2.00. The Company may prepay any and
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.
12
<PAGE> 152
Upon entering into the convertible debenture agreement, the Company issued
150,621 common share purchase warrants to the holders of the debentures. Each
warrant gives the holder the right to purchase one common share of the Company
for $2.00 per share on or before February 22, 2000, for $3.00 per share between
February 23, 2000 and February 22, 2001 and $4.00 per share between February
23, 2001 and February 22, 2002. An amount of $20,000 has been included in
contributed surplus as the estimated value attributed to the 150,621 warrants.
During the second quarter of 1999, the Company repaid $218,725 of the principal
amount. In addition, $3,867 of accrued interest was forgiven by a note holder.
C) 8% SENIOR SUBORDINATED CONVERTIBLE PROMISSORY NOTES
<TABLE>
<CAPTION>
$
----------
<S> <C>
Principal 8,038,500
Discount on debt (2,130,565)
Deferred financing fee (521,529)
----------
NET BALANCE AT JUNE 30, 1999 5,386,406
==========
</TABLE>
On May 7, 1999, the Company completed $8,038,500 financing of 8% senior
subordinated convertible promissory notes. The notes are due April 30, 2000,
however maturity may be extended by up to one year at the option of the
placement agent. Interest is payable quarterly from April 30, 1999. The
notes are convertible at the option of the note holders at a conversion price
of $1.00 per share (except those issued to management and directors, see
below). The notes will automatically convert in the event the Company raises
gross proceeds from a subsequent offering of at least $10,000,000, at a
valuation in excess of the greater of (i) double the average closing bid price
of the Company's common stock for the 10 trading days immediately preceding the
initial closing date; or (ii) $1.00 per common share. Such conversion is
conditioned upon the common stock underlying the notes being registered at the
time of conversion.
Of the total $8,038,500 notes issued, management and directors of the Company
purchased $433,000. The notes are convertible at a conversion price of $1.50
per share, subject to a 12 month lock up provision.
An amount of $4,911,880 has been attributed to the intrinsic value of the
conversion option and has been included in contributed surplus.
An amount of $3,195,848 has been included as a discount on debt and is being
amortized over the estimated life of the debt of six months.
Upon entering into the agreement, the Company issued warrants to purchase
3,802,750 of common stock to the external holders of the debentures and 216,500
of common stock to directors and management of the Company. Common stock can
be purchased at $1.25 per share by external holders and at $1.50 per share by
directors and management. The warrants expire on April 29, 2006 but may be
redeemed at the option of the Company on 30 days' notice at a redemption price
of $1.25 per warrant provided either (i) a registration statement is declared
effective by the Securities and Exchange Commission; (ii) or the average
closing bid price of the Company's common stock for 15 consecutive trading days
exceeds $7.50. An amount of $3,126,620 has been included in contributed
surplus as the estimated value of the warrants.
In addition, 2,000,000 warrants at an exercise price of $1.25 per common share
were provided to the agent as a placement fee. An amount of $1,800,000 has
been attributed to the value of the warrants and has been recorded to
contributed surplus. The placement fee is attributable to the equity portion
of the debt and therefore this issue cost has also been recorded as a charge
against contributed surplus. The warrants are exercisable at $1.25 per share
and expire on April 29, 2006.
13
<PAGE> 153
D) 10% CONVERTIBLE DEBENTURES
<TABLE>
<CAPTION>
$
-------
<S> <C>
Principal 278,160
Discount on debt (39,727)
Deferred financing fee (22,164)
Accrued interest 4,170
-------
NET BALANCE AT JUNE 30, 1999 220,439
=======
</TABLE>
During the first quarter of 1999, the Company issued a $275,000 promissory
note. Effective May 7, 1999, the Company entered into an agreement which
converted the promissory note and $3,160 accrued interest into a 10%
convertible debenture. The holder of the convertible debenture has the right to
convert the debenture at $1.15 per common share. The Company may prepay upon
30 days advance notice. The note matures on April 20, 2002. At the
noteholders' option, interest can be paid in stock at $1.15 per share.
Interest is otherwise due at maturity.
An amount of $79,821 has been attributed to the intrinsic value of the
conversion options and has been included in contributed surplus.
Upon entering into the 10% convertible debenture agreement, the Company issued
warrants to purchase 44,505 of common stock of the Company to the holder of the
debenture. Common stock can be purchased at $1.25 per share. The warrants
expire April 30, 2001. An amount of $41,800 has been included in contributed
surplus as the estimated value of the warrants.
The Company also paid a 10% financing fee on the original $275,000. The value
of the fees associated with the equity component of the 10% convertible
debentures in the amount of $4,180 has been charged to contributed surplus.
The remaining amount is being amortized over the life of the debentures.
E) 8% CONVERTIBLE DEBENTURES
<TABLE>
<CAPTION>
$
-------
<S> <C>
Principal 500,000
Discount on debt (32,003)
Deferred financing fee (8,928)
Accrued interest 12,932
-------
NET BALANCE AT JUNE 30, 1999 472,001
=======
</TABLE>
During the first quarter of 1999, the Company issued an aggregate of $500,000
8% convertible debentures, due February 28, 2002. The holders have the right
to convert the debentures at a price per share equal to the lower of $0.38 per
share or 80% of the closing prices for the three days prior to the date of
conversion. The Company may prepay any and 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.
An amount of $125,000 has been attributed to the intrinsic value of the
conversion option and has been included in contributed surplus.
Upon entering into the 8% convertible debenture agreement, the Company issued
warrants to purchase 26,553 of common stock of the Company to the holder of the
debentures. Common stock can be purchased at $1.50 per share. The warrants
expire on February 28, 2001. An amount of $35,847 has been included in
contributed surplus as the estimated value of the warrants. The Company paid a
finance fee of $10,000 which is being amortized over the life of the
convertible debentures.
14
<PAGE> 154
4. BANK INDEBTEDNESS
A subsidiary of the Company has a demand credit facility with a Canadian
chartered bank for $1,000,000 Canadian for which the Company has provided a
guarantee and postponement of claim. The facility provides for a first
floating charge over all assets of the subsidiary as well as an assignment of
the shares of the subsidiary. Interest on the facility is based on a range of
the bank's prime rate plus 1% to the bank's prime rate plus 3% depending on the
subsidiary`s debt to equity ratio.
5. COMMITMENTS
On May 1, 1999 the Company entered into an agreement in which the Company
retained an advisor for a period of one year. Compensation for the services
received under the agreement include payment of $5,000 per month and issuance
of 2,000,000 warrants. An amount of $1,800,000 has been included in
contributed surplus as the estimated value of the warrants. The issuance of
the warrants has been recorded as a prepaid expense and is being amortized over
the life of the agreement.
On April 1, 1999 the Company issued 45,600 warrants relating to an agreement
which provides for advisory services to the Company for a period of one year
commencing December 1, 1998. An amount of $40,320 has been included in
contributed surplus as the estimated value of the warrants. The warrants are
exercisable at $2.35 per common share and expire on December 31, 2001. In
addition, 95,000 warrants were issued to the advisor as compensation for
services rendered relating to certain financing transactions. An amount of
$228,950 has been included in contributed surplus as the estimated value of the
warrants. Of this amount, $159,722 has been charged to contributed surplus as
the amount attributable to the equity component of the related financing. The
balance has been recorded as a deferred financing fee against the related debt.
These warrants are exercisable at $4 per common share and expire on April 29,
2002.
6. CONTINGENCIES
A statement of claim has been filed against the Company in the amount of
approximately $326,000 ($500,000 Canadian) plus costs. 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. The Company has entered into an
indemnity agreement with a former principal whereby such former principal
directs the action on behalf of the Company, bears the costs of legal counsel
and agrees to indemnify the Company for any losses arising. Management
believes the claim is without merit; consequently, no liability in respect of
the claim has been recorded in the financial statements.
A statement of claim has been filed against the Company's subsidiary,
FutureLink Alberta in the amount of $185,571 ($285,000 Canadian) plus costs
seeking damages and loss of rent related to a purported lease agreement with
respect to a building in Calgary, Alberta, Canada. The Company is counter
claiming an amount of approximately $254,000 ($390,000 Canadian) against the
claimant. The plaintiff has now leased the premises in question to a third
party, thereby mitigating its alleged losses. However, it is impossible at
this time for the Company to predict with any certainty the outcome of such
litigation. Management believes the claim is without merit and will defend the
Company's position vigorously. However, should the matter proceed to trial,
costs may be in excess of $65,000 ($100,000 Canadian). These financial
statements contain no provision for loss related to the claims.
15
<PAGE> 155
A statement of claim was filed against the Company's subsidiary, FL/SysGold by
TAP Consulting Ltd. in the amount of $97,828 ($150,000 Canadian). The claim
seeks damages and loss of compensation relating to services provided to the
Company. It is management's position that the claim is without merit. An
indemnity agreement has been obtained from the previous stockholders of
FL/SysGold.
7. LOSS PER SHARE
Loss per common share is loss for the period divided by the weighted average
number of common shares outstanding after retroactive effect of the share
consolidation. The effect on earnings per share of the exercise of options and
warrants, and the conversion of the convertible securities is anti-dilutive.
8. SUBSEQUENT EVENTS
On July 27, 1999, the Company completed a closing of 8% senior subordinated
convertible promissory notes and warrants for gross proceeds of $15,000,000.
The notes are due on the earlier of (i) July 19, 2001; (ii) the consummation of
a public offering of the Company's securities; (iii) the completion of a
private placement resulting in gross proceeds of at least $15,000,000; and (iv)
the consummation of a merger, combination or the sale of substantially all of
the Company's assets, or the purchase by a single entity or person of more than
50% of the Company's voting stock. The notes are convertible into common stock
at an exercise price of $8.50 per common share. However, if prior to maturity,
the Company completes a private placement of debt or equity securities
resulting in gross proceeds of $15,000,000, and the terms of this subsequent
placement are acceptable to the agent and the noteholders, the notes will
automatically convert as payment for an investment into the securities sold in
the subsequent conversion.
Interest on the notes is payable semi-annually commencing January 31, 2000.
In addition, 2,250,000 warrants were issued to note holders to purchase common
stock at an exercise price of $8.50 per common share. The warrants are
exercisable until July 27, 2001, however are callable at the option of the
Company on 30 days' notice if (i) the average closing bid price of the
Company's common stock for 20 consecutive trading days exceeds $17 and (ii) a
registration statement covering the warrant shares has been declared effective
by the Securities and Exchange Commission.
The Company paid a finance fee of $1,350,000 and issued 225,000 warrants to the
placement agent. The warrants are exercisable at $8.50 per share and expire
July 27, 2001.
On August 1, 1999, the Company entered into an agreement with an executive of
the Company. In accordance with the terms of the agreement, the Company loaned
$2,000,000 to the executive which was then used by the executive to purchase
232,829 common shares of the Company. The common stock are escrowed. On
October 1, 1999, 29,129 shares will be released from escrow. An additional
29,100 shares will be released from escrow on a quarterly basis commencing
January 1, 2000. So long as the executive remains employed by the Company,
$250,000 of the principal amount of the loan shall be forgiven on a quarterly
basis, commencing October 1, 1999.
16
<PAGE> 156
SCHEDULE "J" -- PRO FORMA FINANCIAL STATEMENTS SHOWING
IMPACT OF THE MICRO VISIONS ACQUISITION ON FUTURELINK
AS AT JUNE 30, 1999 AND DECEMBER 31, 1998
<PAGE> 157
FUTURELINK DISTRIBUTION CORP.
PRO FORMA BALANCE SHEET
JUNE 30, 1999
UNAUDITED
(all amounts in United States thousands of dollars except Earnings Per Share)
<TABLE>
<CAPTION>
PRO FORMA NOTE PRO FORMA
FUTURELINK MICRO VISIONS ADJUSTMENTS REFERENCE CONSOLIDATED
---------- ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CURRENT
Cash........................ $ 258 $ 244 -- $ 502
Accounts receivable......... 2,117 3,738 -- 5,855
Prepaid expenses............ 1,702 -- -- 1,702
Inventory................... 126 423 -- 549
Other current assets........ -- 56 -- 56
------- ------ ------- -------
4,203 4,461 -- 8,664
------- ------ ------- -------
Capital assets.............. 2,298 484 -- 2,782
Other assets................ -- 224 -- 224
Goodwill.................... 4,628 -- $44,085 (2.1), (2.3) 48,713
Employee and consultants
base...................... 2,284 -- -- 2,284
Investments................. 1,220 -- (1,220) (2.1), (2.2) --
------- ------ ------- -------
10,430 709 42,865 54,003
------- ------ ------- -------
TOTAL ASSETS................ $14,633 $5,169 $42,865 $62,667
======= ====== ======= =======
CURRENT
Line of credit.............. $ 639 $ 798 -- $ 1,437
Accounts payable and accrued
liabilities............... 1,615 1,947 $ 103 (2.2) 3,665
Income taxes payable........ -- 242 -- 242
Deferred income taxes....... -- 450 -- 450
Interest payable............ 113 -- -- 113
Notes payable............... 152 -- -- 152
Convertible debentures,
net....................... 88 -- -- 88
Due to former shareholders
of Micro Visions.......... -- -- 11,000 (2.1) 11,000
Deferred revenues........... 50 119 -- 169
------- ------ ------- -------
2,657 3,556 11,103 17,316
------- ------ ------- -------
Capital lease obligation.... 34 -- -- 34
Convertible debentures,
net....................... 7,556 -- -- 7,556
Deferred taxes.............. 974 -- -- 974
------- ------ ------- -------
TOTAL LIABILITIES........... 11,221 3,556 11,103 25,880
------- ------ ------- -------
Paid up shares.............. 3 10 3 (2.1)
(10) (2.2) 6
Capital in excess of par.... 10,663 -- 33,372 (2.1) 44,035
To be issued................ 2 -- -- 2
Contributed surplus......... 14,636 -- -- 14,636
Cumulative translation
account................... (210) -- -- (210)
Retained
Earnings/(Deficit)........ (21,682) 1,603 (1,603) (2.2) (21,682)
------- ------ ------- -------
3,412 1,613 31,762 36,787
------- ------ ------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY...... $14,633 $5,169 $42,865 $62,667
======= ====== ======= =======
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
J-1
<PAGE> 158
FUTURELINK DISTRIBUTION CORP.
PRO FORMA STATEMENT OF INCOME AND LOSS
JUNE 30, 1999
UNAUDITED
(all amounts in United States thousands of dollars except Earnings Per Share)
<TABLE>
<CAPTION>
PRO FORMA NOTE PRO FORMA
FUTURELINK MICRO VISIONS ADJUSTMENTS REFERENCE CONSOLIDATED
---------- ------------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C>
REVENUES
Consulting...................... $ 2,346 $3,192 -- $ 5,538
Hardware and software sales..... 884 5,583 -- 6,467
Server farm and other sales..... 225 547 -- 772
---------- ------ ------- -----------
3,455 9,322 -- 12,777
---------- ------ ------- -----------
EXPENSES
Contracts, payroll and
benefits...................... 3,224 3,077 -- 6,301
Hardware and software
purchases..................... 822 4,706 -- 5,528
Selling, general and
administration and other...... 2,971 1,177 -- 4,148
Interest expense................ 7,406 7 -- 7,413
Depreciation.................... 350 41 -- 391
Goodwill and other
amortization.................. 2,427 -- $ 4,409 (3.1) 6,836
---------- ------ ------- -----------
17,200 9,008 4,409 30,617
---------- ------ ------- -----------
NET LOSS FROM OPERATIONS........ (13,745) 314 (4,409) (17,840)
Unusual item.................... (845) -- -- (845)
---------- ------ ------- -----------
NET PROFIT/(LOSS) BEFORE TAX.... (14,590) 314 (4,409) (18,685)
Deferred tax benefit............ 238 (104) -- 134
---------- ------ ------- -----------
NET PROFIT/(LOSS) AFTER TAX..... $ (14,352) $ 210 $(4,409) $ (18,551)
========== ====== ======= ===========
LOSS PER COMMON SHARE........... $ (2.39) $ (1.55)
---------- -----------
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING............ 5,995,831 (4) 11,995,831
---------- -----------
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
J-2
<PAGE> 159
FUTURELINK DISTRIBUTION CORP.
PRO FORMA STATEMENT OF INCOME AND LOSS
DECEMBER 31, 1998
UNAUDITED
(all amounts in United States thousands of dollars except Earnings Per Share)
<TABLE>
<CAPTION>
PRO FORMA NOTE PRO FORMA
FUTURELINK MICRO VISIONS ADJUSTMENTS REFERENCE CONSOLIDATED
---------- ------------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C>
REVENUES
Consulting...................... $ 1,471 $ 5,088 -- $ 6,559
Hardware and software sales..... 963 8,071 -- 9,034
Other........................... 3 510 -- 513
---------- ------- ------- ----------
2,437 13,669 -- 16,106
---------- ------- ------- ----------
EXPENSES
Contracts, payroll and
benefits...................... 3,662 2,092 -- 5,754
Hardware and software
purchases..................... 880 6,775 -- 7,655
Selling, general and
administration................ 691 3,898 -- 4,589
Interest expense................ 1,304 10 -- 1,314
Depreciation.................... 119 39 -- 158
Amortization.................... 697 -- $ 8,832 (3.1) 9,529
Other expenses.................. 295 -- -- 295
---------- ------- ------- ----------
7,648 12,814 8,832 29,294
---------- ------- ------- ----------
PROFIT/(LOSS) FROM OPERATIONS... (5,211) 855 (8,832) (13,188)
Loss on sale of assets.......... (48) -- -- (48)
Equity loss of affiliate........ (860) -- -- (860)
Minority interest............... 34 -- -- 34
---------- ------- ------- ----------
(874) -- -- (874)
---------- ------- ------- ----------
PROFIT/(LOSS) BEFORE INCOME
TAXES......................... (6,085) 855 (8,832) (14,062)
Provision for income taxes...... 205 (178) -- 27
---------- ------- ------- ----------
NET PROFIT/(LOSS) AFTER TAX..... $ (5,880) $ 677 $(8,832) $ (14,035)
========== ======= ======= ==========
LOSS PER COMMON SHARE........... $ (1.86) $ (1.53)
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING............ 3,169,314 (4) 9,169,314
---------- ----------
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
J-3
<PAGE> 160
FUTURELINK DISTRIBUTION CORP.
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(all amounts in United States dollars)
On June 2, 1999, FutureLink Distribution Corp. ("FutureLink") entered into
an Agreement and Plan of Reorganization and Merger (the "Agreement") with
Executive LAN Management, Inc. ("Micro Visions"). The Agreement provides for a
merger of Micro Visions with FutureLink such that Micro Visions' outstanding
stock shall be sold to FutureLink in exchange for $12,000,000 cash and 6,000,000
FutureLink common shares, as well as contingent consideration of 2,400,000
common shares subject to the achievement of certain targets. The merger is to
take place as soon as practicable after the satisfaction or waiver of the
conditions set forth in the Agreement and is anticipated to be completed by the
end of September 1999.
1. The accompanying unaudited pro forma consolidated financial statements have
been prepared by management from the unaudited financial statements of
FutureLink and Micro Visions as at June 30, 1999 for the three month period
then ended and the audited financial statements of FutureLink and Micro
Visions as at December 31, 1998 and for the year then ended, together with
other information available to the companies. In the opinion of the
management of FutureLink, 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 financial statements should be read in conjunction with the
audited and unaudited financial statements of the companies.
2. The pro forma consolidated balance sheet at June 30, 1999 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
Micro Visions Acquisition Agreement as if the effective date of that
agreement was June 30, 1999:
2.1 The acquisition of all of the outstanding common shares of Micro
Visions in exchange for cash consideration of $12,000,000 and
6,000,000 common shares of FutureLink with an ascribed value of
$33,375,000 ($1,000 to paid up shares and $33,374,000 to capital in
excess of par). As at June 30, 1999, $1,000,000 had been paid to the
former shareholders of Micro visions as a deposit towards the
acquisition. The remaining $11,000,000 will be paid in accordance
with the terms of the agreement as follows:
-- $500,000 July 31, 1999
-- $500,000 August 31, 1999
-- $10,000,000 at closing
J-4
<PAGE> 161
FUTURELINK DISTRIBUTION CORP.
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999
(all amounts in United States dollars)
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
ALLOCATION
----------
$(000'S)
<S> <C>
Net assets acquired....................................... $ 1,613
Goodwill.................................................. 44,085
-------
Purchase price............................................ $45,698
=======
Consideration:
Cash...................................................... $12,000
Common shares of FutureLink............................... 33,375
Acquisition costs......................................... 323
-------
Total consideration....................................... $45,698
=======
</TABLE>
2.2 The allocation to goodwill of the estimated costs of the acquisition
described in 2.1 above, in the amount of $323,000, $103,000 of which
was payable and $220,000 of which had been incurred prior to June 30,
1999 and the elimination of the share capital ($10,000) and retained
earnings ($1,603,000) of Micro Visions on its acquisition.
2.3 Additional consideration payable to the former shareholders of Micro
Visions has not been reflected in the pro forma consolidated
financial statements as the outcome of the contingency cannot be
reasonably determined at this time. The additional share
consideration, which will be recorded as additional purchase price
consideration (goodwill) if and when it becomes payable, is based
upon the achievement of the following performance criteria as
described in the Agreement for the period from January 1, 1999 to
December 31, 1999:
(a) 1,200,000 FutureLink common shares to be issued if Micro Visions
achieves sales in excess of $18,000,000;
(b) 720,000 FutureLink common shares to be issued if Micro Visions
enlists 100 new customers; and
(c) 480,000 FutureLink common shares to be issued if Micro Visions
installs and integrates at least 200 new servers.
2.4 A dividend which may be declared by Micro Visions prior to closing
has not been reflected in the pro forma consolidated financial
statements as the amount cannot be reasonably estimated at this time.
As per the Agreement, the dividend amount, if any, will be equivalent
to the federal and state income tax in respect of income earned by
Micro Visions from the beginning of the current fiscal year of Micro
Visions (being October 1, 1998) through to closing of the Agreement.
The amount of any dividend paid would result in a corresponding
amount being allocated to goodwill.
3. The pro forma consolidated statements of income for the six months ended
June 30, 1999 and the year ended December 31, 1998 give effect to the
acquisition of Micro Visions as described in 2.1 and 2.2 above which will
become effective on the date of the fulfillment or waiver of the conditions
of the Agreement as
J-5
<PAGE> 162
FUTURELINK DISTRIBUTION CORP.
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999
(all amounts in United States dollars)
if the transactions had occurred January 1, 1999, and January 1, 1998,
respectively. The following adjustments are reflected:
3.1 The amortization of goodwill attributable to the allocation of the
purchase price of Micro Visions 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.
4. The weighted average number of shares outstanding and the loss per share
give retroactive effect to the share consolidation of 5 to 1 on June 1,
1999.
The weighted average number of shares outstanding has been adjusted to give
effect to the shares issued upon acquisition of Micro Visions as though
they had been outstanding as at the beginning of the period. The weighted
average number of shares outstanding does not include the contingent share
consideration.
Fully diluted earnings per share does not differ from basic earnings per
share.
J-6
<PAGE> 163
110
SCHEDULE "I" - AUDITED FINANCIAL STATEMENTS AND INTERIM
UNAUDITED FINANCIAL STATEMENTS FOR MICRO VISIONS
<PAGE> 164
Report of Independent Auditors
The Board of Directors
Executive LAN Management, Inc., dba Micro Visions
We have audited the accompanying balance sheets of Executive LAN Management,
Inc., dba Micro Visions as of December 31, 1998 and 1997, and the related
statements of income, shareholders' 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 audits.
We conducted our audits in accordance with 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 that our audits provide 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 Executive LAN Management, Inc.,
dba Micro Visions at December 31, 1998 and 1997, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
[Signed: Ernst & Young LLP]
Irvine California,
April 30, 1999,
Except for Note 8, as to which the date is
June 24, 1999
I-1
<PAGE> 165
Executive LAN Management, Inc.,
dba Micro Visions
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 157,000 $ 690,000
Accounts receivable, less allowance for doubtful accounts of
$115,000 in 1998 and $79,000 in 1997 2,063,000 1,052,000
Inventories 815,000 231,000
Advances due from officers 2,000 72,000
Other current assets 15,000 1,000
---------- ----------
Total current assets 3,052,000 2,046,000
Property and equipment, less accumulated depreciation of $122,000 in
1998 and $83,000 in 1997 389,000 83,000
Other assets 146,000 33,000
---------- ----------
Total assets $3,587,000 $2,162,000
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 797,000 $ 169,000
Line of credit 261,000 150,000
Income taxes payable 153,000 237,000
Deferred income taxes 435,000 235,000
Accrued expenses and other liabilities 464,000 432,000
Deferred revenues 73,000 90,000
---------- ----------
Total current liabilities 2,183,000 1,313,000
Commitments
Shareholders' equity
Common stock, no par value:
Authorized shares - 1,000,000
Issued and outstanding shares - 200 in 1998 and 1997 10,000 10,000
Retained earnings 1,394,000 839,000
---------- ----------
Total shareholders' equity 1,404,000 849,000
---------- ----------
Total liabilities and shareholders' equity $3,587,000 $2,162,000
========== ==========
</TABLE>
See accompanying notes.
I-2
<PAGE> 166
Executive LAN Management, Inc.,
dba Micro Visions
Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Revenues:
Consulting revenues $ 5,088,000 $ 2,709,000
Software revenues 3,274,000 1,478,000
Computer equipment sales 4,797,000 4,972,000
Training revenues 290,000 62,000
Maintenance revenues and other income 220,000 344,000
------------ ------------
13,669,000 9,565,000
Costs and expenses:
Cost of revenues 8,867,000 6,734,000
Selling, general and administrative 3,937,000 1,951,000
Interest expense (income), net 10,000 (53,000)
------------ ------------
12,814,000 8,632,000
------------ ------------
Income before income taxes 855,000 933,000
Provision for income taxes 178,000 395,000
------------ ------------
Net income $ 677,000 $ 538,000
============ ============
Basic and diluted earnings per share $ 3,385 $ 2,690
============ ============
Weighted average shares (basic and diluted) 200 200
============ ============
</TABLE>
See accompanying notes.
I-3
<PAGE> 167
Executive LAN Management, Inc.,
dba Micro Visions
Statements of Shareholders' Equity
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
------ ------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 200 $10,000 $ 301,000 $ 311,000
Net income -- -- 538,000 538,000
--- ------- ----------- -----------
Balance at December 31, 1997 200 10,000 839,000 849,000
--- ------- ----------- -----------
Net income -- -- 677,000 677,000
Distributions to shareholders -- -- (122,000) (122,000)
--- ------- ----------- -----------
Balance at December 31, 1998 200 $10,000 $ 1,394,000 $ 1,404,000
=== ======= =========== ===========
</TABLE>
See accompanying notes.
I-4
<PAGE> 168
Executive LAN Management, Inc.,
dba Micro Visions
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------
1998 1997
------------ ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 677,000 $ 538,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 39,000 20,000
Change in operating assets and liabilities:
Accounts receivable (1,011,000) (495,000)
Inventories (584,000) (183,000)
Other current assets (14,000) --
Advance due from officers 70,000 (72,000)
Other assets (113,000) (25,000)
Accounts payable and accrued expenses 660,000 281,000
Income taxes payable (84,000) 237,000
Deferred income taxes 200,000 141,000
Deferred revenues (17,000) 90,000
------------ ----------
Net cash (used in) provided by operating activities (177,000) 532,000
INVESTING ACTIVITIES
Purchases of equipment (345,000) (50,000)
FINANCING ACTIVITIES
Distribution to shareholders (122,000) --
Net borrowings (repayment) from/of line of credit 111,000 (93,000)
------------ ----------
Net cash used in financing activities (11,000) (93,000)
Increase (decrease) in cash (533,000) 389,000
Cash at beginning of year 690,000 301,000
------------ ----------
Cash at end of year $ 157,000 $ 690,000
============ ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 4,000 $ 11,000
Income taxes paid 62,000 17,000
</TABLE>
See accompanying notes.
I-5
<PAGE> 169
Executive LAN Management, Inc.,
dba Micro Visions
Notes to Financial Statements
December 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Executive LAN Management dba Micro Visions (the "Company") was incorporated in
California in 1993 and is a leading reseller and service provider of thin
client/server-based computing systems. The Company also provides a full line of
information technology consulting services including internet/intranet
consulting, LAN/WAN implementation, internetworking analysis and design,
application deployment and desktop management, and Year 2000 consulting. The
Company's principal markets are in the U.S.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
effect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company recognizes consulting revenues upon delivery of service. Software
license revenues are recognized upon delivery of the software. Computer
equipment sales are recognized upon shipment of the equipment. Training revenues
are recognized upon delivery of training services. Maintenance revenues are
recognized ratably over the period of the maintenance contract.
UNBILLED ACCOUNTS RECEIVABLES
Unbilled accounts receivable, representing unbilled consulting services, of
$89,000 and $65,000 at December 31, 1998 and 1997, respectively, are included in
accounts receivable on the accompanying balance sheets.
INVENTORY
Inventory is stated at the lower of cost (first-in, first out) or market and
primarily consists of prepackaged third party computer software.
I-6
<PAGE> 170
Executive LAN Management, Inc.,
dba Micro Visions
Notes to Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed on a
straight-line method based upon the estimated useful lives of the related assets
which range from five to seven years. Leasehold improvements are depreciated
using the straight-line method over seven years. Property and equipment were
comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1998 1997
---------- ----------
<S> <C> <C>
Office furniture $ 90,000 $ 15,000
Computer equipment 376,000 149,000
Leasehold improvements 45,000 2,000
---------- ----------
511,000 166,000
Less accumulated depreciation and amortization (122,000) (83,000)
---------- ----------
$ 389,000 $ 83,000
========== ==========
</TABLE>
LONG-LIVED ASSETS
Effective January 1, 1997, the Company adopted Statement of Financial Accounting
Standards No. 121 ("SFAS No. 121"), Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of, which requires impairment
losses to be recorded on long-lived assets used in operations when indicators of
impairment are present. Implementation of SFAS No. 121 was immaterial to the
financial statements of the Company.
INCOME TAXES
Prior to July 1, 1998, the Company utilized the liability method to account for
income taxes as set forth in SFAS No. 109, Accounting for Income Taxes. Under
the liability method, deferred taxes are determined based on differences between
the financial statement and tax bases of assets and liabilities using enacted
tax rates.
I-7
<PAGE> 171
Executive LAN Management, Inc.,
dba Micro Visions
Notes to Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES (CONTINUED)
Effective July 1, 1998, the stockholders of the Company elected, under
Subchapter S of the Internal Revenue Code, to include the Company's income in
their own income for federal income tax purposes. Accordingly, the Company is
generally not subject to federal income taxes.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist principally of cash, receivables,
accounts payable, and borrowings. The Company believes all the financial
instruments' recorded values approximate current values.
CONCENTRATION OF CREDIT RISK
The Company sells the majority of its products and provides services to various
customers, which include a variety of large companies and distributors
throughout the United States. In 1998, sales to the Company's largest customer
accounted for 10% of total sales. Accounts receivable from that customer
represented 12% of total accounts receivable at December 31, 1998. In 1997,
sales to the Company's two largest customers accounted for 47% and 19% of total
sales. Accounts receivable from those customers aggregated 44% of total accounts
receivable at December 31, 1997. The Company provides for uncollectible amounts
upon recognition of revenue and when specific credit problems arise. During 1998
and 1997, the Company did not perform credit evaluations on its customers,
however, the Company required a twenty-five percent deposit for its first time
customers. The Company generally does not require collateral on its accounts
receivable.
ADVERTISING
The Company expenses advertising costs as incurred. These costs include
promotional literature, direct mailing brochures, telemarketing, and trade
shows. Advertising expense for the years ended December 31, 1998 and 1997 was
$106,000 and $11,000, respectively.
I-8
<PAGE> 172
Executive LAN Management, Inc.,
dba Micro Visions
Notes to Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME PER SHARE
Effective January 1, 1998, the Company adopted SFAS No. 128, Earnings Per Share,
and restated all prior period earnings per share (EPS) data, as required. SFAS
No. 128 replaced the presentation of primary and fully diluted EPS pursuant to
APB Opinion No. 15, Earnings Per Share, with the presentation of basic and
diluted EPS. Basic EPS excludes dilution and is computed by dividing net income
by the weighted average number of common shares outstanding for the period.
Diluted net income per share is computed by dividing net income by the weighted
average number of common shares outstanding for the period and the dilutive
effect, if any, of stock options and warrants outstanding for the period.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income, which establishes standards for reporting and displaying
comprehensive income and its components in the financial statements. For the
years ended December 31, 1998 and 1997, the Company did not have any components
of comprehensive income as defined by SFAS No. 130.
SEGMENTS OF A BUSINESS ENTERPRISE
Effective January 1, 1998, the Company adopted SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information, SFAS 131 superseded SFAS No.
14, Financial Reporting for Segments of a Business Enterprise. SFAS No. 131
establishes standards for the way that public business enterprises report
information about operating segments in annual consolidated financial statements
and requires that those enterprises report selected information about operating
segments in interim financial reports. SFAS No. 131 also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. The adoption of SFAS No. 131 did not affect the consolidated results
of operations or financial position of the Company.
I-9
<PAGE> 173
Executive LAN Management, Inc.,
dba Micro Visions
Notes to Financial Statements (continued)
2. INCOME TAXES
Provision (benefit) for income taxes is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1998 1997
--------- --------
<S> <C> <C>
Current:
Federal $ (22,000) $201,000
State -- 53,000
--------- --------
(22,000) 254,000
--------- --------
Deferred:
Federal 162,000 120,000
State 38,000 21,000
--------- --------
200,000 141,000
--------- --------
Total provision for income taxes $ 178,000 $395,000
========= ========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1998 1997
---------- ----------
<S> <C> <C>
Deferred tax assets:
Depreciation $ 1,000 $ 1,000
---------- ----------
Total deferred tax assets 1,000 1,000
---------- ----------
Deferred tax liabilities:
Inventory adjustment (213,000) (92,000)
Accrual to cash adjustment (223,000) (144,000)
---------- ----------
Net deferred tax liabilities (436,000) (236,000)
---------- ----------
Total net deferred tax liabilities $ (435,000) $ (235,000)
========== ==========
</TABLE>
On July 1, 1998, the Company changed its tax status, as defined by the Internal
Revenue Code, to Subchapter S, which eliminated the requirement for the Company
to pay federal income taxes as net income is passed through and taxable to the
individual stockholders. A state provision for income taxes will be recorded
based on a California statutory rate of 1.5% for Subchapter S Corporations.
I-10
<PAGE> 174
Executive LAN Management, Inc.,
dba Micro Visions
Notes to Financial Statements (continued)
2. INCOME TAXES (CONTINUED)
Income tax benefit computed at the statutory federal income tax rate (34%) and
income tax expense provided in the financial statements differ as follows for
the years ended December 31:
<TABLE>
<CAPTION>
1998 1997
---------- --------
<S> <C> <C>
Benefit computed at the statutory rate $ 291,000 $317,000
S Corp income not subject to tax (111,000) --
Nondeductible expenses (6,000) 6,000
Statement income tax, net of federal income tax benefit 19,000 54,000
Other (15,000) 18,000
---------- --------
Income tax expense $ 178,000 $395,000
========== ========
</TABLE>
3. LINE OF CREDIT
The Company entered into a $2.5 million line of credit agreement with a
financial institution to finance its inventory purchases. The available credit
line is based on a percentage of the Company's eligible accounts receivable
balance less the outstanding balance owed to the financial institution. The
outstanding balance bears interest at prime plus 3.03% (10.78% at December 31,
1998). At December 31, 1998, the unused credit line was $2,134,000.
Substantially all of the Company's assets are collateral under the credit
agreement.
4. COMMITMENTS
The Company has entered into various operating leases ranging from three to five
years for its facilities. Rentals under certain leases have rent escalation
clauses as set forth in their respective lease agreements. Future minimum rental
commitments as of December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999 $ 279,000
2000 267,000
2001 244,000
2002 181,000
2003 91,000
----------
$1,062,000
==========
</TABLE>
Rent expense was $135,000 and $36,000 for the years ended December 31, 1998 and
1997, respectively.
I-11
<PAGE> 175
Executive LAN Management, Inc.,
dba Micro Visions
Notes to Financial Statements (continued)
5. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1998 1997
-------- --------
<S> <C> <C>
Numerator:
Net income $677,000 $538,000
Denominator:
Shares used in computing basic and
diluted earnings per share
200 200
======== ========
Basic and diluted earnings per share $ 3,385 $ 2,690
======== ========
</TABLE>
6. RELATED PARTY TRANSACTIONS
During 1997 and 1998, the Company made various advances to its officers.
Advances in 1997 aggregated $72,000 with one advance to a shareholder in the
amount of $68,000. This advance was canceled by the Company in 1998 and recorded
as a bonus payment. Outstanding advances to officers at December 31, 1998 was
$2,000.
7. PENSION PLANS
The Company has three defined contribution pension plans covering employees over
the age of 21 years with one year of service. The Company's contribution
requirements under these plans range from zero percent to one hundred percent of
participants' eligible annual compensation as defined in the plan documents. The
Company's combined contributions to these plans for the years ended December 31,
1998 and 1997 were $108,000 and $15,000, respectively.
8. SUBSEQUENT EVENTS
On June 2, 1999, the Company and the Company's shareholders signed an Agreement
and Plan of Reorganization and Merger (the "Agreement") with FutureLink
Distribution Corp. ("FutureLink"). The Agreement provides for a merger of the
Company with a subsidiary of FutureLink such that the Company's outstanding
stock shall be converted into and become a right to receive the consideration as
set forth in the agreement. The merger is to take place as soon as practicable
after the satisfaction or waiver of the conditions set forth in the Agreement
and is anticipated to be completed by October 1999.
I-12
<PAGE> 176
Executive LAN Management, Inc.,
dba Micro Visions
Notes to Financial Statements (continued)
9. IMPACT OF YEAR 2000 (UNAUDITED)
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. The Company has completed
an assessment of their IT systems as well as the software and hardware sold to
its customers noting that they are Year 2000 compliant. The Company's IT systems
primarily consist of its financial reporting system. In July 1998, the Company
purchased and implemented a Year 2000 compliant financial reporting software
package totaling $42,000. The Company's non-IT systems primarily consist of
heating, sprinklers and security equipment at the Company's facilities. The
Company will complete its review and remediation of its non-IT systems and its
IT systems other than the financial reporting system by October 1, 1999. The
Company estimates that the total remaining costs to complete any required
modifications, upgrades or replacements of its IT and non-IT systems will not
have a material adverse effect on its business or results of operations. The
Company has obtained Year 2000 compliant certification letters from its major
software and hardware vendors noting that their software and hardware sold by
the Company are Year 2000 compliant. However, the failure of the Company's other
vendors and suppliers to be fully Year 2000 compliant with regards to their
products by January 1, 2000 could result in interruptions in the Company's
normal business work operations. The Company is currently developing contingency
plans to address the year 2000 issues that may pose a significant risk to the
Company's ongoing operations. The Company expects to complete the contingency
plans by October 31, 1999.
I-13
<PAGE> 177
EXECUTIVE LAN MANAGEMENT, INC.,
DBA MICROVISIONS
BALANCE SHEETS
(See basis of presentation -- Note 1)
(All amounts stated in $U.S.)
<TABLE>
<CAPTION>
JUNE 30
------------------------
1999 1998
---------- ----------
UNAUDITED
<S> <C> <C>
ASSETS
CURRENT
Cash........................................................ $ 244,000 $ 545,000
Accounts receivable, net.................................... 3,738,000 1,641,000
Inventory................................................... 423,000 274,000
Other current assets........................................ 56,000 51,000
---------- ----------
TOTAL CURRENT ASSETS........................................ 4,461,000 2,511,000
---------- ----------
Capital assets, net......................................... 484,000 137,000
Other assets................................................ 224,000 88,000
---------- ----------
709,000 225,000
---------- ----------
TOTAL ASSETS................................................ $5,169,000 $2,736,000
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Line of credit.............................................. $ 798,000 $ 528,000
Accounts payable and accrued liabilities.................... 1,947,000 452,000
Income taxes payable........................................ 242,000 179,000
Deferred income taxes....................................... 450,000 378,000
Deferred revenues........................................... 119,000 135,000
---------- ----------
TOTAL CURRENT LIABILITIES................................... 3,556,000 1,672,000
---------- ----------
STOCKHOLDERS' EQUITY
Common stock, no par value:
Authorized
Authorized shares -- 1,000,000
Issued and outstanding -- 200 in 1999 and 1998......... 10,000 10,000
Retained earnings........................................... 1,603,000 1,054,000
---------- ----------
TOTAL SHAREHOLDERS' EQUITY.................................. 1,613,000 1,064,000
---------- ----------
$5,169,000 $2,736,000
========== ==========
</TABLE>
See accompanying notes.
F-1
<PAGE> 178
EXECUTIVE LAN MANAGEMENT, INC.,
DBA MICROVISIONS
STATEMENTS OF INCOME AND RETAINED EARNINGS
(All amounts stated in $U.S.)
<TABLE>
<CAPTION>
6 MONTH PERIOD
ENDED JUNE 30
------------------------
1999 1998
---------- ----------
UNAUDITED
------------------------
<S> <C> <C>
REVENUE
Consulting services......................................... $3,192,000 $ 889,000
Hardware and software sales................................. 5,583,000 3,001,000
Other....................................................... 547,000 1,571,000
---------- ----------
9,322,000 5,461,000
---------- ----------
EXPENSES
Hardware and software purchases............................. 4,706,000 2,606,000
Contracts, payroll and benefits............................. 3,077,000 1,754,000
Selling, general and administrative......................... 1,177,000 740,000
Interest.................................................... 7,000 --
Depreciation................................................ 41,000 3,000
---------- ----------
9,008,000 5,103,000
---------- ----------
INCOME BEFORE INCOME TAXES.................................. 314,000 358,000
Provision for income taxes (note 2)......................... 104,000 143,000
---------- ----------
INCOME AND COMPREHENSIVE INCOME FOR THE PERIOD.............. $ 210,000 $ 215,000
========== ==========
RETAINED EARNINGS, BEGINNING OF PERIOD...................... 1,394,000 1,394,000
RETAINED EARNINGS, END OF PERIOD............................ $1,527,000 $1,609,000
========== ==========
</TABLE>
See accompanying notes.
F-2
<PAGE> 179
EXECUTIVE LAN MANAGEMENT, INC.,
DBA MICROVISIONS
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(All amounts stated in $U.S.)
<TABLE>
<CAPTION>
COMMON STOCK
-----------------
SHARES AMOUNT RETAINED EARNINGS
------ ------- -----------------
UNAUDITED
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1997............... 200 $10,000 $ 839,000
Net income............................. 283,000
--- ------- ----------
BALANCE, MARCH 31, 1998.................. 200 10,000 1,122,000
Net income............................. 394,000
Distributions to stockholders.......... (122,000)
--- ------- ----------
BALANCE, DECEMBER 31, 1998............... 200 10,000 1,394,000
Net income............................. 215,000
--- ------- ----------
BALANCE, JUNE 30, 1999................... 200 $10,000 $1,609,000
=== ======= ==========
</TABLE>
See accompanying notes.
F-3
<PAGE> 180
EXECUTIVE LAN MANAGEMENT, INC.,
DBA MICROVISIONS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts stated in $U.S.)
<TABLE>
<CAPTION>
6 MONTH PERIOD
ENDED JUNE 30
------------------------
1999 1998
----------- ---------
UNAUDITED
<S> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES
Net income for the period................................... $ 210,000 $ 215,000
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation.............................................. 41,000 3,000
Changes in operating assets and liabilities:
Accounts receivable.................................... (1,675,000) (589,000)
Inventories............................................ 392,000 (43,000)
Other current assets................................... (39,000) 22,000
Other assets........................................... (78,000) (55,000)
Accounts payable and accrued expenses.................. 789,000 (64,000)
Deferred revenues...................................... 46,000 45,000
----------- ---------
(314,000) (466,000)
----------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES
Capital assets purchased.................................... (136,000) (57,000)
----------- ---------
(136,000) (57,000)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayment) from/of line of credit........... 537,000 378,000
----------- ---------
537,000 378,000
----------- ---------
INCREASE/(DECREASE) IN CASH................................. 87,000 (145,000)
Cash, beginning of period................................... 157,000 690,000
----------- ---------
CASH, END OF PERIOD......................................... $ 244,000 $ 545,000
=========== =========
</TABLE>
See accompanying notes.
F-4
<PAGE> 181
EXECUTIVE LAN MANAGEMENT, INC.,
DBA MICROVISIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
(unaudited)
1. BASIS OF PRESENTATION
The accompanying financial statements have been prepared on a consistent
basis with that of the annual financial statements and reflect all adjustments
which are, in the opinion of management, necessary to reflect a fair
presentation for the periods being presented.
2. INCOME TAXES
On July 1, 1998, the Company changed its tax status, as defined by the
Internal Revenue Code, to Subchapter S, which eliminated the requirement for the
Company to pay federal income taxes as net income is passed through and taxable
to the individual stockholders. The June 30, 1999 income tax figure includes the
federal income taxes related to the income earned by the Company for the period.
3. PROPOSED CHANGE IN CONTROL
On June 2, 1999, the Company and the Company's shareholders signed an
Agreement and Plan of Reorganization and Merger (the "Agreement") with
FutureLink Distribution Corp. ("FutureLink"). The Agreement provides for a
merger of the Company with a subsidiary of FutureLink such that the Company's
outstanding stock shall be converted into and become a right to receive the
consideration as set forth in the agreement. The merger is to take place as soon
as practicable after the satisfaction or waiver of each of the conditions set
forth in the Agreement and is anticipated to be completed by October 1, 1999.
F-5
