<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 11, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FUTURELINK CORP.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7371 95-4763404
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
6 MORGAN, SUITE 100
IRVINE, CALIFORNIA 92618
(949) 837-8252
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
6 MORGAN, SUITE 100
IRVINE, CALIFORNIA 92618
(ADDRESS OF PRINCIPAL PLACE OF BUSINESS OR INTENDED PRINCIPAL PLACE OF BUSINESS)
PHILIP R. LADOUCEUR
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
FUTURELINK CORP.
6 MORGAN, SUITE 100
IRVINE, CALIFORNIA 92618
(949) 837-8252
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C> <C>
STEPHEN D. COOKE, ESQ. THOMAS R. POLLOCK, ESQ. PAMELA B. KELLY, ESQ.
PAUL, HASTINGS, JANOFSKY & WALKER LLP PAUL, HASTINGS, JANOFSKY & WALKER LLP LATHAM & WATKINS
695 TOWN CENTER DRIVE, 17TH FLOOR 399 PARK AVENUE, 31ST FLOOR 633 WEST 5TH STREET, SUITE 4000
COSTA MESA, CALIFORNIA 92626 NEW YORK, NEW YORK 10022-4697 LOS ANGELES, CALIFORNIA 90071-2007
(714) 668-6200 (212) 318-6000 (213) 485-1234
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED SHARE(1) PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value
$0.0001 per share........... 5,750,000(2) $22.75 $130,812,500 $34,535
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, as amended,
and based on the average of the high and low closing prices as of February
9, 2000 as reported on the Nasdaq National Market.
(2) Includes 750,000 shares issuable upon exercise of the Underwriters'
overallotment option.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER
TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED FEBRUARY 11, 2000
PRELIMINARY PROSPECTUS
5,000,000 SHARES
[FUTURELINK LOGO]
COMMON STOCK
-------------------------
This is a public offering of 5,000,000 shares of common stock of FutureLink
Corp. The market price per share of our common stock after this offering may be
higher or lower than the price at which shares will be sold in this offering.
Our common stock currently trades on the Nasdaq National Market under the symbol
"FTRL." On February 10, 2000, the last reported sale price for our common stock
on the Nasdaq National Market was $22.50 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 TO READ ABOUT RISKS THAT YOU SHOULD
CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------------
<TABLE>
<CAPTION>
PER
SHARE TOTAL
-------- --------
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds, before expenses, to us............................ $ $
</TABLE>
-------------------------
The underwriters may, under certain circumstances, purchase up to an additional
750,000 shares of common stock from us at the public offering price, less
underwriting discounts and commissions.
The underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the shares against payment in New York, New York
on , 2000.
-------------------------
BEAR, STEARNS & CO. INC.
ROBERTSON STEPHENS
CIBC WORLD MARKETS
C. E. UNTERBERG, TOWBIN
The date of this prospectus is , 2000
<PAGE> 3
[INSIDE FRONT COVER]
[INSERT GRAPHIC SHOWING DATA CENTERS AND USERS ACCESSING APPLICATIONS BY
DEDICATED TELECOM LINE, OVER THE INTERNET OR BY A WIRELESS CONNECTION]
<PAGE> 4
PROSPECTUS SUMMARY
This summary highlights certain information contained elsewhere in this
prospectus. This summary does not contain all of the information that you should
consider before investing in our common stock. You should read the entire
prospectus carefully, especially the risks of investing in our common stock
discussed under "Risk Factors" and our financial statements and related notes
included elsewhere in this prospectus.
OUR COMPANY
We provide server-based computing services and are an application service
provider, or ASP. Our services enable software applications to be deployed,
managed, supported and upgraded from centrally located servers, rather than on
individual desktop computers. For our server-based computing customers, we
install and integrate software applications on our customers' servers using
Citrix server-based computing software. For our ASP customers, we host software
applications on our servers at our data centers, and rent computing services to
our customers for a monthly fee. Our ASP customers connect to our facilities
over the Internet, through a dedicated telecommunications line or by wireless
connection. Our goal is to provide our ASP services with the speed, simplicity
and reliability of a utility service. We introduced our ASP services in March
1999.
We are the largest integrator in North America of server-based computing
systems using Citrix software. Citrix software is one of the leading
technologies for delivering software applications from remote locations.
Customers for our server-based computing services have included Cisco Systems,
The Walt Disney Company, Allied Signal, General Motors, Ford Motor Company, Bank
of America, Apple Computer and Delta Airlines.
We believe that through our experience in the server-based computing
business, we have developed a number of strengths that position us to
successfully grow our ASP business, including:
- a recognizable customer base, lending credibility to our ASP services,
- technical expertise in enabling a variety of software applications to
operate in a server-based computing environment, and
- relationships with sales channels, including software vendors and
software application integrators.
OUR MARKET OPPORTUNITY
The ASP and server-based computing markets are growing and are expected to
continue to grow at a rapid rate. Forrester Research, Inc. projects that the ASP
market will grow to over $11 billion in 2003 from less than $1 billion in 1999.
Forrester Research, Inc. also projects that 22% of all U.S.-based application
revenue will flow through ASPs in 2003.
We believe that the following factors are driving the growth of our
server-based computing and ASP services:
- the increasing complexity of software applications, the constant need to
upgrade software applications and the growing demand for faster software
integration and deployment,
- the scarcity of information technology professionals, making it expensive
and difficult for companies to operate and manage software on their own,
- the decline in telecommunication costs and the increasing availability of
bandwidth, making it less costly to connect remote users to a central
data center,
1
<PAGE> 5
- the growing demand for remote and shared access to software applications,
and
- the increasing number of software applications and types of computer
devices, requiring integration expertise that is not available to, or is
increasingly expensive for, many companies.
OUR SOLUTIONS
Our solutions offer the following key benefits:
- Reliable service. By offering service level agreements and utilizing the
latest technology, we are able to provide levels of service not easily
attainable by our customers.
- Reduced dependency on information technology staff. By outsourcing all or
part of their information technology needs, our customers are able to
reduce their information technology staff and can focus on their core
competencies.
- Lower costs. By spreading information technology costs among many
customers, we are able to achieve economies of scale not possible for our
target customers and thereby offer our customers significant cost
savings. Our ASP customers are better able to forecast and budget their
information technology costs and reduce their upfront information
technology investment.
- Rapid deployment. By having their software applications hosted at central
locations, our customers are able to rapidly deploy and quickly upgrade
their software, allowing them to more rapidly realize returns on their
information technology expenditures.
- Ability to run on a variety of hardware systems. We can integrate
different computer systems and computing devices, allowing our customers
to implement our solutions without replacing existing computer hardware
and extend the useful life of their existing computer systems.
- Flexibility. We can accommodate virtually any software application. Our
customers have the flexibility to host some or all of their software
applications on our servers.
OUR STRATEGY
We seek to build a global ASP and continue to develop our server-based
computing business by:
- leveraging our existing server-based computing capabilities to build our
ASP business,
- rapidly penetrating the market through our third-party distribution
channels,
- broadening our software relationships, and
- expanding through acquisitions.
OUR ADDRESS AND TELEPHONE NUMBER
The address of our principal executive office is 6 Morgan, Suite 100,
Irvine, California 92618. Our telephone number is (888) 464-2768. Our website
address is www.futurelink.net. Information contained on our website does not
constitute part of this prospectus.
-------------------------
This prospectus contains trademarks and names of persons other than
FutureLink, which are the property of their respective owners.
2
<PAGE> 6
THE OFFERING
Common stock being offered by us.... 5,000,000 shares(1)
Common stock outstanding after this
offering............................ 64,404,530 shares(1)(2)
Use of proceeds..................... We intend to use the net proceeds from
this offering to fund part of the cash
portion of current and possible future
acquisitions, to retire debt incurred
in connection with our acquisitions, to
develop service offerings that enhance
and complement our current service
offerings, to expand our sales and
marketing efforts and for working
capital and other general corporate
purposes. See "Use of Proceeds."
Nasdaq National Market symbol....... FTRL
- -------------------------
(1) Excludes 750,000 shares to be sold by us if the underwriters' overallotment
option is exercised in full, as described in "Underwriting."
(2) Includes:
- 52,315,640 shares of our common stock outstanding as of January 31, 2000,
- 5,000,000 shares of our common stock being offered by us in this
offering,
- 1,975,170 shares of our common stock issuable upon the closing of our
pending acquisition of Madison Technology Group and its affiliates. We
cannot assure you that this pending acquisition will close,
- 1,072,940 shares of our common stock issuable upon the closing of our
acquisition of Charon Systems, Inc. We cannot assure you that this
pending acquisition will close,
- 2,401,040 shares of our common stock issuable upon the expected exercise
of outstanding warrants by Pequot Private Equity Fund II, L.P. and
certain other warrant holders. We cannot assure you that this transaction
will close,
- 1,200,000 shares of our common stock which we expect to issue to the
former shareholder of Micro Visions for the achievement of certain
performance criteria, and
- 439,740 shares (of a maximum of 519,481) of our common stock which we
expect to issue to the former shareholders of Async Technologies for the
achievement of certain performance criteria.
but excludes:
- 6,308,600 shares of our common stock issuable upon exercise of stock
options at a weighted average exercise price of $8.33 per share,
- 7,973,242 shares of our common stock issuable upon the exercise of
warrants at a weighted average exercise price of $11.93 per share (pro
forma for the expected exercise of outstanding warrants by Pequot Private
Equity Fund II, L.P. and certain other warrant holders), and
- 918,283 shares of our common stock issuable upon the conversion of $0.9
million aggregate principal amount of our convertible debentures at a
weighted average conversion price of $0.98 per share.
See "Capitalization," "Management -- Stock Option Plan," and the notes to
our consolidated financial statements.
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<PAGE> 7
RISK FACTORS
For a description of certain risks that you should consider before buying
shares of our common stock, see "Risk Factors."
4
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL DATA
In the table below, we provide you with our actual and pro forma summary
consolidated financial data. We have prepared this information using our
consolidated financial statements for the years ended December 31, 1997 and 1998
and the nine-month periods ended September 30, 1998 and 1999.
When you read this summary consolidated financial data, it is important
that you also read our financial statements and our pro forma condensed
consolidated financial information and notes thereto included elsewhere in this
prospectus, as well as "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------- -------------------------------------
PRO PRO
ACTUAL FORMA(1) ACTUAL FORMA(1)
-------------------- ----------- ----------------------- -----------
1997 1998 1998 1998 1999 1999
------- ---------- ----------- ---------- ---------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenue........................ $ -- $ 2,437 $ 78,548 $ 623 $ 5,037 $ 84,852
Expenses:
Cost of sales, excluding
depreciation............... -- 4,542 58,394 2,672 6,793 61,025
Selling, general and
administrative............. 737 1,860 20,505 933 6,626 28,912
Depreciation and amortization
of goodwill and other
intangible assets.......... -- 787 51,865 167 1,943 40,398
------- ---------- ----------- ---------- ---------- -----------
Loss from operations........... (737) (4,752) (52,216) (3,149) (10,325) (45,483)
Interest expense, net(2)....... -- 1,333 2,823 1,233 11,155 12,352
Loss before provision (benefit)
for income taxes and
extraordinary item........... (737) (6,085) (55,039) (4,382) (21,480) (57,835)
Provision (benefit) for income
taxes........................ -- (205) 802 (15) (356) 353
------- ---------- ----------- ---------- ---------- -----------
Loss before extraordinary
item......................... (737) (5,880) $ (55,841) (4,367) (21,124) $ (58,188)
=========== ===========
Extraordinary item............. -- -- -- (845)
------- ---------- ---------- ----------
Net loss....................... $ (737) $ (5,880) $ (4,367) $ (21,969)
======= ========== ========== ==========
Loss per share -- basic and
diluted:
Loss before extraordinary
item....................... $ (8.24) $ (1.86) $ (2.67) $ (1.61) $ (3.23) $ (0.90)
=========== ===========
Extraordinary item........... -- -- -- (0.13)
------- ---------- ---------- ----------
Net loss..................... $ (8.24) $ (1.86) $ (1.61) $ (3.36)
======= ========== =========== ========== ==========
Weighted average shares(3)... 89,489 3,169,413 20,724,357 2,715,793 6,534,575 64,404,350
======= ========== =========== ========== ========== ===========
OTHER DATA:
EBITDA(4)...................... $ (737) $ (3,965) $ (352) $ (2,982) $ (8,383) $ (5,085)
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-----------------------
PRO
ACTUAL FORMA(5)
------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 7,815 $127,155
Total assets................................................ 22,335 423,787
Total debt.................................................. 22,198 5,941
Stockholders' equity (deficit).............................. (3,795) 377,486
</TABLE>
4
<PAGE> 9
- -------------------------
(1) Gives effect to the following as if each had occurred on January 1, 1998:
(a) goodwill amortization related to acquisitions completed or pending
through February 11, 2000; (b) interest expense for shareholder notes for
KNS and Madison Group Holdings; (c) the pending and completed acquisitions;
and (d) our $50.0 million private placement of equity securities with Pequot
Private Equity Fund II, L.P. and certain other investors in October 1999.
(2) Includes amortization of deferred financing fees and debt discount.
(3) Weighted average shares gives retroactive effect to a reverse stock split of
5 to 1 on June 1, 1999.
(4) EBITDA is defined as net income plus (i) extraordinary items, (ii) provision
for income taxes, (iii) interest expense, and (iv) depreciation and
amortization. EBITDA is presented not as an alternative measure of operating
results or cash flow from operations (as determined in accordance generally
accepted accounting principles), but because it is a widely accepted
financial indicator of a company's ability to incur and service debt.
(5) Gives effect to the following as if each had occurred at September 30, 1999:
(a) the acquisitions completed subsequent to September 30, 1999; (b) pending
acquisitions as of February 11, 2000; (c) our $50.0 million private
placement of equity securities with Pequot Private Equity Fund II, L.P. and
certain other investors in October 1999; (d) the conversion of certain
convertible debentures from October through December 1999; (e) the exercise
of warrants by Pequot Private Equity Fund II, L.P. and certain other
investors to purchase 2,401,040 shares of common stock; (f) cash paid of
$5.0 million and warrants issued to purchase 3,000,000 shares issued for the
February 2000 settlement of the SmallCaps litigation; and (g) this offering.
6
<PAGE> 10
RISK FACTORS
An investment in our common stock involves a high degree of risk. You
should read the following risk factors carefully before purchasing our common
stock. The risks and uncertainties described below are not the only ones we
face. Other risks and uncertainties, including those that we do not currently
consider material, may impair our business. If any of the risks discussed below
actually occur, our business, financial condition, operating results or cash
flows could be materially adversely affected. This could cause the trading price
of our common stock to decline, and you may lose all or part of your investment.
This prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those discussed
in these statements. Factors that could contribute to these differences include
those discussed below and elsewhere in this prospectus. The cautionary
statements made in this prospectus should be read as being applicable to all
forward-looking statements wherever they appear.
WE HAVE A LIMITED OPERATING HISTORY AND OUR BUSINESS MODEL IS STILL EVOLVING,
WHICH MAKES IT DIFFICULT FOR YOU TO EVALUATE US AND OUR PROSPECTS.
Our business is new, evolving and unproven, and our range of services
continues to change. Our limited operating history and evolving business plan
make it difficult to evaluate our prospects. As a new business, we are subject
to a number of risks and expenses, including our ability to:
- increase awareness and market penetration of our brand,
- attract, retain and motivate qualified personnel,
- maintain our existing, and develop new, relationships with software
providers and vendors,
- raise additional capital, and
- convince customers that we can provide reliable and cost-effective
services.
To date, most of our revenues have come from computer consulting, software
integration, hardware installation and training services. Our ASP services were
introduced in March 1999 and are therefore a relatively new line of business for
us. Our business strategy includes the expansion of our ASP services. In the
future, we expect that revenue from ASP services will comprise a greater portion
of our revenue. However, we cannot assure you that our business plan will be
successful or that we will be able to increase our ASP revenues. We may not be
successful in addressing these risks, and if we are not successful, our
business, results of operations and financial condition will be materially
adversely affected.
WE HAVE A HISTORY OF SUBSTANTIAL LOSSES AND NEGATIVE CASH FLOWS. WE EXPECT THESE
LOSSES AND NEGATIVE CASH FLOWS TO CONTINUE AND INCREASE IN THE FUTURE. IF WE ARE
UNABLE TO MAKE A PROFIT, WE MAY NOT BE ABLE TO CONTINUE TO OPERATE OUR BUSINESS,
AND YOU MAY LOSE YOUR INVESTMENT.
We have experienced net losses and negative cash flows since we began
implementing our current business plan. We expect that the ongoing
implementation of our current business plan will increase our net losses and our
negative cash flows used in operating and investing activities for the
foreseeable future as we invest in personnel, technology and other assets to
support our expected growth. In addition, our business plan includes expansion
through acquisitions. These acquisitions are likely to increase our cash needs.
As of September 30, 1999, after giving effect to our completed and pending
acquisitions, on a pro forma basis, we would have had over $200 million in
goodwill which we must amortize over the next five years as a result of our
acquisitions. We cannot assure you that we will operate profitably in the future
or generate positive cash flows. If we cannot operate profitably or generate
positive cash flows, we may be unable to continue to operate our business, and
you may lose your investment.
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<PAGE> 11
THE GROWTH IN DEMAND FOR OUR ASP SERVICES IS HIGHLY UNCERTAIN. THE ASP MARKET
MAY NOT DEVELOP AS WE ANTICIPATE AND, ACCORDINGLY, WE MAY NOT BE ABLE TO EXPAND
OUR BUSINESS OR OPERATE IT PROFITABLY.
The market for ASP services has only recently begun to develop and is
evolving rapidly. Future demand for these services is highly uncertain. We
believe that many of our potential customers are not fully aware of the benefits
of ASP services. We must educate potential customers regarding these benefits
and convince them of our ability to provide complete and reliable services.
Growth in the demand for our ASP services may be inhibited for a number of
reasons, including:
- any incompatibility between our ASP services and technology used by our
customers,
- any deficiencies in our ability to reliably deliver ASP services to our
customers,
- any failure by other ASP providers, which could diminish consumer
confidence in ASP services,
- defects beyond our control in software applications delivered from our
data centers,
- any inability to strengthen awareness of our brand and differentiate the
services we offer from those of our competitors,
- any inability to market our services in a cost-effective manner to new
customers,
- a lack of industry standards regarding levels of service, which may erode
our customers' confidence, and
- concerns over data security and user privacy.
We cannot be certain that the market for ASP services will become viable or
grow. If the market for our ASP services does not grow or grows more slowly than
we currently anticipate, our business, financial condition and operating results
would be materially adversely affected.
OUR FAILURE TO MANAGE OUR GROWTH EFFECTIVELY MAY ADVERSELY AFFECT OUR BUSINESS.
Our growth has placed, and will continue to place, significant demands on
our management. If we are successful in implementing our growth strategy, we may
have difficulty responding to demand for our services and technical support in a
timely manner and in accordance with our customers' expectations. We expect
these demands to require the addition of new management, sales, technical and
other personnel and the purchase and installation of additional hardware,
software and telecommunications systems.
In addition, our success depends upon our ability to increase the capacity
of our data centers and related communications systems in a timely and
cost-effective manner. Expanding our delivery system significantly and rapidly
in response to any increased demand for our ASP services will place additional
stress upon our hardware, traffic management systems and hosting facilities as
well as our financial, operational and management resources. We may be unable to
manage our growth successfully, in which case our business, financial condition
and results of operation could be materially adversely affected.
WE ARE INVOLVED IN LEGAL PROCEEDINGS WHICH, IF DETERMINED AGAINST US, COULD
MATERIALLY ADVERSELY AFFECT OUR BUSINESS OR SIGNIFICANTLY DILUTE OUR
STOCKHOLDERS.
On January 20, 2000, we commenced a lawsuit against Cameron Chell, the
founder and former chief executive officer of FutureLink, David Bolink, our
former director of business development, other former employees of our company,
and various entities organized by these former employees, including C Me Run
Corp. The suit alleges that the defendants, while many were employed by us,
misappropriated our plans to develop certain ASP services in breach of fiduciary
and contractual obligations. We seek, among other things, damages in the amount
of approximately $54 million. On January 27, 2000, Mr. Chell filed a
counterclaim for $28.7 million, alleging improper termination, interference of
ongoing economic interests, defamation of character and damages concerning his
ability to exercise 100,000 options to purchase our common stock which had
previously vested and an ability to enjoy the vesting of an additional 700,000
unvested options he claims to hold in our company. On January 31, 2000, C Me Run
filed a counterclaim
7
<PAGE> 12
for approximately $84 million, alleging conspiracy to cause economic harm,
unlawful interference with its economic interests, interference with contractual
relations and abuse of process. On February 7, 2000, Mr. Bolink, a current
employee of Chell.com, filed a counterclaim against us seeking 50,000 options
that he alleges were promised to him by us for working for us.
On January 26, 2000, Michael Chan, an individual who had provided
managerial services on a contractual basis for us in the past, commenced a
lawsuit against us and Cameron Chell seeking options to purchase 50,000 shares
of our common stock that he alleges Mr. Chell promised him for services he
allegedly provided to us or in the alternative approximately $1,500,000 in cash.
Mr. Chan also seeks general damages of approximately $200,000 and punitive
damages of approximately $200,000.
Each of the above lawsuits has been filed under Canadian law. Canadian law
provides for severance pay to any employee of our Canadian operations in an
amount that is appropriate based on, among other things, the nature of the
position held by the employee and the length of time the employee worked for the
company, unless the employer can establish that the termination was for just
cause. The exact amount of severance pay is often disputed between employers and
employees in Canada. Accordingly, there is a risk that in addition to the
lawsuits described above, one or more other former employees will make claims
for cash severance pay as well as options. We are aware that there are other
former employees and consultants who believe that they are entitled to options
in respect of services rendered to us in the past. To date, we are aware of
threatened claims with respect to an aggregate of approximately 250,000 options,
in addition to the filed claims described above. Other people may in the future
make similar claims. We believe future claims based on past employees and
contractors relationships with us could produce aggregate claims for options for
up to as many as 250,000 shares of common stock in addition to claims already
made or threatened as described above.
All of these types of litigation are likely to be expensive for us and, if
such suits are determined against us, our business, results of operations and
financial condition will be materially adversely affected if an award of a
material amount of cash damages is awarded. Our stockholders may suffer material
dilution if an award of a material number of options are awarded. See
"Litigation."
WE MAY BE SUBJECT TO MATERIAL LIABILITY RESULTING FROM THE ACTIONS OF PERSONS
FORMERLY ASSOCIATED WITH OUR BUSINESS. IF WE ARE SUBJECT TO ANY SUCH LIABILITY
OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION WILL BE MATERIALLY
ADVERSELY AFFECTED.
In October 1998, the Securities and Exchange Commission announced the
filing of an enforcement action against the publisher of an internet newsletter
called The Future Superstock, written by Jeffrey Bruss. According to the SEC's
litigation release, the SEC's complaint alleged that The Future Superstock
recommended to the newsletter's more than 100,000 subscribers and to visitors to
the newsletter's web site the purchase of approximately 25 microcap stocks which
were predicted to double or triple in the next three to twelve months. According
to the SEC's release, in most instances, the prices of recommended securities
increased for a short period of time after a recommendation was made in The
Future Superstock newsletter, after which the prices of those stocks dropped
substantially. The SEC alleged that in making its recommendations, the internet
newsletter (1) failed to adequately disclose compensation it had received from
profiled companies, (2) failed to disclose that it had sold stock in many of the
issuers shortly after dissemination of recommendations that caused the prices of
those stocks to rise, (3) said that it had performed independent research and
analysis in evaluating the issuers profiled by the newsletter when it had
conducted little, if any research, and (4) made false and misleading statements
about the success of certain prior stock picks. According to press reports,
Jeffrey C. Bruss, claimed that he received $300,000 from FutureLink to promote
its stock. The SEC sought civil penalties against the publisher of the
newsletter. The SEC did not bring any action against FutureLink. We believe that
no payments were made by FutureLink to Mr. Bruss but may have been made by one
or more persons who were associated with the Company prior to 1998. We are
unable to determine whether, as a result of the alleged activities of Mr. Bruss,
any stockholder suffered any losses for which we might be liable. Other persons
associated with us may have engaged in other types of transactions that could
also give rise to liability to our stockholders. If one or more stockholders
were to have suffered losses as a result of these activities and it
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was determined that we participated in such activities, we could have liability
to such stockholders that would be materially adverse to our business, results
of operations and financial condition.
WE MAY NEED ADDITIONAL FINANCING TO FUND OUR OPERATIONS AND FINANCE OUR GROWTH,
AND WE MAY NOT BE ABLE TO OBTAIN FINANCING ON TERMS ACCEPTABLE TO US OR AT ALL.
IF WE NEED AND ARE UNABLE TO OBTAIN ADDITIONAL FINANCING, OUR GROWTH AND OUR
OPERATING RESULTS COULD BE ADVERSELY AFFECTED.
We may require additional financing to fund our operations and our current
plans for expansion. This financing may involve incurring debt or selling equity
securities. There can be no assurance that additional financing will be
available to us on commercially reasonable terms or at all. If we incur debt,
the risks associated with our business and with owning our common stock could
increase. If we raise capital through the sale of equity securities, the
percentage ownership of our shareholders would be diluted. In addition, any new
equity securities may have rights, preferences or privileges senior to those of
our common stock. If we are unable to obtain additional financing, our ability
to fund our operations and meet our current plans for expansion could be
materially adversely affected.
WE HAVE GROWN AND PLAN TO CONTINUE TO GROW, IN PART, THROUGH THE ACQUISITION OF
OTHER COMPANIES. HOWEVER, WE MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE THE
COMPLETED AND PENDING ACQUISITIONS OR IDENTIFY, ACQUIRE AND SUCCESSFULLY
INTEGRATE FUTURE ACQUISITIONS INTO OUR OWN OPERATIONS, WHICH MAY ADVERSELY
AFFECT OUR GROWTH AND OUR OPERATING RESULTS.
We have made a number of significant acquisitions within the last six
months. In October 1999, we acquired Executive LAN Management, Inc., also known
as Micro Visions. In November 1999, we acquired Async Technologies, Inc. and
Computer Networks, Inc. In December 1999, we acquired KNS Holdings Limited, also
known as KNS Distribution. In January 2000, we acquired Vertical Software, Inc.,
also known as VSI Technology Solutions. In February 2000, we announced
definitive agreements to acquire Microlan Systems, Inc. (doing business as
Madison Technology Group), Madison Consulting Resources, Inc., and Madison
Consulting Resources NJ, Inc. and Charon Systems, Inc. These acquisitions have
increased our revenue, from $0.6 million for the nine months ended September 30,
1998 to $84.9 million on a pro forma basis, after giving effect to our pending
and completed acquisition as if each had occurred as of January 1, 1999, for the
nine months ended September 30, 1999. We cannot assure you that the pending
acquisitions will close. We have not yet fully integrated any of these
companies. There is no assurance that we will successfully integrate these
acquisitions into our business. We intend to continue to pursue opportunities to
expand our business by acquiring selected companies in certain markets.
Growth by acquisitions involve a number of special risks. These risks
include the following:
- any inability to integrate any acquired businesses into our operations,
- any inability to identify appropriate acquisition candidates or negotiate
acquisitions on favorable terms,
- any inability to obtain financing on favorable terms or at all,
- any diversion of management's attention from operations to integrating
the acquired companies,
- any failure to successfully retain and expand the key personnel and key
customers of any acquired company, and
- the risk we may assume or acquire significant liabilities that we fail or
are unable to discover in connection with any acquisition.
In addition, there can be no assurance that if we acquire any businesses we
will achieve anticipated revenue and earnings. Our failure to acquire suitable
companies or to successfully integrate any acquired companies into our
operations could have a material adverse effect upon our business, operating
results and financial condition.
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IF WE DO NOT RESPOND EFFECTIVELY AND ON A TIMELY BASIS TO RAPID TECHNOLOGICAL
CHANGE IN OUR INDUSTRY, OUR BUSINESS COULD SUFFER.
Our industry is characterized by rapidly changing technology with
continuous improvements in both computer hardware and software, and rapid
obsolescence of current systems. Rapid change poses risks that we will be unable
to keep our server hardware, communications links and available software
offerings up to date. The rapid development of new technologies increases the
risk that current or new competitors could develop products or services that
would reduce the competitiveness of our products or services. We rely on
software providers to produce software applications that keep pace with our
customers' demands. We are also subject to risks from technological changes in
the way software applications are marketed and delivered. Our future success
will depend, in part, on our ability to:
- develop new products and services that meet changing customer needs,
- continually improve the performance, features and reliability of our
existing services,
- effectively use and integrate leading technologies and software
applications,
- continue to develop our technical expertise, and
- influence and respond to emerging industry standards and other changes.
We cannot assure you that we will successfully develop or adopt new
technologies, introduce new services or enhance our existing services on a
timely basis, or that new technologies, new services or enhancements used or
developed by us will achieve market acceptance. If we fail to address these
developments, our business, operating results and financial condition could be
materially adversely affected.
OUR CURRENT DATA CENTERS ARE LOCATED IN ONLY TWO LOCATIONS, IRVINE, CALIFORNIA
AND CALGARY, CANADA, WHICH LEAVES US VULNERABLE TO DISRUPTIONS THAT AFFECT OUR
DATA CENTERS. IF OUR DATA CENTERS ARE DISRUPTED, WE COULD LOSE OUR CUSTOMERS AND
FAIL TO ATTRACT NEW CUSTOMERS, WHICH COULD ADVERSELY AFFECT OUR BUSINESS,
RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
Our ASP business strategy depends on the consistent performance of our data
centers located in Irvine, California, and in Calgary, Canada. We offer back-up
storage of data for customers that elect this service, including back-up at
another data center. We plan to build additional data centers in the eastern
United States and in Europe. However, our current data centers are vulnerable to
interruption from fire, earthquake, flood, power loss, telecommunications
failure, break-ins and other events beyond our control. If a customer storing
data at one of our data centers has not elected to back up their data at another
data center, there is a risk that the data may be lost if such data center is
damaged. Because we currently operate only two data centers, there is a risk
that the loss of data may affect a significant portion of our customers if
either data center were damaged. We have, from time to time, experienced
periodic systems disruptions and anticipate that such disruptions will occur in
the future. In the event that we experience significant disruptions that affect
our data centers, we could lose customers and fail to attract new
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customers, and our business, results of operations and financial condition would
be materially adversely affected.
WE RELY ON THIRD PARTIES FOR REFERRALS AND TO PROVIDE US WITH SERVICES AND
PRODUCTS, AND ANY FAILURE BY THESE THIRD PARTIES TO PROVIDE US WITH THESE
REFERRALS OR WITH SERVICES AND PRODUCTS IN A TIMELY MANNER AT AN ACCEPTABLE COST
COULD ADVERSELY AFFECT US.
We rely on referrals from software application and technology integrators
for a portion of our business. These integrators refer their customers to us
because we can provide an array of services which complements the products and
services they offer. However, we cannot assure you that these integrators will
continue to refer business to us or will not cooperate with our competitors.
In addition, we depend on third-party suppliers to provide us with key
hardware components and software applications for our infrastructure and with
sufficient communications lines to allow our customers to access their software
applications. Some components or applications are only available from limited
sources. If we fail to obtain these products or services in a timely manner and
at an acceptable cost, our business, results of operations and financial
condition could be materially adversely affected. Any disruptions to our
communications lines could materially harm our customers' business and adversely
affect demand for our services.
Furthermore, we depend on third-party software manufacturers agreeing to
allow their software applications to be hosted or run at our data centers and
provided to our customers. We have entered into non-exclusive agreements with
Microsoft, Onyx, Great Plains, SalesLogix and others that allow us to host some
of their software applications at our data centers or re-license their software
applications to our customers. Under most of these agreements, the software
manufacturer can terminate its relationship with us, for any reason, by giving
us as little as 30 days notice, and it is not liable to us or our customers for
any damages resulting from termination. If our relationships with these software
manufacturers are terminated or if these or other software manufacturers do not
allow our customers to obtain a license to operate the software application on
our data centers, our business, operating results and financial condition could
be materially adversely affected.
We also rely on software applications licensed from third parties for
delivery of software applications to our customers. We cannot be sure that these
licenses will remain available to us on commercially reasonable terms. The loss
of such technology could require us to obtain substitute technology of lower
quality or performance standards or at greater cost, which could materially
adversely affect our business, results of operations and financial condition.
Also, software manufacturers we rely on are in a highly competitive market. If
they are unable to produce competitive products, we may encounter difficulties
locating suitable alternatives. In addition, if our competitors offer the same
or similar software applications with more competitive pricing and service or if
the software manufacturers we rely on stop supporting the software versions that
we currently license or are unable to adapt and respond to changing market
conditions, our business, operating results and financial condition could be
materially adversely affected.
IF WE ARE UNABLE TO OBTAIN CITRIX PRODUCTS, WE WOULD BE UNABLE TO DELIVER OUR
SERVICES, AND UNTIL WE REPLACE THESE PRODUCTS, OUR BUSINESS WOULD BE ADVERSELY
AFFECTED.
Citrix Systems, Inc. is one of our key suppliers. We use Citrix software
almost exclusively to connect our customers to software applications. Although
there are other competing software applications on the market, we believe that
Citrix software is currently best suited to serve this function. If we are
unable to obtain Citrix software in a timely manner, at an acceptable cost, or
at all, we would be unable to deliver our services, and until we replace these
products, our business, results from operations and financial condition could be
materially adversely affected.
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IF THE SOFTWARE WE UTILIZE CONTAINS DEFECTS OR IF OUR DELIVERY SYSTEM BECOMES
INCOMPATIBLE WITH OTHER PRODUCTS AND SERVICES, OUR CUSTOMERS' SERVICE COULD BE
DISRUPTED AND THEIR DATA COULD BE LOST. THIS COULD RESULT IN OUR INCURRING
LIABILITY AND LOSING CUSTOMERS FOR OUR SERVICES, WHICH WOULD HAVE AN ADVERSE
EFFECT ON OUR OPERATIONS.
Our service offerings depend on complex software, which may contain
defects, particularly when first introduced or when new versions are released.
Although we test software applications prior to deployment, we may not discover
software defects that affect our new or current services or enhancements until
after they are deployed. These defects could cause service interruptions, which
could damage our reputation or increase our service costs, cause us to lose
revenue, delay market acceptance or divert our development resources. Any
software modifications we perform as part of our integration services could
cause problems in application delivery. Also, because we offer a one-source
solution to our customers, they are likely to hold us accountable for any
problems associated with their software, even if the problem results from
software defects caused by the manufacturer. Typically, software manufacturers
disclaim liability for any damages suffered as a result of software defects or
provide only limited warranties. As a result, we may have no recourse against
the providers of defective software applications.
We believe our ability to compete successfully depends on the continued
compatibility of our services with products, services and technology offered by
various vendors. Our failure to conform to prevailing industry standards, or the
failure of industry standards to emerge, could have a material adverse effect on
our business, results of operations and financial condition. Although we plan to
support emerging industry standards, we cannot be sure that industry standards
will develop or that any standards we adopt will not be made obsolete. We also
cannot be sure that we will be able to conform to these new standards quickly
enough to stay competitive.
BREACHES OF OUR SECURITY COULD DISRUPT THE OPERATION OF OUR DATA CENTERS AND
JEOPARDIZE OUR SECURE TRANSMISSION OF CONFIDENTIAL INFORMATION. THESE BREACHES
COULD CAUSE OUR CUSTOMERS TO LOSE CONFIDENCE IN OUR SERVICES AND CANCEL THEIR
CONTRACTS WITH US OR PROSPECTIVE CUSTOMERS NOT TO PURCHASE OUR SERVICES.
The growth of our business depends upon our ability to securely transmit
confidential information to and from our data centers or the servers of our
customers. Despite our design and implementation of a variety of delivery system
security measures, unauthorized access, computer viruses and accidental or
intentional disturbances could occur. We may need to devote substantial capital
and resources to protect against the threat of unauthorized penetration of our
delivery system or to remedy any problems created by the penetration of our
delivery system security. The occurrence of any of these events could cause us
to lose customers and expose us to liability, all of which could have a material
adverse effect on us.
WE CANNOT BE SURE THAT WE WILL COMPETE SUCCESSFULLY WITH OUR PRESENT OR FUTURE
COMPETITORS. IF WE ARE UNABLE TO SUCCESSFULLY COMPETE, WE WILL NOT BE ABLE TO
STAY IN BUSINESS.
We face a large and growing number of competitors in a rapidly changing
industry. Our current and prospective competitors include systems integrators,
Internet service providers, hardware and software suppliers, telecommunications
companies, and other ASPs. Many of our competitors have substantially greater
financial, technical and marketing resources, larger customer bases, longer
operating histories, greater name recognition and more established relationships
in the industry than we do. As a result, certain of these competitors may be
able to develop and expand their service offerings more rapidly, adapt to new or
emerging technologies and changes in customer requirements more quickly, take
advantage of acquisition and other opportunities more readily, devote greater
resources to the marketing and sale of their services and adopt more aggressive
pricing policies than we can. Additionally, we compete with our customers'
internal resources, particularly where these resources represent a fixed cost to
the customer. Such competition may impose additional pricing pressures on our
services. We cannot be sure that we will compete successfully with our existing
competitors or with any new competitors.
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MANY OF OUR CONSULTING CONTRACTS HAVE FIXED PRICES, WHICH EXPOSE US TO COST
OVERRUNS. IF WE ARE NOT ABLE TO CONTROL COSTS OVERRUNS, OUR OPERATING RESULTS
COULD BE ADVERSELY AFFECTED.
We undertake certain consulting projects on a fixed-price basis rather than
billing on a time and materials basis or on a per employee or user basis. The
failure to complete such projects on a timely basis and, in the case of
fixed-price projects, without cost overruns, could give rise to claims against
us or damage our reputation and materially adversely affect our business,
operating results and financial condition.
OUR ASP SERVICE CONTRACTS GUARANTEE CERTAIN SERVICE LEVELS. IF WE DO NOT MEET
SUCH SERVICE LEVELS, WE MAY BE REQUIRED TO GIVE OUR CUSTOMERS CREDIT FOR FREE
SERVICE, AND OUR CUSTOMERS MAY BE ENTITLED TO CANCEL THEIR ASP SERVICE
CONTRACTS, WHICH COULD ADVERSELY AFFECT OUR BUSINESS.
Our ASP contracts contain service level guarantees which obligate us to
provide our hosted applications at a guaranteed level of performance. To the
extent we fail to meet those service levels, we may be obligated to provide our
customers credit for free service. If we continue to fail to meet these service
levels, our ASP customers have the right to cancel their contracts with us.
These credits or cancellations could adversely affect our business, results of
operations and financial condition.
WE OPERATE IN AN INDUSTRY WHERE IT IS DIFFICULT TO ATTRACT AND RETAIN QUALIFIED
PERSONNEL. WE DEPEND ON A LIMITED NUMBER OF KEY OFFICERS WHO WOULD BE DIFFICULT
TO REPLACE. IF WE ARE UNABLE TO ATTRACT AND RETAIN QUALIFIED PERSONNEL, OUR
OPERATIONS WOULD SUFFER, AND WE COULD LOSE OUR CUSTOMERS OR FAIL TO ATTRACT NEW
CUSTOMERS.
Our business is labor-intensive, and our success depends in large part upon
our ability to attract, develop, motivate and retain highly skilled personnel.
We are currently experiencing rapid growth in personnel and intend to continue
expanding. We have grown from over 100 employees as of December 31, 1998 to over
300 employees as of December 31, 1999. We believe that we will need to hire a
significant number of additional personnel. Qualified technical employees are in
great demand and are likely to remain a limited resource for the foreseeable
future. There can be no assurance that we will be able to engage the services of
such personnel or retain our current personnel. If we do not succeed in
attracting new, qualified personnel or successfully retain our current
personnel, our business could suffer.
Our success also depends in significant part on the continued services of
our key officers. Losing one or more of our key personnel could have a material
adverse effect on our business, results of operations and financial condition.
OUR QUARTERLY AND ANNUAL OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY IN THE
FUTURE. BECAUSE OF THESE FLUCTUATIONS, COMPARISONS OF OUR OPERATING RESULTS FROM
PERIOD TO PERIOD ARE NOT NECESSARILY MEANINGFUL AND SHOULD NOT BE RELIED UPON AS
AN INDICATOR OF FUTURE PERFORMANCE.
We expect to continue to experience significant fluctuations in our
operating results because of a variety of factors, many of which are outside of
our control, including:
- size and timing of customer installations and related payments,
- fluctuations in data and voice communications costs,
- timing and magnitude of capital expenditures,
- costs relating to the expansion of operations,
- costs and revenue fluctuations due to acquisitions,
- the timing of delivery of services under new ASP contracts,
- customer discounts and credits,
- changes in our pricing policies or those of our competitors, and
- economic conditions specific to our industry, as well as general economic
conditions.
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Our revenues are subject to further variations from period to period
because a large portion of our current revenues are non-recurring. For these and
other reasons, in some future periods, our results of operations may fluctuate
and fall below the expectations of securities analysts or investors, which could
adversely affect the market price of our common stock.
OUR INTERNATIONAL PRESENCE EXPOSES US TO POTENTIAL DIFFICULTIES ASSOCIATED WITH
MANAGING DISTANT OPERATIONS AND TO REGULATORY, TARIFF, LICENSING AND CURRENCY
RISKS. ANY FAILURE TO ADDRESS EFFECTIVELY SUCH DIFFICULTIES COULD ADVERSELY
AFFECT OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
In addition to our operations in the United States, we currently conduct
business in Canada and the United Kingdom. A material part of our growth
strategy is based on expanding our operations internationally. We anticipate
that Canadian and European sales will account for a significant amount of our
future revenue.
There are certain risks inherent in doing business in international
markets, such as:
- different telecommunications access fees,
- different technology standards,
- different liability standards,
- less protective intellectual property laws,
- changes in political conditions,
- changes in regulatory requirements,
- increased expenses due to tariffs and other trade barriers,
- fluctuations in currency exchange rates,
- restrictions on currency transfers,
- potentially adverse tax consequences, and
- difficulties in managing or overseeing foreign operations.
Any of the foregoing may have a material adverse effect on our current or
future international operations and, consequently, on our business, results of
operations and financial condition.
In order to safeguard the flow of personal information over the Internet,
we intend to offer our customers various forms of cryptographic technology. The
export of this technology is regulated by the U.S. government and may require a
license or other authorization. There is no guarantee that we will be able to
obtain such a license. In addition, many other countries regulate the export,
import, or use of cryptography. There is no guarantee that we will be able to
obtain the necessary permission to engage in our contemplated activities.
WE MAY BE UNABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS. IF WE
FAIL TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, THE VALUE OF SUCH
RIGHTS MAY DIMINISH AND OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION MAY BE
ADVERSELY AFFECTED.
We rely on a combination of copyright, trademark and trade secret laws,
confidentiality procedures and contractual provisions to protect our
intellectual property. These protections may not be sufficient, and they do not
prevent independent third-party development of competitive products or services.
Further, the laws of many foreign countries do not protect our intellectual
property rights to the same extent as the laws of the United States. Based on
various governmental filings, we are aware that other companies have claimed
prior use of the name "FutureLink" in connection with products or services
similar to our own. We are in the process of investigating the rights, if any,
others may have to the name. In addition, we are attempting to register
"FutureLink" as a service mark in the U.S., Canada and the United Kingdom.
However, we may not be able to obtain proprietary rights to the use of this
name.
We enter into agreements with many of our employees giving us proprietary
rights to certain technology developed by such employees while employed by us;
however, we cannot be sure a court will
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enforce these agreements. In addition, we may be inadequately protected against
the use of technology developed by employees who have not entered into such
agreements. We have commenced a lawsuit against Cameron Chell, our former chief
executive officer, and certain other former employees, for misappropriation of
our plans to develop certain ASP services, and we may need to commence
additional lawsuits from time to time to protect our intellectual property.
A failure or inability to protect our intellectual property could have a
material adverse effect on our business, financial condition and results of
operations.
INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS AGAINST US, EVEN IF WITHOUT MERIT,
COULD BE EXPENSIVE TO DEFEND AND DIVERT MANAGEMENT'S ATTENTION FROM OUR
BUSINESS.
We may incur expenses if called to defend our use of the "FutureLink" name
and liability if any company engaged in business in our industry were to assert
an infringement claim and could establish superior rights to the name and
damages caused by our use of it. Third parties may assert other infringement
claims against us. Any such litigation, even if without merit, may be time
consuming and expensive to defend. It also could divert management's attention
and resources and require us to enter into costly royalty or licensing
agreements. Any of these events could have a material adverse effect on our
business, financial condition and results of operations.
WE MAY INCUR LIABILITIES AS A RESULT OF OUR PREVIOUS ACTIVITIES.
We merged with a publicly-traded company that was engaged, prior to 1992,
in the natural resource exploration and development business, including mining
and oil and gas. We no longer own any mining or oil and gas-related assets. The
mining, mineral processing and oil and gas industries are subject to extensive
governmental regulations for the protection of the environment, including
regulations relating to air and water quality, site reclamation, solid and
hazardous waste handling and disposal and the promotion of occupational safety.
We could be held responsible for any liabilities relating to our previous
involvement in mining or oil and gas exploration and development, which
liabilities could have a material adverse effect on our business, financial
condition and results of operations.
THE PUBLIC MARKET FOR OUR COMMON STOCK MAY BE VOLATILE. SUCH FLUCTUATIONS MAY
ADVERSELY AFFECT OUR ABILITY TO RAISE ADDITIONAL CAPITAL AND YOUR ABILITY TO
LIQUIDATE YOUR INVESTMENT AT A FAVORABLE PRICE.
Prior to this offering, the public market for our common stock has been
limited, sporadic and highly volatile. Between January 1, 1999 and December 31,
1999, the price of our common stock ranged from a low of $1.20 to a high of
$36.50 per share. There can be no assurance that a more active trading market
for our common stock will develop or be sustained. Even if a more active trading
market does develop, the market price of the common stock is likely to be highly
volatile and could be subject to wide fluctuations in response to factors such
as:
- actual or anticipated variations in our revenues, earnings and cash flow,
- announcements of new products and services by us or our competitors and
consumer acceptance of such new products and services,
- changes in the information technology environment,
- announcements of mergers or acquisitions by ourselves or our competitors,
- sales of shares of our common stock by existing shareholders,
- financial estimates by securities analysts,
- fluctuations in the market price of our competitors' publicly-traded
stock,
- adoption of new accounting standards affecting our industry, and
- general market conditions and other factors.
Further, the stock markets have recently experienced extreme price and
volume fluctuations that have affected the market prices of equity securities of
many companies, including many companies in our
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industry, and that have been unrelated or disproportionate to the operating
performance of such companies. These broad market factors may adversely affect
the market price of our common stock. Such fluctuation may adversely affect our
ability to raise additional capital and your ability to liquidate your
investments at a favorable price. In addition, general economic, political and
market conditions such as recessions, interest rate fluctuations or
international currency exchange rate fluctuations, may adversely affect the
market price of the common stock. In the past, following periods of volatility
in the market price of a company's securities, securities class action
litigation has often been instituted against such company. Any such litigation,
if instituted, could result in substantial costs and divert management's
attention and resources, which could have a material adverse effect on our
business, results of operations and financial condition.
OUR EXISTING SHAREHOLDERS WILL RETAIN SIGNIFICANT CONTROL.
Upon completion of this offering, our executive officers, directors and
holders of over 5% of our stock and their affiliates will own approximately 35%
of the outstanding shares of our common stock (or 34% if the underwriters
exercise their overallotment option in full). As a result, if these holders act
as a group, they may be able to control us and direct our affairs, including the
election of directors and approval of significant corporate transactions. This
concentration of ownership also may delay, defer or prevent a change in control
of our company, and make some transactions more difficult or impossible without
the support of these shareholders. These transactions might include proxy
contests, mergers, tender offers, open market purchase programs or other
purchases of common stock that could give our shareholders the opportunity to
realize a premium over the then-prevailing market price of our common stock.
OUR STOCK PRICE MAY BE AFFECTED BY THE AVAILABILITY OF SHARES FOR SALE IN THE
NEAR FUTURE. THE FUTURE SALE OF LARGE AMOUNTS OF OUR STOCK, OR THE PERCEPTION
THAT SUCH SALES COULD OCCUR, COULD NEGATIVELY AFFECT OUR STOCK PRICE.
The market price of our common stock could drop as a result of sales of a
large number of shares of common stock in the market after this offering. After
this offering, we will have outstanding 64,404,530 shares of common stock, 91%
of which will be held by existing stockholders. This excludes 7,973,242 shares
issuable upon the exercise of outstanding warrants, 6,308,600 shares issuable
upon the exercise of stock options, 918,283 shares issuable upon the conversion
of our convertible debentures and 750,000 shares issuable if the underwriters
exercise their overallotment option.
In connection with this offering, certain executive officers, directors and
shareholders have agreed that, with certain exceptions, they will not sell any
shares of common stock or enter into similar transactions for 180 days after the
date of this prospectus without the consent of Bear, Stearns & Co. Inc. At the
expiration of the 180-day period following the date of this prospectus,
shares of our common stock held by existing stockholders will become
available for sale in the public market, subject to volume restrictions imposed
by federal securities laws.
In addition, the exercise of any outstanding options or warrants could
dilute the net tangible book value of our common stock. Further, the holders of
such options and warrants may exercise them at a time when we would otherwise be
able to obtain additional equity capital on terms more favorable to us.
FUTURE ISSUANCES OF PREFERRED STOCK COULD REDUCE THE VALUE OF OUR COMMON STOCK.
We are authorized to issue up to 20,000,000 shares of preferred stock, no
par value. The preferred stock may be issued in one or more series, on such
terms and with such rights, preferences and designations as our board of
directors may determine, without action by stockholders. No shares of preferred
stock are currently outstanding. However, the issuance of any preferred stock
could adversely affect the rights of the holders of common stock, and therefore
reduce the value of the common stock. In particular, specific rights granted to
future holders of preferred stock could be used to restrict our ability to
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merge with or sell our assets to a third party, thus making it more difficult
for a third party to acquire a majority of our outstanding voting stock. We have
no current plans to issue shares of preferred stock.
YOU WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION.
The public offering price of our common stock is substantially higher than
the net tangible book value of our common stock. Therefore, if you purchase our
common stock in this offering, you will incur immediate dilution of
approximately $ in the net tangible book value per share of common
stock from the public offering price of $ per share.
SINCE WE HAVE BROAD DISCRETION IN HOW WE USE THE PROCEEDS FROM THIS OFFERING, WE
MAY USE THE PROCEEDS IN WAYS WITH WHICH YOU DISAGREE.
We have not allocated specific amounts of the net proceeds from this
offering for any specific purpose. Accordingly, our management will have
significant flexibility in applying the net proceeds of this offering. The
failure of our management to use such funds effectively could have a material
adverse effect on our business, financial condition and operating results.
WE HAVE NOT PAID DIVIDENDS, AND EXPECT TO RETAIN OUR EARNINGS FOR THE
FORESEEABLE FUTURE.
We have not paid cash dividends on our common stock since our inception. We
do not intend to pay cash dividends on our common stock in the foreseeable
future so that we may reinvest earnings, if any, in the development of our
business.
18
<PAGE> 22
USE OF PROCEEDS
The net proceeds to us from this offering are estimated to be approximately
$ million ($ million if the underwriters' overallotment option is
exercised in full), after deducting underwriting discounts and commissions and
estimated offering expenses. We intend to use the net proceeds from this
offering to:
- fund approximately $6.6 million of the purchase price for Charon Systems,
Inc. and to fund all or a portion of possible future acquisitions;
- retire $4.0 million aggregate principal amount of our unsecured loan
notes due June 20, 2000 issued in connection with our acquisition of KNS
Holdings, which notes are due on June 20, 2000, at par plus accrued
interest equal to the London interbank offered rate plus 1%;
- retire $7.3 million aggregate principal amount of indebtedness we expect
to incur in connection with our pending acquisition of Madison Technology
Group and its affiliates, which, if incurred, will be due and payable
five months from the closing of such acquisition and will bear interest
at a rate increasing from 9% to 12%;
- develop service offerings that enhance and complement our current service
offerings;
- expand our sales and marketing efforts; and
- fund working capital and other general corporate purposes.
The amounts and timing of our actual expenditures of these proceeds will
depend upon numerous factors, including, the number and size of our
acquisitions, our marketing activities, the response of the market to our
introduction of products and services, and the amount of cash generated by our
operations. Pending application of the net proceeds, we intend to invest the net
proceeds of this offering in short-term, investment-grade, interest-bearing
securities.
DIVIDEND POLICY
We currently intend to retain all of our future earnings, if any, for use
in our business and therefore we do not anticipate paying any cash dividends on
our common stock in the foreseeable future. Any future determination to pay cash
dividends will be at the discretion of our board of directors and will depend
upon our financial condition, operating results, capital requirements,
restrictions contained in our agreements and other factors which our board of
directors deems relevant.
19
<PAGE> 23
PRICE RANGE OF OUR COMMON STOCK
On January 4, 2000, our common stock began trading on the Nasdaq National
Market under the trading symbol "FTRL." Before our listing on the Nasdaq
National Market, our common stock traded on the OTC Bulletin Board under the
trading symbol "FLNK" from 1998 through 1999 and under the trading symbol "CVNK"
from 1995 to 1998. Trading activity in our common stock has been limited,
sporadic and highly volatile. The high and low closing sales prices, as adjusted
to reflect the one-for-five reverse stock split effected June 1, 1999, are as
follows:
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
2000
1st Quarter (through February 10, 2000).................... $30.00 $17.31
1999
4th Quarter................................................ $35.75 $ 8.50
3rd Quarter................................................ $ 9.31 $ 6.06
2nd Quarter................................................ $ 8.69 $ 1.33
1st Quarter................................................ $ 2.58 $ 1.48
1998
4th Quarter................................................ $ 4.00 $ 1.25
3rd Quarter................................................ $ 8.45 $ 1.95
2nd Quarter................................................ $21.10 $ 3.15
1st Quarter................................................ $20.45 $ 0.65
</TABLE>
On February 10, 2000, the last reported sales price of our common stock was
$22.50. As of February 10, 2000, there were 52,378,890 shares of our common
stock issued and outstanding and approximately 700 holders of record of our
common stock.
20
<PAGE> 24
CAPITALIZATION
The following table sets forth at September 30, 1999:
- our actual cash and cash equivalents and capitalization,
- our cash and cash equivalents and capitalization, after giving pro forma
effect to each of the following as if each had occurred on September 30,
1999: (a) the acquisitions that were completed subsequent to September
30, 1999; (b) pending acquisitions as of February 11, 2000; (c) the
October and November 1999 financings by Pequot Private Equity Fund II,
L.P. and its affiliates; and (d) the conversion of certain convertible
debentures from October through December 1999; and (e) the expected
exercise of warrants by Pequot Equity Fund II, L.P. and certain other
investors to purchase 2,401,040 shares of common stock.
- our cash and cash equivalents and capitalization, on the pro forma basis
described above, as adjusted to reflect the estimated net proceeds from
this offering after deducting underwriting discounts and commissions and
estimated offering expenses.
This table should be read in conjunction with "Use of Proceeds," "Pro Forma
Condensed Consolidated Financial Information" and related notes and our
consolidated financial statements and related notes included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents................................. $ 7,815 $ 24,592 $127,155
======== ======== ========
Total long-term obligations............................... 22,198 1,096 1,096
Stockholders' equity:
Preferred stock, no par value; 20,000,000 shares
authorized, none issued or outstanding............... -- -- --
Common stock, $0.0001 par value, 300,000,000 shares
authorized, 9,194,111 issued and outstanding;
59,404,530 issued and outstanding, pro forma; and
64,404,530 issued and outstanding, pro forma as
adjusted............................................. 3 6 6
Additional paid-in capital.............................. 27,434 245,839 348,402
Loan receivable from employee............................. (1,750) (1,750) (1,750)
Warrants.................................................. 60,000 60,000
Accumulated deficit....................................... (29,299) (28,946) (28,946)
Cumulative foreign currency translation adjustment........ (183) (190) (190)
-------- -------- --------
Total stockholders' equity (deficit)...................... (3,795) 274,959 377,522
-------- -------- --------
Total capitalization............................ $ 18,403 $276,055 $378,618
======== ======== ========
</TABLE>
21
<PAGE> 25
DILUTION
The net tangible book value of common stock as of September 30, 1999 was
$15.9 million or approximately $1.73 per share. Net tangible book value per
share represents the amount of our stockholders' equity, less intangible assets,
divided by the number of shares of common stock outstanding.
Net tangible book value dilution per share represents the difference
between the following:
(1) the amount paid per share by purchasers of common stock in this
offering, and
(2) the adjusted net tangible book value per share of purchasers of common
stock in this offering immediately after completion of this offering
After giving effect to our sale of 5,000,000 shares of common stock in this
offering, our adjusted net tangible book value as of September 30, 1999, based
on the initial public offering price of per share, was
$ or $ per share of common stock. This represents an immediate
increase in net tangible book value of $ per share to existing
stockholders and an immediate dilution of net tangible book value of
$ per share to you. The following table illustrates this dilution:
<TABLE>
<S> <C> <C>
Public offering price per share of common stock............. $
Net tangible book value per share of common stock as of
September 30, 1999........................................ $
Net increase in net tangible book value per share of common
stock attributable to cash payment from this offering..... $
-----
Pro forma net tangible book value per share as of September
30, 1999 after giving effect to the offering.............. $
-----
Immediate dilution per share to new investors............... $
=====
</TABLE>
The table above assumes no exercise of outstanding options, warrants or
convertible debt. As of January 31, 2000, there were 6,308,600 shares of common
stock issuable upon exercise of outstanding options at a weighted average
exercise price of $8.33 per share, 7,468,066 shares of common stock issuable
upon exercise of outstanding warrants at a weighted average exercise price of
$7.91 per share and 918,283 shares of common stock issuable upon the conversion
of $898,660 aggregate principal amount of our convertible debentures outstanding
at a weighted average conversion price of $0.98 per share. The tables above also
assume no exercise of the underwriters' overallotment option. To the extent that
any shares are issued in connection with outstanding options, warrants,
convertible debentures or the underwriters' overallotment option, you will
experience further dilution. See "Management" and "Underwriting."
22
<PAGE> 26
ACQUISITIONS
As part of our growth strategy, from October 15, 1999 through February 2,
2000, we acquired five businesses. Since then, we have announced definitive
agreements to acquire two additional businesses. The following table presents
certain information with respect to these completed and pending acquisitions.
<TABLE>
<CAPTION>
REVENUE FOR THE
NINE MONTHS ENDED
COMPLETED ACQUISITIONS CLOSING DATE PURCHASE PRICE(1) SEPTEMBER 30, 1999 PRIMARY MARKETS
---------------------- ------------ --------------------- --------------------- ---------------
(DOLLARS IN MILLIONS) (DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Executive LAN Management, Inc. d/b/a October 15, 1999 $66.0(2) $16.6 Southern California
Micro Visions
CN Networks, Inc. November 5, 1999 $13.0 $ 5.9 Northern California
Async Technologies, Inc. November 29, 1999 $19.4(2) $ 6.2 Midwest
KNS Holdings Limited December 22, 1999 $44.0 $15.8 United Kingdom
Vertical Software, Inc. January 31, 2000 $26.0 $ 9.5 Mid-Atlantic
PENDING ACQUISITIONS
MicroLan Systems, Inc., d/b/a Madison $59.7 $16.7 New York and
Technology Group, Madison Consulting New Jersey
Resources, Inc. and Madison Consulting
Resources NJ, Inc.
Charon Systems, Inc. $31.2 $ 9.3 Canada
</TABLE>
- -------------------------
(1) Total purchase price including cash and common stock has been determined
based on terms contained in the relevant acquisition agreements.
(2) Includes the value of common shares issuable to former shareholders upon
the satisfaction of certain performance criteria in 1999, which management
believes have been satisfied.
COMPLETED ACQUISITIONS
Micro Visions
On October 15, 1999, we acquired Executive LAN Management, Inc., which
conducted business as Micro Visions, for a purchase price of $12.0 million in
cash, 6.0 million shares of our common stock and contingent consideration of 2.4
million shares of our common stock, which management believes have been
satisfied. Micro Visions was among North America's leading server-based
computing integrators using Citrix products in 1998.
CN Networks
On November 5, 1999, we acquired CN Networks, Inc. for a purchase price of
$3.9 million in cash and 1,181,816 shares of our common stock. CN Networks is
one of the leading server-based computing integrators using Citrix products in
Northern California.
Async Technologies
On November 29, 1999, we acquired Async Technologies, Inc. for a purchase
price of $6.0 million in cash and 1,298,705 shares of our common stock. In
addition, the selling shareholders of Async may be issued up to an additional
519,481 shares of our common stock based on the satisfaction of certain
performance
23
<PAGE> 27
criteria in 1999, which management believes have been satisfied. Async
Technologies is one of the leading server-based computing integrators using
Citrix products in the Great Lakes region of the United States.
KNS Holdings
On December 22, 1999, we acquired KNS Holdings Limited, which conducted
business as KNS Distribution, for a purchase price of $5 million in cash and
2,160,307 shares of our common stock. KNS is the largest distributor of Citrix
products and related services outside of the United States.
Vertical Software, Inc.
On January 31, 2000, we acquired Vertical Software, Inc. for $7.0 million
in cash and 1,026,316 shares of our common stock. VSI was the leading
server-based computing integrators using Citrix products in the D.C. metro area.
PENDING ACQUISITIONS
Madison Technology Group of Companies
We have a definitive agreement to acquire MicroLan Systems, Inc. (doing
business as Madison Technology Group), Madison Consulting Resources, Inc. and
Madison Consulting Resources NJ, Inc. for $6.5 million in cash, a promissory
note in the amount of $7.3 million and 1,975,170 shares of our common stock.
These companies are among the leading server-based computing integrators using
Citrix products in the New York and New Jersey markets.
Charon Systems, Inc.
We have a definitive agreement to acquire Charon Systems, Inc. for $7.0
million in cash and 1,072,940 shares of our common stock. Charon Systems is
headquartered in Toronto, Canada, and operates in eastern and central Canada.
24
<PAGE> 28
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following Unaudited Pro Forma Condensed Consolidated Balance Sheet (the
"Pro Forma Balance Sheet") has been prepared based upon the historical condensed
consolidated balance sheet of FutureLink Corp. as of September 30, 1999 and the
balance sheets as of September 30, 1999 of the acquisitions that were completed
or are pending completion through February 11, 2000. The Pro Forma Balance Sheet
gives effect to: (a) the acquisitions that were completed subsequent to
September 30, 1999; (b) pending acquisitions as of February 11, 2000; (c) the
October and November 1999 financings by Pequot Private Equity Fund II, L.P. and
its affiliates; (d) the conversion of certain convertible debentures from
October through December 1999; (e) the expected exercise of warrants by Pequot
Equity Fund II, L.P. and certain other investors to purchase 2,401,040 shares of
common stock; (f) $5.0 million in cash and issuance of warrants to SmallCaps for
equity placement services; and (g) this offering and the application of the net
proceeds as described under "Use of Proceeds," as if each had occurred as of
September 30, 1999. The Unaudited Pro Forma Condensed Consolidated Statement of
Operations (the "Pro Forma Statement of Operations" for the nine months ended
September 30, 1999, and for the year ended December 31, 1998, give effect to:
(a) goodwill amortization for acquisitions completed or pending completion
through February 11, 2000; and (b) interest expense for the shareholder notes
payable, as if each had occurred as of January 1, 1998. Pro forma adjustments
are described in the notes. See the accompanying Notes to Unaudited Pro Forma
Condensed Consolidated Financial Information.
The Pro Forma Statement of Operations does not necessarily indicate the
actual results of operations that we would have reported if the events described
above had occurred as of January 1, 1998, nor does it necessarily indicate the
results of our future operations. Furthermore, the pro forma results do not give
effect to any cost savings or incremental costs that may occur as a result of
the integration and consolidation of our completed or pending acquisitions. In
the opinion of management, we have made all adjustments necessary to fairly
present this pro forma financial information.
We have accounted for all of our acquisitions using the purchase method of
accounting.
The Pro Forma Financial Information should be read in conjunction with
"Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and with the financial statements and the
notes thereto for us and certain of our completed or pending acquisitions
included elsewhere in this prospectus.
23
<PAGE> 29
FUTURELINK CORP.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA WITH PRO FORMA WITH
COMPLETED PENDING ACQUISITIONS COMPLETED AND
ACQUISITIONS ----------------------- PENDING
AND THIS MADISON CHARON ACQUISITIONS
OFFERING GROUP OF SYSTEMS, PRO FORMA AND THIS
(SCHEDULE 1) COMPANIES(1) INC.(2) ADJUSTMENTS OFFERING
-------------- ------------ -------- ----------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets............................. $161,405 $6,887 $2,422 $(13,257)(A) $157,457
Equipment and leasehold improvements,
net...................................... 4,651 351 193 -- 5,195
Goodwill, net.............................. 171,461 -- -- 89,273(A) 260,734
Other long-term assets..................... 515 59 -- (173)(A) 401
-------- ------ ------ -------- --------
Total assets........................... $338,032 $7,297 $2,615 $ 75,843 $423,787
======== ====== ====== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Line of credit............................. $ 2,245 $2,600 $ -- $ -- $ 4,845
Other current liabilities.................. 26,609 3,671 2,056 7,250(B) 39,586
Long-term debt, net of current portion..... 31 -- -- -- 31
Convertible debentures, net................ 948 -- -- 948
Deferred income taxes...................... 855 -- 36 -- 891
Stockholders' equity....................... 307,344 1,026 523 68,593(B) 377,486
-------- ------ ------ -------- --------
Total liabilities and stockholders'
equity............................... $338,032 $7,297 $2,615 $ 75,843 $423,787
======== ====== ====== ======== ========
</TABLE>
- -------------------------
(1) Reflects a combination of Microlan Systems, Inc. "DBA" Madison Technology
Group, Madison Consulting Resources, Inc. and Madison Consulting Resources
NJ, Inc. All material intercompany transactions have been eliminated.
(2) The functional currency of Charon is the Canadian Dollar. Accordingly, we
have translated the assets and liabilities into U.S. dollars at an exchange
rate of CDN $1.4674 per US $1.00, the exchange rate in effect at September
30, 1999. We include gains and losses that result from translation assets
and liabilities into U.S. dollars in stockholders' equity as a cumulative
foreign currency translation adjustment.
25
<PAGE> 30
SCHEDULE 1
FUTURELINK CORP.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
COMPLETED ACQUISITIONS WITH
--------------------------------------------------------- COMPLETED
MICRO CN VERTICAL PRO FORMA ACQUISITIONS
FUTURELINK VISIONS NETWORKS ASYNC KNS(1) SOFTWARE INC ADJUSTMENTS AND OFFERING
---------- ------------ -------- ------ ------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets............ $ 9,923 $4,964 $2,234 $1,796 $8,736 $2,556 $131,196(C) $161,405
Equipment and leasehold
improvements, net....... 2,597 1,019 37 128 716 154 -- 4,651
Goodwill.................. 6,452 -- -- -- -- -- 165,009(C) 171,461
Other long-term assets.... 3,363 44 47 7 538 6 (3,490)(C) 515
------- ------ ------ ------ ------ ------ -------- --------
Total assets..... $22,335 $6,027 $2,318 $1,931 $9,990 $2,716 $292,715 $338,032
======= ====== ====== ====== ====== ====== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIT)
Line of credit............ $ -- $1,394 $ 527 $ 324 $ -- $ -- $ -- $ 2,245
Other current
liabilities............. 3,077 4,226 1,269 1,528 8,481 1,448 6,580(D) 26,609
Long-term debt, net of
current portion......... 28 -- 3 -- -- -- -- 31
Convertible debentures,
net..................... 22,170 -- -- -- -- -- (21,222)(D) 948
Minority interest......... -- -- -- 346 -- (346)(D) --
Deferred income taxes..... 855 -- -- -- -- -- -- 855
Stockholders' equity
(deficit)............... (3,795) 407 519 79 1,163 1,268 307,703(D) 307,344
------- ------ ------ ------ ------ ------ -------- --------
Total liabilities and
stockholders' equity
(deficit)............... $22,335 $6,027 $2,318 $1,931 $9,990 $2,716 $292,715 $338,032
======= ====== ====== ====== ====== ====== ======== ========
</TABLE>
- -------------------------
(1) The functional currency of KNS is the Pound Sterling. Accordingly, we have
translated the assets and liabilities into U.S. dollars at an exchange rate
of L0.6191 per US$1.00, the exchange rate in effect at September 30, 1999.
We include gains and losses that result from translating assets and
liabilities into U.S. dollars in stockholders' equity as a cumulative
foreign currency translation adjustment.
27
<PAGE> 31
FUTURELINK CORP.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PENDING ACQUISITIONS
PRO FORMA WITH ------------------------- PRO FORMA WITH
COMPLETED MADISON CHARON COMPLETED AND
ACQUISITIONS GROUP OF SYSTEMS, PRO FORMA PENDING
(SCHEDULE 2) COMPANIES(1) INC.(2) ADJUSTMENTS ACQUISITIONS
-------------- ------------ ---------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Revenue.................................... $ 58,910 $ 16,648 $ 9,294 $ -- $ 84,852
----------- ---------- ---------- -------- -----------
Operating expenses:
Cost of sales, excluding depreciation.... 41,752 12,009 7,264 -- 61,025
Selling, general and administrative...... 23,308 3,754 1,850 -- 28,912
Depreciation and amortization of goodwill
and other intangible assets............ 26,974 -- 33 13,391(E) 40,398
----------- ---------- ---------- -------- -----------
Income (loss) from operations.............. (33,124) 885 147 (13,391) (45,483)
Interest expense, net(3)................... 11,792 175 4 381(H) 12,352
----------- ---------- ---------- -------- -----------
Income (loss) before provision (benefit)
for income taxes......................... (44,916) 710 143 (13,772) (57,835)
Provision (benefit) for income taxes....... 255 37 61 -- 353
----------- ---------- ---------- -------- -----------
Income (loss) from continuing operations... $ (45,171) $ 673 $ 82 $(13,772) $ (58,188)
=========== ========== ========== ======== ===========
Loss per share from continuing
operations -- basic and diluted.......... $ (0.90)
===========
Weighted average shares(4)................. 61,359,480 1,975,110 1,072,940 64,407,530
=========== ========== ========== ===========
</TABLE>
- -------------------------
(1) Reflects a combination of Microlan Systems, Inc. "DBA" Madison Technology
Group, Madison Consulting Resources, Inc. and Madison Consulting Resources
NJ, Inc. All material intercompany transactions have been eliminated.
(2) The functional currency of Charon is the Canadian Dollar. Accordingly, we
have translated the revenue and expenses into U.S. dollars at an exchange
rate of CDN$1.4867 per US$1.00, the average exchange rate during the period
translated.
(3) Includes amortization of deferred financing fees and debt discount.
(4) The weighted average number of shares outstanding and the loss per share
have been adjusted to reflect a reverse stock split of 5 to 1 on June 1,
1999.
27
<PAGE> 32
SCHEDULE 2
FUTURELINK CORP.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMPLETED ACQUISITIONS
---------------------------------------------------------------------
VERTICAL PRO FORMA
FUTURELINK MICRO VISIONS CN NETWORKS ASYNC KNS(1) SOFTWARE INC. ADJUSTMENTS
---------- ------------- ----------- ---------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue........................ $ 5,037 $ 16,557 $ 5,899 $ 6,209 $ 15,855 $ 9,458 $ (105)(F)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating expenses:
Cost of sales, excluding
depreciation............. 6,793 10,774 3,825 4,244 11,177 4,939 --
Selling, general and
administrative........... 6,626 6,594 1,900 1,272 4,130 3,237 (451)(G)
Depreciation and
amortization of goodwill
and other intangible
assets................... 1,943 84 25 36 106 30 24,750(E)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from
operations................... (10,325) (895) 149 657 442 1,252 (24,404)
Interest expense, net(2)....... 11,155 12 34 30 198 5 358(H)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before provision
(benefit) for income taxes... (21,480) (907) 115 627 244 1,247 (24,762)
Provision (benefit) for income
taxes........................ (356) -- 34 -- 97 480 --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from continuing
operations................. $ (21,124) $ (907) $ 81 $ 627 $ 147 $ 767 $ (24,762)
========== ========== ========== ========== ========== ========== ==========
Loss per share from continuing
operations -- basic and
diluted...................... $ (3.23)
==========
Weighted average shares(3)..... 6,534,575 7,200,000 1,181,818 1,298,705 2,160,307 1,026,316 41,957,759
========== ========== ========== ========== ========== ========== ==========
<CAPTION>
PRO FORMA
WITH
COMPLETED
ACQUISITIONS
AND OFFERING
------------
<S> <C>
Revenue........................ $ 58,910
-----------
Operating expenses:
Cost of sales, excluding
depreciation............. 41,752
Selling, general and
administrative........... 23,308
Depreciation and
amortization of goodwill
and other intangible
assets................... 26,974
-----------
Income (loss) from
operations................... (33,124)
Interest expense, net(2)....... 11,792
-----------
Income (loss) before provision
(benefit) for income taxes... (44,916)
Provision (benefit) for income
taxes........................ 255
-----------
Income (loss) from continuing
operations................. $ (45,171)
===========
Loss per share from continuing
operations -- basic and
diluted...................... (0.74)
===========
Weighted average shares(3)..... 61,359,480
===========
</TABLE>
- -------------------------
(1) The functional currency of KNS is the Pound Sterling. Accordingly, we have
translated the revenue and expenses into U.S. dollars at an exchange rate of
L0.6199 per US$1.00, the average exchange rate during the period translated.
(2) Includes amortization of deferred financing fees and debt discount.
(3) The weighted average number of shares outstanding and the loss per share
have been adjusted to reflect a reverse stock split of 5 to 1 on June 1,
1999.
29
<PAGE> 33
FUTURELINK CORP.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA WITH
PENDING ACQUISITIONS COMPLETE AND
PRO FORMA ----------------------- PENDING
WITH COMPLETED MADISON CHARON ACQUISITIONS
ACQUISITIONS GROUP OF SYSTEMS, PRO FORMA AND THIS
(SCHEDULE 3) COMPANIES(1) INC.(2) ADJUSTMENTS OFFERING
-------------- ------------ -------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Revenue............................. $ 55,901 $10,889 $11,758 $ -- $ 78,548
----------- ------- ------- -------- -----------
Operating expenses:
Cost of sales, excluding
depreciation.................... 41,021 7,741 9,632 -- 58,394
Selling, general and
administrative.................. 15,765 2,988 1,752 -- 20,505
Depreciation and amortization
goodwill and other intangible
assets.......................... 33,985 -- 25 17,855(I) 51,865
----------- ------- ------- -------- -----------
Income (loss) from operations....... (34,870) 160 349 (17,855) (52,216)
Interest expense, net(3)............ 2,215 98 2 508(j) 2,823
----------- ------- ------- -------- -----------
Income (loss) before provision
(benefit) for income taxes........ (37,085) 62 347 (18,363) (55,039)
Provision (benefit) for income
taxes............................. 669 9 124 -- 802
----------- ------- ------- -------- -----------
Income (loss) from continuing
operations........................ $ (37,754) $ 53 $ 223 $(18,363) $ (55,841)
=========== ======= ======= ======== ===========
Loss per share from continuing
operations -- basic and diluted... $ (.98)
===========
Weighted average shares(4).......... 54,197,271 1,975,110 1,072,940 57,245,321
===========
</TABLE>
- -------------------------
(1) Reflects a combination of Microlan Systems, Inc. "DBA" Madison Technology
Group, Madison Consulting Resources, Inc. and Madison Consulting Resources
NJ, Inc. All material intercompany transactions have been eliminated.
(2) The functional currency of Charon is the Canadian Dollar. Accordingly, we
have translated the revenue and expenses into U.S. dollars at the exchange
rate of $1.4831 per US $1.00, the average exchange rate during the period
translated.
(3) Includes amortization of deferred financing fees and debt discount.
(4) The weighted average number of shares outstanding and the loss per share
have been adjusted to reflect a reverse stock split of 5 to 1 on June 1,
1999.
29
<PAGE> 34
SCHEDULE 3
FUTURELINK CORP.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMPLETED ACQUISITIONS
------------------------------------------------------------------
MICRO VERTICAL
FUTURELINK VISIONS CN NETWORKS ASYNC KNS(1) SOFTWARE INC.
---------- ---------- ----------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenue................................ $ 2,437 $ 13,669 $ 5,568 $ 6,056 $ 18,382 $ 9,789
---------- ---------- ---------- ---------- ---------- ----------
Operating expenses:
Cost of sales, excluding
depreciation....................... 4,542 8,495 3,179 4,095 15,080 5,630
Selling, general and
administrative..................... 1,860 4,270 2,147 1,706 2,912 2,870
Depreciation and amortization of
goodwill and other intangible
assets............................. 787 39 83 38 -- 38
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from operations.......... (4,752) 865 159 217 390 1,251
Interest expense, net(2)............... 1,333 10 41 33 337 (16)
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before provision
(benefit) for income taxes........... (6,085) 855 118 184 53 1,267
Provision (benefit) for income taxes... (205) 178 37 60 116 483
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from continuing
operations........................... $ (5,880) $ 677 $ 81 $ 124 $ (63) $ 784
========== ========== ========== ========== ========== ==========
Loss per share from continuing
operations -- basic and diluted...... $ (1.86)
==========
Weighted average shares(3)............. 3,169,314 7,200,000 1,181,818 1,298,705 2,160,307 1,026,316
========== ========== ========== ========== ========== ==========
<CAPTION>
PRO FORMA
WITH
PRO FORMA COMPLETED
FUTURELINK ADJUSTMENTS ACQUISITIONS
---------- ----------- ------------
<S> <C> <C>
Revenue................................ $ 2,437 $ -- $ 55,901
---------- ---------- ----------
Operating expenses:
Cost of sales, excluding
depreciation....................... 4,542 -- 41,021
Selling, general and
administrative..................... 1,860 -- 15,765
Depreciation and amortization of
goodwill and other intangible
assets............................. 787 33,000(I) 33,985
---------- ---------- ----------
Income (loss) from operations.......... (4,752 (33,000) (34,870)
Interest expense, net(2)............... 1,333 477(J) 2,215
---------- ---------- ----------
Income (loss) before provision
(benefit) for income taxes........... (6,085 (33,477) (37,085)
Provision (benefit) for income taxes... (205 -- 669
---------- ---------- ----------
Income (loss) from continuing
operations........................... $ (5,880 $ (33,477) $ (37,754)
========== ========== ==========
Loss per share from continuing
operations -- basic and diluted...... $ (1.86 $ (2.14)
==========
Weighted average shares(3)............. 3,169,314 1,639,847 17,676,705
========== ========== ==========
</TABLE>
- -------------------------
(1) Balance represents the twelve months ended February 28, 1999, which
represented KNS' historical fiscal year end. The functional currency of KNS
is the Pound Sterling. Accordingly, we have translated the revenue and
expenses into U.S. dollars at the exchange rate of L0.6207 per US$1.00, the
average exchange rate during the period translated.
(2) Includes amortization of deferred financing fees and debt discounts.
(3) The weighted average number of shares outstanding and the loss per share
have been adjusted to reflect a reverse stock split of 5 to 1 on June 1,
1999.
30
<PAGE> 35
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL INFORMATION
BALANCE SHEETS
We paid aggregate consideration for the acquisitions completed or are
pending through February 11, 2000 of $168.4 million and $90.9 million,
respectively, and incurred additional direct acquisition costs of approximately
$9.4 million for a total purchase price of completed acquisitions of $259.3. We
have allocated the excess of the purchase price over the book value of the net
assets acquired for each of the acquisitions to tangible and intangible assets,
based on our estimate of the fair value of the net assets acquired. It is not
practicable at this time for us to determine the fair value of each asset
acquired and liability assumed in these acquisitions. As a result, we have used
the net book value of certain assets and liabilities as an estimate of fair
value for pro forma purposes. Accordingly, the allocation of the aggregate
purchase price illustrated below (in millions) should be considered preliminary
and subject to further adjustment upon completion of all procedures necessary to
determine the fair values of the assets acquired and liabilities assumed.
Completed Acquisitions:
<TABLE>
<S> <C>
Current assets.............................................. $ 20.3
Equipment and leasehold improvements, net................... 2.0
Goodwill.................................................... 165.0
Other long-term assets...................................... 0.6
Current liabilities......................................... (19.2)
Other long-term liabilities................................. (0.3)
------
Purchase price of completed acquisitions.......... $168.4
======
</TABLE>
Pending Acquisitions:
<TABLE>
<S> <C>
Current assets.............................................. $ 9.3
Equipment and leasehold improvements........................ 0.6
Goodwill.................................................... 89.3
Current liabilities......................................... (8.3)
-----
Purchase price of pending acquisitions............ $90.9
=====
</TABLE>
We have assumed our completed and pending acquisitions to be financed with
cash, common stock, and the net proceeds from our 1999 private equity placement
and this offering, as follows (in millions):
Completed Acquisitions:
<TABLE>
<S> <C>
Fair value of common stock issued........................... $127.8
Issuance of notes to former shareholders (KNS).............. 6.7
Proceeds from the private placement offering................ 33.9
------
Purchase price of completed acquisitions.......... $168.4
======
</TABLE>
31
<PAGE> 36
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
Pending Acquisitions:
<TABLE>
<S> <C>
Fair value of common stock issued........................... $70.2
Issuance of notes to former shareholders (Madison Group).... 7.3
Proceeds from the public offering........................... 13.4
-----
Purchase price of pending acquisitions............ $90.9
=====
</TABLE>
Financings:
During October and November, 1999, the Company completed a private
placement of $50.0 million gross proceeds through the issuance of 9,090,909
common shares and warrants to purchase 2,401,040 common shares. The warrants are
exercisable for up to five years at an exercise price of $8.50 per share. The
company received $30.0 million upon initial closing. $13.0 million was received
on November 5, 1999 after the satisfaction of conditions relating to the
conversion of existing debt. The remaining $7.0 million was received on November
12, 1999. A finance fee of 6% or $3.0 million was paid to the placement agent.
The Company also issued 909,091 common share purchase warrants to the placement
agent. The warrants are exercisable for up to five years at an exercise price of
$8.50 per share. Additional costs of the issue are expected to be $1.0 million.
In February 2000, the Company expects to receive proceeds of $18.1 million for
the exercise of warrants in connection with the $50.0 million private placement.
During October, 1999, $15,000,000 of 8% senior subordinated convertible
promissory notes converted into 2,727,172 common shares. Warrants, to purchase
an additional 711,805 common shares were also issued. The warrants are
exercisable for up to five years at an exercise price of $8.50 per common share.
In November 1999, 5,988,824 common shares were issued in relations to the
conversion of $5,090,500 of 8% senior subordinated convertible promissory notes.
In addition, 3,529,808 common shares were issued on the exercise of 3,709,000
warrants primarily on a non cash basis. These warrants were issued in connection
with the original issuance of the promissory notes.
In November 1999, 3,799,974 shares were issued on a non cash basis relating
to the exercise of 4,000,001 warrants. These warrants included 2,000,000
previously issued as a placement fee in relation to the issuance of 8% senior
subordinated convertible promissory notes, as well as 2,000,001 previously
issued for advisory services.
In December 1999, Thomson Kernaghan & Co. Limited (TK), agreed to convert
their remaining $1.5 million of 10% convertible debentures and their remaining
warrants to purchase 1,129,534 shares of common stock into 3,007,867 shares of
common stock.
32
<PAGE> 37
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
The accompanying Pro Forma Balance Sheet as of September 30, 1999 reflects
the following pro forma adjustments:
(A) Pro forma adjustments to assets consist of the following (dollars
in millions):
<TABLE>
<CAPTION>
ASSETS GOODWILL
------- --------
<S> <C> <C>
Acquisition Adjustments:
Record goodwill related to acquired companies............... $ -- $89.3
------ -----
Total acquisition adjustments..................... -- 89.3
====== =====
Use of Proceeds Adjustment
Record cash used in acquisition............................. (13.4) --
------ -----
Total use of proceeds adjustment.................. (13.4) --
------ -----
Total proforma adjustments........................ $(13.4) $89.3
====== =====
</TABLE>
32.0.1
<PAGE> 38
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
(B) Pro forma adjustments to liabilities and stockholders' equity
consist of the following (dollars in millions):
<TABLE>
<CAPTION>
STOCKHOLDERS'
LIABILITIES EQUITY
----------- -------------
<S> <C> <C>
Acquisition Adjustments:
Reverse equity not assumed in connection with the probable
acquisitions.............................................. $ -- $ (1.6)
Record common stock issued to finance the probable
acquisitions.............................................. -- 70.2
Issuance of notes to shareholders due and payable in March
2000...................................................... 7.3 --
---- ------
Total acquisition adjustments..................... $7.3 $ 68.6
==== ======
</TABLE>
32.1
<PAGE> 39
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
(C) Pro forma adjustments to assets consist of the following (dollars in
millions):
<TABLE>
<CAPTION>
CURRENT OTHER LONG-
ASSETS GOODWILL TERM ASSETS
------- -------- -----------
<S> <C> <C> <C>
Acquisition Adjustments:
Record goodwill related to acquired companies, net.......... $ -- $165.0 $ --
Elimination of intercompany receivables..................... (0.1)
Reversal of deposits paid to acquired entities.............. -- -- (3.5)
------ ------ -----
Total acquisition adjustments..................... (0.1) 165.0 (3.5)
------ ------ -----
Capital Financing Adjustments:
Receipt of funds from public equity offering, net of fees... 102.6 -- --
$50 million private placement, net of offering costs........ 46.0 -- --
Proceeds received from exercise of warrants related to $50
million private placement. See "Financings.".............. 18.1 -- --
Record cash used in acquisitions............................ (30.4) -- --
Cash to SmallCaps for equity placement services............. (5.0) -- --
------ ------ -----
Total use of proceeds adjustment.................. 131.3 -- --
------ ------ -----
Total pro forma adjustments....................... $131.2 $165.0 $(3.5)
------ ------ -----
</TABLE>
(D) Pro forma adjustments to liabilities and stockholders' equity
consist of the following (dollars in millions):
<TABLE>
<CAPTION>
CURRENT CONVERTIBLE STOCKHOLDERS'
LIABILITIES DEBENTURES EQUITY
----------- ----------- -------------
<S> <C> <C> <C>
Acquisition Adjustments:
Reverse equity not assumed in connection with the 1999
acquisitions we completed through December 31,
1999................................................. $ -- $ -- $ (3.3)
Elimination of intercompany payables................... (0.1) -- --
Note payable issued to KNS in consideration for
completed transaction payable in March 2000.......... 6.7 -- --
Conversion of convertible debentures. See
"Financings"......................................... -- (15.0) 15.0
Conversion of convertible debentures. See
"Financings"......................................... -- (4.7) 4.7
Exercise of 2,401,040 warrants. See "Financings"....... -- 18.2
Record net common stock issued in private equity
placement............................................ -- -- 46.0
Conversion of convertible debentures................... -- (1.6) 1.6
Stock issued as consideration for completed
acquisitions......................................... -- -- 127.9
Record common stock issued in public offering, net..... -- -- 102.6
Record buyout of minority interest..................... (0.3) -- --
Issuance of warrants to SmallCaps for equity placement
services -- $60 million.............................. -- -- --
Cash to SmallCaps for equity placement services........ -- -- (5.0)
----- ------ -------
Total acquisition adjustments................ 6.3 (21.3) 307.7
----- ------ -------
Total pro forma adjustments.................. $ 6.3 $(21.3) $ 307.7
===== ====== =======
</TABLE>
33
<PAGE> 40
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
STATEMENT OF OPERATIONS
Pro Forma Adjustments
The accompanying Pro Forma Statement of Operations for the nine months
ended September 30, 1999 reflects the following pro forma adjustments:
<TABLE>
<CAPTION>
EXPENSES REVENUE
-------- --------
<S> <C> <C> <C>
(E) To adjust goodwill amortization based on an amortization
rate of 5 years for the nine months ended September 30,
1999. $38,141 $ --
(F) During the nine months ended September 30, 1999, FutureLink
obtained services totaling $105,000 from Micro Visions. This
intercompany transaction has been eliminated by reducing
revenue by $105,000. -- (105)
(G) Reversal of $105,000 intercompany expenses as discussed in
pro forma adjustment (F) and the reversing of minority
interest related to KNS of $346,000. (451) --
(H) Interest expense for the nine months ended September 30,
1999 related to shareholder notes for KNS and Madison
acquisitions. 739 --
</TABLE>
The accompanying Pro Forma Statement of Operations for the year ended
December 31, 1998 reflects the following pro forma adjustments:
<TABLE>
<S> <C> <C> <C>
(I) To adjust goodwill amortization based on an amortization
rate of 5 years for the twelve months ended December 31,
1998. 50,855 --
(J) Interest expense for the twelve months ended December 31,
1998 related to shareholders notes for KNS and Madison
acquisitions. 985 --
</TABLE>
WEIGHTED AVERAGE SHARES
The weighted average number of shares outstanding has been adjusted to give
effect to the shares issued upon the acquisitions of Micro Visions, CNI, Async,
KNS and VSI as though the shares had been outstanding from the beginning of the
period. The weighted average number of shares outstanding has also been adjusted
for shares issued with respect to the private placement, conversion of debt and
exercise of warrants as though the shares had been outstanding from the
beginning of the period or the date of issuance, if later. The weighted average
number of shares outstanding includes all contingent share
37
<PAGE> 41
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
consideration as if all performance criteria had been met. The weighted average
number of shares outstanding has been calculated as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
FOR NUMBER OF SHARES
NINE MONTHS ENDED FOR YEAR ENDED
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------- -----------------
<S> <C> <C>
FutureLink..................................... 4,035,021 4,035,021
Pequot......................................... 2,401,040 2,401,040
Micro Visions.................................. 8,400,000 8,400,000
Madison........................................ 1,975,170 1,975,170
CNI............................................ 1,181,816 1,181,816
GKM............................................ 9,090,909 9,090,909
Async.......................................... 1,738,445 1,738,445
KNS............................................ 2,160,307 2,160,307
Vertical Software.............................. 1,026,316 1,026,316
Charon......................................... 1,072,940 1,072,940
Commonwealth................................... 18,635,974 18,635,974
TK............................................. 5,527,383 5,527,383
Warrant exercise............................... 2,159,209 n/a
Offering....................................... 5,000,000 n/a
---------- ----------
Total................................ 64,404,530 57,245,321
---------- ----------
</TABLE>
Diluted weighted average shares does not differ from basic earnings per
share.
BALANCE SHEET -- PENDING ACQUISITIONS
PENDING ACQUISITIONS
The weighted average number of shares outstanding has been further adjusted
to give effect to the shares issued upon acquisition of Microlan Systems, Inc.,
Madison Consulting Resources, Inc., Madison Consulting Resources NJ, Inc. and
Charon Systems, Inc. as though they had been outstanding as at the beginning of
the period. The weighted average number of shares outstanding includes all
contingent share consideration as all performance criteria had been met. The
weighted average number of shares outstanding has been calculated as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
FOR NINE MONTHS NUMBER OF SHARES
ENDED FOR YEAR ENDED
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
<S> <C> <C>
Madison Group:
Microlan Systems, Inc......................... 1,723,207 1,723,207
Madison Consulting Resources, Inc............. 86,680 86,680
Madison Consulting Resources NJ, Inc.......... 165,223 165,223
Charon Systems, Inc............................. 1,072,940 1,072,940
--------- ---------
Total................................. 3,048,050 3,048,050
========= =========
</TABLE>
Diluted earnings per share does not differ from basic earnings per share.
38
<PAGE> 42
SELECTED CONSOLIDATED FINANCIAL DATA
The following historical selected consolidated financial data are derived
from the consolidated financial statements of FutureLink Corp. contained
elsewhere in their Prospectus. Information at December 31, 1997 and 1998 and for
the years then ended and at September 30, 1999 and for the nine months then
ended have been derived from financial statements which have been audited by
Ernst & Young LLP, Independent Auditors and Chartered Accountants. The financial
data for the nine month period ended September 30, 1998 is derived from
unaudited financial statements. The unaudited financial statements include all
adjustments consisting of normal recurring accruals which we consider necessary
for a fair presentation of the financial position and the results of operations
for this period. Operating results for the nine months ended September 30, 1999
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1999 or any future period. This data should be read in
conjunction with the consolidated financial statements, related notes, and other
financial information included in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------- ------------------------
1997 1998 1998 1999
-------- ----------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenue..................................................... $ -- $ 2,437 $ 623 $ 5,037
------- ---------- ---------- ----------
Expenses:
Cost of sales, excluding depreciation..................... -- 4,542 2,672 6,793
Selling, general and administrative....................... 737 1,860 933 6,626
Depreciation, and amortization of goodwill and other
intangible assets....................................... -- 787 167 1,943
------- ---------- ---------- ----------
Loss from operations........................................ (737) (4,752) (3,149) (10,325)
Interest expense, net(1).................................. -- 1,333 1,233 11,155
------- ---------- ---------- ----------
Loss before benefit for income taxes and extraordinary
item...................................................... (737) (6,085) (4,382) (21,480)
Benefit for income taxes.................................... -- (205) (15) (356)
------- ---------- ---------- ----------
Loss before extraordinary item.............................. (737) (5,880) (4,367) (21,124)
Extraordinary item.......................................... -- -- -- (845)
------- ---------- ---------- ----------
Net loss.................................................... $ (737) $ (5,880) $ (4,367) $ (21,969)
======= ========== ========== ==========
Loss per share -- basic and diluted:
Loss before extraordinary item............................ $ (8.24) $ (1.86) $ (1.61) $ (3.23)
Extraordinary item........................................ -- -- -- (0.13)
------- ---------- ---------- ----------
Net loss.................................................. $ (8.24) $ (1.86) $ (1.61) $ (3.36)
======= ========== ========== ==========
Weighted average shares(2)................................ 89,489 3,169,413 2,715,793 6,534,575
======= ========== ========== ==========
OTHER DATA:
EBITDA(3)................................................. $ (737) $ (3,965) $ (2,982) $ (8,383)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1997 1998 1999
------ ------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ -- $ 7 $ 7,815
Total assets................................................ -- 10,646 22,335
Total debt.................................................. -- 3,003 22,198
Stockholders' equity (deficit).............................. (24) 2,837 (3,795)
</TABLE>
- -------------------------
(1) Includes amortization of deferred financing fees and debt discount.
(2) Weighted average shares gives retroactive effect to a reverse stock split of
5 to 1 on June 1, 1999.
(3) EBITDA is defined as net income (loss) plus (i) extraordinary items, (ii)
provision (benefit) for income taxes, (iii) interest expense, (iv)
depreciation and amortization. EBITDA is presented not as an alternative
measure of operating results or cash flow from operations (as determined in
accordance generally accepted accounting principles), but because it is a
widely accepted financial indicator of a company's ability to incur and
service debt.
(4) No dividends have been declared or paid during any period presented.
39
<PAGE> 43
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and the related notes included elsewhere in this prospectus. This
discussion contains forward-looking statements the accuracy of which involves
risks and uncertainties. Our actual results could differ materially from those
anticipated in the forward-looking statements for many reasons including, but
not limited to, those discussed in "Risk Factors" and elsewhere in this
prospectus. We disclaim any obligation to update information contained in any
forward-looking statement.
Overview
We provide server-based computing services and are an application service
provider, or ASP.
We introduced our ASP services in March 1999 and launched our sales program
for ASP services in July 1999. We have built our server-based computing business
through five acquisitions that we closed between October 20, 1999, and January
31, 2000. We also have signed definitive agreements to acquire two more
server-based computing integrators.
Our historical financial statements as of and for the year ended December
31, 1997 and 1998 and as of and for the nine-months ended September 30, 1998 and
1999 only reflect Futurelink's historical Canadian consulting business and
Canadian ASP business. Our historical financial statements do no reflect any
United States server-based computing business, ASP business or United Kingdom
server-based computing distribution business nor our recently closed or pending
acquisitions. The United States and United Kingdom businesses acquired since
September 30, 1999 now represent a significant portion of our revenues,
operations and employees.
We had no active operations in 1997. On January 20, 1998, we acquired a 46%
interest in FutureLink Alberta and changed our name from Core Ventures to
FutureLink Corp. Effective November 23, 1998, we acquired a further 50.4%
interest in FutureLink Alberta, bringing our total ownership in FutureLink
Alberta to 96.4%. FutureLink Alberta focused on providing mid-sized businesses
with ASP solutions. We accounted for our investment in FutureLink Alberta for
the period January 20, 1998 to November 23, 1998 using the equity method of
accounting for investments. FutureLink Alberta's results were consolidated into
the results of its parent, FutureLink, from November 24, 1998 to December 31,
1998. On February 26, 1999, FutureLink Alberta became a wholly-owned subsidiary
when FutureLink Corp. acquired the remaining 3.6% minority shares.
Effective August 24, 1998, we acquired all of the outstanding shares of
Riverview Management Corporation (renamed FutureLink/SysGold Ltd).
FutureLink/SysGold owned SysGold, a Western Canadian information technology
services company focused on outsourcing information technology services to
mid-sized companies in the oil and gas sector. FutureLink/SysGold's results were
consolidated into our results commencing August 24, 1998, when we acquired
Riverview Management Corporation.
Futurelink Alberta's results for the period January 20, 1998 to November
24, 1998 were not consolidated into our results because we did not own a control
position (greater than 50%) in Futurelink Alberta until November 24, 1998.
We included our 46% ownership percentage of Futurelink Alberta's losses in
our income statement in loss of investee.
Our historical financial statements have the following major components:
Revenue for the years ended December 31, 1997 and 1998 and the nine months
ended September 30, 1998 and 1999 were mainly comprised of Canadian information
technology outsourcing and business consulting revenues, related sale of
hardware and software and ASP-related services.
40
<PAGE> 44
Cost of sales consists of costs of goods sold and cost of service delivery.
Cost of goods sold reflects costs of hardware and software purchased for resale
to customers. Cost of service delivery reflects personnel and operating costs
related to our ASP and information technology outsourcing businesses. Our
information technology outsourcing business cost of service delivery reflects
our payroll and benefit costs for our outsourcing consultants who support the
information technology activities of our clients. Our ASP cost of service
delivery reflects the costs of the technical people and operational costs
related to testing and operating our data center and installing and supporting
software applications.
41
<PAGE> 45
Our selling general and administrative expenses include executive and
administrative, selling, marketing, legal, accounting, consulting and travel
expenses.
Our depreciation expense consists of depreciation of fixed assets over
their useful life (generally three years). Our fixed assets consist of servers
and office equipment. Our amortization expense reflects intangible assets and
goodwill related to acquisitions closed in 1998.
Our 1998 financial statements only consolidate the results of FutureLink
Alberta and SysGold for the periods after their acquisition by FutureLink.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998
Revenue
For the nine months ending September 30, 1999, we recorded total revenue of
$5.0 million. Revenues for the same period in 1998 were $0.6 million. The main
components of our revenue were:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1999 1998
--------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Information technology outsourcing, consulting and other.... $ 3.3 $ 0.4
ASP......................................................... 0.3 0.0
Sale of hardware/software................................... 1.4 0.2
------ ------
$ 5.0 $ 0.6
====== ======
</TABLE>
Our Canadian information technology outsourcing and consulting revenues for
the nine months ended September 30, 1999 were related to providing services to
our mostly oil and gas industry customers. The revenues for the same period in
1998 do not reflect revenues for a full nine months, but only for the period
August 24 through September 30, 1998.
Cost of Goods Sold
Cost of goods sold of $0.1 million for the nine months ended September 30,
1998 reflects a gross margin percentage of 15%. These costs relate to the
SysGold operation that has only been consolidated for the period August 24, 1998
to September 30, 1998, and therefore the margins may not be indicative of
typical operations. Cost of goods sold of $1.3 million for the nine months ended
September 30, 1999 reflects a gross margin percentage of 9%.
Cost of Service Delivery
Our cost of service delivery increased from $2.5 million for the nine
months ended September 30, 1998 to $5.5 million for the nine months ended
September 30, 1999, because the 1998 nine month amount only includes amounts
related to the cost of service delivery of IT outsourcing for the period from
August 24, 1998 to September 30, 1998. In 1998, cost of service also included
direct cost related to the development of our ASP servicer. Such expenses were
further increased in 1999.
Selling, General and Administrative
Our selling, general and administrative expense of $6.6 million for the
nine months ended September 30, 1999 was $6.6 million and included travel,
staffing, operations, advising, advertising consulting and marketing expenses
related to the expansion of our ASP business, securing customers and business
partnerships, as well as meeting and developing relationships with industry
analysts and financiers. The selling, general and administrative expense
includes $0.8 million of non-cash consulting expense.
Our selling general and administrative expense for the nine months ended
September 30, 1998 of $0.1 million excludes costs related to the operations of
our subsidiary, FutureLink Alberta, whose results were not consolidated into our
results until November 1998.
42
<PAGE> 46
Interest Expense and amortization of deferred financing fees and debt discount
Our interest expense and amortization of deferred financing fees and debt
discount of $11.2 million for the nine months ended September 30, 1999 reflects
non-cash charges of $10.6 million related to intrinsic values of debt conversion
features and amortization of deferred financing fees and debt discount. The cash
interest expense of $0.6 million relates to interest on outstanding promissory
notes.
Our interest expense of $1.2 million for the nine months ended September
30, 1998 consists primarily of non-cash interest amounts.
Depreciation and Amortization of goodwill and other intangible assets
Our depreciation and amortization costs for the nine months ended September
30, 1998 and 1999 are comprised of the following (dollars in millions):
<TABLE>
<CAPTION>
1999 1998
----- -----
<S> <C> <C>
Depreciation................................................ $ 0.5 $ 0
Amortization of intangible assets........................... $ 1.4 $ 0.2
----- -----
$ 1.9 $ 0.2
===== =====
</TABLE>
Our depreciation for the nine months ended September 30, 1999 increased
over the amount for the similar period in 1998 due to the significant addition
of capital assets in 1999 related to data center expansion, software user
licenses and office and leasehold improvements.
Our amortization of intangible assets expenses related to the amortization
of goodwill and employee asset base related to the acquisitions of FutureLink
Alberta and SysGold in 1998. The amortization does not include any goodwill
amounts related to the closed and pending acquisitions in 1999 and 2000. We
began amortizing our goodwill from these acquisitions commencing in October
1999.
Equity in loss of investee
We owned 46% of FutureLink Alberta from January 20, 1998 until November 23,
1998, when we acquired control of it. During this period, we accounted for our
46% interest in FutureLink Alberta using the equity method of accounting for
investments and included 46% of FutureLink Alberta's net loss on our income
statement is included in equity in loss of investee. Thus, in 1999 this line
item does not exist as FutureLink Alberta's income statement was consolidated
with our income statement.
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<PAGE> 47
Extraordinary Item
During the nine month period ending September 30, 1999, we renegotiated the
terms of our 10% convertible debentures having an original aggregate principal
amount of $6.0 million. We issued additional warrants to our holders of
convertible debentures and also retired a portion of the principal amount of
these convertible debentures at a premium. As a result of this series of
transactions, we recorded an extraordinary accounting loss of $0.8 million
related to the renegotiation and restructuring of the convertible debentures.
TWELVE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO TWELVE MONTHS ENDED DECEMBER
31, 1997
Revenue
During the twelve months ending December 31, 1998, we recorded total
revenues of $2.4 million. We had no revenues in 1997 and had no active
operations.
Revenues for 1998 were comprised mostly of Canadian information technology
outsourcing and business consulting revenues and related sales of hardware and
software.
<TABLE>
<CAPTION>
1998
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
Information technology outsourcing consulting............... $1.0
Sale of hardware and software............................... $1.5
----
$2.5
====
</TABLE>
Our Canadian information technology outsourcing and consulting revenues in
1998 were related to providing services primarily to our oil and gas industry
customers but only for the period August 22, 1998 to September 30, 1999 where we
owned Riverview Management's information technology outsourcing business that we
acquired on August 22, 1998. We purchase and resell hardware and software to our
customers as part of our services.
We recorded 1998 ASP revenues in our FutureLink Alberta subsidiary of
approximately $0.1 million. However, only a small portion of these ASP revenues
were reported as part of our consolidated revenues, as FutureLink Alberta only
became our subsidiary for accounting purposes in November 1998.
Cost of Goods Sold
Hardware and software costs of $0.9 million for the year ended December 31,
1998 resulted in a gross margin on hardware and software sales of 9%.
Cost of Service Delivery
Our 1998 cost of service delivery amount includes delivery costs related to
the information technology outsourcing revenue for the period August 24, 1998 to
December 31, 1998. The cost of delivery of ASP services reflects as FutureLink's
development work on the delivery of computer utility and ASP services, including
operating a "beta" data center with test customers.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses in 1998 significantly
increased from these expenses in 1997 as we acquired FutureLink Alberta and
FutureLink/SysGold and commenced active operations. Our consolidated selling,
general and administrative expenses include FutureLink/SysGold's selling,
general and administrative expenses for the period from August 24, 1998 to
December 31, 1998 and FutureLink Alberta's selling, general and administrative
expenses for the period November 23, 1998 to December 31, 1998.
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<PAGE> 48
Our 1997 selling, general and administrative expense relate principally to
a deposit on a proposed acquisition that we forfeited when we did not complete
the acquisition.
Interest Expense and amortization of deferred financing fees and debt discount
Our 1998 interest expense of $1.3 million includes a significant non-cash
charge related to amortization of deferred financing fees of $1.2 million.
Depreciation and Amortization of Intangible Assets
Our 1998 consolidated depreciation and amortization is comprised of the
following:
<TABLE>
<CAPTION>
1998
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
Depreciation from consolidated subsidiaries................. $0.1
Amortization of goodwill and employee and consultants base
from 1998 Acquisition..................................... 0.7
----
Total....................................................... $0.8
</TABLE>
Our depreciation figure excludes depreciation from FutureLink Alberta
operations for the period January 20, 1998 to September 30, 1998, when
FutureLink Alberta was not an accounting subsidiary of FutureLink. Our
amortization expense reflects amortization of intangible assets from 1998
acquisitions.
Equity in Loss of Investee
We owned 46% of FutureLink Alberta from January 20, 1998 until November 23,
1998, when we acquired control of it. During this period, we accounted for our
46% interest in FutureLink Alberta using the equity method of accounting for
investments and included 46% of FutureLink Alberta's net loss on our income
statement. FutureLink Alberta had revenues of approximately $0.2 million and a
net loss of approximately $1.8 million during the period January 20,1998 to
November 23, 1998. We recognized 46% of that loss as our equity in loss of
investee.
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<PAGE> 49
LIQUIDITY AND CAPITAL RESOURCES
Cash Used in Operations
For the nine months ended September 30, 1999, we had net cash outflows from
operating activities of $8.3 million related to the expansion of our ASP
business, expansion into the United States and significant acquisition and
financing activity. These net cash outflows are significantly greater than net
cash outflows for the same period in 1998 and reflect a significant increase in
operating activities.
For the twelve months ended December 31, 1998, we had net operating cash
outflows of $1.1 million that related to operating cash needs of Futurelink and
its consolidated subsidiaries during 1998.
Capital Investments and Capital Lease Lines
In 1999, through September 30, 1999, we have invested $2.0 million in fixed
assets, mostly in building a new Calgary data center to host our ASP customers.
This capital investment was funded from equity and convertible debt raised in
1998 and 1999.
In the third and fourth quarter of 1999, we secured capital asset lease
lines with financial lenders and computer hardware vendor. These lines have been
partially used to build the Irvine data center, expand the Calgary data Center
and refinance the Calgary server farm:
<TABLE>
<CAPTION>
SOURCE OF MATERIAL CAPITAL ASSET LEASE LINES LEASE LINE SIZE USE OF LEASE ONE BALANCE 31/12/99
- -------------------------------------------- --------------- ------------------ ----------------
<S> <C> <C> <C>
Financial Lenders......................... $2.8 Million Computer hardware $1.3 Million
and related
infrastructure
assets
Compaq Financial Services................. $20.0 Million Compaq servers and $2.1 Million
other Compaq
equipment
EMC....................................... $3.3 Million EMC storage $3.3 Million
equipment
IBM....................................... $5.0 Million IBM equipment $0.0 Million
</TABLE>
Acquisitions
We have financed our acquisitions to date with mostly stock consideration
and some cash consideration. We have funded the cash portion of our acquisitions
from equity financings. In 1999 and 2000 to date, the cash and deferred cash
portion of our closed and pending acquisitions totalled approximately $65
million.
Recent Equity and Equity-Related Financing
In October and November 1999, we completed a private placement of $50.0
million of common equity with institutional private equity investors. We
received net proceeds of approximately $46.0 million after deducting commissions
and fees. We have used the net proceeds to complete the acquisitions of Micro
Visions, CNI, Async, KNS and VSI and to fund our operating activities commencing
in the fourth quarter of 1999.
In July 1999, we issued $15.0 million aggregate principal amount of our 8%
senior subordinated convertible promissory notes. The net cash proceeds of this
issuance of securities were $13.6 million, which were used to fund deposits on
acquisitions that were subsequently completed and to fund our operating
activities. In October 1999, these convertible notes were converted into
2,727,273 common shares.
In April and May 1999, we issued $8.0 million aggregate principle amount of
our 8% senior subordinated convertible promissory notes. The net cash proceeds
of this issuance, were $7.3 million, after fees and expenses. The net proceeds
were used to fund operating activities, capital investments and a
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<PAGE> 50
$1.0 million deposit on the Micro Visions acquisition. Between August and
November 1999, substantially all of these notes were converted to common shares.
In the first quarter of 1999, we received $3.5 million aggregate principal
amount of our 10% convertible debenture financing, shareholder loans and
short-term promissory notes that were subsequently repaid. The net proceeds of
these financings were used to fund operating activities in early 1999 as the
company expanded its operations and focused on building its ASP business. In
1999, all of the 10% convertible debentures were converted to common equity.
In October 1999, we issued warrants to purchase 2,475,000 shares of our
common stock to Pequot Private Equity Fund II, L.P. and certain other investors
in our common stock in connection with a private offering. On February 8, 2000,
in order to induce such holders of our warrants to exercise such warrants, we
offered to pay each holder $0.95 per underlying share of common stock to
compensate such holders for committing their capital to an early exercise of
their warrants. The warrants have an exercise price of $8.45 per share. We
expect to receive net proceeds of $5,392,163 from the early exercise by
Dimensional Partners Ltd. and Dimensional Partners L.P. of warrants to purchase
718,955 shares of common stock. Pequot Capital Management has indicated that it
will exercise warrants to acquire 1,668,976 shares of our common stock on
similar terms prior to the end of February 2000, which will result in net
proceeds to us of $12,517,322.
Short-term Debt Financing
Futurelink's operating subsidiaries have various working capital lines of
credit in place to fund Futurelink's operating activities.
<TABLE>
<CAPTION>
BALANCE
FUTURELINK OPERATING SUBSIDIARY LINE OF CREDIT SIZE USE OF LINE SECURITY 12/31/99
------------------------------- ------------------- ----------- -------- ----------------
<S> <C> <C> <C> <C>
Futurelink Alberta................ $1.3 million Working Assets of $0.0 Million
capital Futurelink
Alberta
Futurelink MicroVisions........... $2.5 Million Inventory for Certificate of $0.5 Million
resale deposit
Futurelink Pleasanton............. $1 Million Working Certificate of $0.8 Million
capital deposit
Futurelink Michigan............... $0.6 Million Working Certificate of $0.4 Million
capital deposit
</TABLE>
Upon completion of this offering, we believe that our available cash will
be sufficient to meet our anticipated cash needs for operating losses, working
capital and capital expenditures for at least the next twelve months. However,
we may need additional capital to meet such cash needs or to possibly make
additional acquisitions. If additional capital is needed, there can be no
assurance that such funding will be available on terms satisfactory to us, if at
all.
Foreign Currency Translation and Hedging
We are exposed to foreign currency fluctuations (through our operations in
Canada and the United Kingdom). Approximately 5% of our revenues (including all
1999/2000 closed and pending acquisitions) and corresponding receivables are in
Canadian dollars. Approximately 15% of our revenues and corresponding
receivables are on British pounds. We do not enter into forward exchange
contracts or any derivative financial investments for trading purposes. Thus, we
do not currently hedge our foreign currency exposure.
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<PAGE> 51
Adjustments arising from translating from subsidiaries financial statements
into United States dollars are recorded in stockholders' equity as a cumulative
translation adjustment.
Settlement
On February 11, 2000 we entered into an agreement with SmallCaps Online
Group LLC to settle litigation commenced against us by SmallCaps. SmallCaps had
brought this action claiming fees for financial advisory services. Our
settlement agreement obligates us to pay SmallCaps $5.0 million by March 14,
2000. We are also obligated to issue to SmallCaps warrants to purchase 2,000,000
shares of our common stock at $20.50 per share, 500,000 shares of our common
stock at $8.50 per share and 500,000 shares of our common stock at $22.50 per
share. The warrants are exercisable at any time prior to March 14, 2005 and are
subject to adjustment for stock splits, stock dividends, reorganizations, below
market issuances and similar transactions. SmallCaps may not transfer the
warrants until the sooner of 180 days from the effective date of this
registration statement or February 11, 2001. We are obligated to register the
shares underlying SmallCaps' warrants no later than 180 days from the effective
date of this registration statement.
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<PAGE> 52
BUSINESS
OUR COMPANY
We provide server-based computing services and are an application service
provider, or ASP. Our services enable software applications to be deployed,
managed, supported and upgraded from centrally located data centers, rather than
on individual desktop computers. For our server-based computing customers, we
install and integrate software applications on our customers' servers using
Citrix server-based computing software. For our ASP customers, we host
applications on our servers at our data centers, and rent computing services to
our customers for a monthly fee. Our ASP customers connect to our facilities
over the Internet, through a dedicated telecommunications line or by wireless
connection. Our goal is to provide our ASP services with the speed, simplicity
and reliability of a utility service. We introduced our ASP services in March,
1999.
We are the largest integrator in North America of server-based computing
systems using Citrix software. Citrix software is one of the leading
technologies for delivering software applications from remote locations.
Customers for our server-based computing services have included Cisco Systems,
The Walt Disney Company, Allied Signal, General Motors, Ford Motor Company, Bank
of America, Apple Computer and Delta Airlines. We are building upon our
server-based computing expertise to develop our ASP services.
We believe that through our experience in the server-based computing
business, we have developed a number of strengths that position us to
successfully grow our ASP business, including:
- a recognizable customer base, lending credibility to our ASP services,
- technical expertise in enabling a variety of software applications to
operate in a server-based computing environment, and
- relationships with sales channels, including software vendors and
software application integrators.
OUR MARKET OPPORTUNITY
The ASP and server-based computing markets are growing and are expected to
continue to grow at a rapid rate. Forrester Research, Inc. projects that the ASP
market will grow to over $11 billion in 2003 from less than $1 billion in 1999.
Forrester Research, Inc. also projects that 22% of all U.S.-based application
revenue will flow through ASPs in 2003.
We believe that the following factors are driving the growth of our
server-based computing and ASP services:
- the increasing complexity of software applications, the constant need to
upgrade software applications and the growing demand for faster software
integration and deployment,
- the scarcity of information technology professionals, making it expensive
and difficult for companies to operate and manage software on their own,
- the decline in telecommunication costs and the increasing availability of
bandwidth, making it less costly to connect remote users to a central
data center,
- the growing demand for remote and shared access to software applications,
and
- the increasing number of software applications and types of computer
devices requires integration expertise that is not available to, or is
increasing expensive for, many companies.
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<PAGE> 53
OUR SOLUTIONS
Our solutions offer the following key benefits:
- Reliable service. By offering service level agreements and utilizing the
latest technology, we are able to provide increased levels of service not
easily attainable by our customers.
- Reduce dependency on information technology staff. The maintenance of a
complete, professionally-managed information technology team necessary to
effectively manage complex software and information technology
infrastructures is increasingly expensive and difficult. By outsourcing
all or part of their information technology needs, our customers are able
to reduce their information technology staff and can focus on their core
competencies.
- Lower costs. By spreading information technology costs among many
customers, we are able to achieve economies of scale not possible for our
target customers and thereby offer our customers significant cost
savings. Customers of our server-based computing services are able to
reduce their information technology costs. Our ASP customers realize the
same benefits, and are able to forecast and budget their ongoing
information technology costs and reduce their upfront information
technology investment.
- Rapid deployment. By having their software applications hosted at central
locations, our customers are able to rapidly deploy and quickly upgrade
their software, allowing them to more rapidly realize returns on their
information technology expenditures. For our ASP customers, we are able
to offer applications installed at our servers to customers almost
immediately.
- Ability to run on a variety of hardware systems. We can integrate
different computer systems and devices, including a company's existing
personal computer terminals, without the need for significant hardware
upgrades. This allows our customers to implement our solutions without
replacing existing computer hardware, extending the useful life of their
existing computer systems.
- Flexibility. We are not committed to any particular software package or
linked to any single software manufacturer. Instead, we seek to deliver
software applications best suited for our customers. We can accommodate
virtually any software application. Our customers have the flexibility to
host some or all of their software application on our servers.
OUR STRATEGY
We seek to build a global ASP and continue to develop our server-based
computing business by:
- Leveraging our existing server-based computing capabilities to build our
ASP business. Our expertise in providing server-based computing solutions
makes us well-positioned to provide ASP services. Through our
acquisitions, we have built a strong base of technical experts. We plan
to continue to build this base, and to transition technical professionals
from server-based computing services to ASP services in order to
implement our business plan.
- Rapidly penetrating the market through our third-party distribution
channels. We market our ASP services primarily through third-party
distribution channels, including software application and system
integrators. We believe these distribution channels will allow us to
rapidly increase our market penetration without incurring significant
capital expenditures. This should also allow us to shorten the sales
cycle for our service offerings by targeting the customer closer to the
time of the customer's decision to purchase software. We also believe
this strategy gives us access to market leading products and technology
and allows us to focus on service delivery rather than software
development. We currently maintain relationships with over 60 software
applications and systems integrators.
- Broadening our software relationships. We have established relationships
with software application providers in key application areas, including
Microsoft, Great Plains Software, Onyx Software, SalesLogix and Galleon
Distributed Technologies. Our agreements with software application
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<PAGE> 54
providers generally enable us to deploy software applications for a
monthly fee, without the need to establish a separate licensing
arrangement for each customer. Our relationships with these providers
also enable us to provide our customers with an economically attractive
service offering, and afford us co-marketing and co-branding
opportunities. We plan to enter into relationships with other software
application providers. This will enable us to expand our portfolio of
software applications and reduce our reliance on any one software
application provider.
- Expanding through acquisitions. We intend to expand our business through
both internal growth and strategic acquisitions in the United States and
abroad. Our acquisitions allow us to accelerate our penetration of key
geographical markets, broaden our service offerings, and expand our
trained technical staff and our sales force.
OUR SERVICE OFFERINGS
ASP Services
Our ASP services involve deploying, managing and supporting software
applications hosted at our data centers for our customers. Our ASP services are
designed so that our customers can choose the combination of software
applications that best meet their business requirements, technical needs and
financial resources. Our customers pay for our ASP services on a monthly basis.
Our prices are based on the number of users, types of applications hosted and
number of support services used by the customer. Our service contracts have
multi-year terms, typically three years.
Server-Based Computing Services
Our server-based computing services are aimed at customers who have or wish
to install their own data centers and operate these with their own information
technology staff, but need expertise to assist in addressing certain aspects of
their information technology needs. Our server-based computing services include
the following:
- installing and integrating software applications on our customers'
servers using Citrix server-based computing software,
- maintaining, onsite and remotely, our customers' server-based computing
environments, and
- training information technology professionals to use Citrix and Microsoft
operating software.
Depending on the type and length of the project, pricing for these services
is provided to customers at an hourly rate, at a daily rate, on a project by
project basis, on a monthly price per consultant or on a monthly fee per
employee or user. Our server-based computing services are sold by our direct
sales force.
Other Services
We provide video conferencing for our European customers. We also provide
consulting and other complementary services to our customers, usually as a
supplementary service to our server-based computing and ASP offerings.
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<PAGE> 55
SOFTWARE APPLICATIONS
We have assisted our server-based computing customers with the hosting and
delivery of the following software applications, among others:
<TABLE>
<CAPTION>
SOFTWARE APPLICATION
PROVIDER PRODUCT TYPE OF SOFTWARE APPLICATION
-------------------- ------- ----------------------------
<S> <C> <C>
Adobe Systems Adobe Acrobat Reader PDF reader
Adobe PageMaker Desktop publishing
Autodesk AutoCAD Computer aided design
Clarify Clarify Client 5.0 Customer relationship management
Epicor Platinum Accounting
Great Plains Dynamics Accounting
Hyperion Enterprise Financial reporting
JD Edwards One World ERP (Enterprise Resource Planning)
Lotus Lotus Notes Messaging
Microsoft Exchange Messaging
FoxPro Database
Microsoft Office Office productivity suite
Microsoft Publisher Desktop publishing
NetObjects Fusion Web design
Oracle Oracle Financials Financial and enterprise resource
planning
PeopleSoft PeopleSoft Financials Financial reporting
PeopleSoft HR Enterprise resource planning
Sage Mas 90 Accounting
SAP R/3 Enterprise resource planning
Solomon Solomon IV Accounting
Wall Data Rhumba Terminal emulation
</TABLE>
Our experience in delivering a variety of software applications to our
server-based computing customers gives us the expertise to host such software
applications for our ASP customers. Among the software applications already
offered for delivery as part of our ASP services are the following:
<TABLE>
<CAPTION>
SOFTWARE APPLICATION
PROVIDER PRODUCT TYPE OF SOFTWARE APPLICATION
-------------------- ------- ----------------------------
<S> <C> <C>
Corel WordPerfect, QuattroPro, Corel Word processing, spreadsheet, graphics
Draw and other office productivity tools
Great Plains Dynamics, e Enterprise Integrated accounting software
Microsoft Office 2000 Office productivity software, including
Exchange Project word processing, Email, Data Base,
SQL Visio charting and Project planning
Onyx Customer Center 5.0 Customer relationship management
Pivotal eRelationship 2 Customer relationship management
SalesLogix 4.0 Integrated customer contact management
Epicor Clientelle Integrated accounting software and
Era customer relationship management,
Vantage manufacturing resource planning
</TABLE>
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<PAGE> 56
KEY RELATIONSHIPS
In implementing our growth strategy, we have developed important commercial
relationships with the following:
CITRIX. Citrix Systems, Inc. provides technology that enables users to
access software applications from virtually any computing device, including
desktops, mobile computers, network computers, terminals, information
appliances, palmtop or other device, across virtually any network. Citrix
provides what we believe is the most advanced technology for delivering software
applications to remote users as well as the most scalable and flexible tools for
server-based computing. Citrix's software is designed to work within a
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<PAGE> 57
Microsoft's Windows NT-compatible server environment, allowing virtually any
computer terminal to access standard Windows applications running on the server.
We are the largest integrator of server-based computing solutions using Citrix
technology in North America.
COMPAQ. In the fourth quarter of 1999, Compaq Computer Corporation invested
$2.2 million in our company and extended us a $20 million lease line of credit
to provide our data centers with Compaq servers on an exclusive basis. We have
deployed Compaq's products in our Irvine and Calgary data centers. Compaq's
equity investment will be used for joint marketing efforts to promote our ASP
services featuring Compaq hardware. We believe our joint marketing programs will
allow us to align the strengths of our respective sales and distribution
channels.
SOFTWARE APPLICATION PROVIDERS. We have significant commercial
relationships with a variety of leading software providers, including Microsoft,
Great Plains Software, Onyx Software, SalesLogix and Epicor Software. We believe
our ability to deliver a broad array of applications is a significant
competitive advantage. Our agreements with these software suppliers allow us to
deploy applications on a monthly subscription basis without the need to
establish a separate licensing arrangement for each customer. The agreements
also generally include co-marketing, specialized product training and preferred
pricing on the licenses to the software.
Certain important relationships with software application providers are
described below.
- Microsoft. We have been selected to participate in Microsoft
Corporation's Back Office software pilot program to host its Back Office
software for delivery to ASP customers. We have been approved to host
Microsoft Office 2000 at our data centers as part of Microsoft's new
service offering, Microsoft Office Online. In addition, we are a
participant in Microsoft's Complete Commerce program which showcases our
ASP offerings for Great Plains and Pivotal offerings.
- Citrix. We are a participant in Citrix's ASP license program. This allows
us to use Citrix technology in our data centers to deliver applications
to our ASP customers. We are the largest integrator of server-based
computing solutions using Citrix technology in North America.
- Onyx Software Corp. We have entered into a strategic relationship with
Onyx Software. Onyx has agreed to provide us with ASP customers
purchasing a minimum of $25,000 per month of our ASP services. We have
agreed to spend $300,000 on joint marketing and advertising promoting
Onyx products and our ASP services.
- SalesLogix. We have been approved to host SalesLogix software
applications.
- Great Plains. We have been approved to host Great Plains software
applications.
- Epicor Software. We have been approved to host Epicor's Clientelle, Era
and Vantage Software packages.
SOFTWARE APPLICATION INTEGRATORS. Many companies rely on software
application integrators with expertise in business software applications to
evaluate, install, integrate, modify and customize software applications for
them. We have developed significant commercial relationships with software
integrators to provide us with an additional sales channel without requiring us
to make a significant capital investment to develop an extensive direct sales
force. Software application integrators desire to work with us so that they can
expand their sales offerings.
SALES AND MARKETING
We offer our services through our direct sales force, the sales forces of
software application providers, and independent software distributors and
systems integrators. We are initially targeting our ASP services to small- to
medium-sized businesses, which we believe represent a strong market opportunity,
and market these services through our independent software distribution sales
channel. We plan to expand our marketing to larger businesses in the future. We
currently have strategic relationships with over 10 software application
providers and over 60 independent resellers, software distributors and systems
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<PAGE> 58
integrators. Our direct sales force consists of over 50 professionals, who are
focused on offering our server-based computing services and ASP services to
existing and new customers in the small- and medium-sized business markets. In
1999, we allocated $1.5 million for our advertising and promotional strategies.
In 2000, we currently plan to increase this amount to approximately $8 million
to build our brand name and create market awareness. We plan to use both
traditional advertising and direct mail to target the customer base, as well as
focus on specific horizontal and vertical industries through our sales channels.
We also plan to leverage our relationships with brand name companies such as
Microsoft and Compaq through co-marketing arrangements to extend the reach of
our marketing message.
OUR ASP DELIVERY SYSTEM
We have developed a secure, reliable and high-performance system for
delivering software applications to multiple users, which we believe provides us
with a significant competitive advantage. Our system is monitored on a continual
basis by our personnel in Irvine, California. We combine internally created
technology innovations with technologies from leading software and hardware
providers, including, among others, computer servers made by Compaq, IBM and Sun
MicroSystems, routers and firewall protection software supplied by Cisco
Systems, and storage devices from EMC(2). To address the diverse requirements of
our customers, we offer our ASP services on all of the leading operating systems
and computing platforms including Solaris, which operates on a Sun MicroSystems,
Inc. platform, and Microsoft Windows NT, which operates on an Intel/PC platform.
Our delivery system is scalable, allowing servers to be added to support
additional users without disrupting other servers that are concurrently running
software applications.
We operate state-of-the-art data centers in Calgary, Canada and Irvine,
California from which we deliver our ASP services. Each facility features
separate, back-up network and power connections, cooling systems and on-site
back-up diesel generators to ensure continuous power supply. We employ several
security measures including:
- 24-hour security guards,
- electronic surveillance,
- limited access electronic card key measures,
- the physical separation of servers from administrative workstations, and
- firewalls at each entry point to our data center.
We offer connectivity to our systems from virtually anywhere in the world,
providing customers with global access to software applications. Customers can
access us:
- via the Internet,
- through X.28 connections in more than 105 countries,
- over Frame Relay through AT&T Corp., Sprint Corporation and MCI Worldcom,
Inc., or over dedicated, private lines.
We have designed our network to minimize the effect of any interruptions.
We monitor the performance and security of our entire infrastructure. We have
also implemented security measures to identify potential sources of failure or
interruption. Although we have attempted to build complete back-up into our
network and hosting facilities, our delivery system is currently subject to
several single points of failure, and a problem with one of our servers, routers
or switches could cause an interruption in the services we provide to some of
our customers.
The design of our data centers enables systems administrators and support
staff to be promptly alerted to problems and rapidly resolve any technical
issues.
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<PAGE> 59
COMPETITION
The markets for our services are extremely competitive. The tremendous
growth and potential size of these markets have attracted many start-ups, as
well as extensions of existing businesses from different industries. The
principal competitive factors in this market include:
- quality of service, including performance, scalability, reliability and
functionality,
- customer service and support,
- variety of services offered,
- price,
- name recognition, and
- network security.
Our current and prospective competitors include other ASPs, systems
integrators, Internet service providers, hardware and software suppliers and
telecommunications companies.
ASPS. We compete with other companies whose core business is providing ASP
services. These competitors include, among others, USinternetworking, Corio,
Interliant, Breakaway Solutions, and Telecomputing. Many of these competitors
are targeting the same small and medium-sized enterprises that we are initially
targeting.
SYSTEMS INTEGRATORS. We compete with commercial systems integrators who
bundle their services with software and hardware providers and perform an
outsourcing role for the customer. Examples of these competitors include EDS,
Andersen Consulting, PricewaterhouseCoopers and MCI Systemhouse, among others.
These companies provide professional consulting services in the use and
integration of software applications in single-project customer engagements.
Systems integrators may establish strategic relationships with software
application providers to offer services similar to our ASP offerings. Their
strengths include local customer awareness and relationships with hardware and
software companies. Additionally, regional systems integrators may align
themselves with Internet service providers to offer complex website management
combined with professional implementation services.
INTERNET SERVICE PROVIDERS AND WEBSITE HOSTING COMPANIES. Our current
competitors include business-focused Internet service providers and website
hosting companies with a significant national presence, such as, among others,
UUNet Technologies, GTE Internetworking, PSINet, Concentric, DIGEX, Frontier and
Exodus Communications. These companies intend to expand their service offerings
by bundling their Internet access and website hosting service offerings with the
delivery of software applications on a subscription basis.
HARDWARE AND SOFTWARE COMPANIES. We compete with hardware and software
companies in providing software application solutions as well as delivery system
infrastructure. In order to build market share, both hardware and software
providers may establish strategic relationships to enhance their service
offerings. IBM Solutions currently provides applications outsourcing of its
Lotus Notes products and delivers the service via the IBM network
infrastructure. J.D. Edwards & Company, a developer of enterprise resource
planning software, has announced that it will offer its software in an
outsourced model. SAP Aktiengesellschaft has formed an outsourcing organization
to develop key partnerships with leading consulting firms with the intent of
offering SAP software and PeopleSoft and Oracle have announced an ASP strategy.
We believe that additional hardware and software providers, potentially
including our current software partners, may enter the outsourcing market in the
future.
TELECOMMUNICATIONS COMPANIES. Many long distance companies, regional Bell
operating companies and competitive local exchange carriers offer Internet
access services. In order to address the Internet connectivity requirements of
their current business customers, we believe that there is a move towards
horizontal integration through acquisitions of, joint ventures with, and
purchasing connectivity from, Internet service providers. Accordingly, we expect
that we will experience increased competition from the
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traditional telecommunications carriers. Many of these telecommunications
carriers, in addition to their substantially greater network coverage, market
presence, and financial, technical and personnel resources, also have large
existing commercial customer bases. We believe that our local presence, our
strong technical and data-oriented sales force and our offering a single source
computing solution are important features distinguishing us from the
telecommunications companies.
OTHER POTENTIAL COMPETITORS. It is possible that new competitors or
alliances may emerge and gain market share. Such competitors could materially
affect our ability to obtain new contracts. Further, competitive pressure could
require us to reduce the price of our products and services thus affecting our
business, financial condition and results from operations.
Many of our competitors have substantially greater financial, technical and
marketing resources, larger customer bases, longer operating histories, greater
name recognition and more established relationships in the industry than we do.
As a result, certain of these competitors may be able to develop and expand
their service offerings more rapidly, adapt to new or emerging technologies and
changes in customer requirements more quickly, take advantage of acquisition and
other opportunities more readily, devote greater resources to the marketing and
sale of their services and adopt more aggressive pricing policies than we can.
INTELLECTUAL PROPERTY
Our intellectual property is important to our business. We rely on a
combination of copyright, trademark, and trade secret laws, confidentiality
procedures and contractual provisions to protect our intellectual property. We
have no patented technology, and patented technology is not material to our
business.
We enter into agreements with many of our employees giving us proprietary
rights to certain technology developed by such employees while employed by us.
We cannot assure you that a court will enforce these agreements. In addition, we
may be inadequately protected against the use of technology developed by
employees who have not entered into such agreements.
We have applied for federal trademark or service mark registration of the
names "FutureLink," "Flink," "FutureServe," "Wide Area Thin Client Hook-up,"
"W.A.T.C.H.," "Your Way Ahead," "The World's First Computer Utility Company,"
"Information Utility," "Application Portal," "The Computer Utility Company" and
"Computer Utility" and for our various logos in both Canada and the United
States. In addition, we may seek further trademarks and may in the future take
other steps, such as seeking copyrights or patents on some of our intellectual
property. We are aware of other companies using the "FutureLink" name. If any
such company engaged in businesses in our industry can establish prior use to
such name and damages caused by our use of the name, we may incur liability.
Our efforts to protect our intellectual property may not be adequate. We
have commenced a lawsuit against Cameron Chell, our former Chief Executive
Officer, and certain other former employees, for misappropriation of our plans
to develop certain ASP services. We may need to commence additional lawsuits
from time to time to protect our intellectual property. See "Litigation."
Our competitors may independently develop similar technology or duplicate
our products or services. Unauthorized parties may infringe upon or
misappropriate our products, services or proprietary information. In the future,
litigation may be necessary to enforce our intellectual property rights or to
determine the validity and scope of the proprietary rights of others. Any such
litigation could be time-consuming and costly.
FACILITIES
We recently relocated our headquarters from Calgary, Alberta, Canada to
Irvine, California, where we currently lease approximately 35,000 square feet of
office space. We also lease approximately 1,000 square feet at another facility
in Irvine, which serves as our primary data center. We also lease office
facilities in Los Angeles, California; Pleasanton, California; Phoenix, Arizona;
Atlanta, Georgia; Ft. Lauderdale,
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Florida; Detroit and Bloomfield Michigan; Cincinnati and Columbus, Ohio;
Pittsburgh, Pennsylvania; Beltsville, Maryland; and Chantilly and Richmond,
Virginia. In addition, we lease a 2,500 square foot training facility in
Pleasanton, California. In Canada, we lease a facility that is approximately
31,500 square feet and contains both our offices and our Calgary data center. We
also lease 10,000 square feet of office space in Newbury Berkshire, United
Kingdom. Our leases have expiration dates ranging from 2000 to 2004. We believe
our facilities are adequate for our current operations and that we can obtain
additional leased space if needed.
EMPLOYEES
As of December 31, 1999, we employed a total of 321 persons, including 156
information technicians, 66 sales and marketing personnel and 99 administration
and management staff. We have never experienced work stoppages, and we are not a
party to any collective bargaining agreement. We believe our employee
relationships to be generally good.
LITIGATION
From time to time we are a defendant or plaintiff in litigation arising in
the ordinary course of our business. To date, other than the Small Caps lawsuit
and subsequent settlement none of these actions has had a material effect on us
and, as of the date of this prospectus, we are not a party to any material
litigation except as described below.
On January 20, 2000, we commenced a proceeding in the Court of Queen's
Bench of Alberta against Cameron Chell, our former chief executive officer,
various other former employees of and consultants to our company, C Me Run
Corp., a company organized by these former employees and various other
defendants. The suit alleges that the defendants while many were still employed
by us, misappropriated our plans to develop ASP services for individual computer
users, small offices, home offices, and hotel guests and traveling computer
users, in breach of fiduciary and contractual obligations. We seek, among other
things, a permanent injunction restraining the defendants from developing and
marketing the plans, an accounting for all revenues earned from the plans and
damages in the amount of approximately $54 million. On January 27, 2000, Mr.
Chell filed a counterclaim for $28.7 million, alleging interference of ongoing
economic interests, defamation of character and damages concerning his ability
to exercise options he claims to hold in our company. On January 31, 2000, C Me
Run filed a counterclaim for approximately $84 million, alleging conspiracy to
cause economic harm, unlawful interference with its economic interests,
interference with contractual relations and abuse of process. On February 7,
2000, David Bolink, one of our former employees that we sued in this lawsuit,
also counterclaimed, seeking $0.8 million in damages relating to the alleged
loss of stock options. We believe these counterclaims are without merit, and we
intend to contest such counterclaims in full while pursuing our action. It is
possible that other defendants in our lawsuit may also assert counterclaims. We
will vigorously defend against any such counterclaims.
On November 6, 1998, Mr. Chell entered into a Settlement Agreement with The
Alberta Stock Exchange to resolve a pending investigation into alleged breaches
by Mr. Chell of Alberta Stock Exchange rules and 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
Alberta Stock Exchange 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 Alberta Stock
Exchange represents "closure" with regard to these matters.
On January 26, 2000, Michael Chan filed a suit in the Court of Queen's
Bench of Alberta, Judicial District of Calgary alleging that FutureLink Alberta
breached its contract to deliver him options to purchase 250,000 shares of
FutureLink Alberta at $1.00 per share. Mr. Chan seeks 50,000 shares of our
common stock or, alternatively, damages of approximately $1,500,000 in cash,
general damages of approximately $200,000 and punitive damages of approximately
$200,000. We are in the process of reviewing Mr. Chan's claim.
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MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
Our executive officers, key employees and directors are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Philip R. Ladouceur.................. 58 Chairman, Chief Executive Officer and Director
Glen C. Holmes....................... 43 President, Chief Operating Officer and Director
Raghu N. Kilambi..................... 34 Executive Vice President, Chief Financial Officer and
Director
Vincent L. Romano, Jr................ 54 Executive Vice President, Application Service Provision
William R. Botti..................... 49 Senior Vice President, Server-Based Computing
Yuri M. Pasea........................ 38 Managing Director (Europe)
Solveig Whittle...................... 35 Senior Vice President, Marketing
Roger J. Gallego..................... 29 Senior Vice President, Operations Strategy
William V. Arnett.................... 44 Senior Vice President and Chief Operating Officer
(Canada)
Michael R. Krieger................... 49 Senior Vice President, Strategic Planning and Corporate
Development
James Smith.......................... 51 Senior Vice President, Operations
Richard M. White..................... 55 Vice President, Administration
Kyle B.A. Scott...................... 35 Vice President, Secretary and General Counsel
F. Bryson Farrill.................... 71 Director
Michael S. Falk...................... 38 Director
Timothy P. Flynn..................... 49 Director
Gerald A. Poch....................... 52 Director
James P. McNiel...................... 37 Director
</TABLE>
MR. LADOUCEUR has served as our Chairman and Chief Executive Officer since
August 1999 and has served as a director since August 1998. From October 1996 to
April 1998, Mr. Ladouceur was President, Chairman and Chief Executive Officer of
MetroNet Communications Corp. and served as MetroNet's Executive Chairman until
its merger with AT&T Canada in June, 1999. From February 1995 to October 1996,
Mr. Ladouceur was Executive Vice President of Operations at Bell Canada
International Inc. From October 1992 to February 1995, Mr. Ladouceur was the
founding President and Chief Executive Officer of ISM Information Systems
Management (Alberta) Ltd., a computer and network management outsourcing company
which was acquired by IBM Global Services. Mr. Ladouceur founded, and from June
1990 to October 1992, was the Managing Director of HDL Capital Corporation, a
private merchant bank specializing in business turnarounds, management buyouts
and financing for companies 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.
Mr. Ladouceur currently serves as a director of AT&T Canada, Cell-Loc Inc., Plan
B Communications and Intellispan, Inc.
MR. HOLMES was elected to our Board of Directors and has served as our
President and Chief Operating Officer since September 1999. Mr. Holmes is the
founder of Micro Visions, a leading server-based computing integrator, and
served as its Chairman and President from 1987 until our acquisition of Micro
Visions in October 1999.
MR. KILAMBI has served as our Executive Vice President since October 1999,
our Chief Financial Officer since March 1998 and as a director since June 1998.
From November 1995 to March 1998, Mr. Kilambi invested in and arranged equity
financing for high technology companies as President of New Economy Capital
Inc., a merchant banking firm. From May 1993 to November 1995, Mr. Kilambi was
an independent corporate finance consultant to public and private technology
companies. From October 1990 until May 1993, Mr. Kilambi was the Director,
Financial Services and Taxation and Corporate Secretary for Canada Starch
Company Inc., a subsidiary of CPC International, now known as Bestfoods. From
November 1989 to July 1990, Mr. Kilambi was Chief Accountant of Morgan Financial
Corporation. From
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June 1987 to November 1989, Mr. Kilambi was an accountant with Touche Ross &
Co., now a part of Deloitte & Touche. Mr. Kilambi is a Chartered Accountant
(Canada).
MR. ROMANO has served as our Executive Vice President, Application Service
Provision since December 1999. Prior thereto, Mr. Romano served as our Executive
Vice President, Sales and Marketing, from August 1999. From July 1998 to August
1999, Mr. Romano was Senior Vice President of World-Wide Sales at
USinternetworking, Inc. From March 1989 to July 1998, Mr. Romano was Vice
President and Director of Worldwide Sales Operations for Motorola's Computer
Group.
MR. BOTTI has served as our Senior Vice President, Server-Based Computing,
since November 1999. Mr. Botti founded CN Networks, Inc. in November 1991, and,
until we acquired that company in November 1999, he served as its President and
Chief Executive Officer and as a director.
MR. PASEA has served as the Managing Director of our European Operations
since December 1999. Between March 1998 and December 1999, he served as Director
for KNS Holdings, Limited. From January 1992 to February 1998, Mr. Pasea served
as Associate Director for Kerridge Computer Company.
MS. WHITTLE has served as our Senior Vice President, Marketing since
January 2000. From April 1992 until joining us, Ms. Whittle served as Product
Manager at Microsoft Corporation where she helped formulate Microsoft's ASP
products strategy, and also served as Lead Product Manager for Microsoft's
Terminal Server product line and as Product Manager for the Windows NT product
line. From 1984 to 1992, Ms. Whittle held various technical and marketing
positions at AT&T Bell Laboratories.
MR. GALLEGO has served as our Senior Vice President, Strategic Business
Unit, since October 1999. Between June 1992 and October 1999, he served in a
variety of roles with Micro Visions, including Executive Vice President.
MR. ARNETT has served as our Senior Vice President and Chief Operating
Officer (Canada) since March 1999. Mr. Arnett served as Vice President of
Operations for FutureLink Alberta from August 1998 through March 1999. He serve
as Vice President for SysGold Ltd. from August 1996 through August 1998, when it
was acquired by FutureLink. From January 1993 to August 1996, Mr. Arnett served
as Manager, Information Technology, for Numac Energy Inc.
MR. KRIEGER has served as our Senior Vice President, Strategic Planning and
Corporate Development since February 2000. Previously, from December 1996 to
October 1999, he served as Vice President, PC Servers for Hitachi Data Systems.
From May 1996 to December 1996, Mr. Krieger served as Senior Vice President,
Business Development for J & L ChatCom, Inc. and from January 1996 to May 1996
he served as President and Chief Executive Officer of CommVision Corporation.
From June 1995 to December 1995 he was Vice President, Marketing for CommVision
Corporation and from May 1993 to May 1995 he was a Director for Ziff-Davis
Magazine Networks.
MR. SMITH has served as our Senior Vice President, Operations since the
beginning of February 2000. From May 1998 until joining us, Mr. Smith was the
Senior Vice President of Operations for AT&T Canada (formerly MetroNet
Communications Corp.). From October 1996 until May 1998, Mr. Smith was Senior
Vice President of West Coast Operations and Senior Vice President of Long
Distance Operations for Brooks Fiber Communications Inc. From October 1985 to
October 1996, Mr. Smith served as the President of Execuline Inc., a long
distance telephone company.
MR. WHITE has served as our Vice President, Administration since January
2000. From August 1997 to January 2000, he served as Vice President
Administration -- Telecommunications for AT&T Canada (formerly MetroNet
Communications Corp.). Between October 1995 and August 1997, he served as
Executive Vice President and Chief Financial Officer for American Louver of
Canada. From April 1994 to September 1995, he was a partner of Core Plus
International. Mr. White is a Chartered Accountant (Canada) and was previously a
partner with KPMG.
MR. SCOTT has served as Vice President since October 1999 and as our
Secretary and General Counsel since March 1999. From April 1998 to March 1999,
Mr. Scott was an associate with the law firm of Howard Mackie, specializing in
corporate and securities law. From April 1997 to March 1998, Mr. Scott
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served with the Listings Department of The Alberta Stock Exchange, now the
Canadian Venture Exchange. From August 1996 to February 1997, Mr. Scott served
as Associate (Corporate Finance) with Oxbow Capital Corporation, a venture
capital company. From September 1993 to August 1996, Mr. Scott served as General
Counsel for Kedon Waste Services.
MR. FARRILL has been a director since January 1998. Since April 1989, Mr.
Farrill has been a consultant and advisor to various companies unrelated to us.
Since May 1996, Mr. Farrill has served as a director for Devine Entertainment,
LTD. From January 1978 until March 1989, Mr. Farrill held various positions with
Scotia McLeod and McLeod Young Weir, including acting as Chairman of Scotia
McLeod (USA) Inc. and McLeod Young Weir Ltd. Since July 1997, Mr. Farrill has
held the position of President and Chairman of Solar Pharmaceuticals Ltd. Mr.
Farrill is currently a director of Power Technology, Inc., Devine Entertainment
Inc. and Home Life Inc.
MR. FALK has been a director since May 1999. Mr. Falk is the co-founder of
Commonwealth Associates, a New York-based merchant bank and investment bank
established in May 1988 that specializes in early stage investments in Internet,
technology and telecommunications businesses. Mr. Falk has served as
Commonwealth Associate's Chairman and Chief Executive Officer since 1995. Mr.
Falk currently serves as a director of Intellispan Inc.
MR. FLYNN has been a director since May 1999. Since August 1996, Mr. Flynn
has been a principal at Flynn Corporation. Previously, Mr. Flynn co-founded and
served as a director of Valujet Airlines from June 1993 until November 1996. Mr.
Flynn also co-founded WestAir Holdings, Inc., a company which owned WestAir, a
California-based commuter airline that operated as a United Express affiliate of
United Airlines. Mr. Flynn served as an executive officer and a director of
WestAir until its merger with Mesa Airlines in May 1992, and served as a
director of Mesa Airlines until March 1993. Mr. Flynn currently serves on the
board of directors of MGC Communications Inc.
MR. POCH has been a director since October 1999. Since August 1998, Mr.
Poch has been a Manager Director/Portfolio Manager of Pequot Capital Management,
Inc. From August 1996 to August 1998, Mr. Poch acted as Chairman and President
of GE Capital Information Technology Solutions. From September 1992 to August
1998, Mr. Poch was President of AmeriData Technologies, Inc. Mr. Poch is
co-chairman and director of MessageMedia, Inc. and serves as a director of Brite
Smile, Inc. Channel Health, Inc., Elastic Networks, NewRiver Communications,
Lucent Digital Radio, Everest Broadband Networks, Online Retail Partners,
WatchMark and HomeSpace.com.
MR. MCNIEL has been a director since October 1999. Since July 1999, Mr.
McNiel has been a Senior Vice President at Pequot Capital Management. From May
1997 until joining Pequot, Mr. McNeil was President of McNeil Group Ltd., a
technology consulting and investment firm. From March 1990 until May 1997, Mr.
McNeil served at Cheyenne Software, initially as Vice President of Business
Development, then as Executive Vice President of Business Development and
ultimately as Executive Vice President of Corporate Development. Mr. McNeil is a
member of the board of directors for Netegrity, Inc. and Asia Online.
APPOINTMENT OF DIRECTORS
Pursuant to an Agency Agreement we entered into with Commonwealth
Associates on April 14, 1999, we granted Commonwealth the right, until April
2001, to appoint one person to serve on our board of directors. Commonwealth
Associates also has the right to appoint a majority of our directors if we fail
to repay the convertible debentures issued in the offerings of convertible debt
managed by Commonwealth Associates in April and May of 1999. The outstanding
debt owed from these offerings is less than $1 million.
Pursuant to the Securities Purchase Agreement we entered into with Pequot
Private Equity Fund II, L.P. and certain other investors on October 15, 1999 in
connection with a private placement of equity securities, we granted Pequot
Private Equity Fund II, L.P. and the other investors in such financing the right
to appoint two directors as long as they hold 50% or more of the common stock
purchased in the
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private placement. Pequot Private Equity Fund II, L.P. and these investors will
lose the right to appoint two directors if their ownership falls below 50% of
the common stock purchased in the private placement. In such instance, Pequot
Private Equity Fund II, L.P. and these investors will retain the right to
appoint one director as long as they hold 25% or more of the common stock
purchased in the private placement. Pequot Private Equity Fund II, L.P. and
these investors can transfer these rights to other investors that purchased our
common stock from us pursuant to the Securities Purchase Agreement of October
15, 1999.
Pursuant to the Agreement and Plan of Reorganization and Merger dated June
2, 1999, between us, The Holmes Trust and various other parties in connection
with our acquisition of Micro Visions, we agreed to elect to the board one
director designated by The Holmes Trust to serve until the next annual meeting
of shareholders or until a successor is appointed or elected.
COMMITTEES OF OUR BOARD OF DIRECTORS
Our board of directors currently has three committees: an audit committee,
a compensation committee and an executive committee.
The audit committee consists of Timothy P. Flynn (Chairman) and Gerald A.
Poch. The audit committee has the authority to review our financial reporting
and financial statements and to sign quarterly and annual financial statements
on behalf of the board of directors. The audit committee acts on and reports to
the board of directors with respect to various auditing and accounting matters,
including the engagement of our auditors, the scope of the annual audits, the
reasonableness of fees to be paid to the auditors, the performance of our
independent auditors and our accounting practices.
The compensation committee consists of F. Bryson Farrill (Chairman), James
P. McNiel and Timothy P. Flynn. The compensation committee has the authority to
review and approve executive compensation, make recommendations for the
appointment of executive officers and to act as the plan administrator of our
stock option plan.
The executive committee consists of Gerald A. Poch (Chairman), Philip R.
Ladouceur, Glen C. Holmes and Michael S. Falk. The executive committee has the
authority to approve (1) our daily operational matters, (2) our corporate
policies and strategy, and (3) our contractual commitments, payments of funds or
issuances of securities up to a level of $1,000,000.
COMPENSATION OF OUR DIRECTORS
The Company's outside directors currently receive compensation of $25,000
per year plus $5,000 for each committee of our board of directors on which they
serve, payable in stock. They also receive $500 for each meeting of the board of
directors or board committee they attend in person, and $250 for each meeting
attended by telephone. Outside directors are also reimbursed for expenses in
connection with attending board of directors and committee meetings.
At the time Mr. Ladouceur joined our board of directors he entered into an
agreement dated July 16, 1998. Under the terms of this agreement, Mr.
Ladouceur's service company, Mardale Investments Ltd., was paid a fee of $68,000
and Mr. Ladouceur was granted options to purchase 100,000 shares of common stock
at an exercise price of $3.80 per share.
We have granted options to each of the outside directors of the Company
upon their election to our board of directors. Mr. Falk, Mr. Farrill, Mr. Flynn,
Mr. Poch and Mr. McNeil were each granted options to purchase 100,000 shares of
common stock with exercise prices ranging from $3.15 to $8.97 per share. We
expect to grant additional options to outside directors upon their joining the
board of directors for the first time and their subsequent re-election as a
director.
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SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table summarizes the compensation earned by or paid to our
chief executive officers and the other four most highly compensated executive
officers whose total salary and bonuses exceeded $100,000 for services rendered
in all capacities to us and our subsidiaries during 1999. We refer to these
individuals as our named executive officers in other parts of this prospectus.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -----------------
---------------------------------- OTHER ANNUAL SHARES UNDERLYING
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY($) BONUS($) COMPENSATION OPTIONS(#)
--------------------------- ----------- --------- -------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
Cameron B. Chell(1)................ 1999 $149,658 -- -- 175,000(2)
Former Chairman, President and 1998 $ 84,291 -- $ 7,000 100,000
Chief Executive Officer
Philip R. Ladouceur(3)............. 1999 $110,000 $200,000(4) -- 1,300,000
Executive Chairman and Chief
Executive Officer
Glen C. Holmes(5).................. 1999 $ 58,435 $ 90,000(6) -- 100,000
President and Chief Operating
Officer
Raghu N. Kilambi(7)................ 1999 $146,771 $ 90,000(8) -- 500,000
Executive Vice President and 1998 $ 67,433 -- $ 4,700 100,000
Chief Financial Officer
Vincent L. Romano, Jr.(9).......... 1999 $ 75,000 $ 90,000(10) $255,000 250,000
Executive Vice President,
Application Service Provision
</TABLE>
- -------------------------
(1) Mr. Chell served as Chief Executive Officer from April 1998 through August
1999 and was our President from March 1999 through August 1999. He is no
longer employed by us in any capacity. Other annual compensation for 1998
includes consulting fees.
(2) Excludes 525,000 shares underlying options granted in 1999 which expired
under our Stock Option Plan when Mr. Chell's employment with us terminated.
(3) Mr. Ladouceur served as Chairman from June 1999 to October 1999, and as
interim Chief Executive Officer and President from August 1999 to October
1999, when he became our Executive Chairman and Chief Executive Officer.
Mr. Ladouceur's current annual base salary is $200,000. He is eligible to
earn an annual performance bonus of up to $400,000.
(4) Accrued in 1999 but paid in 2000.
(5) Mr. Holmes has served as our President and Chief Operating Officer since
October 1999. His current annual base salary is $200,000. He is entitled to
receive a minimum bonus of $50,000 per quarter and is eligible for a
discretionary bonus to be determined by the board of directors.
(6) Includes $50,000 accrued in 1999 but paid in 2000.
(7) Mr. Kilambi has served as Executive Vice President since October 1999 and
as Chief Financial Officer since March 1998. Mr. Kilambi's current annual
base salary is $180,000. He is eligible to earn an annual bonus of up to
$180,000. Other annual compensation for 1998 includes consulting fees.
(8) Accrued in 1999 but paid in 2000.
(9) Mr. Romano served as Executive Vice President, Sales and Marketing from
August 1999 through December 1999, at which time he was named Executive
Vice President, Application Service Provision. Mr. Romano's current annual
base salary is $180,000. He is eligible to earn an annual bonus of up to
$180,000. Upon commencement of his employment, Mr. Romano received a
signing
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bonus of $95,000, a one time payment of $5,000 to cover certain fees
relating to his joining us, and 250,000 stock options. His employment
agreement provides for a separate loan agreement between us and Mr. Romano
under which we loaned Mr. Romano $2.0 million at an annual interest rate of
5.625% to purchase 232,829 shares of our common stock. The loan is forgiven
in quarterly installments of $250,000. In October 1999, the first
installment of $250,000 of this loan was forgiven, comprising most of Mr.
Romano's "other compensation" in 1999.
(10) Accrued in 1999 but paid in 2000.
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OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information related to options granted to our
named executive officers during fiscal year ended December 31, 1999. The
information in this table reflects options granted pursuant to our Amended and
Restated Stock Option Plan. We granted options to purchase 6,549,000 shares of
our common stock to our employees and directors in 1999. All options were
granted at an exercise price equal to the fair market value of our common stock
on the date of grant as determined by the closing price of our common stock on
the day preceding the grant, except options granted on May 6, 1999 to Messrs.
Chell, Ladouceur and Kilambi and the options granted to Mr. Holmes on May 14,
1999, which grants have an exercise price based on the average closing bid and
ask prices for the ten trading days prior to the date of the relevant grant. The
options granted on May 6, 1999 have an exercise price that is 50% of the market
value of the common stock on such date, on which date the average closing bid
and ask price was $6.22. The options granted on May 14, 1999 have an exercise
price that is 74% of the market value of the common stock on such date, on which
date the average closing bid and ask price was $6.72.
<TABLE>
<CAPTION>
OPTIONS GRANTED IN LAST FISCAL YEAR
------------------------------------------------------------- POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
TOTAL ANNUAL RATES
OPTIONS OF STOCK PRICE
NUMBER OF GRANTED TO APPRECIATION FOR
SECURITIES EMPLOYEES EXERCISE OPTION TERM(2)
UNDERLYING OPTIONS IN FISCAL PRICE PER -----------------------
NAME GRANTED(1) YEAR SHARE EXPIRATION DATE 5% 10%
---- ------------------ ---------- --------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cameron B. Chell......... 275,000(3) 3.0% $3.15 March 14, 2000 $ 597,188 $ 651,875
Philip R. Ladouceur...... 700,000 12.1% $3.15 June 1, 2004 $2,388,750 $2,607,500
600,000 10.3% $7.56 August 31, 2003 $ 228,375 $ 455,250
Glen C. Holmes........... 100,000 1.7% $5.00 June 1, 2004 $ 205,495 $ 239,090
Raghu N. Kilambi......... 500,000 8.6% $3.15 June 1, 2004 $1,706,250 $1,862,500
Vincent L. Romano, Jr. .. 250,000(4) 4.3% $6.08 June 30, 2004 $ 169,844 $ 250,313
</TABLE>
- -------------------------
(1) The options set forth in the table above vest in either three or four yearly
increments and expire between March 2000 and June 2004.
(2) The potential realizable value represents amounts, net of exercise price
before taxes, that may be realized upon exercise of the options immediately
prior to the expiration of their terms assuming appreciation of 5% and 10%
over the option term. The 5% and 10% are calculated based on rules
promulgated by the Securities and Exchange Commission and do not reflect our
estimate of future stock price growth. The actual value realized may be
greater or less than the potential realizable value set forth in the table.
(3) 525,000 of the options granted to Mr. Chell in 1999 expired under the Stock
Option Plan when Mr. Chell's employment with us terminated. See
"Litigation."
(4) Mr. Romano exercised options to purchase 62,500 shares of common stock in
early January 2000.
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AGGREGATED OPTION EXERCISES IN 1999 AND LAST FISCAL YEAR-END OPTION VALUES
The following table shows the number of shares our named executive officers
acquired upon exercise of stock options during 1999, the aggregate value
received from those exercises, the number of shares covered by both exercisable
and unexercisable options as of December 31, 1999 and the year-end value of
exercisable and unexercisable options as of December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
NUMBER OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1999 DECEMBER 31, 1999(1)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Cameron B. Chell............ 0 0 275,000 0(2) $ 6,218,750 $ 0
Philip R. Ladouceur......... 0 0 950,000 450,000 $20,981,000 $8,298,000
Glen C. Holmes.............. 0 0 50,000 50,000 $ 1,050,000 $1,050,000
Raghu N. Kilambi............ 0 0 225,000 375,000 $ 5,076,250 $8,568,750
Vincent L. Romano, Jr.(3)... 0 0 62,500 187,500 $ 1,245,000 $3,735,000
</TABLE>
- -------------------------
(1) Based on a year-end stock price of $26.00, the last reported trade of our
common stock on the OTC Bulletin Board on December 31, 1999.
(2) During 1999, Mr. Chell held an additional 525,000 options that expired under
the terms of our Stock Option Plan when Mr. Chell's employment with us
terminated. See "Litigation."
(3) Mr. Romano exercised options to purchase 62,500 shares of common stock in
early January 2000.
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with each of our named executive
officers. Each agreement provides for a fixed base salary and an annual
performance bonus determined by the compensation committee or the board of
directors.
Our employment agreements with Mr. Ladouceur and Mr. Kilambi are at-will
and can be terminated by either party at any time. Mr. Romano's agreement has a
three year term which expires on August 1, 2002. Mr. Ladouceur's and Mr.
Kilambi's employment agreements provide that if there is a change in our
control, and either of them is terminated without just cause within six months
thereof, his level of responsibility or compensation is reduced and he elects
within six months of such change in control to treat his employment as
terminated, or he elects within three months of such change in control to
terminate his employment, we must pay him an amount equal to one year's salary,
his most recent performance bonus, and one year's premium contributions to our
employee benefit plan paid on his behalf, provide up to $10,000 in relocation
and financial consulting services, or, at his option, pay him $10,000, and cause
his unvested stock options to accelerate and become exercisable for three
months. If we terminate either Mr. Ladouceur's or Mr. Kilambi's employment
without just cause or change his level of responsibility, and he elects to
terminate, we must (1) pay him an amount equal to one year's salary, his most
recent performance bonus, and one year's premium contributions to our employee
benefit plan paid on his behalf, and (2) provide him with up to $10,000 in
relocation and financial consulting services or, at his option, pay him $10,000.
Our agreement with Mr. Romano provides for an award of 250,000 stock
options and the payment of a $95,000 signing bonus which have been granted and
paid.
Our agreement with Mr. Holmes provides for a minimum quarterly bonus of
$50,000. This agreement provides for 18 months severance pay (including the
minimum bonus for such period), if (1) we terminate Mr. Holmes without cause,
(2) his employment is terminated within 18 months of a change of control of our
Company,
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or (3) Mr. Holmes voluntarily terminates because we materially reduce his duties
or his compensation, or we move his place of business out of Orange County,
California.
STOCK OPTION PLAN
Our Stock Option Plan became effective on June 29, 1998, and was amended on
November 30, 1998, September 23, 1999, November 17, 1999 and December 10, 1999.
Our Stock Option Plan provides for the issuance of incentive and non-qualified
stock options. The aggregate number of shares which may be issued pursuant to
options under the Stock Option Plan may not exceed twenty percent of our shares
of common stock issued and outstanding on a fully diluted basis. The maximum
number of shares which may be issued pursuant to options was recently fixed at
11,000,000 by our board of directors.
Our Stock Option Plan is administered by our board of directors. Generally,
our board may amend or terminate our Stock Option Plan if it does not cause any
adverse affect on any then outstanding options or unexercised portions thereof.
Our board of directors must obtain the consent of the stockholders to increase
the number of shares covered by the Stock Option Plan, to change the class of
persons eligible to receive options, or to extend the term of the Stock Option
Plan beyond 10 years. Our board of directors sets the consideration for each
option award. All options must generally have an exercise price equal to at
least 85% of the fair market value of the underlying common stock on the date of
the grant. Incentive stock options must have an exercise price equal to at least
100% of the fair market value of the underlying common stock on the date of the
grant, and options granted to a person who owns more than 10% of the voting
power of our outstanding stock and any outstanding stock of our subsidiaries
must have an exercise price equal to at least 110% of the fair market value of
the underlying common stock on the date of the grant.
Options granted under the Stock Option Plan are non-transferable except
through will or the laws of descent and distribution upon the death of the
option holder. If we liquidate, reorganize, merge or consolidate and we are not
the surviving entity, each outstanding stock option shall become exercisable
prior to such event unless the options are assumed in a merger.
401(k) PLAN
We assumed several 401(k) plans in connection with our acquisitions in
1999. These 401(k) plans cover our full-time U.S. employees. These plans are
intended to qualify under Section 401(k) of the Internal Revenue Code of 1986,
as amended, so that we can deduct any contributions that we make to these plans,
at the time they are made. Pursuant to these plans, employees may elect to
reduce their current compensation by up to the statutorily prescribed annual
limit and to have the amount of such reduction contributed to these plans. These
plans permit us, but do not require us to make, additional matching
contributions to these plans on behalf of all participants in these plans. We
have not made any contributions to these plans to date, and we do not currently
have any plan to make contributions. We also operate a defined contribution
pension plan on behalf of our directors and employees in the United Kingdom.
LIMITATIONS OF LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation provides that, to the fullest extent
permitted by the Delaware General Corporation Law, our directors shall not be
personally liable to us or our stockholders for monetary damages for breach of
fiduciary duty as a director. Under Delaware law, the directors have a fiduciary
duty to us that is not eliminated by this provision of our certificate and, in
appropriate circumstances, equitable remedies such as injunctive or other forms
of non-monetary relief will remain available. In addition, each director will
continue to be subject to liability under Delaware law for breach of the
director's duty of loyalty to us for acts or omissions which are found by a
court of competent jurisdiction to be not in good faith or that involve
intentional misconduct, or knowing violations of law, for actions leading to
improper personal benefit to the director, and for payment of dividends or
approval of stock repurchases or
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<PAGE> 71
redemptions that are prohibited by Delaware law. This provision also does not
affect the director's responsibilities under any other laws, such as federal
securities laws.
Section 145 of the Delaware General Corporation Law empowers a corporation
to indemnify its directors and officers and to purchase insurance with respect
to liability arising out of their capacity or status as directors and officers,
provided that this provision shall not eliminate or limit the liability of a
director:
- for any breach of the director's duty of loyalty to a corporation or its
stockholders,
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,
- arising under Section 174 of the Delaware General Corporation Law in
connection with unlawful payments of dividends or stock purchases or
redemptions, or
- for any transaction from which the director derived an improper personal
benefit.
Delaware law provides further that the indemnification permitted by that
law shall not be deemed exclusive of any other rights to which the directors and
officers may be entitled under a corporation's bylaws, any agreement, a vote of
stockholders or otherwise. Our bylaws provide that we shall indemnify, to the
maximum extent and in the manner permitted by the Delaware General Corporation
Law, 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 our director or officer, or is or was
serving at our request as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or is or was a director
or officer of a corporation which was our predecessor corporation or of another
enterprise at the request of such predecessor corporation.
We have secured insurance on behalf of any person who is our director,
officer, employee or agent or is or was serving at our request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against any liability asserted against such person and
incurred by such person in any such capacity or arising out of such person's
status as such, regardless of whether indemnification would be permitted under
Delaware law.
CERTAIN PROVISIONS OF DELAWARE LAW
We are a Delaware corporation and are subject to the provisions of Section
203 of the Delaware General Corporation Law, an anti-takeover law. In general,
the statute prohibits a publicly held Delaware corporation from engaging in a
business combination with an interested stockholder for a period of three years
after the date of the transaction by which that person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
For purposes of Section 203, a business combination includes a merger, asset
sale or other transaction resulting in a financial benefit to the interested
stockholder, and an interested stockholder is a person who, together with
affiliates and associates, owns, or within three years prior, did own 15% or
more of our voting stock.
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PRINCIPAL STOCKHOLDERS
The following table sets forth specified information with respect to the
beneficial ownership of our common stock as of January 31, 2000 by:
- each person (or group of affiliated persons) who is known by us to
beneficially own 5% or more of our outstanding shares of common stock,
- each of our directors,
- each of our named executive officers, and
- all of our directors and executive officers as a group.
The number and percentage of shares beneficially owned are based on
52,315,640 shares of common stock outstanding as of January 31, 2000; 2,090,166
shares of common stock issuable upon the exercise of options exercisable within
60 days of January 31, 2000; 10,374,282 shares issuable upon the exercise of
warrants exercisable within 60 days of January 31, 2000 and 918,283 shares
issuable upon the conversion of convertible debentures convertible within 60
days of January 31, 2000.
<TABLE>
<CAPTION>
OWNERSHIP PRIOR TO OWNERSHIP AFTER
OFFERING OFFERING(2)
--------------------- ---------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER(1) PERCENT NUMBER PERCENT
------------------------------------ ---------- ------- ---------- -------
<S> <C> <C> <C> <C>
The Holmes Trust(3)............................ 8,400,000 15.7% 8,400,000 13.0%
Glen C. Holmes(4).............................. 8,450,000 15.8% 8,450,000 13.1%
Pequot Capital Management, Inc.(5)............. 8,041,776 14.9% 8,041,776 12.2%
Philip R. Ladouceur(6)......................... 998,000 1.9% 998,000 1.5%
Raghu N. Kilambi(7)............................ 445,563 0.9% 445,563 0.7%
F. Bryson Farrill(8)........................... 107,500 0.2% 107,500 0.2%
Michael S. Falk(9)............................. 3,468,298 6.6% 3,468,298 5.4%
Timothy P. Flynn(10)........................... 735,133 1.4% 735,133 1.1%
Gerald A. Poch(11)............................. 8,066,776 14.9% 8,066,776 12.2%
James P. McNiel(12)............................ 8,066,776 14.9% 8,066,776 12.2%
Vincent Romano, Jr............................. 282,908 0.5% 282,908 0.4%
Cameron Chell(13).............................. 780,689 1.5% 780,689 1.2%
Robert Priddy(14).............................. 3,411,489 6.5% 3,411,489 5.3%
All directors and executive officers as a group
(19 persons)(15)............................. 25,780,325 44.8% 25,780,325 37.6%
</TABLE>
- -------------------------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In general, a person who has voting
power or investment power with respect to securities is treated as a
beneficial owner of those securities. Shares subject to options, warrants
or rights currently exercisable or exercisable within 60 days of January
31, 2000 are considered beneficially owned by the person holding such
options, warrants or rights. Unless otherwise indicated, and subject to
community property laws where applicable, we believe the persons named in
the table have sole voting and investment power with respect to all shares
beneficially owned.
(2) Assumes the underwriter's overallotment option is not exercised. In the
event that the underwriter's overallotment option is exercised in full, an
additional 750,000 shares of our common stock will be sold in the offering.
Also assumes the issuance of 1,975,170 shares for the acquisition of the
Madison Group of Companies, 1,072,940 shares for the acquisition of Charon
Systems, Inc, 2,401,040 shares issued on the exercise of warrants currently
held by Pequot Equity Partners Fund II, LP and certain other investors,
1,200,000 shares likely to be issued to the former shareholder of Micro
Visions and 439,740 shares currently estimated to be issuable to the former
shareholders of Async Technologies, Inc, all prior to the completion of the
offering.
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(3) Includes 1,200,000 shares issuable to The Holmes Trust upon the
satisfaction of certain performance criteria in connection with our
acquisition of Micro Visions, which management believes have been
satisfied.
(4) Includes 50,000 shares issuable upon the exercise of currently exercisable
stock options. Also includes 7,200,000 shares of common stock held by The
Holmes Trust as a result of Mr. Holmes' power to control The Holmes Trust
and 1,200,000 shares issuable to The Holmes Trust upon the satisfaction of
certain performance criteria in connection with our acquisition of Micro
Visions, which management believes have been satisfied.
(5) Includes 1,678,139 shares issuable upon the exercise of currently
exercisable warrants attributable to Pequot Capital Management, Inc. as a
result of its power to control Pequot Private Equity Fund
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<PAGE> 74
II, L.P., Pequot Partners Fund and Pequot International Fund. The address
of Pequot Capital Management, Inc. is 500 Nyala Farm Road, Westport,
Connecticut 06880.
(6) Includes 950,000 shares issuable upon the exercise of currently exercisable
stock options and 48,000 shares attributable to Mr. Ladouceur as a result
of his power to control Mardale Investments Ltd.
(7) Includes 225,000 shares issuable upon the exercise of stock options
exercisable within 60 days of January 31, 1999.
(8) Includes 62,500 shares issuable upon the exercise of stock options within
60 days of January 31, 1999.
(9) Includes 25,000 shares issuable upon the exercise of stock options which
are exercisable within 60 days of January 31, 2000. Also includes 82,574
shares attributable to Mr. Falk as a result of his control of the Michael
Falk IRA. Also includes 9,901 shares issuable upon the exercise of warrants
held by Mr. Falk. Also includes 2,433,828 shares of common stock and 19,802
shares issuable upon the exercise of warrants held by Commonwealth
Associates. Mr. Falk is Chairman and Chief Executive Officer of
Commonwealth Associates. Mr. Falk disclaims beneficial ownership of the
shares and warrants held by Commonwealth Associates.
(10) Includes 25,000, shares issuable upon the exercise of stock options which
are exercisable within 60 days of January 31, 2000, and 198,021 shares
issuable upon the exercise of currently exercisable warrants.
(11) Includes 25,000, shares issuable upon the exercise of stock options which
are exercisable within 60 days of January 31, 2000. Also includes 6,363,637
shares of common stock and 1,678,139 shares issuable upon the exercise of
currently exercisable warrants held by Pequot Private Equity Fund II, L.P.,
Pequot Partners Fund and Pequot International Fund, which are controlled by
Pequot Capital Management, Inc. Mr. Poch is a principal of Pequot Capital
Management, Inc. Mr. Poch disclaims beneficial ownership of the shares and
warrants attributed to Pequot Capital Management, Inc.
(12) Includes 25,000 shares issuable upon the exercise of stock options which
are exercisable within 60 days of January 31, 2000. Also includes 6,363,637
shares of common stock and 1,678,139 shares issuable upon the exercise of
warrants held by Pequot Capital Management, Inc. Mr. McNiel is a principal
of Pequot Capital Management, Inc. Mr. McNeil disclaims beneficial
ownership of the shares and warrants attributed to Pequot Capital
Management, Inc.
(13) Includes 275,000 shares issuable upon the exercise of stock options which
are exercisable within 60 days of January 31, 2000 and 75,311 shares
issuable upon the exercise of currently exercisable warrants.
(14) Includes 198,021 shares of common stock issuable upon the exercise of
currently exercisable warrants. Also includes 2,433,828 shares of common
stock and 19,802 shares issuable upon the exercise of warrants held by
Commonwealth Associates. Mr. Priddy disclaims beneficial ownership of the
shares and warrants attributed to Commonwealth Associates.
(15) Includes shares listed in footnotes 4, 6-12, and 14 above, as well as
1,218,253 shares held by other executives not listed in this table,
1,867,500 shares issuable upon the exercise of stock options which are
exercisable within 60 days of January 31, 2000, and 3,238,613 shares
issuable on exercise of currently exercisable warrants.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1997, Mr. Chell loaned FutureLink Distribution Corp., an Alberta
corporation ("FutureLink Alberta") approximately $137,000 at an annual interest
rate equal to the prime rate plus 1%. FutureLink Alberta repaid the entire
balance of the loan between April and June 1998.
On January 20, 1998, Core Ventures, Inc., our predecessor-in-interest,
purchased 46% of FutureLink Alberta in exchange for 308,000 shares of our common
stock. On November 23, 1998, Core Ventures purchased another 50.4% of FutureLink
Alberta in exchange for 334,755 shares of our common stock, and on February 26,
1999, it acquired the remaining 3.6% of FutureLink Alberta in exchange for
23,500 shares of our common stock. Cameron Chell was the President and Chief
Executive Officer of FutureLink Alberta, and after the first purchase in January
1998, Mr. Chell became our President, a director and a significant shareholder.
Mr. Chell resigned as our President and a director effective August 27, 1999.
Cameron Chell and Robert Kubbernus were directors and shareholders of both
JAWS Technology Inc. and our company at the time we entered into an Alliance
Partner Agreement dated February 12, 1999.
On August 12, 1998, Mr. Chell loaned us approximately $145,000 at an annual
interest rate equal of 8%. On February 22, 1999, we issued Mr. Chell a
convertible debenture in the principal amount of approximately $150,000, the
outstanding balance of his loan to us. This convertible debenture was
convertible at $2.00 per share (adjusted for our five-for-one reverse stock
split), for a total of 75,310 shares. Mr. Chell also received a warrant to
acquire 75,311 shares at $2.00 per share for the first year, $3.00 per share for
the second year, and $4.00 per share for the third year. On April 29, 1999, Mr.
Chell surrendered his debenture having an outstanding balance of approximately
$153,000, our notes payable having an outstanding balance of $66,614.57 and our
trade loans payable having an outstanding balance of $30,000 in return for a
$250,000 aggregate principal amount 8% convertible note convertible at $1.50 per
share and a warrant to acquire 125,000 shares at $1.50 per share. The conversion
and exercise prices for these securities have since been reduced from $1.50 per
share to $1.335 per share due to the effect of anti-dilution provisions. These
securities are subject to a lock up agreement for a minimum of one year.
In May 1999, in connection with a private offering placed by Commonwealth
Associates of our units consisting of 8% senior subordinated convertible notes
convertible to shares of common stock at $1.00 per share (post-split) and
warrants to purchase 500 shares of common stock at $1.25 per share (post-split)
for each $1,000 invested, Mr. Chell purchased $250,000 of our units (see above)
and Mr. Kilambi purchased $127,500 of our units.
Michael Falk, Chief Executive Officer of Commonwealth Associates, was
appointed to our board of directors on May 7, 1999 following the consummation of
the private placement of our securities concluded in April 1999 for which
Commonwealth Associates was retained by us as our placement agent. Commonwealth
Associates was subsequently retained as placement agent on July 1, 1999.
As of September 30, 1999, we provided $267,439 in services and products to
Willson Stationers Ltd. and e-Supplies Inc. As at September 30, 1999, $488,135
remains owing from these entities. An allowance for doubtful accounts of
$473,922 has been recorded due to the uncertainty of collection. Cameron Chell
was a director of both companies at the time some of the transactions took
place. In addition, we have reason to believe that Mr. Chell was a principal of
e-Supplies Inc., at the time of the transactions. Raghu Kilambi served on the
board of directors of Willson Stationers, Ltd., as our representative, at the
request of Willson Stationers, Ltd., for approximately one month.
On August 1, 1999, we loaned Vincent Romano, one of our executive officers,
$2.0 million, which he used to purchase 232,829 shares of our common stock. The
shares were deposited in escrow and approximately 12.5% of the shares are
released quarterly as the loan is forgiven quarterly in installments of
$250,000. We loaned the money to Mr. Romano pursuant to his employment
agreement. As of January 31, 2000, $500,000 of this loan has been forgiven.
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In October 1999, we issued 1,678,139 warrants to Pequot Private Equity Fund
II, L.P., Pequot Partners Fund and Pequot International Fund which currently
entitle the holders to purchase common stock at $8.40 per share. On February 8,
2000, to induce those funds to exercise such warrants, we offered to pay each
holder $0.90 for each warrant exercised.
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<PAGE> 77
The funds have indicated their intent to exercise warrants to acquire all
1,678,139 shares of our common stock on similar terms prior to the end of
February 2000. Pequot Capital Management, Inc. manages the funds and therefore
has the power to direct the vote of the common stock held by the funds, which
constitute more than 5% of our outstanding common stock. In addition, Jim
McNiel, one of our directors, is a Senior Vice President at Pequot Capital
Management, Inc., and Jerry Poch, also a director, is a Manager
Director/Portfolio Manager at Pequot Capital Management, Inc.
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DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consist of 300 million shares of common stock,
par value $0.0001 per share, and 20 million shares of preferred stock, no par
value.
The following is a summary of certain provisions of our common stock,
preferred stock, certificate of incorporation and bylaws. Copies of our articles
and bylaws are available from us upon request. See "Where You Can Find More
Information."
COMMON STOCK
As of December 31, 1999, there were 51,065,007 shares of common stock
outstanding, held by approximately 700 shareholders of record. All outstanding
shares of common stock are, and the common stock to be issued in this offering
will be, fully paid and nonassessable.
Each share of our common stock has identical rights and privileges in every
respect. The holders of our common stock are entitled to vote upon all matters
submitted to a vote of our shareholders and are entitled to one vote for each
share of common stock held. There are no cumulative voting rights.
Subject to the prior rights and preferences, if any, applicable to any
outstanding preferred stock, the holders of our common stock are entitled to
share equally in dividends and other distributions as may be declared from time
to time by the board of directors out of funds legally available for that
purpose, if any.
If we liquidate, dissolve or wind up, the holders of shares of common stock
will be entitled to share ratably in the distribution of all of our assets
remaining available for distribution after satisfaction of all our liabilities
and the payment of the liquidation preference of any outstanding preferred
stock.
The holders of our common stock have no preemptive or other subscription
rights to purchase shares of our stock, nor are they entitled to the benefits of
any redemption or sinking fund provisions.
PREFERRED STOCK
There are no shares of preferred stock outstanding. Our board of directors,
however, has authorized the issuance of 20 million shares of preferred stock in
one or more series, and to fix for each series, the designation of, and number
of shares to be included in, each such series, and our board of directors is
also authorized to set the 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.
Unless otherwise provided by our board of directors, the shares of all
series of preferred stock will rank on a parity with respect to the payment of
dividends and to the distribution of assets upon liquidation. Although we have
no present plans to issue any shares of or rights to purchase, preferred stock,
such issuance may have the effect of delaying, deferring or preventing a change
of control in our control or an unsolicited acquisition proposal. The issuance
of preferred stock also could decrease the amount of earnings and assets
available for distribution to the holders of common stock or could adversely
affect the rights and powers, including voting rights, of the holders of common
stock.
REGISTRATION RIGHTS
The holders of an aggregate of 52,106,156 shares of common stock that are
either outstanding or issuable upon the conversion of debentures or the exercise
of currently exercisable warrants or options, or their transferees, are entitled
to certain rights with respect to the registration of such shares under the
Securities Act.
We agreed to file a registration statement by April 30, 2000, in respect of
3,007,867 shares of common stock warrants and senior subordinated convertible
debentures issued to Thomas Kernaghan & Co. After May 1, 2000, Thomson Kernaghan
& Co. Limited may demand that we file such a registration statement, and on or
thereafter use our reasonable best efforts to effect such registration.
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We agreed to file a registration statement by June 29, 1999 in respect of
382,389 shares of our common stock underlying senior subordinated convertible
debentures and warrants we issued to Augustine Fund LP in March 1999 all of
which have converted into common stock. We also agreed to pay penalties for each
month thereafter that a registration statement is not filed. Since June 29,
1999, we have paid Augustine an aggregate of $23,000 in penalties, which we
offset from amounts owed to us upon the conversion of the debentures and the
exercise of the warrants. We continue to pay $7,000 in penalties each month
until the beginning of March 2000. Augustine has waived its registration rights
with respect to this offering.
We agreed to use our best efforts to file a registration statement by
January 31, 2000 covering 44,505 warrants issued to Global Equity Partners
Limited in conjunction with their debenture investment which has underlying
shares also subject to registration rights in May 1999. We are currently in
breach of our obligations under those warrants.
Pursuant to the terms of various subscription agreements, we agreed to file
a registration statement by September 7, 1999, covering securities issued in May
1999 to Commonwealth Associates, L.P. and various other investors, and to use
our best efforts to cause such registration statement to become effective by
November 7, 1999. As of January 31, 2000, 15,908,802 shares of common stock and
310,250 warrants were subject to those rights. Pursuant to the terms of certain
other subscription agreements, we agreed to file a registration statement by
April 1, 2000 covering securities issued in July 1999 to Commonwealth Associates
and various other investors, and to use our best efforts to cause such
registration statement to become effective as soon as practicable thereafter. As
of January 31, 2000, 2,727,272 shares of common stock and 3,186,805 warrants
were subject to those rights. We are currently in breach of those subscription
agreements.
We agreed to use our best efforts to file a registration statement by
January 31, 2000, in respect of 232,829 shares of common stock owned by Vincent
Romano and to use our best efforts to cause such registration statement to
become effective by March 31, 2000.
We agreed to file a registration statement by June 26, 2000 in respect of
2,160,307 shares of common stock acquired by the former shareholders of KNS
Holding Limited, and to cause such registration statement to become effective as
soon thereafter as practicable.
The holders of 9,090,909 shares of common stock and warrants that currently
allow their holders to purchase 3,320,979 shares of common stock acquired in an
October 1999 investment by Pequot Private Equity Fund II L.P. and certain other
investors, may demand after April 15, 2000 that we file a registration statement
covering at least 3% of our outstanding shares of common stock, or the number of
shares of common stock that have a combined market value of at least $5.0
million. If such a demand is made, the holders may, subject to our consent,
select the underwriters for the offering. We also granted those holders
piggyback registration rights allowing them to include their shares in a
registered offering made by us. At the same time, we granted piggyback
registration rights under the same terms, to Glen C. Holmes in respect of
8,500,000 securities owned or beneficially owned by him, including 7,200,000
shares held by the Holmes Trust, 1,200,000 shares issuable to the Holmes Trust
upon the satisfaction of certain performance criteria which management believes
have been satisfied, and 100,000 shares issuable to Mr. Holmes upon the exercise
of stock options. Mr. Holmes has waived his registration rights.
TBCC Funding Trust II has piggyback rights to require us to register 29,413
shares of common stock underlying its warrants if we file a registration
statement for our common stock. However, TBCC Funding Trust II has agreed to
waive any notice rights and any rights to participate in the offering. TBCC has
waived their registration rights with respect to this offering.
CPQ Holdings, Inc., has piggyback rights to require us to register 112,590
shares of common stock if we file a registration statement for our common stock.
Sicola, Martin, Koons & Frank, Inc., the holder of 53,552 shares of common
stock and warrants to purchase 33,467 shares of common stock, has the right to
request up to four times that we register their securities.
76
<PAGE> 80
EMC Corporation has piggyback rights to require us to register 13,140
shares of common stock underlying warrants.
We agreed to register 1,181,816 shares of common stock held by the selling
shareholders of CN Networks, Inc. by November 5, 2000.
We agreed to register 1,738,554 shares of our common stock held by the
selling shareholders of Async Technologies Inc. by November 26, 2000.
We also agreed to register 1,206,316 shares of common stock held by the
selling shareholders of Vertical Software, Inc. by January 31, 2001.
WARRANTS
There are currently warrants outstanding to purchase 7,973,242 shares of
our common stock. The warrants have exercise prices ranging from $1.11 per share
to $25.00 per share. The weighted average exercise price of all currently
outstanding warrants is $11.93 per share. The warrants have various expiration
dates, ranging from April 2000 to April 2006. Most outstanding warrants have an
anti-dilution clause, and most provide for registration rights.
LISTING
We are listed for quotation in the Nasdaq National Market under the symbol
"FTRL."
TRANSFER AGENT AND REGISTRATION
General Securities Transfer Agency of Albuquerque, New Mexico is the
transfer agent and registrar for our common stock.
77
<PAGE> 81
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of common stock in the public market, or the
perception that such sales could occur, could adversely affect the market price
of common stock and could impair our future ability to raise capital through the
sale of equity securities. Upon completion of this offering, we will have an
aggregate of 57,315,641 shares of our common stock outstanding, assuming no
exercise of the underwriters' overallotment option. In addition, we anticipate
issuing the following shares:
- 1,975,170 shares of our common stock issuable upon the closing of our
pending acquisition of Madison Technology Group and its affiliates,
- 1,072,940 shares of our common stock issuable upon the closing of our
acquisition of Charon Systems, Inc.,
- 2,426,102 shares of our common stock issuable upon the expected exercise
of outstanding warrants by Pequot Private Equity Fund II, LP and certain
other warrant holders,
- 2,400,000 shares of our common stock to the former shareholder of Micro
Visions pursuant to the agreement under which we acquired Micro Visions
for the achievement of certain performance criteria, and
- 439,740 shares of our common stock to the former shareholders of Async
Technologies pursuant to the agreement under which we acquired Async for
the achievement of certain performance criteria.
Upon completion of this offering, we will also have the following options,
warrants and convertible debentures outstanding:
- stock options for the purchase of 6,308,600 shares of our common stock at
a weighted average exercise price of $8.33 per share,
- warrants for the purchase of 8,041,963 shares of our common stock at a
weighted average exercise price of $7.72 per share (pro forma for the
expected exercise of outstanding warrants by Pequot Private Equity Fund
II, L.P. and certain other warrant holders), and
- 918,283 shares of our common stock issuable upon the conversion of $0.9
million aggregate principal amount of our convertible debentures at a
weighted average conversion price of $0.98 per share.
See "Capitalization," "Management -- Stock Option Plan," and the notes to
our consolidated financial statements.
All of the shares sold in this offering will be freely tradable, except
that any shares held by "affiliates" (as that term is defined in Rule 144 under
the Securities Act) may only be sold in the public market only if registered or
if they qualify for an exemption from registration under Rule 144, the
Securities Act, which is summarized below. The remaining 52,315,641 shares of
common stock that are currently outstanding and all of the shares described
above that we anticipate issuing will be deemed "restricted securities" as
defined in Rule 144.
After the date of this prospectus, 7,092,471 shares of our common stock
which are not being sold in this offering will be immediately eligible for sale
into the public market. The remaining 45,223,170 shares of our common stock will
eligible for sale into the public market at various times after the expiration
of one-year holding periods. Most of the restricted shares that will be
available for public resale after 180 days after the effective date will be
subject to volume and other resale restrictions pursuant to Rule 144 because the
holders are our affiliates.
LOCK-UP AGREEMENTS
Our officers, directors and stockholders holding an aggregate of
shares have agreed not to transfer or dispose of, directly or indirectly, any
shares of our common stock or any securities convertible into or exercisable or
exchangeable for shares of our common stock without the prior written consent of
Bears, Stearns & Co. Inc. for a period of 180 days after the date of this
prospectus.
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<PAGE> 82
RULE 144
In general, under Rule 144 as currently in effect, a person who has
beneficially owned restricted securities for at least one year, including
persons who may be deemed our "affiliates", would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of 1% of
the number of shares of common stock then outstanding or the average weekly
trading volume of the common stock on all exchanges and/or reported through the
automated quotation system of a registered securities association during the
four calendar weeks immediately preceding the SEC filing with respect to such
sale. Such sales are also subject to certain manner of sale provisions, notice
requirements and the availability of current public information about us.
However, if a person (or persons whose shares are aggregated) is not deemed to
have been our affiliate at any time during the 90 days immediately preceding the
sale, he or she may sell his or her restricted shares under Rule 144(k) without
regard to the limitations described above if at least two years have elapsed
since the later of the date the shares were acquired from us or from our
affiliate. The foregoing is a summary of Rule 144 and is not intended to be a
complete description of it.
79
<PAGE> 83
RULE 144(k)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an affiliate, is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
RULE 701
In general, under Rule 701 of the Securities Act as currently in effect,
any of our employees, consultants or advisors who purchases shares from us in
connection with a compensatory stock or option plan or other written agreement
is eligible to resell such shares 90 days after the effective date of this
offering in reliance on Rule 144, but without compliance with certain
restrictions, including the holding period, contained in Rule 144.
69.1
<PAGE> 84
UNDERWRITING
The underwriters named below have agreed, subject to the terms and
conditions of the underwriting agreement, to purchase from us the number of
shares of common stock set forth opposite its name below:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
Bear, Stearns & Co. Inc.....................................
---------
Fleet Boston Robertson Stephens Inc. .......................
---------
CIBC World Markets Corp. ...................................
---------
C.E. Unterberg, Towbin......................................
---------
Total............................................. 5,000,000
=========
</TABLE>
Subject to the terms and conditions of the underwriting agreement, the
underwriters have agreed to purchase all of the shares of common stock being
sold pursuant to the underwriting agreement if any of such shares are purchased
(excluding shares covered by the overallotment option).
The underwriters have advised us that they propose to offer the common
stock to the public initially at the public offering price set forth on the
cover page of this prospectus and to certain dealers at such price less a
concession of not more than $ per share. Additionally, the underwriters may
allow, and such dealers may reallow, a discount of not more than $ per
share on sales to certain other dealers. After the public offering of the
shares, the offering price and other selling terms may be changed by the
underwriters.
We have granted the underwriters an option to purchase up to 750,000
additional shares of common stock at the public offering price, less the
underwriting discounts and commissions set forth on the cover page of this
prospectus, solely to cover overallotments, if any. This option may be exercised
in whole or in part at any time within 30 days after the date of this
prospectus. To the extent that the underwriters exercise this option, each
underwriter will have a firm commitment, subject to certain conditions, to
purchase a number of shares of common stock proportionate to such underwriter's
purchase obligations set forth in the foregoing table.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by us. Such amounts are shown
assuming both no exercise and full exercise of the underwriters option to
purchase additional shares.
<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per share................................................... $ $
Total....................................................... $ $
</TABLE>
The offering of the shares is made for delivery, when, as and if accepted
by the underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
Certain of our executive officers and directors, who beneficially own in
the aggregate shares of common stock, have agreed that they will
not, without the prior written consent of Bear, Stearns & Co. Inc., directly or
indirectly, issue, sell, offer or agree to sell, grant any option for the sale
of, pledge, make any short sale of, maintain any short position with respect to,
establish or maintain a "put equivalent position" (within the meaning of Rule
16a-1(h) under the Securities Exchange Act of 1934, as amended) with respect to,
enter into any swap, derivative transaction or other arrangement that transfers
any of the economic consequences of ownership of any shares of common stock or
any securities convertible into, exercisable into or exchangeable for common
stock beneficially owned by them during the 180-day period following the date of
this prospectus.
We have agreed that we will not, without the prior written consent of Bear,
Stearns & Co. Inc., directly or indirectly, issue, sell, offer or agree to sell,
grant any option for the sale of, pledge, make any short sale of, maintain any
short position with respect to, establish or maintain a "put equivalent
position"
82
<PAGE> 85
(within the meaning of Rule 16a-1(h) under the Securities Exchange Act of 1934,
as amended) with respect to, enter into any swap, derivative transaction or
other arrangement that transfers any portion of the economic consequences of any
shares of common stock or any securities convertible into, exercisable into or
exchangeable for common stock during the 180-day period following the date of
this prospectus, except that we may issue shares of common stock and options to
purchase common stock under our stock option and stock purchase plans and upon
exercise of warrants issued and outstanding on the date of this prospectus, and
may issue stock in connection with strategic relationships and in connection
with acquisitions of businesses, technologies or products complementary to those
of our company, so long as the recipients of such stock agree to be bound by a
lock-up agreement for the remainder of the 180-day lock-up period.
In August of 1998, Canadian Imperial Bank of Commerce, the parent company
of CIBC World Markets Corp., extended us a $680,000 credit line for general
business purposes. In August of 1999, The Canadian Imperial Bank of Commerce
increased our credit line to $1.4 million. The Canadian Imperial Bank of
Commerce received customary fees under these arrangements.
CEUT Capital Partners I, L.P., an affiliate of C.E. Unterberg, Towbin,
holds 128,029 shares of our common stock and warrants to purchase 49,364 shares
of our common stock. This resulted from the conversion of 8% senior subordinated
notes and warrants which CEUT Capital Partners I, L.P. purchased from us in
connection with private offerings placed by Commonwealth Associates, Ltd.,
between April and July of 1999. These purchases were made upon the same terms
and conditions as were made with each of the other investors in the offerings.
We have agreed to indemnify the underwriters against certain civil
liabilities, including liabilities under the Securities Exchange Act of 1934 and
to contribute to payments the underwriters may be required to make in respect
thereof.
The underwriters have advised us that, pursuant to Regulation M promulgated
under the Securities Exchange Act of 1934, certain persons participating in the
offering may engage in transactions, including stabilizing bids, syndicate
covering transactions or the imposition of penalty bids, which may have the
effect of stabilizing or maintaining the market price of our common stock at a
level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of the common stock on behalf of
the underwriters for the purpose of pegging, fixing or maintaining the price of
the common stock. A "syndicate covering transaction" is a bid for or the
purchase of the common stock on behalf of the underwriters to reduce a short
position created in connection with the offering. The underwriters may also
cover all or a portion of such short position by exercising the overallotment
option. A "penalty bid" is an arrangement permitting the underwriters to reclaim
the selling concession otherwise accruing to an underwriter or syndicate member
in connection with the offering if the common stock originally sold by such
underwriter or syndicate member is purchased by the underwriters in a syndicate
covering transaction and has therefore not been effectively placed by such
underwriter or syndicate member. The underwriters have advised us such
transactions may be effected on the Nasdaq National Market or otherwise and, if
commenced, may be discontinued at any time.
We estimate that the total expenses of this offering, excluding
underwriting discounts and commissions, will be approximately $1.5 million.
72
<PAGE> 86
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for us by Paul, Hastings, Janofsky & Walker LLP, Costa Mesa, California.
Certain legal matters in connection with this offering will be passed upon for
the underwriters by Latham & Watkins, Los Angeles, California.
EXPERTS
The consolidated financial statements of FutureLink Corp. as of December
31, 1997 and 1998 and for each of the two years in the period ended December 31,
1998 and at September 30, 1999 and for the nine months ended September 30, 1999,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors and chartered accountants, as set forth
in their report thereon appearing elsewhere herein, and are included in reliance
upon such report given on the authority of such firm as experts in accounting
and auditing.
The financial statements of Executive LAN Management, Inc., dba Micro
Visions, as of December 31, 1997 and 1998 and for each of the two years in the
period ended December 31, 1998 and at September 30, 1999 and for the nine months
ended September 30, 1999, appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given on the authority of such firm as experts in
accounting and auditing.
The audited financial statements of CN Networks included in this
Registration Statement as at December 31, 1997 and 1998 and for the years then
ended have been audited by Moreland & Davis, C.P.A.s, independent auditors, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing.
The audited financial statements of Async Technologies included in this
Registration Statement as at December 31, 1997 and 1998 and for the years then
ended have been audited by M. Jevahirian & Co., independent auditors, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing.
The financial statements of KNS Holding Limited as of February 28, 1998 and
1999 and for each of the two years in the period ended February 28, 1999,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young, independent auditors and registered auditor, as set forth in
their report thereon appearing elsewhere herein, and are included in reliance
upon such report given on the authority of such firm as experts in accounting
and auditing.
The financial statements of Vertical Software, Inc. as of December 31,
1996, 1997 and 1998 and for each of the three years in the period ended December
31, 1998, appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report given on the authority of such firm as experts in accounting and
auditing.
The financial statements of Madison Consulting Resources, Inc. and Microlan
Systems, Inc. "DBA" Madison Technology Group as of December 31, 1997 and 1998
and for each of the two years in the period ended December 31, 1998 and Madison
Consulting Resources NJ, Inc. as of December 31, 1998, its initial year of
operations, appearing in this Prospectus and Registration Statement have been
audited by Joel E. Sammet & Co., independent auditors, as set forth in their
reports thereon appearing elsewhere herein, and are included in reliance upon
such reports given on the authority of such firm as experts in accounting and
auditing.
The financial statements of Charon Systems Inc. as of July 31, 1998 and
1999 and for each of the two years in the period ended July 31, 1999, appearing
in this Prospectus and Registration Statement have been audited by BDO Dunwoody
LLP, independent auditors and chartered accountants, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given on the authority of such firm as experts in account and
auditing.
84
<PAGE> 87
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form SB-2, of which this prospectus is a part, under the Securities
Act with respect to the shares of common stock offered hereby. This prospectus
does not contain all of the information included in the registration statement.
Statements contained in this prospectus concerning the provisions of any
document are not necessarily complete. You should refer to the copy of these
documents filed as an exhibit to the registration statement or otherwise filed
by us with the Securities and Exchange Commission for a more complete
understanding of the matter involved. Each statement concerning these documents
is qualified in its entirety by such reference.
We are also subject to the informational requirements of the Securities
Exchange Act of 1934. In accordance with the Exchange Act, we file reports,
proxy statements and other information with the Securities and Exchange
Commission. The registration statement, including the attached exhibits and
schedules, may be inspected and copied at the public reference facilities
maintained by the Securities and Exchange Commission, Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional
offices of the SEC located at Seven World Trade Center, New York, New York
10048, and 500 West Madison Street, Chicago, Illinois 60661. Please call the
Securities and Exchange Commission at 1-800-SEC-0330 for further information
about the public reference rooms. The Securities and Exchange Commission
maintains a website that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Securities and Exchange Commission. Copies of the registration statement and the
reports, proxy and information statements and other information that we file
with the Securities and Exchange Commission may be obtained from the Securities
and Exchange Commission's Internet address at http://www.sec.gov.
You may request a copy of these documents, at no cost, by writing or
telephoning us at the following address:
FutureLink Corp.
6 Morgan, Suite 100
Irvine, California, 92618
(949) 837-8252
85
<PAGE> 88
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
FINANCIAL STATEMENTS OF FUTURELINK CORP..................... F-4
December 31, 1997 and 1998, and September 30, 1999
Report of Independent Auditors......................... F-5
Consolidated Balance Sheets............................ F-6
Consolidated Statements of Operations.................. F-7
Consolidated Statements of Changes in Stockholders'
Equity (Deficit)...................................... F-8
Consolidated Statements of Cash Flows.................. F-9
Notes to Consolidated Financial Statements............. F-10
FINANCIAL STATEMENTS OF COMPLETED ACQUISITIONS:
EXECUTIVE LAN MANAGEMENT, INC. DBA MICRO VISIONS.......... F-34
December 31, 1997 and 1998, and September 30, 1999
Report of Independent Auditors......................... F-35
Balance Sheets......................................... F-36
Statements of Operations............................... F-37
Statements of Shareholders' Equity..................... F-38
Statements of Cash Flows............................... F-39
Notes to Financial Statements.......................... F-40
CN NETWORKS, INC. ........................................ F-46
December 31, 1997 and 1998
Report of Independent Accountants...................... F-47
Balance Sheets......................................... F-48
Statements of Income................................... F-49
Statements of Stockholders' Equity..................... F-
Statements of Cash Flows............................... F-50
Notes to Financial Statements.......................... F-51
September 30, 1999 and 1998
Report of Independent Accountants...................... F-55
Balance Sheets......................................... F-56
Statements of Income and Retained Earnings............. F-57
Statements of Cash Flows............................... F-58
Notes to Financial Statements.......................... F-59
ASYNC TECHNOLOGIES, INC. AND ASYNC TECHNICAL INSTITUTE,
INC. .................................................. F-63
December 31, 1997 and 1998
Independent Auditors' Report........................... F-64
Combined Balance Sheets................................ F-65
Combined Statements of Operations and Retained
Deficit............................................... F-66
Combined Statements of Cash Flows...................... F-67
Notes to Combined Financial Statements................. F-68
September 30, 1999 and 1998
Report of Independent Public Accountants............... F-71
Combined Balance Sheets................................ F-72
Combined Statements of Operations and Retained
(Deficit) Earnings.................................... F-73
Combined Statements of Cash Flows...................... F-74
Notes to the Combined Financial Statements............. F-75
KNS HOLDINGS LIMITED...................................... F-79
February 28, 1999 and 1998
Report of Independent Auditors......................... F-80
Combined Balance Sheets................................ F-81
Combined Profit and Loss Accounts...................... F-82
</TABLE>
F-1
<PAGE> 89
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Combined Statement of Movements in Shareholders'
Funds................................................. F-83
Combined Cash Flow Statements.......................... F-84
Reconciliation of Net Cash Flow to Movement in Net
Debt.................................................. F-85
Notes to the Accounts.................................. F-86
VERTICAL SOFTWARE, INC.................................... F-98
December 31, 1996, 1997 and 1998 and September 30, 1999
(Unaudited)
Report of Independent Auditors......................... F-99
Balance Sheets......................................... F-100
Statements of Operations............................... F-101
Statements of Stockholders' Equity..................... F-102
Statements of Cash Flows............................... F-103
Notes to Financial Statements.......................... F-104
MACROLAN SYSTEMS, INC. DBA MADISON TECHNOLOGY GROUP....... F-109
December 31, 1997 and 1998
Independent Auditor's Report........................... F-110
Balance Sheets......................................... F-111
Statements of Income................................... F-112
Statements of Stockholders' Equity..................... F-113
Statements of Cash Flows............................... F-114
Notes to the Financial Statements...................... F-115
September 30, 1999 and 1998
Independent Auditor's Report........................... F-119
Balance Sheets......................................... F-120
Statements of Income................................... F-121
Statements of Retained Earnings........................ F-122
Statements of Cash Flows............................... F-123
Notes to the Financial Statements...................... F-124
MADISON CONSULTING RESOURCES, INC......................... F-128
December 31, 1997 and 1998
Independent Auditor's Report........................... F-129
Balance Sheets......................................... F-130
Statements of Income................................... F-131
Statements of Shareholders' Equity..................... F-132
Statements of Cash Flows............................... F-133
Notes to Financial Statements.......................... F-134
September 30, 1999 and 1998
Independent Accountant's Review Report................. F-137
Balance Sheets......................................... F-138
Statements of Income................................... F-139
Statements of Retained Earnings (Deficit).............. F-140
Statements of Cash Flows............................... F-141
Notes to Financial Statements.......................... F-142
MADISON CONSULTING RESOURCES NJ, INC...................... F-145
December 31, 1998
Independent Auditor's Report........................... F-146
Balance Sheet.......................................... F-147
Statement of Income.................................... F-148
Statement of Stockholders' Equity...................... F-149
Statement of Cash Flows................................ F-150
</TABLE>
F-2
<PAGE> 90
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Notes to Financial Statements.......................... F-151
September 30, 1999 and 1998
Independent Accountant's Review Report................. F-153
Balance Sheets......................................... F-154
Statements of Income................................... F-155
Statements of Retained Earnings........................ F-156
Statements of Cash Flows............................... F-157
Notes to Financial Statements.......................... F-158
CHARON SYSTEMS, INC....................................... F-160
September 30, 1999 and 1998 (Unaudited) and July 31, 1999
and 1998
Auditors' Report....................................... F-161
Balance Sheets......................................... F-162
Statements of Operations and Retained Earnings......... F-163
Statements of Cash Flows............................... F-164
Summaries of Significant Accounting Policies........... F-165
Notes to the Financial Statements...................... F-166
</TABLE>
F-3
<PAGE> 91
FUTURELINK CORP.
FINANCIAL STATEMENTS
F-4
<PAGE> 92
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
FutureLink Corp.
We have audited the accompanying consolidated balance sheets of FutureLink
Corp. as at December 31, 1997, December 31, 1998, and September 30, 1999 and the
related consolidated statements of operations, changes in stockholders' equity
(deficit), and cash flows for the years ended December 31, 1997 and December 31,
1998 and the nine months ended September 30, 1999. 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 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 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 FutureLink Corp. as at
December 31, 1997, December 31, 1998, and September 30, 1999 and the results of
its operations and its cash flows for the years ended December 31, 1997,
December 31, 1998, and the nine months ended September 30, 1999 in conformity
with accounting principles generally accepted in the United States.
/S/ ERNST & YOUNG LLP
Chartered Accountants
Calgary, Canada
November 16, 1999,
except for Note 21 (g) as to which the date is
January 13, 2000, and Notes 21 (h) and (i) as
to which the date is February 11, 2000
F-5
<PAGE> 93
FUTURELINK CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- SEPTEMBER 30,
1997 1998 1999
----------- ----------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash........................................................ $ -- $ 6,651 $ 7,814,600
Accounts receivable......................................... -- 1,458,316 1,772,052
Due from related parties.................................... -- 73,781 57,784
Prepaid expenses and other current assets................... -- 116,218 209,624
Inventory................................................... -- 22,205 68,844
----------- ----------- ------------
Total current assets.................................. -- 1,677,171 9,922,904
----------- ----------- ------------
Equipment and leasehold improvements, net................... -- 1,122,923 2,597,222
Deposits on acquisitions.................................... -- -- 3,304,975
Investments................................................. -- -- --
Intangible assets........................................... -- 7,845,717 6,451,619
Other....................................................... -- -- 58,375
----------- ----------- ------------
Total assets.......................................... $ -- $10,645,811 $ 22,335,095
=========== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Bank indebtedness........................................... $ -- $ 819,217 $ --
Accounts payable and accrued liabilities.................... 23,932 2,787,383 2,525,916
Due to related parties...................................... -- 44,816 135,776
Other current liabilities................................... -- 453,711 416,165
Stockholder advance......................................... -- 319,071 --
----------- ----------- ------------
23,932 4,424,198 3,077,857
----------- ----------- ------------
Capital lease obligations................................... -- 30,262 27,612
Convertible debentures...................................... -- 2,153,457 22,170,366
Notes payable............................................... -- -- --
Deferred taxes.............................................. -- 1,211,634 854,673
----------- ----------- ------------
23,932 7,819,551 26,130,508
----------- ----------- ------------
Minority interest........................................... -- (11,141) --
Commitments and Contingencies
Stockholders' equity (deficit)
Preferred Stock, no par value:
Authorized shares -- 20,000,000
Issued and outstanding shares -- None................... -- -- --
Common Stock, $0.0001 par value
Authorized shares -- 300,000,000
Issued and outstanding shares -- 2,040,700, 4,908,072,
and 9,194,111 at December 31, 1997, December 31, 1998,
and September 30, 1999, respectively.................. 1,020 2,018 3,401
Common stock issuable; 23,051 shares...................... -- 50,000 --
Exchangeable shares of subsidiary......................... -- 2,550,000 --
Additional paid-in capital................................ 1,425,211 7,662,308 28,483,651
Loan receivable from employee............................. -- -- (1,750,000)
Unearned compensation..................................... -- -- (1,050,000)
Accumulated other comprehensive loss:
Cumulative foreign currency translation adjustment...... -- (96,468) (183,107)
Accumulated deficit....................................... (1,450,163) (7,330,457) (29,299,358)
----------- ----------- ------------
Total stockholders' equity (deficit).................. (23,932) 2,837,401 (3,795,413)
----------- ----------- ------------
Total liabilities and stockholders' equity
(deficit).......................................... $ -- $10,645,811 $ 22,335,095
=========== =========== ============
</TABLE>
See accompanying notes.
F-6
<PAGE> 94
FUTURELINK CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ --------------------------
1997 1998 1998 1999
---------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue:
Hardware and software..................... $ -- $ 965,452 $ 169,324 $ 1,459,987
Service delivery.......................... -- 1,471,206 453,530 3,576,728
---------- ----------- ----------- ------------
-- 2,436,658 622,854 5,036,715
---------- ----------- ----------- ------------
Costs and expenses:
Cost of hardware and software............. -- 879,927 143,991 1,332,891
Cost of service delivery.................. -- 3,661,606 2,527,457 5,460,470
Selling general and administrative........ 737,049 1,034,020 126,617 6,626,266
---------- ----------- ----------- ------------
Loss before interest, taxes, depreciation
and amortization of intangibles......... (737,049) (3,138,895) (2,175,211) (8,382,912)
---------- ----------- ----------- ------------
Interest expense and amortization of
deferred financing fees and debt
discount................................ -- 1,332,796 1,232,912 11,155,100
Depreciation and amortization of goodwill
and other intangible assets............. -- 786,852 166,856 1,943,297
Equity in loss of investee................ -- 826,360 807,279 --
---------- ----------- ----------- ------------
(737,049) (2,946,008) (2,207,047) (13,098,397)
---------- ----------- ----------- ------------
Loss before income taxes and extraordinary
item.................................... -- (6,084,903) (4,382,258) (21,481,309)
Deferred tax benefit...................... -- (204,609) (15,504) (356,960)
---------- ----------- ----------- ------------
Loss before extraordinary item............ (737,049) (5,880,294) (4,366,754) (21,124,349)
Extraordinary item........................ -- -- -- (844,552)
---------- ----------- ----------- ------------
Net loss.................................. $ (737,049) $(5,880,294) $(4,366,754) $(21,968,901)
========== =========== =========== ============
Loss per share -- basic and diluted
Loss before extraordinary item.......... $ (8.24) $ (1.86) $ (1.61) $ (3.23)
Extraordinary item...................... -- -- -- (.13)
---------- ----------- ----------- ------------
Net loss.................................. $ (8.24) $ (1.86) $ (1.61) $ (3.36)
========== =========== =========== ============
Weighted average shares................... 89,489 3,169,413 2,715,793 6,534,575
========== =========== =========== ============
</TABLE>
See accompanying notes.
F-7
<PAGE> 95
FUTURELINK CORP.
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
LOAN
COMMON STOCK COMMON ADDITIONAL RECEIVABLE
------------------ STOCK EXCHANGEABLE PAID-IN FROM UNEARNED
SHARES AMOUNT ISSUABLE SHARES CAPITAL EMPLOYEE COMPENSATION
--------- ------ --------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE JANUARY 1, 1997.... 500 $ 25 $ -- -- $ 1,216,712 $ -- $ --
Issuance of common
stock................... 200 10 -- -- 9,990 -- --
Change of par value from
.01 to .0001............ -- (35) -- -- 35 -- --
Issuance of common stock
for cash................ 2,040,000 1,020 -- -- 158,980 -- --
Forgiveness of stockholder
debt.................... -- -- -- -- 39,494 -- --
Loss for the year......... -- -- -- -- -- -- --
--------- ------ --------- ----------- ----------- ----------- -----------
BALANCE DECEMBER 31,
1997...................... 2,040,700 1,020 -- -- 1,425,211 -- --
Issuance of common stock
on acquisitions......... 1,158,000 154 -- 2,550,000 15,246 -- --
Forgiveness of stockholder
debt.................... -- -- -- -- 60,200 -- --
Issuance of common
stock................... 751,163 376 -- -- 2,963,924 -- --
Warrants issued with
issuance of convertible
debentures.............. -- -- -- -- 562,500 -- --
Common stock issued,
net..................... 133,752 67 -- -- 762,600 -- --
Common stock to be issued
on conversion of loan... -- -- 732,706 -- -- -- --
Forgiveness of stockholder
debt.................... -- -- -- -- 10,125 -- --
Issuance of common
stock................... 824,457 401 (682,706) -- 1,907,027 -- --
Financing fees associated
with converted
debentures.............. -- -- -- -- (44,525) -- --
Foreign currency
translation
adjustment.............. -- -- -- -- -- -- --
Loss for the year......... -- -- -- -- -- -- --
--------- ------ --------- ----------- ----------- ----------- -----------
BALANCE DECEMBER 31,
1998...................... 4,908,072 2,018 50,000 2,550,000 7,662,308 -- --
Additional shares due to
rounding on common share
reverse split........... 227 -- -- -- -- -- --
Equity components of
convertible debentures
and promissory notes,
net..................... -- -- -- -- 6,952,497 -- --
Warrants issued with
issuance of convertible
debentures and
promissory notes........ -- -- -- -- 6,353,767 -- --
Shares issued on
conversion of
convertible debt and
accrued interest........ 3,871,542 866 -- -- 4,455,561 -- --
Financing fees associated
with converted
debentures and
promissory notes........ -- -- -- -- (3,936,620) -- --
Discount associated with
converted debentures.... -- -- -- -- (26,747) -- --
Issuance of shares........ 101,858 486 (50,000) (2,550,000) 2,793,179 -- --
Warrants issued for
advisory services....... -- -- -- -- 2,069,270 -- (1,050,000)
Exercise of employee stock
options................. 27,500 3 -- -- 100,622 -- --
Exercise of warrants...... 52,083 5 -- -- 65,099 -- --
Common stock issued under
loan receivable from
employee................ 232,829 23 -- -- 1,999,977 (2,000,000) --
Forgiveness of loan
receivable from
employee................ -- -- -- -- -- 250,000 --
Issuance of 8% senior
subordinated convertible
promissory notes........ -- -- -- -- -- -- --
Share issue costs......... -- -- -- -- (5,262) -- --
Foreign currency
translation
adjustment.............. -- -- -- -- -- -- --
Loss for the period....... -- -- -- -- -- -- --
--------- ------ --------- ----------- ----------- ----------- -----------
BALANCE SEPTEMBER 30,
1999...................... 9,194,111 $3,401 $ -- -- $28,483,651 $(1,750,000) $(1,050,000)
========= ====== ========= =========== =========== =========== ===========
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE ACCUMULATED COMPREHENSIVE
LOSS DEFICIT TOTAL LOSS
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
BALANCE JANUARY 1, 1997.... $ -- $ (713,114) $ 503,623 $ --
Issuance of common
stock................... -- -- 10,000 --
Change of par value from
.01 to .0001............ -- -- -- --
Issuance of common stock
for cash................ -- -- 160,000 --
Forgiveness of stockholder
debt.................... -- -- 39,494 --
Loss for the year......... -- (737,049) (737,049) (737,049)
--------- ------------ ------------ ------------
BALANCE DECEMBER 31,
1997...................... -- (1,450,163) (23,932) (737,049)
Issuance of common stock
on acquisitions......... -- -- 2,565,400 --
Forgiveness of stockholder
debt.................... -- -- 60,200 --
Issuance of common
stock................... -- -- 2,964,300 --
Warrants issued with
issuance of convertible
debentures.............. -- -- 562,500 --
Common stock issued,
net..................... -- -- 762,667 --
Common stock to be issued
on conversion of loan... -- -- 732,706 --
Forgiveness of stockholder
debt.................... -- -- 10,125 --
Issuance of common
stock................... -- -- 1,224,722 --
Financing fees associated
with converted
debentures.............. -- -- (44,525) --
Foreign currency
translation
adjustment.............. (96,468) -- (96,468) (96,468)
Loss for the year......... -- (5,880,294) (5,880,294) (5,880,294)
--------- ------------ ------------ ------------
BALANCE DECEMBER 31,
1998...................... (96,468) (7,330,457) 2,837,401 (6,713,811)
Additional shares due to
rounding on common share
reverse split........... -- -- -- --
Equity components of
convertible debentures
and promissory notes,
net..................... -- -- 6,952,497 --
Warrants issued with
issuance of convertible
debentures and
promissory notes........ -- -- 6,353,767 --
Shares issued on
conversion of
convertible debt and
accrued interest........ -- -- 4,456,427 --
Financing fees associated
with converted
debentures and
promissory notes........ -- -- (3,936,620) --
Discount associated with
converted debentures.... -- -- (26,747) --
Issuance of shares........ -- -- 193,665 --
Warrants issued for
advisory services....... -- -- 1,019,270 --
Exercise of employee stock
options................. -- -- 100,625 --
Exercise of warrants...... -- -- 65,104 --
Common stock issued under
loan receivable from
employee................ -- -- -- --
Forgiveness of loan
receivable from
employee................ -- -- 250,000 --
Issuance of 8% senior
subordinated convertible
promissory notes........ -- -- -- --
Share issue costs......... -- -- (5,262) --
Foreign currency
translation
adjustment.............. (86,639) -- (86,639) (86,639)
Loss for the period....... -- (21,968,901) (21,968,901) (21,968,901)
--------- ------------ ------------ ------------
BALANCE SEPTEMBER 30,
1999...................... $(183,107) $(29,299,358) $ (3,795,413) $(28,769,351)
========= ============ ============ ============
</TABLE>
See accompanying notes.
F-8
<PAGE> 96
FUTURELINK CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
----------------------- --------------------------
1997 1998 1998 1999
--------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(737,049) $(5,880,294) $(4,366,754) $(21,968,901)
Adjustments to reconcile net loss to net cash used in
operating activities
Write off mining related assets......................... 515,000 -- -- --
Equity in loss of investee.............................. -- -- 807,279 --
Non cash interest expense............................... -- 1,294,098 1,205,357 7,321,543
Non cash consulting expense............................. -- 10,109 -- 875,000
Non cash expense included with contracts, payroll and
benefits expense...................................... -- 2,114,000 2,114,000 --
Depreciation............................................ -- 786,853 6,396 522,262
Amortization of deferred financing fees and debt
discount.............................................. -- 29,052 -- 3,334,982
Amortization of intangible assets....................... -- -- 160,460 1,421,035
Non cash compensation expense........................... -- -- -- 250,000
Loss on sale of assets.................................. -- 47,596 -- --
Extraordinary item...................................... -- -- -- 432,952
Other................................................... 100,000 125,832 -- 81,445
Deferred tax benefit.................................... -- (204,609) -- (356,961)
Net change in non-cash working capital.................. 17,059 1,187,747 (571,839) (193,349)
Non cash working capital acquired........................... -- (518,076) -- --
Other....................................................... -- (96,468) -- (58,376)
--------- ----------- ----------- ------------
Net cash flows used in operating activities............. (104,990) (1,104,160) (645,101) (8,338,368)
INVESTING ACTIVITIES
Advances to FutureLink Alberta.............................. -- -- (1,694,879) --
Purchases of equipment and leasehold improvements........... -- (818,699) (20,266) (2,273,412)
Disposition of assets....................................... -- 33,411 -- --
Cash consideration on acquisition of subsidiaries........... -- (2,019,149) (2,019,149) --
Deposits on acquisitions.................................... -- (109,923) -- (3,304,975)
Cash advances to investees.................................. -- (990,305) -- --
Other....................................................... (100,000) (69,435) -- (125,193)
--------- ----------- ----------- ------------
Net cash flows used in investing activities............. (100,000) (3,974,100) (3,734,294) (5,703,580)
FINANCING ACTIVITIES
Cash received/(paid) under line of credit................... -- 819,217 564,754 (819,217)
Issuance of common shares, net.............................. 170,000 681,308 764,885 (5,262)
Exercise of employee stock option........................... -- -- -- 100,625
Exercise of warrants........................................ -- -- -- 65,104
Repayment of capital lease obligations...................... -- (67,404) -- (30,604)
Issuance of convertible debentures, net of costs............ -- 2,465,916 2,025,000 24,771,320
Issuance of notes payable, net of issue costs............... -- -- -- 125,000
Repayment of convertible debentures and promissory notes.... -- -- -- (1,838,725)
Repayment of note payable................................... -- -- -- (381,033)
Other financing fees........................................ -- 89,000 -- (137,311)
Advances from stockholders.................................. 39,990 1,096,874 1,024,824 --
--------- ----------- ----------- ------------
Net cash flows provided by financing activities......... 204,990 5,084,911 4,379,463 21,849,897
INCREASE IN CASH............................................ -- 6,651 68 7,807,949
Cash at beginning of period................................. -- -- -- 6,651
--------- ----------- ----------- ------------
Cash at end of period....................................... $ -- $ 6,651 $ 68 $ 7,814,600
========= =========== =========== ============
Cash interest paid.......................................... $ -- $ -- $ 15,701 $ 230,707
========= =========== =========== ============
</TABLE>
See accompanying notes.
F-9
<PAGE> 97
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
1. BASIS OF PRESENTATION
THE COMPANY
The Company, a Delaware corporation, is the successor to a Colorado
corporation incorporated in 1955.
The Company is an information technology service provider focusing on
providing utility-like computing services to businesses, and is a computer
hardware and software reseller.
The Company has experienced net losses over the past three years and as of
September 30, 1999, had an accumulated deficit of approximately $29.3 million.
Such losses are attributable to both cash losses resulting from costs incurred
in the development of the Company's services and infrastructure and non cash
interest and amortization charges. The Company expects operating losses to
continue for the foreseeable future as it continues to develop and promote its
services. See Subsequent Events note to the consolidated financial statements.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, FutureLink Distribution Corp. ("FutureLink
Alberta") which is the result of mergers effective August 1, 1999 of FutureLink
Distribution Corp. ("Alberta"), FutureLink Acquisition Corp., and
FutureLink/SysGold Ltd. ("SysGold"). All significant intercompany accounts and
transactions have been eliminated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK AND KEY SUPPLIER
The Company sells the majority of its services and products throughout
North America. Sales to the Company's recurring customers are generally made on
an open account while sales to occasional customers may be made on a prepaid
basis. The Company performs periodic credit evaluations of its ongoing customers
and generally does not require collateral. Reserves are maintained for potential
credit losses, and such losses have been minimal and within management's
expectations.
Citrix Systems, Inc. ("Citrix") is one of the Company's key suppliers. The
Company uses Citrix software almost exclusively to connect its customers to
software applications.
INVENTORY
Inventory, consisting of computer hardware and software held for re-sale,
is recorded at the lower of actual cost or net realizable value.
F-10
<PAGE> 98
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are carried at cost. Depreciation and
amortization are provided on the straight-line method over the assets' estimated
useful lives ranging from 1 to 5 years.
LONG-LIVED ASSETS
The Company follows Financial Accounting Standards Board Statement 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.
INTANGIBLE ASSETS
EMPLOYEE AND CONSULTANTS BASE
The employee and consultants base recorded on the acquisition of SysGold is
recorded at cost and is being amortized on a straight-line basis over three
years.
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 consisting of cash paid and warrants issued associated with
that portion of 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 unamortized 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.
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company's subsidiaries as at September 30,
1999 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.
REVENUE
Revenue from information technology services and outsourcing contracts is
recognized when the service is delivered over the term of the applicable
contracts. Revenue from the resale of computer hardware and software is recorded
upon delivery.
F-11
<PAGE> 99
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
RELATED PARTY TRANSACTIONS
Related party transactions are recorded at the amounts agreed to by the
parties.
STOCK-BASED COMPENSATION
The Company accounts for stock-based awards to employees in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations and has adopted the disclosure-only
alternative of Financial Accounting Standards Board Statement No. 123,
"Accounting for Stock-Based Compensation."
EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is calculated by dividing net income (loss)
by the average number of common shares outstanding during the year. Diluted
earnings per share is calculated by adjusting outstanding shares, assuming any
dilutive effects of options, warrants, and convertible securities.
The following table sets forth the computation of loss per share:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ ---------------------------
1997 1998 1998 1999
--------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Numerator: net loss........... $(737,049) $(5,880,294) $(4,336,754) $(21,968,901)
--------- ----------- ----------- ------------
Denominator for basic and
diluted loss per common
share:
Weighted-average shares..... 89,489 3,169,413 2,715,793 6,534,575
========= =========== =========== ============
Loss per share -- basic and
diluted
Loss before extraordinary
item..................... $ (8.24) $ (1.86) $ (1.61) $ (3.23)
Extraordinary item.......... -- -- -- (.13)
--------- ----------- ----------- ------------
Net loss...................... $ (8.24) $ (1.86) $ (1.61) $ (3.36)
========= =========== =========== ============
</TABLE>
SEGMENTS OF A BUSINESS ENTERPRISE
Financial Accounting Standards Board Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information," 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. Statement No. 131 also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
The Company operates in one segment, information technology solutions.
F-12
<PAGE> 100
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
COMPREHENSIVE INCOME
We adopted Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130") in the first quarter of 1998. SFAS 130
establishes standards for the reporting and display of comprehensive income.
Components of comprehensive income include net earnings (loss), foreign currency
translation adjustments and changes in minimum pension liability. The adoption
of SFAS 130 required additional disclosures but did not have a material effect
on our financial position, results of operations or liquidity.
RECLASSIFICATIONS
Certain amounts in the comparative financial statements have been
reclassified to conform to the current period presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities," which
establishes new standards for recording derivatives in interim and annual
financial statements. This statement requires recording all derivative
instruments as assets or liabilities, measured at fair value. Statement No. 133,
as amended, is effective for all fiscal quarters of all fiscal years beginning
after June 15, 2000. Management does not anticipate that the adoption of the new
statement will have a significant impact on the consolidated results of
operations or financial positions of the Company.
3. ACCOUNTS RECEIVABLE
Accounts receivable is comprised of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- SEPTEMBER 30,
1997 1998 1999
-------- ---------- -------------
<S> <C> <C> <C>
Accounts receivable........................... $ -- $1,515,416 $1,946,502
Allowance for doubtful accounts............... -- (57,100) (174,450)
-------- ---------- ----------
$ -- $1,458,316 $1,772,052
======== ========== ==========
</TABLE>
4. OTHER CURRENT LIABILITIES
Other current liabilities is comprised of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1997 1998 1999
-------- -------- -------------
<S> <C> <C> <C>
Deferred revenues............................... $ -- $ -- $ 50,000
Notes payable................................... -- 387,795 --
Interest payable................................ -- -- 328,203
Capital lease obligations....................... -- 65,916 37,962
-------- -------- --------
$ -- $453,711 $416,165
======== ======== ========
</TABLE>
F-13
<PAGE> 101
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. DEPOSITS ON ACQUISITIONS
As at September 30, 1999, the Company paid the following amounts relating
to deposits and acquisition costs on the proposed acquisitions of Executive LAN
Management, Inc. ("Micro Visions"), CN Networks, Inc. ("CNI"), and Async
Technologies, Inc. ("Async"):
<TABLE>
<CAPTION>
ACQUISITION
DEPOSITS COSTS TOTAL
---------- ----------- ----------
<S> <C> <C> <C>
Micro Visions.................................. $2,000,000 $268,235 $2,268,235
CNI............................................ 390,000 20,665 410,665
Async.......................................... 600,000 26,075 626,075
---------- -------- ----------
$2,990,000 $314,975 $3,304,975
========== ======== ==========
</TABLE>
PROPOSED ACQUISITION OF MICRO VISIONS
On June 2, 1999, the Company signed an Agreement and Plan of Reorganization
and Merger with Micro Visions. The agreement provided for a merger of Micro
Visions with a subsidiary of the Company 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. On October 15,
1999, all conditions set forth in the Agreement had been satisfied or waived and
the acquisition and merger were completed.
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 of which items (ii) and (iii) have been
achieved thus far:
(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.
The acquisition 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 September 30, 1999, the purchase allocation would be as follows:
<TABLE>
<S> <C>
NET ASSETS ACQUIRED
Working capital deficiency.................................. $ (656,000)
Equipment and leasehold improvements and other assets....... 1,063,000
Goodwill.................................................... 52,017,673
-----------
NET ASSETS ACQUIRED......................................... $52,424,673
===========
CONSIDERATION:
Cash........................................................ $12,000,000
7,200,000 common shares..................................... 40,049,673
Estimated acquisition costs................................. 375,000
-----------
$52,424,673
===========
</TABLE>
F-14
<PAGE> 102
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The remaining consideration has not been reflected, 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.
PROPOSED ACQUISITION OF CNI
On September 7, 1999, the Company entered into an Agreement and Plan of
Reorganization and Merger with CNI. The Agreement provides for a merger of CNI
with a subsidiary of the Company such that all of CNI's outstanding stock shall
be sold to the Company in exchange for $3,900,000 cash and 1,181,816 common
shares. On November 5, 1999 all conditions set forth in the Agreement had been
satisfied or waived, the merger was completed, 1,181,816 shares were issued, and
the remaining $3,510,000 cash was paid.
The acquisition 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 September 30, 1999, the purchase allocation would be as follows:
<TABLE>
<S> <C>
NET ASSETS ACQUIRED
Working capital............................................. $ 435,383
Equipment and leasehold improvements and other assets....... 83,874
Goodwill.................................................... 13,005,743
-----------
NET ASSETS ACQUIRED......................................... $13,525,000
===========
CONSIDERATION:
Cash........................................................ $ 3,900,000
1,181,816 common shares..................................... 9,100,000
Estimated acquisition costs................................. 525,000
-----------
$13,525,000
===========
</TABLE>
PROPOSED ACQUISITION OF ASYNC
On September 7, 1999, FutureLink entered into an Agreement and Plan of
Reorganization and Merger with Async and Async Technical Institute, Inc.
("ATII"). The Agreement provides for an initial merger between Async and ATII,
with Async being the surviving entity, and then a subsequent merger of Async
with a subsidiary of the Company such that Async's outstanding stock shall be
sold to the Company in exchange for $6,000,000 cash and 1,298,705 common shares.
F-15
<PAGE> 103
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The acquisition, upon completion [See Note 21(g)] 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 September 30, 1999, the
purchase allocation would be as follows:
<TABLE>
<S> <C>
NET ASSETS ACQUIRED
Working capital deficiency.................................. $ (331,424)
Equipment and leasehold improvements and other assets....... 135,077
Goodwill.................................................... 16,721,347
-----------
NET ASSETS ACQUIRED......................................... $16,525,000
===========
CONSIDERATION:
Cash........................................................ $ 6,000,000
1,298,705 common shares..................................... 10,000,000
Estimated acquisition costs................................. 525,000
-----------
$16,525,000
===========
</TABLE>
6. INVESTMENTS
FUTURELINK ALBERTA
On January 20, 1998 the Company issued 308,000 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 334,755 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.
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 were as follows:
<TABLE>
<S> <C>
NET ASSETS ACQUIRED
Working capital deficiency.................................. $ (338,825)
Equipment and leasehold improvements........................ 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>
FutureLink Alberta was consolidated from November 24, 1998. 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 had income
from a minority interest of $33,771.
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 in exchange for 23,500 common shares of the Company. The difference
between the actual and pro forma information is not significant.
F-16
<PAGE> 104
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RIVERVIEW MANAGEMENT CORPORATION
Effective August 24, 1998, the Company acquired all of the outstanding
shares of Riverview Management Corporation ("SysGold"), an information
technology outsourcing and services firm. The consideration for the purchase,
totaling $5,003,887, including acquisition costs of $53,705, consisted of a cash
payment of $2,019,149, promissory notes payable for $381,033 ($585,000 Canadian)
payable on demand on or before 90 days after August 24, 1998, and 4,250,000
SysGold exchangeable shares which are exchangeable into 850,000 common shares of
the Company. The exchangeable shares had an ascribed value of $2,550,000. The
common shares issued are exchangeable shares in SysGold which are convertible at
any time into shares of the Company. The acquisition was accounted for using the
purchase method. Net assets acquired were as follows:
<TABLE>
<S> <C>
NET ASSETS ACQUIRED
Non cash working capital deficiency......................... $ (179,251)
Equipment and leasehold improvements........................ 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>
During 1999, the notes were paid in full and the 4,250,000 exchangeable
shares were exchanged for 850,000 common shares of the Company.
The results of operations for SysGold are consolidated as of August 24,
1998.
The following pro forma results of operations give effect to the
acquisition of Sysgold as if the transaction has occurred January 1, 1998, and
includes the amortization of goodwill and employee and consultants base
calculated on a straight-line basis over a period of 5 years:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
-----------------
<S> <C>
Revenue..................................................... $ 8,587,094
===========
Net loss.................................................... $(6,692,201)
===========
Loss per share.............................................. $ 2.11
===========
</TABLE>
F-17
<PAGE> 105
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are comprised of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1997 1998 1999
-------- ---------- -------------
<S> <C> <C> <C>
Computers and equipment........................... $ -- $ 605,830 $1,846,940
Software.......................................... -- 185,406 561,135
Office equipment.................................. -- 181,384 503,952
Equipment under capital lease..................... -- 135,740 137,735
Leasehold improvements............................ -- 218,018 299,103
-------- ---------- ----------
-- 1,326,378 $3,348,865
Less accumulated depreciation and amortization.... -- (203,455) (751,643)
-------- ---------- ----------
$ -- $1,122,923 $2,597,222
======== ========== ==========
</TABLE>
8. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
1997 1998 1999
---------- ---------- -------------
<S> <C> <C> <C>
Goodwill......................................... $ -- $5,313,334 $ 5,340,271
Employee and consultants lease................... -- 3,200,000 3,200,000
---------- ---------- -----------
-- 8,513,334 8,540,271
Less accumulated amortization.................. -- (667,617) (2,088,652)
---------- ---------- -----------
$ $7,845,717 $ 6,451,619
========== ========== ===========
</TABLE>
The $3,200,000 relating to employee and consultants base represents the
valuation placed on the knowledge, expertise, and contacts of employees and
consultants of SysGold.
F-18
<PAGE> 106
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. CAPITAL AND OPERATING LEASE OBLIGATIONS PAYABLE
The Company has various leases for office premises which expire on January
31, 2000 and January 31, 2002. The future minimum lease payments at September
30, 1999 under capital and operating leases are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ----------
<S> <C> <C>
1999........................................................ $ 12,484 $ 147,309
2000........................................................ 40,382 554,352
2001........................................................ 20,624 495,190
2002........................................................ 2,251 46,099
2003........................................................ -- 192
-------- ----------
Total future minimum lease payments......................... 75,741 $1,243,142
==========
Less: imputed interest...................................... (10,167)
--------
Balance of obligations under capital lease.................. 65,574
Less: current portion included in accounts payable and
accrued liabilities....................................... (37,962)
--------
Long-term obligations under capital lease................... $ 27,612
========
</TABLE>
Rent expense was $0, $118,471, $19,999, and $508,649 for the years ended
December 31, 1997 and 1998 and the nine months ended September 30, 1998 and
1999, respectively.
10. LINE OF CREDIT
As of September 30, 1999, FutureLink Alberta has a line of credit with a
Canadian chartered bank for approximately $1.4 million ($2,100,000 Canadian)
which the Company has guaranteed. Interest on the line of credit is based on a
range of the bank's prime rate plus 1% to 3% depending on FutureLink Alberta's
debt to equity ratio. Substantially all the assets of FutureLink Alberta have
been pledged as collateral. The amount outstanding on the line of credit at
September 30, 1999 is approximately $1.4 million.
11. CONVERTIBLE DEBENTURES
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1997 1998 1999
----------- ---------- -------------
<S> <C> <C> <C>
LONG-TERM
10% TK convertible debentures........................... $ -- $2,153,457 $ 1,678,344
8% Senior subordinated convertible promissory notes..... -- -- 15,000,000
8% Senior subordinated convertible promissory notes..... -- -- 5,259,043
10% Convertible debentures.............................. -- -- 232,979
----------- ---------- -----------
$ -- $2,153,457 $22,170,366
=========== ========== ===========
</TABLE>
F-19
<PAGE> 107
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10% TK convertible debentures
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
1997 1998 1999
---------- ---------- -------------
<S> <C> <C> <C>
Principal............................................ $2,050,000 $2,220,000 $2,500,000
Discount on debt..................................... -- -- (977,830)
Deferred financing fee............................... -- (222,073) --
Accrued interest..................................... 20,602 155,530 156,174
---------- ---------- ----------
Net balance.......................................... $2,070,602 $2,153,457 $1,678,344
========== ========== ==========
</TABLE>
During 1998 the Company entered into a 10% convertible debenture agreement
with Thomson Kernaghan & Co. Ltd. ("TK") as agent, to provide up to $5,000,000
of financing. The financing included the issuance of 208,333 share purchase
warrants. During the nine month period to September 30, 1998, the Company
received $2,250,000 under the financing arrangement. On September 21, 1998,
$200,000 of the convertible debentures, together with accrued interest were
converted into 133,752 common shares. During the fourth quarter of 1998, an
additional $470,000 of funding was received and $300,000 plus $5,042 of accrued
interest was converted into 241,203 common shares.
During the first quarter of 1999, the Company received the final $2,280,000
under the $5,000,000 facility. In addition, the Company amended the terms of the
10% TK convertible debentures which increased the total available financing from
$5,000,000 to $6,000,000 following which the Company received an additional
$970,000. In addition, an additional 129,534 warrants were issued which were
recorded to contributed surplus at a value of $129,500 based on the fair value
of the warrants with an offsetting entry to discount on debt.
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.
Of this amount, $911,990 relates to debentures received during the nine months
ended September 30, 1999. The amount attributed to the conversion option has
been included in interest expense as the conversion option was exercisable upon
issuance.
During 1999, $1,500,000 of the convertible debentures, together with
$61,486 of accrued interest, were converted into 1,197,054 common shares.
On April 26, 1999, the Company amended the terms of the 10% TK convertible
debenture agreement. 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. Following 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 of $4.80 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.
During the nine month period ended September 30, 1999, an amount of
$844,552 has been recorded as an extraordinary item relating to the loss on
extinguishment of debt and includes $259,318 unamortized finance fees and
$173,634 unamortized debt discount associated with the $3,470,000 of debt
existing at the time, 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
F-20
<PAGE> 108
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 $222,170 has been amortized to September 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 nine month
period ended September 30, 1999, the Company issued 36,706 shares as payment for
$76,365 of accrued interest.
During the three month period ended September 30, 1999, 52,083 common
shares were issued on the exercise of 52,083 warrants.
$15,000,000 aggregate principal amount of 8% senior subordinated convertible
promissory notes
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
-------------
<S> <C>
Principal................................................... $15,000,000
-----------
Net balance at September 30, 1999........................... $15,000,000
===========
</TABLE>
On July 27, 1999, the Company completed a closing of 8% senior subordinated
convertible promissory notes (the "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 at least $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, and will be converted at the same
price and terms as that private placement.
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, they 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 $1,350,000 cash and issued 225,000 warrants to the
placement agent as a finance fee. These warrants are exercisable at $8.50 per
share and expire July 27, 2001. Additional issue costs of $42,592 were incurred.
F-21
<PAGE> 109
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The 2,475,000 warrants issued under this offering were recorded as a
component of equity since it was known that the notes would convert into the
securities of a subsequent offering. Accordingly, no amount has been recorded to
capital in excess of par.
F-22
<PAGE> 110
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Subsequent to September 30, 1999 and following a private placement (see
note 21c), the $15,000,000 promissory notes converted into 2,727,273 common
shares at $5.50 per share and 711,818 warrants at an exercise price of $8.50 per
share.
$8,038,500 aggregate principal amount of 8% senior subordinated convertible
promissory notes
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
-------------
<S> <C>
Principal................................................... $5,736,000
Discount on debt............................................ (383,164)
Deferred financing fee...................................... (93,793)
----------
Net balance at September 30, 1999........................... $5,259,043
==========
</TABLE>
On May 7, 1999, the Company completed a $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 of
the subsequent offering; or (ii) $1.00 per common share. Such conversion is
conditional 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 with an
offsetting entry to interest expense.
An amount of $3,195,848 has been included as a discount on debt and is
being amortized to expenses 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 (i) a registration statement is declared effective
by the Securities and Exchange Commission; and (ii) 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.
Issue costs of $780,173 were paid relating to the issuance of the
debentures and were recorded as a discount on debt. The amount is being
amortized over the estimated life of the debentures. 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 expire on April 29, 2006.
F-23
<PAGE> 111
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On August 20, 1999, $2,302,500 of the convertible promissory notes were
converted into 2,291,221 common shares.
Subsequent to September 30, 1999, $5,090,500 notes were converted into
5,988,824 common shares. Also subsequent to September 30, 1999, a further
269,556 common shares were issued to those noteholders which had converted on
August 20, 1999 due to the notes having anti-dilution provisions. The subsequent
issuance of securities at terms and conditions preferential to that of the
promissory notes resulted in the additional common shares. These anti-dilution
privileges also resulted in the remaining $645,500 unconverted notes having a
conversion price of $0.89 for noteholders and $1.34 for management.
10% Convertible debentures
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
-------------
<S> <C>
Principal................................................... $278,164
Discount on debt............................................ (36,180)
Deferred financing fee...................................... (20,209)
Accrued interest............................................ 11,204
--------
Net balance at September 30, 1999........................... $232,979
========
</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 to expenses over the life of the debentures.
12. STOCKHOLDERS' EQUITY
On June 1, 1999, the Company completed a reverse stock split of 5 to 1. On
October 15, 1999 the Company amended its authorized preferred shares from
5,000,000 to 20,000,000 and its authorized common shares from 100,000,000 to
300,000,000. All amounts disclosed in these financial statements have been
restated to give effect to these transactions.
F-24
<PAGE> 112
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
COMMON STOCK
During the first quarter of 1999, the Company issued $301,241 aggregate
principal amount of its 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.
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
debenture holder. During the third quarter, $34,055 of principal and interest
was repaid and $55,125 of principal and interest was converted into 27,431
common shares such that the full principal and interest relating to the note has
been settled.
During the first quarter of 1999, the Company issued $500,000 aggregate
principal amount of its 8% convertible debentures, due February 28, 2002,
convertible at $1.51 per share. 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 8% convertible debentures. Common stock can be purchased at $1.88 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 was recorded as a discount
on debt and was being amortized to expenses over the life of the convertible
debentures.
On August 21, 1999, $500,000 of principal and $37,314 of accrued interest
and other fees were converted into 355,836 common shares.
During the nine month period ended September 30, 1998, the Company issued
51,163 common shares and 51,163 warrants for $846,800 cash. Of the warrants,
16,667 are exercisable at $15.00 on or before January 29, 1999 and at $15.50 on
or before January 29, 2000; 21,163 are exercisable at $18.75 on or before April
3, 1999 and at $20.00 on or before April 3, 2000; and 13,333 are exercisable at
$16.25 on or before April 22, 2000. As at September 30, 1999 none of the
warrants have been exercised.
On July 27, 1998, the Company issued 700,000 shares to employees, officers
and directors of the Company for $3,500. The fair value of these shares at that
time was $2,117,500. The difference between the fair value and the cash
consideration received has been included with capital in excess of par and with
expenses under contracts, payroll and benefits.
During 1998, a stockholder advanced the Company $729,802. Interest incurred
on the loan to July 2, 1998 in the amount of $2,849 was 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 225,448
common shares with an ascribed value of $732,651, and an equal number of
warrants. Each warrant entitles the holders to purchase one common share at
$5.00 on or before June 30, 1999 and $6.25 on or before June 30, 2000. As at
September 30, 1999 none of the warrants have been exercised.
F-25
<PAGE> 113
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LOAN RECEIVABLE FROM EMPLOYEE
On August 1, 1999, the Company loaned $2,000,000 to an executive which was
then used by the executive to purchase 232,829 common shares of the Company. The
loan receivable has been recorded as a reduction of stockholders' equity. The
common shares are escrowed. On October 1, 1999, 29,129 shares were 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.
The loan bears interest at 5.625% per year. Interest is payable annually;
however, should the executive be employed at the end of each annual period, the
interest will be forgiven at such time. Interest earned by the Company for the
nine months ended September 30, 1999 was $18,750.
During the nine months ended September 30, 1999, the Company recognized
$250,000 as salary expense relating to the services received from the employee
in relation to the loan agreement.
UNEARNED COMPENSATION
During 1998, the Company entered into an agreement for consulting services
which provided for the settlement of fees by way of shares in the Company's
stock. The number of shares issued was based on 95% of the average closing price
of the Company's stock during the trading days for 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 23,051 shares. During 1999, the 23,051 shares were issued along with
an additional 41,652 shares relating to services performed in 1999.
OPTIONS
As of September 30, 1999, the Company has issued 5,385,500 options to
purchase common stock to the Company's directors, officers and employees. Of the
total issued, 27,500 have been exercised and 107,600 had expired or been
cancelled. The maximum number of shares that may be issued pursuant to options
is 11,000,000 and cannot exceed 20% of the common stock issued and outstanding
on a fully diluted basis. Details of the stock options outstanding at September
30, 1999 are as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTIONS EXERCISE PRICE EXPIRATION DATE
----------------- -------------- ----------------
<S> <C> <C>
543,500................................ 3.80 June 29, 2001
160,000................................ 5.85 August 5, 2001
5,000................................ 2.25 December 1, 2001
5,000................................ 2.25 December 1, 2002
44,900................................ 2.25 April 1, 2004
265,000................................ 1.40 April 1, 2004
2,147,000................................ 3.15 June 1, 2004
600,000................................ 5.00 June 1, 2004
880,000................................ 6.08 June 1, 2004
600,000................................ 7.56 August 30, 2004
- ---------
5,250,400
=========
</TABLE>
The fair value of each option granted during 1999 is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
assumptions: expected volatility of 146% - 205%; risk-free interest rate of
4.0%; no payment of common share dividends; and expected life of 1 to 5 years.
F-26
<PAGE> 114
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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
F-27
<PAGE> 115
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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
$2.96 and for the nine month period ended September 30, 1999 would have been
$27,124,287 and $4.15. The net loss and net loss per common share for the year
ended December 31, 1997 is not significant.
During the year ended December 31, 1998, the Company issued 255,813 shares
for $846,800 cash. An additional 3,500,000 shares were issued to employees,
officers and directors of the Company on July 7, 1998 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.
13. INCOME TAXES
The income tax benefit differs from the amount computed by applying the
U.S. federal statutory tax rates to the loss before income taxes for the
following reasons:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ --------------------------
1997 1998 1998 1999
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Tax benefit at U.S. statutory rate
(34%)................................ $(250,597) $(2,068,868) $(1,489,968) $(7,590,793)
Increase (decrease) in taxes resulting
from:
Deferred tax asset valuation
allowance......................... 294,820 1,690,192 1,496,047 4,178,596
Equity loss on affiliate............. -- -- 360,208 --
U.S. state taxes..................... (44,223) (120,665) -- (505,127)
Non deductible expenses.............. -- 541,030 83,605 4,305,780
Foreign tax rate differences......... -- (257,895) (465,396) (745,416)
Other................................ -- 11,597 -- --
--------- ----------- ----------- -----------
Deferred tax benefit................... $ -- $ (204,609) $ (15,504) $ (356,960)
========= =========== =========== ===========
</TABLE>
F-28
<PAGE> 116
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Deferred income taxes reflect the net taxes of temporary differences
between the carrying amounts of the assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The components
of the companies deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- SEPTEMBER 30,
1997 1998 1999
------------ ------------ -------------
<S> <C> <C> <C>
Deferred tax assets (liabilities):
Employee and consultants base........... $ -- $(1,211,634) $ (854,673)
--------- ----------- -----------
Deferred tax assets
Net operating loss carryforwards.......... 40,000 1,904,583 4,863,601
Start-up costs............................ 48,820 39,715 29,591
Write-off of mining related assets........ 206,000 206,000 206,000
Depreciation.............................. -- 77,017 324,484
Debt issue costs.......................... -- 23,327 --
Debenture receivable...................... -- 22,564 22,564
--------- ----------- -----------
Total deferred tax assets....... 294,820 2,273,206 5,446,240
Valuation allowance....................... (294,820) (2,273,206) (5,446,240)
--------- ----------- -----------
Net deferred tax assets................... -- -- --
--------- ----------- -----------
Net deferred tax liabilities.............. $ -- $(1,211,634) $ (854,673)
========= =========== ===========
</TABLE>
F-29
<PAGE> 117
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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. When recognized, $288,194 of the valuation allowance will reduce
goodwill. The remaining balance may be available to offset future tax expense.
The Company has U.S. net operating losses carried forward of $7,201,000
which expire from 2012 to 2019.
The availability of these loss carryforwards to reduce future taxable
income could be subject to limitations under Section 382 of 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.
The Company has non-capital losses carried forward for Canadian income tax
purposes of $6,849,000. These losses expire as follows:
<TABLE>
<S> <C>
2002..................................................... $ 123,000
2003..................................................... 563,000
2004..................................................... 1,868,000
2005..................................................... 906,000
2006..................................................... 3,389,000
</TABLE>
14. RELATED PARTY TRANSACTIONS
(a) On August 1, 1999, the Company loaned $2,000,000 to an executive of the
Company which was used to purchase 232,829 common shares from Treasury (see note
12).
(b) During the nine months ended September 30, 1999, management of the
Company participated in the 8% senior subordinated convertible promissory note
offering by way of purchasing notes totaling $433,000 (see note 11).
(c) During the nine months ended September 30, 1999, the Company provided
services and products of $30,292 ($45,117 Canadian) to Jaws Technologies Inc.,
an entity of which a Director was also a Director of the Company. An amount of
$43,571 ($63,927 Canadian) is owing from Jaws Technologies Inc. as at September
30, 1999.
In addition, the Company obtained services from Jaws Technologies Inc. in
the amount of $2,031 ($3,025 Canadian). As at September 30, 1999 $2,206 ($3,237
Canadian) remains owing by the Company.
During the year end December 31, 1998, the Company provided services and
products of $40,277 ($59,735 Canadian) to Jaws Technologies Inc. An amount of
$37,002 ($56,735 Canadian) was owing from Jaws Technologies Inc. at December 31,
1998.
(d) During the nine months ended September 30, 1999, the Company provided
services and products of $267,439 ($398,323 Canadian) to Willson Stationers Ltd.
and e-Supplies Inc., related entities of which a previous Director was also a
Director of these companies. As at September 30, 1999, $488,135 ($716,192
Canadian) remains owing from these entities. An allowance for doubtful accounts
of $473,922 ($695,339 Canadian) has been recorded due to the uncertainty of
collection.
During the year ended December 31, 1998, the Company provided services and
products of $63,561 ($94,267 Canadian) to Willson Stationers Ltd. As at December
31, 1998 an amount of $58,909 ($90,325 Canadian) was owing from Willson
Stationers Ltd.
F-30
<PAGE> 118
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In addition, the Company obtained $20,857 ($31,077 Canadian) of products
from Willson Stationers Ltd. during the period. As at September 30, 1999,
$26,382 ($38,707 Canadian) remains owing by the Company. As at December 31, 1999
an amount of $4,976 ($7,630 Canadian) was owing.
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
--------------------- -------------
1997 1998 1999
--------- -------- -------------
<S> <C> <C> <C>
Due from related party......................... $ -- $131,294 $ 531,706
Allowance for doubtful accounts................ -- (57,513) (473,922)
--------- -------- ---------
$ -- $ 73,781 $ 57,784
========= ======== =========
</TABLE>
(e) 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%,
totaling $2,854 and $10,145 to September 30, 1998 and December 31, 1998,
respectively, was 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 was outstanding at year end. These amounts
were repaid during 1999.
(f) During the third quarter of 1999, the Company obtained services from
Micro Visions relating to consulting work performed in connection with the
Company's overall expansion of application service provider and server based
computing services. The services provided by Micro Visions were charged on
normal commercial terms and conditions. The total value of these services was
$107,188, all of which remained outstanding at September 30, 1999.
15. NET CHANGE IN NON-CASH WORKING CAPITAL
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------- ------------------------
1997 1998 1998 1999
------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
(Increase) decrease in non-cash working
capital:
Accounts receivable.......................... $ -- $(1,532,095) $(1,100,475) $(278,991)
Inventory.................................... -- (22,206) (25,880) (46,639)
Prepaid expenses and deposits................ -- (116,219) (74,167) (77,004)
Interest receivable.......................... -- -- -- (18,750)
Accounts payable and accrued liabilities..... 17,059 2,874,183 809,194 (170,507)
Deferred revenue............................. -- -- -- 50,000
Interest payable............................. -- -- (180,511) 340,703
------- ----------- ----------- ---------
17,059 1,203,663 (571,839) (201,188)
Attributable to investing and financing
activities................................... -- (15,916) 7,839
------- ----------- ----------- ---------
Attributable to operating activities........... $17,059 $ 1,187,747 $ (571,839) $(193,349)
======= =========== =========== =========
</TABLE>
16. 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
2,000,001 warrants. An amount of $1,800,000 has been included in additional
paid-in capital as the estimated value of the warrants with an offset to
shareholders' equity as warrants for services. As the amount relates to services
for a one year period, $150,000 per month is being amortized as consulting
expense.
F-31
<PAGE> 119
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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
additional paid-in capital 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 additional paid-in capital as the estimated value
of the warrants. Of this amount, $159,722 has been charged to additional paid-in
capital 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 $4.00 per common share and
expire on April 29, 2002.
17. CONTINGENCIES
A statement of claim has been filed against the Company in the amount of
approximately $340,000 ($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 of the Company 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 $194,000 ($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 $266,000 ($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 $68,000 ($100,000 Canadian). These financial
statements contain no provision for losses related to the claims.
A statement of claim was filed against the Company's subsidiary, SysGold
(now merged into FutureLink Alberta) by TAP Consulting Ltd. in the amount of
$102,000 ($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 SysGold.
The Company is currently in discussion with certain shareholders and
ex-employees with respect to various issues, including employment related
matters and other claims. These parties seek additional compensation in the form
of cash and options. Formal statements of claim have not been filed against the
Company with respect to these matters. At this time, management is unable to
determine the amount, if any, it will be required to pay to settle these issues.
In November, 1999 the Company received correspondence from a party making
claims under a letter agreement seeking further compensation for financing
transactions completed by the Company. The Company is not aware of formal
litigation having been filed with respect to these matters, however, the party
claims an entitlement to cash fees totaling $5,129,733 as well as warrants to
purchase an aggregate of 3,289,689 common shares of the Company at exercise
prices ranging from $1.00 to $8.50 per share. The
F-32
<PAGE> 120
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company believes the claim is without merit, but continues to discuss this
matter with the party in question. At this early juncture, an evaluation of the
dollar amount to be paid, if any, cannot be made. See Note 21 (h).
Under certain California State regulatory requirements, it appears the
Company may be obliged to offer a rescission of certain options granted to
California employees subsequent to September 30, 1999. The Company has applied
for an order from the State of California approving the proposed terms of the
rescission offer. The rescission offer, if approved, would be made with respect
to 1,240,500 options at an exercise price of $8.50, and 40,000 shares issued in
relation to other options exercised to date. In light of market prices for the
Company's common stock recently being significantly in excess of the exercise
price, the Company expects few holders would accept the rescission offer.
However, should all offers be accepted, the maximum dollar amount the Company
would be required to pay under this offer is estimated to be $2,377,800 for
option holders and $152,000 for shareholders plus 7% interest per annum.
The Company is also involved in other legal proceedings, claims and
litigation arising in the ordinary course of business.
The Company's pending lawsuits involve complex questions of fact and law
and could require the expenditure of significant costs and diversion of
resources to defend. Although management believes the outcome of the Company's
outstanding legal proceedings, claims and litigation will not have a material
adverse effect on the Company's business, results of operations or financial
position, the results of litigation are inherently uncertain, and such outcome
is at least reasonably possible. The Company is unable to make an estimate of
the range of possible loss from outstanding litigation, and no amounts have been
provided for such matters in the accompanying consolidated financial statements.
18. IMPAIRMENTS AND OTHER LOSSES
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.
During 1997 the company wrote off its mining asset with a book value of
$515,000.
19. SEGMENT 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
---------- ------- ----------
Equipment and leasehold improvements, goodwill and
employee and consultants base.......................... $9,046,685 $ 3,187 $9,049,872
========== ======= ==========
</TABLE>
F-33
<PAGE> 121
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-----------------------------------
CANADA U.S. TOTAL
---------- ------- ----------
<S> <C> <C> <C>
Revenue.................................................. $ 622,854 $ -- $ 622,854
---------- ------- ----------
Equipment and leasehold improvements, goodwill and
employee and consultants base.......................... $5,308,178 $ -- $5,308,178
========== ======= ==========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-----------------------------------
CANADA U.S. TOTAL
---------- ------- ----------
<S> <C> <C> <C>
Revenue.................................................. $5,036,715 $ -- $5,036,715
---------- ------- ----------
Equipment and leasehold improvements, goodwill and
employee and consultants base.......................... $8,964,840 $84,001 $9,048,841
========== ======= ==========
</TABLE>
20. FINANCIAL INSTRUMENTS
Financial instruments comprising cash, accounts receivable, due from
related parties, bank indebtedness, accounts payable, accrued liabilities, due
to related parties, notes payable, stockholder advances, interest payable and
capital lease obligations 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 18% of revenues for the nine month
period ended September 30, 1999 were derived from one customer, as compared to
22% for the year ended December 31, 1998.
The estimated fair value of the Company's convertible debentures are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------
CARRYING VALUE ESTIMATED FAIR VALUE
-------------- --------------------
<S> <C> <C>
TK convertible debentures.......................... $2,375,530 $2,150,000
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
--------------------------------------
CARRYING VALUE ESTIMATED FAIR VALUE
-------------- --------------------
<S> <C> <C>
TK convertible debentures.......................... $1,678,344 $2,703,286
Senior subordinated convertible promissory notes,
not subsequently converted....................... 591,826 1,123,420
Convertible debentures............................. 232,979 235,937
</TABLE>
The above fair values have been calculated 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). Fair values have not been determined for debt that has been
converted to equity subsequent to September 30, 1999.
The fair value of the loan receivable from employee is nil given $250,000
of the loan is forgiven on a quarterly basis and the Company does not expect to
collect the loan balance by way of cash.
F-34
<PAGE> 122
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company is subject to interest rate risk to the extent of the interest
rate being charged on the various convertible debentures. The effective interest
rates realized by the Company, inclusive of the amounts relating to the non cash
value of conversion features and warrants associated with the debt are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------
STATED INTEREST RATE EFFECTIVE RATE
-------------------- --------------
<S> <C> <C>
TK convertible debentures............................ 10% 38%
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
--------------------------------------
STATED INTEREST RATE EFFECTIVE RATE
-------------------- --------------
<S> <C> <C>
TK convertible debentures............................ 10% 38%
</TABLE>
<TABLE>
SEPTEMBER 30, 1999
--------------------------------------
STATED INTEREST RATE EFFECTIVE RATE
-------------------- --------------
<S> <C> <C>
TK convertible debentures............................ 10% 92%
Senior subordinated convertible promissory notes..... 8% 8%
Senior subordinated convertible promissory notes..... 8% 149%
Convertible debentures............................... 10% 44%
Convertible debentures (converted during the
period)............................................ 10% 30%
Convertible debentures (converted during the
period)............................................ 8% 35%
</TABLE>
21. SUBSEQUENT EVENTS
(a) On October 15, 1999, the Company completed the acquisition of Micro
Visions. The remaining cash of $10,000,000 was paid and 7,200,000 common shares
were issued, including 1,200,000 common shares of contingent consideration which
had been achieved. The remaining 1,200,000 common share contingent consideration
will be paid if and when the remaining contingent criterion has been achieved.
(b) On November 5, 1999, the Company completed the acquisition of CNI. The
remaining cash of $3,510,000 was paid and 1,181,816 common shares were issued.
(c) During October and November, 1999, the Company completed a private
placement of $50,000,000 gross proceeds through the issuance of 9,090,909 common
shares and 2,372,727 common share purchase warrants. The warrants are
exercisable for up to five years at an exercise price of $8.50 per share. The
company received $30,000,000 upon initial closing. $13,000,000 was received on
November 5, 1999 after the satisfaction of conditions relating to the conversion
of certain existing debt (see notes 11 and 21). The remaining $7,000,000 was
received on November 12, 1999.
A finance fee of 6% or $3,000,000 was paid to the placement agent. The
Company also issued 909,091 common share purchase warrants to the placement
agent. The warrants are exercisable for up to five years at an exercise price of
$8.50 per share. Additional costs of the issue are expected to be $1,000,000.
(d) During the fourth quarter, the $15,000,000 of 8% senior subordinated
convertible promissory notes (see note 11) converted into 2,727,273 common
shares. An additional 711,811 common share purchase warrants were also issued.
The warrants are exercisable for up to five years at an exercise price of $8.50
per common share.
(e) Subsequent to September 30, 1999, 5,988,824 common shares were issued
in relation to the conversion of $5,090,500 of 8% senior subordinated
convertible promissory notes (see note 11). In
F-35
<PAGE> 123
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
addition, 3,517,933 common shares were issued on the exercise of 3,696,500
warrants primarily on a non cash basis. These warrants were issued in connection
with the original issuance of the promissory notes.
(f) Subsequent to September 30, 1999, 3,799,974 shares were issued on a non
cash basis relating to the exercise of 4,000,001 warrants. These warrants
included 2,000,000 previously issued as a placement fee in relation to the
issuance of 8% senior subordinated convertible promissory notes (see note 11),
as well as 2,000,001 previously issued for advisory services (see note 16).
(g) On November 29, 1999, the Company completed the acquisition of Async.
The remaining cash of $5,400,000 was paid and 1,298,705 common share were
issued.
On February 11, 2000 the Company entered into an agreement with SmallCaps
Online Group LLC to settle litigation commenced against it by SmallCaps.
SmallCaps had brought this action claiming fees for financial advisory services.
The settlement agreement obligates the Company to pay SmallCaps $5.0 million by
March 14, 2000. The Company is also obligated to issue to Small Caps warrants to
purchase 2,000,000 shares of common stock at $20.50 per share, 500,000 shares of
common stock at $8.50 per share and 500,000 shares of common stock at $22.50 per
share. The warrants are exercisable at any time prior to March 14, 2005 and are
subject to adjustment for stock splits, stock dividends, reorganizations, below
market issuances and similar transactions. The Company may be obligated to
register the shares underlying Small Caps' warrants.
(i) On January 20, 2000, the Company commenced a lawsuit against Cameron
Chell, its former chief executive officer, other former employees of the
Company, C Me Run Corp., a company organized by these former employees and
certain other defendants. The suit alleges that the defendants, while many were
employed by the Company, misappropriated plans to develop certain ASP services
in breach of fiduciary and contractual obligations. The Company seeks, among
other things, damages in the amount of approximately $54 million. On January 27,
2000, Mr. Chell filed a counterclaim for $28.7 million, alleging interference of
ongoing economic interests, defamation of character and damages concerning his
ability to exercise options he claims to hold in the Company. On January 31,
2000, C Me Run filed a counterclaim for approximately $84 million, alleging
conspiracy to cause economic harm, unlawful interference with its economic
interests, interference with contractual relations and abuse of process. On
January 26, 2000, Michael Chan commenced a lawsuit against the Company seeking
options to purchase 50,000 shares of common stock that he alleges Mr. Chell
promised him for services he allegedly provided to the Company or in the
alternative approximately $1,500,000. Mr. Chan also seeks punitive damages of
$300,000. On February 7, 2000, Mr. David Bollink, a former director of business
development, filed a counterclaim against us seeking 50,000 options that he
alleges was promised to him by the Company.
F-36
<PAGE> 124
EXECUTIVE LAN MANAGEMENT, INC.,
DBA MICRO VISIONS
FINANCIAL STATEMENTS
F-37
<PAGE> 125
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 (the "Company") as of December 31, 1997 and
1998 and September 30, 1999, and the related statements of operations,
shareholders' equity, and cash flows for the years ended December 31, 1997 and
1998 and the nine months ended September 30, 1999. 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 auditing standards generally
accepted in the United States. 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, 1997 and 1998 and September 30, 1999,
and the results of its operations and its cash flows for the years ended
December 31, 1997 and 1998 and the nine months ended September 30, 1999, in
conformity with accounting principles generally accepted in the United States.
Orange County, California
November 17, 1999
F-38
<PAGE> 126
EXECUTIVE LAN MANAGEMENT, INC.,
DBA MICRO VISIONS
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1998 1999
------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash.................................... $ 690,000 $ 157,000 $ 234,000 $ 135,000
Accounts receivable, less allowance for
doubtful accounts of $79,000 and
$115,000 at December 31, 1997 and
1998, respectively, and $50,000 and
$531,000 at September 30, 1998 and
1999, respectively................... 1,052,000 2,063,000 2,679,000 4,235,000
Inventories............................. 231,000 815,000 501,000 594,000
Advances due from officers.............. 72,000 2,000 -- --
Other current assets.................... 1,000 15,000 15,000 --
---------- ---------- ---------- ----------
Total current assets................. 2,046,000 3,052,000 3,429,000 4,964,000
Property and equipment, less accumulated
depreciation of $83,000 and $122,000 at
December 31, 1997 and 1998,
respectively, and $93,000 and $206,000
at September 30, 1998 and 1999,
respectively............................ 83,000 389,000 323,000 1,019,000
Other assets.............................. 33,000 146,000 77,000 44,000
---------- ---------- ---------- ----------
Total assets.............................. $2,162,000 $3,587,000 3,829,000 $6,027,000
========== ========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable........................ $ 169,000 $ 797,000 $ 511,000 $2,333,000
Line of credit.......................... 150,000 261,000 588,000 1,394,000
Income taxes payable.................... 237,000 153,000 218,000 --
Deferred income taxes................... 235,000 435,000 487,000 588,000
Bonuses payable......................... 141,000 -- -- 444,000
Commissions payable..................... 40,000 157,000 168,000 306,000
Payroll taxes payable................... -- -- -- 186,000
Other accrued expenses and other
liabilities.......................... 251,000 307,000 129,000 245,000
Deferred revenue........................ 90,000 73,000 303,000 124,000
---------- ---------- ---------- ----------
Total current liabilities................. 1,313,000 2,183,000 2,404,000 5,620,000
Commitments
Shareholders' equity:
Common stock, no par value:
Authorized shares -- 1,000,000
Issued and outstanding shares -- 200
in 1999, 1998, and 1997............ 10,000 10,000 10,000 10,000
Retained earnings....................... 839,000 1,394,000 1,415,000 397,000
---------- ---------- ---------- ----------
Total shareholders' equity........... 849,000 1,404,000 1,425,000 407,000
---------- ---------- ---------- ----------
Total liabilities and shareholders'
equity.................................. $2,162,000 $3,587,000 $3,829,000 $6,027,000
========== ========== ========== ==========
</TABLE>
See accompanying notes.
F-39
<PAGE> 127
EXECUTIVE LAN MANAGEMENT, INC.,
DBA MICRO VISIONS
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1998 1999
------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue:
Hardware and software.................. $6,450,000 $ 8,071,000 $4,071,000 $10,458,000
Service delivery....................... 3,115,000 5,598,000 5,445,000 6,099,000
---------- ----------- ---------- -----------
9,565,000 13,669,000 9,516,000 16,557,000
---------- ----------- ---------- -----------
Costs and expenses:
Cost of hardware and software.......... 5,749,000 6,687,000 4,515,000 9,123,000
Cost of service delivery............... 758,000 1,808,000 2,254,000 1,651,000
Selling, general and administrative.... 2,158,000 4,270,000 1,909,000 6,594,000
Depreciation and amortization.......... 20,000 39,000 10,000 84,000
Interest expense....................... 10,000 44,000 -- 19,000
Interest income........................ (63,000) (34,000) -- (7,000)
---------- ----------- ---------- -----------
8,632,000 12,814,000 8,688,000 17,464,000
---------- ----------- ---------- -----------
(Loss) income before income taxes........ 933,000 855,000 828,000 (907,000)
Provision for income taxes............... 395,000 178,000 252,000 --
---------- ----------- ---------- -----------
Net (loss) income........................ $ 538,000 $ 677,000 $ 576,000 $ (907,000)
========== =========== ========== ===========
</TABLE>
See accompanying notes.
F-40
<PAGE> 128
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 (unaudited)........................ -- -- 576,000 576,000
Distributions to shareholders (unaudited)..... -- -- -- --
--- ------- ---------- ----------
Balance at September 30, 1998 (unaudited)....... 200 10,000 1,415,000 1,425,000
--- ------- ---------- ----------
Net income (unaudited)........................ -- -- 101,000 101,000
Distribution to shareholders (unaudited)...... -- -- (122,000) (122,000)
--- ------- ---------- ----------
Balance at December 31, 1998.................... 200 10,000 1,394,000 1,404,000
--- ------- ---------- ----------
Net loss...................................... -- -- (907,000) (907,000)
Distributions to shareholders................. -- -- (90,000) (90,000)
--- ------- ---------- ----------
Balance at September 30, 1999................... 200 $10,000 $ 397,000 $ 407,000
=== ======= ========== ==========
</TABLE>
See accompanying notes.
F-41
<PAGE> 129
EXECUTIVE LAN MANAGEMENT, INC.,
DBA MICRO VISIONS
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1998 1999
------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income........................ $ 538,000 $ 677,000 $ 576,000 $ (907,000)
Adjustments to reconcile net (loss)
income to net cash (used in) provided
by operating activities:
Depreciation and amortization....... 20,000 39,000 10,000 84,000
Change in operating assets and
liabilities:
Accounts receivable............... (495,000) (1,011,000) (1,627,000) (2,172,000)
Inventories....................... (183,000) (584,000) (270,000) 221,000
Other current assets.............. -- (14,000) (14,000) 15,000
Advance due from officers......... (72,000) 70,000 72,000 2,000
Other assets...................... (25,000) (113,000) (44,000) 102,000
Accounts payable and accrued
expenses....................... 281,000 660,000 207,000 2,253,000
Income taxes payable.............. 237,000 (84,000) (19,000) (153,000)
Deferred income taxes............. 141,000 200,000 252,000 153,000
Deferred revenue.................. 90,000 (17,000) 213,000 51,000
--------- ----------- ----------- ------------
Net cash (used in) provided by
operating activities......... 532,000 (177,000) (644,000) (351,000)
INVESTING ACTIVITIES
Purchases of equipment................... (50,000) (345,000) (250,000) (714,000)
FINANCING ACTIVITIES
Distribution to shareholders............. -- (122,000) -- (90,000)
Net borrowings (repayment) from/of line
of credit.............................. (93,000) 111,000 438,000 1,133,000
--------- ----------- ----------- ------------
Net cash provided by (used in) financing
activities............................. (93,000) (11,000) 438,000 1,043,000
--------- ----------- ----------- ------------
Increase (decrease) in cash.............. 389,000 (533,000) (456,000) (22,000)
Cash at beginning of period.............. 301,000 690,000 690,000 157,000
--------- ----------- ----------- ------------
Cash at end of period.................... $ 690,000 $ 157,000 $ 234,000 $ 135,000
========= =========== =========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Interest paid............................ $ 11,000 $ 4,000 $ 3,000 $ 19,000
Income taxes paid........................ 17,000 62,000 55,000 800
</TABLE>
See accompanying notes.
F-42
<PAGE> 130
EXECUTIVE LAN MANAGEMENT, INC.
DBA MICRO VISIONS
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Executive LAN Management, Inc., 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 United States.
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 service delivery revenue upon delivery of service.
Hardware and software revenues are recognized upon delivery.
UNBILLED ACCOUNTS RECEIVABLES
Unbilled accounts receivable, representing unbilled consulting services, of
$65,000 and $89,000 at December 31, 1997 and 1998, respectively, and $88,000 and
$0 at September 30, 1998 and 1999, respectively, are billable upon attainment of
performance milestones and included in accounts receivable on the accompanying
balance sheets. The Company expects such amounts to be billed and collected
within twelve months of each respective balance sheet date.
INVENTORY
Inventory is stated at the lower of cost (first in, first out) or market
and primarily consists of prepackaged third-party computer software.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed using
the straight-line method based upon the estimated useful lives of the related
assets which range from five to seven years. Leasehold
F-43
<PAGE> 131
EXECUTIVE LAN MANAGEMENT, INC.
DBA MICRO VISIONS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
improvements are amortized using the straight-line method over seven years.
Property and equipment were comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1998 1999
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Office furniture......................... $ 15,000 $ 90,000 $ 47,000 $ 124,000
Computer equipment....................... 149,000 376,000 329,000 978,000
Computer software........................ -- -- -- 52,000
Leasehold improvements................... 2,000 45,000 40,000 71,000
-------- --------- -------- ----------
166,000 511,000 416,000 1,225,000
Less accumulated depreciation and
amortization........................... (83,000) (122,000) (93,000) (206,000)
-------- --------- -------- ----------
$ 83,000 $ 389,000 $323,000 $1,019,000
======== ========= ======== ==========
</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.
Effective July 1, 1998, the shareholders 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, payables, 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 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. 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 1999, there were no individual
customers which accounted for 10% of total sales. The Company provides for
uncollectible amounts upon recognition of revenue and when specific credit
problems arise. The Company performs credit evaluations
F-44
<PAGE> 132
EXECUTIVE LAN MANAGEMENT, INC.
DBA MICRO VISIONS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
on all new customers. During 1998, 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, 1997 and 1998 was $11,000
and $106,000, respectively, and $71,000 and $80,000 for the nine months ended
September 30, 1998 and 1999, respectively.
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. The Company
did not have any components of comprehensive income as defined by SFAS No. 130
for any period presented.
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 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 results of operations or
financial position of the Company. The Company views its business as a single
segment, a network service solution company, and therefore has no reportable
segments under FAS 131. All segment disclosures are included in or can be
derived from the Company's financial statements.
CERTAIN RECLASSIFICATIONS
Certain amounts in the 1998 and 1997 financial statements have been
reclassified to conform to the current period presentation.
INTERIM FINANCIAL INFORMATION
The unaudited financial statements for the nine month period ended
September 30, 1998 included herein are unaudited; however, they contain all
normal recurring accruals and adjustments which, in the opinion of management,
are necessary to present fairly the consolidated financial position of the
Company at September 30, 1998 and the results of its operations and cash flows
for the nine months ended September 30, 1998.
F-45
<PAGE> 133
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>
NINE MONTHS NINE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1998 1999
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Current:
Federal.......................... $201,000 $(22,000) $ -- $--
State............................ 53,000 -- -- --
-------- -------- -------- --
254,000 (22,000) -- --
Deferred:
Federal.......................... 120,000 162,000 180,000 --
State............................ 21,000 38,000 72,000 --
-------- -------- -------- --
141,000 200,000 252,000 --
-------- -------- -------- --
Total provision for income taxes... $395,000 $178,000 $252,000 $--
======== ======== ======== ==
</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, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1998 1999
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Deferred tax assets:
Depreciation............................ $ 1,000 $ 1,000 $ 1,000 $ --
Other................................... -- -- 151,000 --
--------- --------- --------- ---------
Total deferred tax assets................. 1,000 1,000 152,000 --
Deferred tax liabilities:
Inventory adjustment.................... (92,000) (213,000) (167,000) (213,000)
Accrual to cash adjustment.............. (144,000) (223,000) (472,000) (223,000)
Other................................... -- -- -- (152,000)
--------- --------- --------- ---------
Net deferred tax liabilities.............. (236,000) (436,000) (639,000) (588,000)
--------- --------- --------- ---------
Total net deferred tax liabilities........ $(235,000) $(435,000) $(487,000) $(588,000)
========= ========= ========= =========
</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 shareholders. A state provision for income taxes will be
recorded based on a California statutory rate of 1.5% for Subchapter S
Corporations.
F-46
<PAGE> 134
EXECUTIVE LAN MANAGEMENT, INC.
DBA MICRO VISIONS
NOTES TO FINANCIAL STATEMENTS (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:
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1998 1999
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Benefit computed at the statutory
rate................................ $317,000 $ 291,000 $ 282,000 $(308,000)
S Corporation income not subject to
tax................................. -- (111,000) (24,000) 308,000
Nondeductible expenses................ 6,000 (6,000) (6,000) --
State income tax, net of federal
income tax benefit.................. 54,000 19,000 -- --
Other................................. 18,000 (15,000) -- --
-------- --------- --------- ---------
Income tax expense.................... $395,000 $ 178,000 $ 252,000 $ --
======== ========= ========= =========
</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 (8.25% at September 30, 1999) plus
3.03%. At September 30, 1999, the unused credit line was $1,106,000.
Substantially all of the Company's assets are collateral under the line of
credit agreement. This debt is guaranteed by the shareholders of the Company.
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 September 30, 1999 are as follows:
<TABLE>
<S> <C>
1999..................................................... $ 117,000
2000..................................................... 382,000
2001..................................................... 267,000
2002..................................................... 182,000
2003..................................................... 91,000
----------
$1,039,000
==========
</TABLE>
Rent expense was $36,000 and $135,000 for the years ended December 31, 1997
and 1998, respectively, and $105,000 and $206,000 for the nine months ended
September 30, 1998 and 1999, respectively.
5. RELATED PARTY TRANSACTIONS
During 1997 and 1998, the Company made various advances to its officers.
Advances in 1997 aggregated $72,000, including 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,
1997 and 1998 was $72,000 and $2,000, respectively, and $0 and $0 at September
30, 1998 and 1999, respectively.
F-47
<PAGE> 135
EXECUTIVE LAN MANAGEMENT, INC.
DBA MICRO VISIONS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
During the period ended September 30, 1999, the Company entered into
transactions with FutureLink Distribution Corp. ("FutureLink"). At September 30,
1999, there was a receivable from FutureLink of $107,000, which is included in
accounts receivable on the accompanying balance sheet (see Note 7).
6. 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,
1997 and 1998 were $15,000 and $108,000, respectively, and $54,000 and $104,000
for the nine months ended September 30, 1998 and 1999, respectively.
7. 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. 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.
On October 15, 1999, the Agreement was approved and finalized. In addition,
the name of the Company was changed from Executive LAN Management, Inc. dba
Micro Visions to FutureLink Micro Visions Corporation.
8. 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 has completed its review and remediation of its non-IT
systems and its IT systems other than the financial reporting system. 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 has completed contingency plans to
address the year 2000 issues that may pose a significant risk to the Company's
ongoing operations.
F-48
<PAGE> 136
CN NETWORKS, INC.
DBA COMPUTER NETWORKS
FINANCIAL STATEMENTS
F-49
<PAGE> 137
To The Board of Directors
CN Networks, Inc.
dba Computer Networks
Pleasanton, California
We have audited the accompanying balance sheets of Computer Networks, Inc.
as of December 31, 1998 and 1997 and the related statements of income,
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 have conducted our audits in accordance with generally accepted audited
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. 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 CN Networks, Inc. dba
Computer Networks as of December 31, 1998 and 1997, and the results of its
operations and cash flows for the years then ended in conformity with generally
accepted accounting principles.
/s/ MORELAND & DAVIS
Livermore, California
August 30, 1999
F-50
<PAGE> 138
CN NETWORKS, INC.
DBA COMPUTER NETWORKS
BALANCE SHEETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Current Assets
Cash..................................................... $ 37,628 $ 13,913
Accounts Receivable...................................... 1,060,736 1,077,401
Prepaid Federal Taxes.................................... 6,805 0
Inventory, at cost....................................... 206,672 229,783
---------- ----------
Total Current Assets............................. 1,311,840 1,321,096
---------- ----------
Property, Plant & Equipment
Property, Plant & Equipment, at cost..................... 226,832 209,409
Accumulated Depreciation................................. (182,534) (99,642)
---------- ----------
Total Property, Plant & Equipment................ 44,297 109,767
---------- ----------
Other assets
Lease Security Deposits.................................. 11,440 10,383
Deferred Tax Asset....................................... 14,635 7,923
---------- ----------
Total Other Assets............................... 26,075 18,306
---------- ----------
Total Assets..................................... $1,382,213 $1,449,169
========== ==========
LIABILITIES AND EQUITY
Current Liabilities
Accounts Payable......................................... $ 381,923 $ 605,072
Notes Payable, Current Portion (See Note 3).............. 509,381 402,564
Sales Tax Payable........................................ 34,224 23,389
Federal Income Taxes Payable............................. 0 13,900
State Franchise Taxes Payable............................ 584 3,031
Deferred Tax Liability................................... 0 1,055
---------- ----------
Total Current Liabilities........................ 926,112 1,049,011
---------- ----------
Notes Payable, Long Term (See Note 3).................... 17,119 41,899
---------- ----------
Total Liabilities................................ 943,231 1,090,910
---------- ----------
Stockholders' Equity
Common Stock, no par, 1,000,000 Shares Authorized, 10,000
Shares Issued and Outstanding......................... 10,000 10,000
Retained Earnings........................................ 428,981 348,258
---------- ----------
Total Stockholders' Equity....................... 438,981 358,258
---------- ----------
Total Liabilities and Equity..................... $1,382,213 $1,449,169
---------- ----------
</TABLE>
F-51
<PAGE> 139
CN NETWORKS, INC.
DBA COMPUTER NETWORKS
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Revenue
Net Sales................................................. $5,540,938 $6,439,637
Sales Discounts........................................... (2,703) (3,802)
Freight................................................... 30,003 40,645
---------- ----------
Total Revenue.......................................... 5,568,238 6,476,480
---------- ----------
Cost of Sales............................................... 3,179,433 4,308,540
Purchase Returns............................................ 0 (147)
---------- ----------
Gross Profit........................................... 2,388,805 2,168,087
General and Administrative Expenses......................... 2,229,931 1,964,094
---------- ----------
Net Income from Operations............................. 158,874 203,993
---------- ----------
Other Income and (Expense)
Miscellaneous Income...................................... 187 1,570
Interest Expense.......................................... (41,176) (44,092)
---------- ----------
Total Other Income and (Expense)....................... (40,989) (42,521)
---------- ----------
Earnings Before Income Taxes........................... 117,885 161,471
Provision for Income Taxes
Federal Income Taxes...................................... 24,885 43,337
State Franchise Taxes..................................... 12,277 14,863
---------- ----------
Net Income............................................. $ 80,723 $ 103,271
========== ==========
</TABLE>
F-52
<PAGE> 140
CN NETWORKS, INC.
DBA COMPUTER NETWORKS
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
--------- ------- -------- --------
<S> <C> <C> <C> <C>
Balances as of December 31, 1996................ 1,000,000 $10,000 $244,987 $254,987
Net Income.................................... -- -- 103,271 103,271
--------- ------- -------- --------
Balances as of December 31, 1997................ 1,000,000 $10,000 348,258 358,258
Net Income.................................... -- -- 80,723 80,723
--------- ------- -------- --------
Balances as of December 31, 1998................ 1,000,000 $10,000 $428,981 $438,981
========= ======= ======== ========
</TABLE>
See Independent Auditor's Report and Accompanying Notes
F-53
<PAGE> 141
CN NETWORKS, INC.
DBA COMPUTER NETWORKS
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Cash Flows from Operating Activities
Net Income................................................ $ 80,723 $ 103,271
Adjustments to Reconcile Net Income to Net Cash (Used)
Provided by Operating Activities
Depreciation........................................... 82,892 58,339
Deferred Income Tax.................................... (7,767) (9,931)
(Increase) Decrease In:
Accounts Receivable.................................... 16,664 (332,659)
Inventory.............................................. 23,111 (153,611)
Other Assets........................................... (1,057) 15
Prepaid Income Taxes................................... (6,805) 0
Increase (Decrease) In:
Accounts Payable....................................... (223,149) 169,757
Sales Tax Payable...................................... 10,835 16,855
Income Taxes Payable................................... (16,347) 3,992
--------- ---------
Net Cash (Used) by Operating Activities................ (40,899) (143,971)
--------- ---------
Cash Flows from Investing Activities
Acquisition of Property and Equipment..................... (17,423) (126,554)
--------- ---------
Net Cash (Used) by Investing Activities................ (17,423) (126,554)
--------- ---------
Cash Flows from Financing Activities Acquisition of Debt.... 410,000 618,707
Repayment of Debt......................................... (327,962) (364,387)
--------- ---------
Net Cash Provided by Financing Activities.............. 82,038 254,320
--------- ---------
Net Increase (Decrease) in Cash............................. 23,716 (16,205)
Cash at January 1, 1998 and 1997............................ 13,913 30,118
--------- ---------
Cash at December 31, 1998 and 1997.......................... $ 37,628 $ 13,913
========= =========
</TABLE>
Cash paid for income taxes for the years ended December 31, 1998 and 1997 was
$68,081 and $51,210, respectively. Cash paid for interest for the years ended
December 31, 1998 and 1997 was $41,176 and $44,092, respectively.
F-54
<PAGE> 142
CN NETWORKS, INC.
DBA COMPUTER NETWORKS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 -- ORGANIZATION
Organization and Purpose
CN Networks, Inc., doing business as Computer Networks, Inc. (the Company)
was founded in 1991 and incorporated under the laws of the State of California
in 1994 with its main office located in Pleasanton, California. The Company
provides expert consulting, design and integration services for corporate remote
LAN access and dial-out needs.
The Company is governed by a Board of Directors, comprised of the president
and corporate secretary. Financial Statements are prepared in-house and reviewed
by the directors on a monthly basis.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
For purposes of the Statement of Cash Flows, the Company considers all
highly liquid investments with an initial maturity of three months or less to be
cash equivalents. At the financial statement date, the Company had no
investments other than cash on the books.
Inventories
Inventories are stated at the lower of cost or market, cost being
determined by the average cost method, market being replacement cost.
Property, Plant & Equipment
The cost of property, plant, and equipment is depreciated over the
estimated useful lives of the related assets. For financial reporting purposes,
the useful lives of assets are 18 to 24 months for Computer Hardware and three
years for Office Furniture and Certain Software. Useful lives for tax purposes
are five years for Computer Hardware and Software and seven years for Office
Furniture. Depreciation is computed on the straight line method for financial
reporting purposes and on the double declining balance for income tax purposes.
Maintenance and repairs are charged to operations when incurred. Betterments and
renewals are capitalized.
Advertising Costs
Advertising costs are charged to operations when incurred.
Revenue Recognition
Revenue is recognized when products are shipped, support contracts are
recognized based on the terms of the contracts, and training revenue is
recognized when performed. Losses on returns and contract costs are recorded
when they occur.
See Independent Auditor's Report
F-55
<PAGE> 143
CN NETWORKS, INC.
DBA COMPUTER NETWORKS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
Income Taxes
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109 (SFAS 109). SFAS 109
requires, among other things, that deferred income taxes be provided for
temporary differences between the financial reporting basis and the tax basis of
the Company's assets and liabilities as part of the income tax provisions.
NOTE 3 -- INVENTORIES
Inventories at December 31, 1998 and 1997 consist of:
<TABLE>
<S> <C>
Hardware.................. 75,347
Software.................. 131,325
--------
Total................ $206,672
========
Hardware.................. 87,318
Software.................. 142,465
--------
Total................ $229,783
========
</TABLE>
NOTE 4 -- LONG-TERM DEBT
Following is a summary of long-term debt at December 31, 1998 and 1997:
<TABLE>
<S> <C> <C>
10.5% note payable to bank in monthly principal installments
of $1,370 plus
interest, through November 19, 2000, secured by the assets
of the Company............................................ $ 31,494 $ 47,934
10.5% note payable to bank in monthly principal installments
of $695 plus interest, through March 18, 2000, secured by
the assets of the Company................................. 10,405 18,745
11.0% note payable to bank in monthly principal installments
of $564 plus interest, through May 18, 1998, secured by
the assets of the Company................................. 0 2,808
Line of credit with bank, maturing March 31, 1999. Interest
payable monthly at 10%, maximum line of credit is $700,000
in 1997 and $1,000,000 in 1998. Secured by accounts
receivable, expected to be refinanced. The line of credit
was renewed March 23, 1999 in the amount of $1,000,000
maturing March 31, 2000 with a rate of 9.75%.............. 484,601 374,976
--------- ---------
526,500 444,463
Less: Current maturities included in current liabilities.... (509,381) (402,564)
--------- ---------
$ 17,119 $ 41,899
========= =========
</TABLE>
Following are maturities of long-term debt for each of the next two years:
<TABLE>
<S> <C>
Year ended December 31,
1999.................................................... $509,381
2000.................................................... 17,119
--------
$526,500
========
</TABLE>
NOTE 5 -- LEASES
The Company leases it's main office and a training facility under operating
leases expiring in 2001. The Company has entered into a new lease agreement for
it's main office effective September 1, 1999 and
See Independent Auditor's Report
F-56
<PAGE> 144
CN NETWORKS, INC.
DBA COMPUTER NETWORKS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
expiring 2004. Total rental expense recorded in the financial statements for the
years under these leases was $113,893 for 1998 and $96,514 for 1997. In
addition, on February 3, 1999 the Company signed a lease for additional space to
accommodate an expansion of the training facility. Occupancy is scheduled for
April, 1999. The Company also pays lease payments on an automobile effective
February, 1997 for 60 months. The automobile lease expense recorded in the
financial statements was $19,551 for 1998 and $24,775 for 1997. Future minimum
rental payments under these operating leases are as follows:
<TABLE>
<S> <C>
Year ended December 31,
1999................................................... $ 209,133
2000................................................... 245,329
2001................................................... 254,259
2002................................................... 211,691
2003................................................... 210,062
----------
$1,130,474
==========
</TABLE>
NOTE 6 -- INCOME TAXES
Income tax expense for the year ended December 31, 1998 and 1997 is
comprised of the following:
<TABLE>
<CAPTION>
1998 1997
--------------------------- ---------------------------
CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL
------- -------- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Federal.................................... 31,505 6,620 24,885 48,538 5,201 43,337
State...................................... 14,485 2,208 12,277 16,010 1,147 14,863
------ ----- ------ ------ ----- ------
45,990 8,828 37,162 64,548 6,348 58,200
====== ===== ====== ====== ===== ======
</TABLE>
Deferred tax (liabilities) assets comprise the following at December 31,
1998 and 1997:
<TABLE>
<S> <C> <C>
Depreciation................................................ 0 (1,055)
Gross deferred tax liabilities............................ 0 (1,055)
State taxes, net of federal benefit......................... 4,564 5,808
Depreciation................................................ 10,071 2,115
Gross deferred tax assets................................. 14,635 7,923
------- -------
Net deferred tax assets................................... $14,635 $ 6,868
======= =======
</TABLE>
The net deferred tax asset represents temporary differences for future tax
deductions which can generally be realized by carryback to taxable income in
prior years.
The provisions for income taxes differ from the amount of income tax
determined by applying the applicable U.S. statutory income tax rate to pre-tax
income as follows for the years ended December 31, 1998 and 1997:
<TABLE>
<S> <C> <C>
Federal statutory rate...................................... 25% 30%
State income taxes, net of federal tax benefit and
credits................................................... 7% 6%
--- ---
32% 36%
=== ===
</TABLE>
See Independent Auditor's Report
F-57
<PAGE> 145
CN NETWORKS, INC.
DBA COMPUTER NETWORKS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
NOTE 7 -- CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of cash and cash equivalents
and trade receivables. The Company places its cash with federally insured
financial institutions and as of December 31, 1998 and 1997, the Company's
balances do not exceed federally insured limits. Fair value of these financial
instruments approximates their carrying values.
The Company believes any risk of accounting loss is significantly reduced
due to the diversity of its services, end customers, and geographic sales areas.
The Company performs credit evaluations of its customers' financial condition
whenever necessary. The Company generally does not require cash collateral or
other security to support customer receivables and has historically had little
problems with collecting their accounts receivable. For the year ended December
31, 1997 the Company had two customers that individually had accounts receivable
balances exceeding 10% of the total accounts receivable balance. For the year
ended December 31, 1998 no individual customer exceeded 10% of the total
accounts receivable balance.
See Independent Auditor's Report
F-58
<PAGE> 146
To The Board of Directors
CN Networks, Inc.
dba Computer Networks, Inc.
Pleasanton, California
We have reviewed the accompanying balance sheets of CN Networks, Inc. dba
Computer Networks as of September 30, 1999 and 1998 and the related statements
of income and retained earnings and cash flows for the nine months then ended,
in accordance with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants. All
information included in these financial statements is the representation of the
management of CN Networks, Inc.
A review consists principally of inquiries of company personnel and
analytical procedures applied to financial data. It is substantially less in
scope than an audit in accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements in order for them to be
in conformity with generally accepted accounting principles.
MORELAND & DAVIS
Accountancy firm
/s/ JANIS M. PALERMO
--------------------------------------
Janis M. Palermo
Certified Public Accountant
Livermore, California
November 3, 1999
F-59
<PAGE> 147
CN NETWORKS, INC.
DBA COMPUTER NETWORKS
BALANCE SHEETS
SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Current Assets
Cash...................................................... $ 272,314 $ 146,665
Accounts Receivable....................................... 1,759,730 916,227
Inventory, at cost........................................ 201,807 263,537
---------- ----------
Total Current Assets................................. 2,233,850 1,326,428
---------- ----------
Property, Plant & Equipment
Property, Plant & Equipment, at cost...................... 242,570 209,409
Accumulated Depreciation.................................. (205,273) (166,729)
---------- ----------
Total Property, Plant & Equipment.................... 37,297 42,680
---------- ----------
Other Assets
Lease Security Deposits................................... 28,389 10,383
Deferred Tax Asset........................................ 18,188 10,976
---------- ----------
Total Other Assets................................... 46,577 21,359
---------- ----------
Total Assets......................................... $2,317,724 $1,390,468
========== ==========
LIABILITIES AND EQUITY
Current Liabilities
Accounts Payable.......................................... $1,143,632 $ 444,091
Notes Payable, Current Portion (See Note 3)............... 549,186 454,670
Sales Tax Payable......................................... 51,983 30,237
Payroll Taxes Payable..................................... 36,456 19,676
Federal Income Taxes Payable.............................. 11,970 354
State Franchise Taxes Payable............................. 2,516 2,329
---------- ----------
Total Current Liabilities............................ 1,795,743 951,358
---------- ----------
Notes Payable, Long Term (See Note 3)..................... 2,724 23,314
---------- ----------
Total Liabilities.................................... 1,798,467 974,672
---------- ----------
Stockholders' Equity
Common Stock, no par, 1,000,000 Shares Authorized, 10,000
Shares Issued and Outstanding.......................... 10,000 10,000
Retained Earnings......................................... 509,257 405,796
---------- ----------
Total Stockholders' Equity........................... 519,257 415,796
---------- ----------
Total Liabilities and Equity......................... $2,317,724 $1,390,468
========== ==========
</TABLE>
See Accountant's Review Report and Accompanying Notes.
F-60
<PAGE> 148
CN NETWORKS, INC.
DBA COMPUTER NETWORKS
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Revenue
Net Sales................................................. $5,862,391 $3,962,871
Sales Discounts........................................... (1,012) (2,101)
Freight................................................... 38,068 17,055
---------- ----------
Total Revenue.......................................... 5,899,447 3,977,825
---------- ----------
Cost of Sales............................................... 3,850,358 2,229,366
---------- ----------
Gross Profit........................................... 2,049,089 1,748,459
General and Administrative Expenses......................... 1,899,508 1,630,072
---------- ----------
Net Income from Operations........................... 149,581 118,387
---------- ----------
Other Income and (Expense)
Miscellaneous Income...................................... -- 187
Interest Expense.......................................... (34,527) (28,362)
---------- ----------
Total Other Income and (Expense)....................... (34,527) (28,175)
---------- ----------
Earnings Before Income Taxes........................... 115,054 90,212
Provision for Income Taxes
Federal Income Taxes...................................... 20,663 22,117
State Franchise Taxes..................................... 14,116 10,558
---------- ----------
34,779 32,675
---------- ----------
Net Income............................................. 80,275 57,537
Retained Earnings at Beginning of Year...................... 428,982 348,259
---------- ----------
Retained Earnings at End of Year............................ $ 509,257 $ 405,796
========== ==========
</TABLE>
F-61
<PAGE> 149
CN NETWORKS, INC.
DBA COMPUTER NETWORKS
STATEMENTS OF CASH FLOWS
SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Cash Flows from Operating Activities
Net Income................................................ $ 80,275 $ 57,537
Adjustments to Reconcile Net Income to Net
Cash (Used) Provided by Operating Activities
Depreciation......................................... 22,739 67,087
Deferred Income Tax.................................. (3,553) (3,053)
(Increase) Decrease In:
Accounts Receivable.................................. (698,995) 161,174
Inventory............................................ 4,865 (33,754)
Other Assets......................................... (16,949) --
Prepaid Income Taxes................................. 6,805 --
Increase (Decrease) In:
Accounts Payable..................................... 761,709 (160,981)
Sales Tax Payable.................................... 17,759 6,848
Payroll Taxes Payable................................ 36,456 19,676
Income Taxes Payable................................. 13,902 (15,303)
--------- ---------
Net Cash (Used) by Operating Activities........... 225,014 99,231
--------- ---------
Cash Flows from Investing Activities
Acquisition of Property and Equipment..................... (15,738) --
--------- ---------
Net Cash (Used) by Investing Activities........... (15,738) --
--------- ---------
Cash Flows from Financing Activities
Acquisition of Debt....................................... 42,819 54,914
Repayment of Debt......................................... (17,409) (21,393)
--------- ---------
Net Cash Provided by Financing Activities......... 25,410 33,521
--------- ---------
Net Increase (Decrease) in Cash............................. 234,686 132,752
Cash at January 1, 1999 and 1998............................ 37,628 13,913
--------- ---------
Cash at September 30, 1999 and 1998......................... $ 272,314 $ 146,665
========= =========
</TABLE>
Cash paid for income taxes for the nine months ended September 30, 1999 and 1998
was $23,216 and $34,100, respectively. Cash paid for interest for the nine
months ended September 30, 1999 and 1998 was $34,527 and $28,362, respectively.
F-62
<PAGE> 150
CN NETWORKS, INC.
DBA COMPUTER NETWORKS
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
NOTE 1 -- ORGANIZATION
Organization and Purpose
CN Networks, Inc., doing business as Computer Networks, Inc. (the Company)
was founded in 1991 and incorporated under the laws of the State of California
in 1994 with its main office located in Pleasanton, California. The Company
provides expert consulting, design and integration services for corporate remote
LAN access and dial-out needs.
The Company is governed by a Board of Directors, comprised of the president
and corporate secretary. Financial Statements are prepared in-house and reviewed
by the directors on a monthly basis.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
For purposes of the Statement of Cash Flows, the Company considers all
highly liquid investments with an initial maturity of three months or less to be
cash equivalents. At the financial statement date, the Company had no
investments other than cash on the books.
Inventories
Inventories are stated at the lower of cost or market, cost being
determined by the average cost method, market being replacement cost.
Property, Plant & Equipment
The cost of property, plant, and equipment is depreciated over the
estimated useful lives of the related assets. For financial reporting purposes,
the useful lives of assets are 18 to 24 months for Computer Hardware and three
years for Office Furniture and Certain Software. Useful lives for tax purposes
are five years for Computer Hardware and Software and seven years for Office
Furniture. Depreciation is computed on the straight line method for financial
reporting purposes and on the double declining balance for income tax purposes.
Maintenance and repairs are charged to operations when incurred. Betterments and
renewals are capitalized.
Advertising Costs
Advertising costs are charged to operations when incurred.
Revenue Recognition
Revenue is recognized when products are shipped, support contracts are
recognized based on the terms of the contracts, and training revenue is
recognized when performed. Losses on returns and contract costs are recorded
when they occur.
See Accountant's Review Report
F-63
<PAGE> 151
CN NETWORKS, INC.
DBA COMPUTER NETWORKS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999 AND 1998
Income Taxes
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109 (SFAS 109). SFAS 109
requires, among other things, that deferred income taxes be provided for
temporary differences between the financial reporting basis and the tax basis of
the Company's assets and liabilities as part of the income tax provisions.
NOTE 3 -- LONG-TERM DEBT
Following is a summary of long-term debt at September 30, 1999 and 1998:
<TABLE>
<S> <C> <C>
10.5% note payable to bank in monthly principal installments
of $1,370.00 plus interest, through November 19, 2000,
secured by the assets of the Company........................ $ 20,369 $ 35,604
10.5% note payable to bank in monthly principal installments
of $695.00 plus interest, through March 18, 2000, secured by
the assets of the Company................................... 4,120 12,490
Line of credit with bank, maturing March 31, 1999. Interest
payable monthly at 10%, maximum line of credit is
$700,000.00 in 1997 and $1,000,000.00 in 1998. Secured by
accounts receivable, expected to be refinanced.............. 527,420 429,890
--------- ---------
551,909 477,984
Less: Current maturities included in current liabilities.... (549,185) (454,670)
--------- ---------
$ 2,724 $ 23,314
========= =========
</TABLE>
Following are maturities of long-term debt for each of the next two years:
<TABLE>
<S> <C>
Year ended September 30,
2000.................................................... $549,215
2001.................................................... 2,724
--------
$551,939
========
</TABLE>
NOTE 4 -- LEASES
The Company leases it's main office and a training facility under operating
leases expiring in 2001. The Company has entered into a new lease agreement for
it's main office effective September 1, 1999 and expiring 2004. Total rental
expense recorded in the financial statements for the nine months ended September
30, under these leases was $123,585 for 1999 and $87,835 for 1998. In addition,
on February 3, 1999 the Company signed a lease for additional space to
accommodate an expansion of the training facility. Occupancy is scheduled for
April, 1999. The Company also pays lease payments on an automobile effective
February, 1997 for 60 months. The automobile lease expense recorded in the
financial statements
See Accountant's Review Report
F-64
<PAGE> 152
CN NETWORKS, INC.
DBA COMPUTER NETWORKS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999 AND 1998
was $19,551 for 1999 and $24,775 for 1998. Future minimum rental payments under
these operating leases are as follows:
<TABLE>
<S> <C>
Year ended December 31,
1999................................................... $ 209,133
2000................................................... 245,329
2001................................................... 254,259
2002................................................... 211,691
2003................................................... 210,062
----------
$1,130,474
==========
</TABLE>
NOTE 5 -- INCOME TAXES
Income tax expense for the period ended September 30, 1999 and 1998 is
comprised of the following:
<TABLE>
<CAPTION>
1999 1998
----------------------------- -----------------------------
CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL
------- -------- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Federal.......................... 26,966 6,303 20,663 25,894 3,777 22,117
State............................ 11,366 (2,750) 14,116 10,889 331 10,558
------ ------ ------ ------ ----- ------
38,332 3,553 34,779 36,783 4,108 32,675
====== ====== ====== ====== ===== ======
</TABLE>
Deferred tax (liabilities) assets comprise the following at September 30,
1999 and 1998:
<TABLE>
<S> <C> <C>
Depreciation................................................ 0 0
Gross deferred tax liabilities............................ 0 0
State taxes, net of federal benefit......................... 3,650 3,423
Depreciation................................................ 14,538 7,553
------- -------
Gross deferred tax assets................................. 18,188 10,976
------- -------
Net deferred tax assets................................... $18,188 $10,976
======= =======
</TABLE>
The net deferred tax asset represents temporary differences for future tax
deductions which can generally be realized by carryback to taxable income in
prior years.
The provisions for income taxes differ from the amount of income tax
determined by applying the applicable U.S. statutory income tax rate to pretax
income as follows for the periods ended September 30, 1999 and 1998:
<TABLE>
<S> <C> <C>
Federal statutory rate...................................... 28% 27%
State income taxes, net of federal tax benefit and
credits................................................... 3% 10%
--- ---
31% 37%
=== ===
</TABLE>
NOTE 6 -- CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of cash and cash equivalents
and trade receivables. The Company places its cash with federally
See Accountant's Review Report
F-65
<PAGE> 153
CN NETWORKS, INC.
DBA COMPUTER NETWORKS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999 AND 1998
insured financial institutions and as of September 30, 1999 and 1998, the
Company's balances do not exceed federally insured limits. Fair value of these
financial instruments approximates their carrying values.
The Company believes any risk of accounting loss is significantly reduced
due to the diversity of its services, end customers, and geographic sales areas.
The Company performs credit evaluations of its customers' financial condition
whenever necessary. The Company generally does not require cash collateral or
other security to support customer receivables and has historically had little
problems with collecting their accounts receivable. For the periods ended
September 30, 1999 and 1998 the Company had one customer that individually had
an accounts receivable balance exceeding 10% of the total accounts receivable
balance.
F-66
<PAGE> 154
ASYNC TECHNOLOGIES, INC. AND ASYNC TECHNICAL INSTITUTE, INC.
COMBINED FINANCIAL STATEMENTS
F-67
<PAGE> 155
INDEPENDENT AUDITORS' REPORT
To the Director and Shareholders
Async Technologies, Inc.
Async Technical Institute, Inc.
Walled Lake, Michigan
We have audited the accompanying combined balance sheets of Async
Technologies, Inc. (a Michigan corporation) and Async Technical Institute, Inc.
(a Michigan corporation) as of December 31, 1997 and 1998, and the related
combined statements of operations, retained deficit, and cash flows for the
years then ended. These combined financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
combined 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 combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of Async Technologies,
Inc. and Async Technical Institute, Inc. as of December 31, 1997 and 1998, and
the results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ M. JEVAHIRIAN
- ---------------------------------------------------------
Detroit, Michigan
February 9, 2000
F-68
<PAGE> 156
ASYNC TECHNOLOGIES, INC.
ASYNC TECHNICAL INSTITUTE, INC.
COMBINED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
-------- ----------
<S> <C> <C>
ASSETS
Current Assets
Cash...................................................... $ 5,981 $ 13,478
Accounts receivable....................................... 557,867 1,541,773
Inventory
Purchased from unrelated parties....................... 73,983 220,673
Purchased from related parties......................... -- 8,970
Prepaid expenses.......................................... 12,223 --
Other current assets...................................... -- 2,264
-------- ----------
Total Current Assets.............................. 650,054 1,787,158
-------- ----------
Property and equipment, net................................. 57,925 77,638
Other assets................................................ 2,952 4,702
-------- ----------
Total Assets...................................... $710,931 $1,869,498
======== ==========
LIABILITIES AND SHAREHOLDER EQUITY
Current Liabilities
Line of credit............................................ $234,067 $ 518,689
Accounts payable
Due to unrelated parties............................... 321,534 1,119,220
Due to related parties................................. 20,199 76,153
Accrued wages and other current liabilities............... 62,418 106,295
Deferred revenue.......................................... 238,444 322,295
-------- ----------
Total Current Liabilities......................... 876,662 2,142,652
-------- ----------
Shareholder Equity
Common stock
Async Technologies, Inc. (60,000 shares authorized;
1,000 shares issued and outstanding; no par value).... 1,000 1,000
Async Technical Institute, Inc. (60,000 shares
authorized; 100 shares issued and outstanding; no par
value)................................................ -- 100
Retained deficit.......................................... (166,731) (274,254)
-------- ----------
Total Shareholder Equity.......................... (165,731) (273,154)
-------- ----------
Total Liabilities and Shareholder Equity.......... $710,931 $1,869,498
======== ==========
</TABLE>
See accompanying notes.
(The accompanying notes are an integral part of these combined financial
statements.)
(See independent auditors' report.)
F-69
<PAGE> 157
ASYNC TECHNOLOGIES, INC.
ASYNC TECHNICAL INSTITUTE, INC.
COMBINED STATEMENTS OF OPERATIONS AND RETAINED DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Revenue:
Hardware and software..................................... $3,984,151 $5,076,079
Service delivery.......................................... 614,408 980,159
---------- ----------
Total revenue........................................ 4,598,559 6,056,238
---------- ----------
Cost of sales:
Hardware and software
Purchased from unrelated parties....................... (2,988,661) (4,015,660)
Purchased from related parties......................... -- (79,703)
Service delivery.......................................... (237,988) (266,559)
---------- ----------
Total cost of sales.................................. (3,226,649) (4,361,922)
---------- ----------
Selling, general and administrative expenses
Provided by unrelated parties............................. (1,013,840) (1,162,506)
Provided by related parties............................... (124,732) (260,351)
---------- ----------
Total selling, general and administrative expenses... (1,138,572) (1,422,857)
---------- ----------
Depreciation................................................ (41,185) (37,982)
---------- ----------
Income from Operations............................... 192,153 233,477
Interest income............................................. 131 8
Interest expense............................................ (39,539) (33,453)
Other....................................................... (5,621) (16,988)
---------- ----------
Net Income................................................ 147,124 183,044
Retained deficit -- Beginning of year....................... (170,985) (166,731)
Shareholder distributions, net............................ (142,870) (290,567)
---------- ----------
Retained deficit -- End of year............................. $ (166,731) $ (274,254)
========== ==========
</TABLE>
See accompanying notes.
(The accompanying notes are an integral part of these combined financial
statements.)
(See independent auditors' report.)
F-70
<PAGE> 158
ASYNC TECHNOLOGIES, INC.
ASYNC TECHNICAL INSTITUTE, INC.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities
Net Income................................................ $147,124 $183,044
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 41,185 37,982
Other.................................................. 5,621 16,988
Changes in working capital:
Accounts receivable.................................... 125,828 (983,906)
Inventory
Unrelated parties.................................... 40,007 (146,690)
Related parties...................................... -- (8,970)
Prepaid expenses....................................... (9,403) 12,223
Other current assets................................... -- (2,264)
Accounts payable
Unrelated parties.................................... (235,063) 777,487
Related parties...................................... -- 76,153
Accrued wages and other current liabilities............ (16,307) 43,877
Deferred revenue....................................... 166,188 83,851
-------- --------
Net Cash Provided by Operating Activities................. 265,180 89,775
-------- --------
Cash Flows from Investing Activities
Purchases of property and equipment....................... (28,630) (75,433)
Proceeds from disposal of property and equipment.......... -- 750
Payments for other assets................................. (320) (1,750)
-------- --------
Net Cash Used in Investing Activities..................... (28,950) (76,433)
-------- --------
Cash Flows from Financing Activities
Issuance of common stock.................................. -- 100
Proceeds from (payments on) line of credit, net........... (149,933) 284,622
Distributions to shareholder, net......................... (142,870) (290,567)
-------- --------
Net Cash Used in Financing Activities..................... (292,803) (5,845)
-------- --------
Net (Decrease) Increase in Cash............................. (56,573) 7,497
Cash -- Beginning of year................................... 62,554 5,981
-------- --------
Cash -- End of year......................................... $ 5,981 $ 13,478
======== ========
Supplemental Cash Flow Information:
Cash paid for interest during the year.................... $ 37,170 $ 34,539
======== ========
</TABLE>
See accompanying notes.
(The accompanying notes are an integral part of these combined financial
statements.)
(See independent auditors' report.)
F-71
<PAGE> 159
ASYNC TECHNOLOGIES, INC.
ASYNC TECHNICAL INSTITUTE, INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
1. DESCRIPTION OF BUSINESS
Async Technologies, Inc. ("ATI") provides computer software and hardware
installation and maintenance services to medium and large businesses located in
the mid-western United States. Certain sales involve installations to multiple
locations reaching international markets.
The financial statements are prepared on a combined basis with Async
Technical Institute, Inc. ("ATII"), a company under common control. ATII began
operations in September, 1998, and provides technical training to customers of
ATI.
As described in Note 10 to the combined financial statements, the companies
were merged on October 7, 1999. The combined entities are hereinafter referred
to as the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The Company's combined financial statements are prepared in accordance with
generally accepted accounting principles.
Use of Estimates
The preparation of combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Allowance for Doubtful Accounts
The Company considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is reported.
Inventory
Inventory consists primarily of software products and is valued at the
lower of cost or market on a first-in, first-out basis. Market is current
selling price less estimated selling costs.
Property and Equipment
Property and equipment are recorded at cost. The Company provides for
depreciation by charges to operations based upon estimated useful lives of the
assets using the straight-line method. Maintenance and repair costs are charged
to expense when incurred.
Income Taxes
Each company, with the consent of the shareholder, has elected under the
Internal Revenue Code to be taxed as an S corporation. In lieu of corporate
income taxes, the shareholders of an S corporation are
See Independent Auditors' Report
F-72
<PAGE> 160
ASYNC TECHNOLOGIES, INC.
ASYNC TECHNICAL INSTITUTE, INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
taxed on their proportionate share of the company's taxable income. Therefore,
no provision or liability for federal income tax has been included in the
combined financial statements.
Deferred Revenue
The Company sells maintenance contracts and recognizes the related revenue
over the life of the contract.
Revenue Recognition
Revenue from the sale and installation of computer software and hardware is
recognized at the point of delivery.
3. NOTES RECEIVABLE
At December 31, 1998, the Company has non-interest bearing notes receivable
in the amount of $2,264 from an employee which are due on demand. The notes
receivable are included in other current assets in the attached financial
statements.
4. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Computer equipment.......................................... $111,802 $ 98,224
Furniture and fixtures...................................... 8,151 13,110
Leasehold improvements...................................... 9,110 9,110
-------- --------
129,063 120,444
Accumulated depreciation.................................... (71,138) (42,806)
-------- --------
Property and equipment, net.......................... $ 57,925 $ 77,638
======== ========
</TABLE>
5. LINE OF CREDIT
The Company has a $550,000 line of credit with a bank, which is due on
demand, secured by all assets, and personally guaranteed by the shareholder.
Interest is payable monthly at 1.50% over the bank's prime rate which amounted
to 9.50% and 10.00% at December 31, 1997 and 1998, respectively. As of December
31, 1997 and 1998, outstanding borrowings under the line of credit are $234,067
and $518,689, respectively.
6. ADVERTISING COSTS
The Company follows the policy of charging the costs of advertising to
expense as incurred. Advertising costs for the years ended December 31, 1997 and
1998 amounted to $16,001 and $25,348, respectively.
See Independent Auditors' Report
F-73
<PAGE> 161
ASYNC TECHNOLOGIES, INC.
ASYNC TECHNICAL INSTITUTE, INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
7. OPERATING LEASE
The Company has entered into a non-cancelable operating lease for its
corporate facilities which expires July 31, 2002. Scheduled payments for the
term of the lease are as follows:
<TABLE>
<S> <C>
1999...................................................... $ 31,212
2000...................................................... 105,834
2001...................................................... 110,283
2002...................................................... 61,610
</TABLE>
Rent expense for the years ended December 31, 1997 and 1998 amounted to
$47,956 and $55,444, respectively.
8. PENSION PLAN
Effective January 1, 1998, the Company adopted a qualified pension plan
(the "Plan") under provisions of Section 401(k) of the Internal Revenue Code.
Under the provisions of the Plan, each participant is able to defer up to 20% of
their compensation. The Company has not made any contributions to the Plan for
the year ending December 31, 1998.
9. RELATED PARTY TRANSACTIONS
The Company purchases products and services from certain related parties.
Management and administrative services are purchased from Intelligent
Signage, Inc., an entity owned by the shareholder's parent.
The Company also purchases computer software products developed by Lakeside
Software, Inc., an entity owned by the shareholder's brother.
10. SUBSEQUENT EVENTS
Effective August 30, 1999, Async Technologies, Inc. authorized 60,000
additional shares of common stock. The total authorized shares (120,000) are
divided into two equal classes of voting and non-voting shares. ATI also
authorized the issuance of 54,000 shares during September and October, 1999.
Effective October 7, 1999, ATI entered into a Plan of Merger with ATII.
Under the terms of the merger, all of the outstanding shares of ATII will be
converted into voting shares of ATI. Upon consummation of the merger, the
separate corporate existence of ATII shall terminate.
Effective September 7, 1999, and subject to the consummation of the above
described events, the Company entered into an Agreement and Plan of
Reorganization and Merger with Futurelink Michigan Acquisition Corp., a wholly
owned subsidiary of Futurelink Distribution Corp. (the "Parent"). Under the
terms of the agreement, all outstanding shares of the Company will be exchanged
for cash and common stock of the Parent. Upon consummation of the merger, the
separate corporate existence of the Company shall terminate.
See Independent Auditors' Report
F-74
<PAGE> 162
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
February 3, 2000
To the Director and Shareholders
Async Technologies, Inc.
Async Technical Institute, Inc.
Walled Lake, Michigan
We have reviewed the accompanying combined balance sheets of Async
Technologies, Inc. (a Michigan corporation) and Async Technical Institute, Inc.
(a Michigan corporation) as of September 30, 1998 and 1999 and the related
combined statements of operations and retained (deficit) earnings and cash flows
for the nine months then ended, in accordance with Statements on Standards for
Accounting and Review Services issued by the American Institute of Certified
Public Accountants. All information included in these combined financial
statements is the representation of the management of Async Technologies, Inc.
and Async Technical Institute, Inc.
A review consists principally of inquiries of company personnel and
analytical procedures applied to financial data. It is substantially less in
scope than an audit in accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying combined financial statements in order for
them to be in conformity with generally accepted accounting principles.
F-75
<PAGE> 163
ASYNC TECHNOLOGIES, INC.
ASYNC TECHNICAL INSTITUTE, INC.
COMBINED BALANCE SHEETS
SEPTEMBER 30, 1998 AND 1999
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
ASSETS
Current Assets
Cash...................................................... $ 54,930 $ 68,958
Accounts receivable....................................... 914,807 1,409,200
Inventory
Purchased from unrelated parties....................... 198,397 316,179
Purchased from related parties......................... 41,860 --
Other current assets...................................... 2,264 1,709
---------- ----------
Total Current Assets................................. 1,212,258 1,796,046
---------- ----------
Property and equipment, net................................. 82,296 128,187
Other assets................................................ 4,552 6,890
---------- ----------
Total Assets......................................... $1,299,106 $1,931,123
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Line of credit............................................ $ 405,989 $ 323,989
Accounts payable
Due to unrelated parties............................... 573,513 1,102,714
Due to related parties................................. 10,129 --
Accrued wages and other current liabilities............... 55,557 120,985
Deferred revenue.......................................... 334,794 303,874
---------- ----------
Total Current Liabilities............................ 1,379,982 1,851,562
---------- ----------
Shareholders' Equity
Common stock
Async Technologies, Inc.
(120,000 shares authorized; 1,000 and 36,900 shares
issued and outstanding; no par value)................. 1,000 1,000
Async Technical Institute, Inc.
(60,000 shares authorized; 100 shares issued and
outstanding; no par value)............................ 100 100
Retained (deficit) earnings............................... (81,976) 78,461
---------- ----------
Total Shareholders' Equity........................... (80,876) 79,561
---------- ----------
Total Liabilities and Shareholders' Equity........... $1,299,106 $1,931,123
========== ==========
</TABLE>
See accompanying notes.
(The accompanying notes are an integral part of these combined financial
statements.)
(See independent public accountants review report.)
F-76
<PAGE> 164
ASYNC TECHNOLOGIES, INC.
ASYNC TECHNICAL INSTITUTE, INC.
COMBINED STATEMENTS OF OPERATIONS AND RETAINED (DEFICIT) EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Revenue:
Hardware and software..................................... $ 3,157,009 $ 5,050,090
Service delivery.......................................... 679,337 1,158,375
----------- -----------
Total revenue........................................ 3,836,346 6,208,465
----------- -----------
Cost of sales:
Hardware and software
Purchased from unrelated parties....................... (2,320,534) (3,749,366)
Purchased from related parties......................... (40,365) (33,134)
Service delivery.......................................... (192,334) (461,140)
----------- -----------
Total cost of sales.................................. (2,553,233) (4,243,640)
----------- -----------
Selling, general and administrative expenses
Provided by unrelated parties............................. (821,886) (1,158,402)
Provided by related parties............................... (155,873) (113,033)
----------- -----------
Total selling, general and administrative expenses... (977,759) (1,271,435)
----------- -----------
Depreciation................................................ (28,934) (36,061)
----------- -----------
Income from Operations.................................... 276,420 657,329
Interest income............................................. 8 --
Interest expense............................................ (21,711) (30,266)
Other....................................................... (12,553) --
----------- -----------
Net Income................................................ 242,164 627,063
Retained deficit -- Beginning of period..................... (166,731) (274,254)
Shareholder distributions, net............................ (157,409) (274,348)
----------- -----------
Retained (deficit) earnings -- End of period................ $ (81,976) $ 78,461
=========== ===========
</TABLE>
See accompanying notes.
(The accompanying notes are an integral part of these combined financial
statements.)
(See independent public accountants review report.)
F-77
<PAGE> 165
ASYNC TECHNOLOGIES, INC.
ASYNC TECHNICAL INSTITUTE, INC.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income................................................ $ 242,164 $ 627,063
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 28,934 36,061
Other.................................................. 12,553 --
Changes in working capital:
Accounts receivable.................................... (356,940) 132,573
Inventory
Unrelated parties.................................... (124,414) (95,506)
Related parties...................................... (41,860) 8,970
Prepaid expenses....................................... 12,223 --
Other current assets................................... (2,264) 555
Accounts payable
Unrelated parties.................................... 251,979 (16,506)
Related parties...................................... (10,070) (76,153)
Accrued wages and other current liabilities............ (6,861) 14,690
Deferred revenue....................................... 96,350 (18,421)
--------- ---------
Net Cash Provided By Operating Activities......... 101,794 613,326
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment....................... (66,608) (86,610)
Proceeds from disposal of property and equipment.......... 750 --
Payments for other assets................................. (1,600) (2,188)
--------- ---------
Net Cash Used in Investing Activities............. (67,458) (88,798)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock.................................. 100 --
Proceeds from (payments on) line of credit, net........... 171,922 (194,700)
Distributions to shareholder, net......................... (157,409) (274,348)
--------- ---------
Net Cash Provided By (Used in) Financing
Activities...................................... 14,613 (469,048)
--------- ---------
NET INCREASE IN CASH........................................ 48,949 55,480
Cash -- Beginning of period................................. 5,981 13,478
--------- ---------
Cash -- End of period....................................... $ 54,930 $ 68,958
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest during the period.................. $ 20,162 $ 31,688
========= =========
</TABLE>
See accompanying notes.
(The accompanying notes are an integral part of these combined financial
statements.)
(See independent public accountants review report.)
F-78
<PAGE> 166
ASYNC TECHNOLOGIES, INC.
ASYNC TECHNICAL INSTITUTE, INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1999
1. DESCRIPTION OF BUSINESS
Async Technologies, Inc. ("ATI") provides computer software and hardware
installation and maintenance services to medium and large businesses located in
the mid-western United States. Certain sales involve installations to multiple
locations reaching international markets.
The financial statements are prepared on a combined basis with Async
Technical Institute, Inc. ("ATII"), a company under common control. ATII began
operations in September, 1998, and provides technical training to customers of
ATI.
As described in Note 11 to the combined financial statements, the companies
were merged on October 7, 1999. The combined entities are hereinafter referred
to as the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The Company's combined financial statements are prepared in accordance with
generally accepted accounting principles.
Use of Estimates
The preparation of combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Allowance for Doubtful Accounts
The Company considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is reported.
Inventory
Inventory consists primarily of software products and is valued at the
lower of cost or market on a first-in, first-out basis. Market is current
selling price less estimated selling costs.
Property and Equipment
Property and equipment are recorded at cost. The Company provides for
depreciation by charges to operations based upon estimated useful lives of the
assets using the straight-line method. Maintenance and repair costs are charged
to expense when incurred.
Income Taxes
Each company has elected under the Internal Revenue Code to be taxed as an
S corporation. In lieu of corporate income taxes, the shareholders of an S
corporation are taxed on their proportionate share of
(See accountants' review report.)
F-79
<PAGE> 167
ASYNC TECHNOLOGIES, INC.
ASYNC TECHNICAL INSTITUTE, INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998 AND 1999
the company's taxable income. Therefore, no provision or liability for federal
income tax has been included in the combined financial statements.
Deferred Revenue
The Company sells maintenance contracts and recognizes the related revenue
over the life of the contract.
Revenue Recognition
Revenue from the sale and installation of computer software and hardware is
recognized at the point of delivery.
3. NOTES RECEIVABLE
At September 30, 1998, the Company has non-interest bearing notes
receivable in the amount of $2,264 from an employee which are due on demand. The
notes receivable are included in other current assets in the attached financial
statements.
4. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Computer equipment.......................................... $108,895 $155,920
Furniture and fixtures...................................... 13,521 22,248
Leasehold improvements...................................... 9,110 19,776
-------- --------
131,526 197,944
Accumulated depreciation.................................... (49,230) (69,757)
-------- --------
Property and equipment, net.......................... $ 82,296 $128,187
======== ========
</TABLE>
5. LINE OF CREDIT
The Company has a $550,000 line of credit with a bank, which is due on
demand, secured by all assets, and personally guaranteed by the shareholder.
Interest is payable monthly at 1.50% over the bank's prime rate which amounted
to 10.14% and 9.89% at September 30, 1998 and 1999, respectively. As of
September 30, 1998 and 1999, outstanding borrowings under the line of credit are
$405,989 and $323,989, respectively.
6. ADVERTISING COSTS
The Company follows the policy of charging the costs of advertising to
expense as incurred. Advertising costs for the nine months ended September 30,
1998 and 1999 amounted to $21,136 and $6,609, respectively.
(See accountants' review report.)
F-80
<PAGE> 168
ASYNC TECHNOLOGIES, INC.
ASYNC TECHNICAL INSTITUTE, INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998 AND 1999
7. OPERATING LEASE
The Company has entered into a non-cancelable operating lease for its
corporate facilities which expires July 31, 2002. Scheduled payments for the
term of the lease are as follows:
<TABLE>
<S> <C>
2003...................................................... $ 95,565
2004...................................................... 117,342
2005...................................................... 102,278
</TABLE>
Rent expense for the nine months ended September 30, 1998 and 1999 amounted
to $36,934 and $47,541, respectively.
8. PENSION PLAN
Effective January 1, 1998, the Company adopted a qualified pension plan
(the "Plan") under provisions of Section 401(k) of the Internal Revenue Code.
Under the provisions of the Plan, each participant is able to defer up to 20% of
their compensation. The Company has not made any contributions to the Plan for
the periods ending September 30, 1998 and 1999.
9. RELATED PARTY TRANSACTIONS
The Company purchases products and services from certain related parties.
Management and administrative services are purchased from Intelligent
Signage, Inc., an entity owned by the shareholders' parent.
The Company also purchases computer software products developed by Lakeside
Software, Inc., an entity owned by a shareholder of the Company.
10. ISSUANCE OF COMMON STOCK
Effective August 30, 1999, Async Technologies, Inc. authorized 60,000
additional shares of common stock. The total authorized shares (120,000) are
divided into two equal classes of voting and non-voting shares.
Under a non-compensatory agreement, 35,900 shares of ATI common stock were
issued to the existing shareholders and other related parties of the Company.
The shares were issued during September, 1999, as follows:
<TABLE>
<CAPTION>
SHARES
----------------
<S> <C> <C>
Beginning balance of common stock -- all Class A............ 1,000
Class A Common Stock -- with full voting rights........... 32,900
Class B Common Stock -- with limited voting rights........ 3,000
------
35,900
------
Ending balance of common stock.............................. 36,900
======
</TABLE>
(See accountants' review report.)
F-81
<PAGE> 169
ASYNC TECHNOLOGIES, INC.
ASYNC TECHNICAL INSTITUTE, INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998 AND 1999
An additional 16,200 shares of Class B Common Stock and 1,900 of Class C
Common Stock (with no voting rights) were issued to employees of the Company
during October, 1999.
11. SUBSEQUENT EVENTS
Effective October 7, 1999, ATI entered into a Plan of Merger with ATII.
Under the terms of the merger, all of the outstanding shares of ATII will be
converted into voting shares of ATI. Upon consummation of the merger, the
separate corporate existence of ATII shall terminate.
Effective September 7, 1999, and subject to the consummation of the above
described events, the Company entered into an Agreement and Plan of
Reorganization and Merger with Futurelink Michigan Acquisition Corp., a wholly
owned subsidiary of Futurelink Distribution Corp. (the "Parent"). Under the
terms of the agreement, all outstanding shares of the Company will be exchanged
for cash and common stock of the Parent. Upon consummation of the merger, the
separate corporate existence of the Company shall terminate.
(See accountants' review report.)
F-82
<PAGE> 170
KNS HOLDINGS LIMITED
FINANCIAL STATEMENTS
F-83
<PAGE> 171
REPORT OF THE INDEPENDENT AUDITORS
To the directors of KNS Holdings Limited
We have audited the combined balance sheets of KNS Holdings Limited as at
February 28, 1998 and February 28, 1999, and the related combined profit and
loss accounts and statements of movements in invested capital and cash flows for
the periods then ended. These financial statements are the responsibility of KNS
Holdings Limited's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with United Kingdom auditing
standards which do not differ in any significant respect from 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 that our audits provide a
reasonable basis of our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of KNS Holdings
Limited at February 28, 1998 and February 28, 1999 and the combined results of
its operations and its combined cash flows for the periods then ended in
conformity with accounting principles generally accepted in the United Kingdom
which differ in certain respects from those generally accepted in the United
States (see Note 21 of Notes to the Financial Statements).
/s/ ERNST & YOUNG
Registered Auditor
Reading, England
December 17, 1999
F-84
<PAGE> 172
KNS HOLDING LIMITED
COMBINED BALANCE SHEETS
AT FEBRUARY 28, 1999
<TABLE>
<CAPTION>
FEBRUARY 28 FEBRUARY 28 SEPTEMBER 30
NOTE 1998 1999 1999
---- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash......................................... $1,221,645 $ 539,999 $ 199,613
Marketable securities........................ 10 1,998,377 2,093,636 1,947,775
Accounts receivable and other................ 11 3,537,736 3,592,460 6,588,845
---------- ---------- ----------
6,757,758 6,226,095 8,736,233
Capital assets............................... 8 410,109 694,643 716,253
Investments.................................. 9 344,935 522,882 537,537
---------- ---------- ----------
755,044 1,217,525 1,253,790
---------- ---------- ----------
7,512,802 7,443,620 9,990,023
CURRENT LIABILITIES
Accounts payable and other................... 12 6,271,137 5,902,080 8,291,911
Accruals and deferred income................. 14 297,644 379,163 172,579
---------- ---------- ----------
6,568,781 6,281,243 8,464,490
Deferred taxes............................... 13 -- 12,959 16,469
Minority interest............................ -- 291,739 345,691
---------- ---------- ----------
6,568,781 6,585,941 8,826,650
STOCKHOLDERS EQUITY
Called up share capital...................... 237,096 237,096 237,096
Other reserves............................... 703,056 421,022 421,022
Retained earnings............................ 3,858 224,428 505,799
Cumulative translation adjustment............ 11 (24,867) (544)
---------- ---------- ----------
Total shareholders equity.................. 944,021 857,679 1,163,373
---------- ---------- ----------
$7,512,802 $7,443,620 $9,990,023
========== ========== ==========
</TABLE>
- -------------------------
(i) A summary of the adjustments to invested capital that would be required if
US generally accepted accounting principles were to be applied is set forth
in Note 21 of Notes to the Financial Statements.
F-85
<PAGE> 173
KNS HOLDINGS LIMITED
COMBINED PROFIT AND LOSS ACCOUNTS
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED 9 MONTHS ENDED
FEBRUARY 28 FEBRUARY 28 SEPTEMBER 30
NOTE 1998 1999 1999
----- ------------ ----------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUE................................. 2 & 5 $948,725 $18,381,901 $15,854,697
Expenses
Cost of service delivery................ 789,953 15,079,421 11,177,631
Selling general and administrative
expenses.............................. 130,177 2,611,009 4,172,883
-------- ----------- -----------
Income before interest and taxes........ 28,595 691,471 504,183
Interest expense........................ 6 (17,290) (336,892) (197,741)
Loss on disposal of fixed asset
investments........................... -- (283,387) --
Equity loss in investee................. -- (17,884) (62,903)
-------- ----------- -----------
Income before taxes..................... 3 11,305 53,308 243,539
Taxation on profit on ordinary
activities............................ 7 (7,447) (116,127) (96,765)
-------- ----------- -----------
Net income (loss) for the period........ $ 3,858 $ (62,819) $ 146,774
======== =========== ===========
</TABLE>
There are no recognized gains or losses other than the loss of $62,819 for the
year ended February 28, 1999 and profit of $3,858 for the year ended February
28, 1998.
- -------------------------
(i) A summary of the significant adjustments to profit for the year that would
be required if US generally accepted accounting principles were to be
applied instead of those generally in the United Kingdom is set forth in
Note 21 to the Financial Statements.
F-86
<PAGE> 174
KNS HOLDING LIMITED
COMBINED STATEMENT OF MOVEMENTS IN SHAREHOLDERS' FUNDS
AT FEBRUARY 28, 1999
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED 9 MONTHS ENDED
FEBRUARY 28 FEBRUARY 28 SEPTEMBER 30
1998 1999 1999
------------ ----------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Recognized profit/(loss).............................. $ 3,858 $(62,819) $ 146,774
Other movements:
New shares issued................................... 940,152 -- --
Exchange movements.................................. 11 (23,523) (119,415)
-------- -------- ----------
Total movements in the periods........................ 944,021 (86,342) 27,359
Shareholders' funds at March 1/January 1.............. -- 944,021 1,136,011
-------- -------- ----------
Shareholders' funds at February 28/September 30....... $944,021 $857,679 $1,163,370
======== ======== ==========
</TABLE>
F-87
<PAGE> 175
KNS HOLDING LIMITED
COMBINED CASH FLOW STATEMENTS
AT FEBRUARY 28, 1999
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED 9 MONTHS ENDED
FEBRUARY 28 FEBRUARY 28 SEPTEMBER 30
NOTES 1998 1999 1999
----- ------------ ----------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES......... 17 $ (62,432) $1,133,929 $(2,083,116)
--------- ---------- -----------
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received............................... -- 57,528 18,047
Interest paid................................... -- (336,892) (197,742)
--------- ---------- -----------
Net Cash Outflow From Returns on Investments and
Servicing of Finance.......................... -- (279,364) (179,695)
--------- ---------- -----------
TAXATION
Corporation tax paid............................ -- (142,101) --
--------- ---------- -----------
Tax Paid........................................ -- (142,101) --
--------- ---------- -----------
INVESTING ACTIVITIES
Payments to acquire tangible fixed assets....... (87,190) (554,350) (625,435)
Receipts from sales of tangible fixed assets.... -- 47,499 10,008
Loan to fixed asset investment.................. (259,404) (193,394) --
--------- ---------- -----------
Net Cash Outflow From Investing Activities...... (346,594) (700,245) (615,427)
--------- ---------- -----------
Net Cash (Outflow)/Inflow Before Financing...... (409,026) 12,219 (2,878,238)
--------- ---------- -----------
FINANCING
Other loan advances............................. 959,246 -- 2,326,210
Loan repayments................................. -- (682,064) --
--------- ---------- -----------
Net Cash Inflow From Financing.................. 959,246 (682,064) 2,326,210
--------- ---------- -----------
Increase/(Decrease) in Cash and Cash
Equivalents................................... 17 $ 550,220 $ (669,845) $ (552,028)
========= ========== ===========
</TABLE>
F-88
<PAGE> 176
KNS HOLDING LIMITED
COMBINED CASH FLOW STATEMENTS
AT FEBRUARY 28, 1999
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED 9 MONTHS ENDED
FEBRUARY 28 FEBRUARY 28 SEPTEMBER 30
NOTES 1998 1999 1999
----- ------------ ----------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Increase/(decrease) in cash.............. $ 550,220 $ (669,845) $ (552,028)
Cash inflow from increase in loans....... (959,246) -- (2,326,210)
Repayment of loans....................... -- 682,064 --
----------- ----------- -----------
Change in net debt resulting from cash
flows.................................. (409,026) 12,219 (2,878,238)
Exchange differences..................... (7,888) 75,923 (8,673)
Other movements.......................... (2,406,528) -- --
----------- ----------- -----------
Movement in Net Debt..................... (2,823,442) 88,142 (2,886,911)
Net Debt at March 1...................... -- (2,823,442) (2,189,424)
----------- ----------- -----------
Net Debt at February 28.................. $(2,823,442) $(2,735,300) $(5,076,335)
=========== =========== ===========
</TABLE>
F-89
<PAGE> 177
KNS HOLDING LIMITED
NOTES TO THE ACCOUNTS
AT FEBRUARY 28, 1999
1. ACCOUNTING POLICIES
Basis of accounting
The accounts have been prepared under the historical cost convention and in
accordance with all applicable accounting standards.
KNS Holdings Limited was incorporated on November 25, 1997. The combined
financial statements include the accounts of the company and its subsidiary, KNS
Limited, from January 15, 1998, the date of acquisition. On November 12, 1998,
the company granted options to three directors of KNS Limited to purchase from
the company 50,000 L1 ordinary shares each in KNS Limited. These options were
exercised by the directors on November 12, 1998. Consequently, KNS Holdings
Limited now owns 70% of KNS Limited.
Turnover
Turnover represents the net invoiced value of goods and services excluding
Value Added Tax.
Fixed assets
Depreciation is provided to write off the cost of the assets over their
expected useful lives at the following annual rates/lives on a straight line
basis:
<TABLE>
<S> <C>
Computers and other equipment............................... 25%
Motor vehicles.............................................. 25%
Office equipment............................................ 25%
</TABLE>
Stocks
Stocks and work in progress are stated at the lower of cost and net
realizable value, having made appropriate provisions for obsolete or slow moving
items. Cost represents the net purchase price of stock less trade discounts and
allowances.
Research and development
Expenditure on research and development is written off in the year in which
it is incurred.
Leased assets and hire purchase agreements
Where assets are financed by leasing or hire purchase agreements which give
risks and rewards approximating to ownership (finance leases) they are treated
as if they had been purchased outright on credit. They are therefore initially
recorded as a fixed asset and a liability at a sum equal to the fair value of
the asset. Leasing payments on such assets are regarded as consisting of a
capital element which reduces the outstanding liability and an interest charge.
All other asset leases are regarded as operating leases and the total payments
made under them are charged to the profit and loss account on a straight line
basis over the lease term.
F-90
<PAGE> 178
KNS HOLDING LIMITED
NOTES TO THE ACCOUNTS (CONTINUED)
AT FEBRUARY 28, 1999
Use of estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles in the United Kingdom requires management to make
estimates and assumptions that affect reported revenues, expenses, assets and
liabilities. Actual amounts could differ from such estimates.
Pension schemes
The company operates defined contribution pension schemes on behalf of the
directors and employees. Contributions payable for the period are charged to the
profit and loss account.
Foreign currency translation
The functional currency of the group is sterling (StgL). Transaction gains
or losses arising on changes in the exchange rates between the functional
currency and foreign currencies are included in net income/ (loss) for the
period.
Translation adjustments arising from the translation of the results, assets
and liabilities of the group into US dollars (US$) are reported as a component
of shareholders' funds.
2. REVENUE
The turnover and profit on ordinary activities before taxation are
attributable to the one principal activity of the company.
An analysis of turnover is given below:
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED 9 MONTHS ENDED
FEBRUARY 28 FEBRUARY 28 SEPTEMBER 30
1998 1999 1999
------------ ----------- --------------
(UNAUDITED)
<S> <C> <C> <C>
United Kingdom................................... $937,320 $18,075,874 $15,617,657
Europe........................................... 3,845 109,738 94,814
Rest of world.................................... 6,707 138,761 124,179
-------- ----------- -----------
$947,872 $18,324,373 $15,836,650
======== =========== ===========
</TABLE>
F-91
<PAGE> 179
KNS HOLDING LIMITED
NOTES TO THE ACCOUNTS (CONTINUED)
AT FEBRUARY 28, 1999
3. INCOME BEFORE TAXES
Pretax income is stated after charging:
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED 9 MONTHS ENDED
FEBRUARY 28 FEBRUARY 28 SEPTEMBER 30
1998 1999 1999
------------ ----------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Depreciation of tangible fixed assets............. $22,489 $213,227 $106,181
Rent on buildings held under operating lease...... 7,427 184,843 144,171
Hire on other assets.............................. 2,510 8,395 8,509
Exchange loss..................................... 1,934 54,822 25,331
Auditors' remuneration:
-- audit services............................... $ 2,736 $ 13,135 $ 15,422
</TABLE>
4. DIRECTORS AND EMPLOYEES
Staff costs during the period were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED 9 MONTHS ENDED
FEBRUARY 28 FEBRUARY 28 SEPTEMBER 30
1998 1999 1999
------------ ----------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Wages and salaries................................ $286,351 $2,724,882 $2,253,952
Value of benefits in kind......................... 21,936 211,746 35,176
Social security costs............................. 29,834 277,627 229,646
Other pension costs............................... 12,586 121,923 117,890
-------- ---------- ----------
$350,707 $3,336,178 $2,636,664
======== ========== ==========
</TABLE>
The average weekly number of employees of the company, included above, was
as follows:
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED 9 MONTHS ENDED
FEBRUARY 28 FEBRUARY 28 SEPTEMBER 30
1998 1999 1999
NO NO NO
------------ ----------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Office and management............................. 5 5 5
Production and sales.............................. 19 34 35
-- -- --
24 39 40
== == ==
</TABLE>
F-92
<PAGE> 180
KNS HOLDING LIMITED
NOTES TO THE ACCOUNTS (CONTINUED)
AT FEBRUARY 28, 1999
Remuneration in respect of directors of the company, included above, was
payable by the company as follows:
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED 9 MONTHS ENDED
FEBRUARY 28 FEBRUARY 28 SEPTEMBER 30
1998 1999 1999
------------ ----------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Emoluments........................................ $63,051 $754,571 $248,723
Pension contributions............................. 2,579 26,394 48,883
------- -------- --------
$65,630 $780,965 $297,606
======= ======== ========
</TABLE>
Pension contributions are payable under defined contributions schemes on
behalf of three directors.
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
FEBRUARY 28 FEBRUARY 28
1998 1999
------------ -----------
<S> <C> <C>
Highest paid director..................................... $ $
Emoluments................................................ 21,466 256,199
Pension contributions..................................... 789 8,303
------- --------
$22,255 $264,502
======= ========
</TABLE>
5. OTHER INCOME
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED 9 MONTHS ENDED
FEBRUARY 28 FEBRUARY 28 SEPTEMBER 30
1998 1999 1999
------------ ----------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Loan interest receivable.................. $853 $33,311 $18,047
Bank interest receivable.................. -- 24,217 --
---- ------- -------
$853 $57,528 $18,047
==== ======= =======
</TABLE>
6. INTEREST PAYABLE AND SIMILAR CHARGES
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED 9 MONTHS ENDED
FEBRUARY 28 FEBRUARY 28 SEPTEMBER 30
1998 1999 1999
------------ ----------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Loan interest payable............................. $17,290 $334,347 $197,741
======= ======== ========
</TABLE>
F-93
<PAGE> 181
KNS HOLDING LIMITED
NOTES TO THE ACCOUNTS (CONTINUED)
AT FEBRUARY 28, 1999
7. TAXATION ON PROFIT ON ORDINARY ACTIVITIES
The tax charge on the profit on ordinary activities for the year was as
follows:
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED 9 MONTHS ENDED
FEBRUARY 28 FEBRUARY 28 SEPTEMBER 30
1998 1999 1999
------------ ----------- --------------
(UNAUDITED)
<S> <C> <C> <C>
UK Corporation tax................................ $7,447 $103,168 $93,255
Deferred tax...................................... -- 12,959 3,510
------ -------- -------
$7,447 $116,127 $96,765
====== ======== =======
</TABLE>
8. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
OFFICE
COMPUTERS EQUIPMENT,
AND OTHER MOTOR FIXTURES &
EQUIPMENT VEHICLES FITTINGS TOTAL
--------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Cost:
At March 1, 1998.......................... $233,320 $325,100 $ 30,289 $ 588,709
Additions................................. 234,756 165,402 154,192 554,350
Disposals................................. (4,636) (31,907) (8,780) (45,323)
Difference on exchange.................... (13,593) (13,015) (5,425) (32,033)
-------- -------- -------- ----------
At February 28, 1999...................... 449,847 445,580 170,276 1,065,703
-------- -------- -------- ----------
Depreciation:
At March 1, 1998.......................... 89,517 84,640 4,443 178,600
Provided during year...................... 86,302 98,526 28,399 213,227
Disposals................................. (83) (8,459) (943) (9,485)
Difference on exchange.................... (5,151) (5,142) (989) (11,282)
-------- -------- -------- ----------
At February 28, 1999...................... 170,585 169,565 30,910 371,060
-------- -------- -------- ----------
Net book value:
At February 28, 1999...................... $279,262 $276,015 $139,366 $ 694,643
======== ======== ======== ==========
At March 1, 1998.......................... $143,803 $240,460 $ 25,846 $ 410,109
======== ======== ======== ==========
At September 30, 1999 (unaudited)......... $218,433 $371,793 $126,027 $ 716,253
======== ======== ======== ==========
</TABLE>
F-94
<PAGE> 182
KNS HOLDING LIMITED
NOTES TO THE ACCOUNTS (CONTINUED)
AT FEBRUARY 28, 1999
9. INVESTMENTS
<TABLE>
<CAPTION>
LOAN TO
INVESTMENT FIXED ASSET
IN SHARES INVESTMENT TOTAL
---------- ----------- --------
<S> <C> <C> <C>
Cost
At March 1, 1998...................................... $99 $344,836 $344,935
Additions............................................. -- 193,394 193,394
Difference on exchange................................ -- (15,447) (15,447)
--- -------- --------
At February 28, 1999.................................... $99 $522,783 $522,882
=== ======== ========
At September 30, 1999 (unaudited)....................... $99 $537,438 $537,537
=== ======== ========
</TABLE>
The investment in shares relates to 30% holding in the issued ordinary
share capital of Panic Systems Limited. Panic Systems Limited is incorporated in
England and Wales and its principal activity is the design and manufacture of
communications equipment. The company's accounting date is 31 March.
10. MARKETABLE SECURITIES
<TABLE>
<CAPTION>
FEBRUARY 28 FEBRUARY 28 SEPTEMBER 30
1998 1999 1999
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Goods for resale..................................... $1,998,377 $2,093,636 $1,947,775
========== ========== ==========
</TABLE>
11. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
FEBRUARY 28 FEBRUARY 28 SEPTEMBER 30
1998 1999 1999
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Trade debtors........................................ $3,457,846 $3,281,822 $5,423,395
Prepayments.......................................... 79,890 221,624 226,844
Other debtors........................................ -- 89,014 938,606
---------- ---------- ----------
$3,537,736 $3,592,460 $6,588,845
========== ========== ==========
</TABLE>
12. ACCOUNTS PAYABLE AND OTHER: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
FEBRUARY 28 FEBRUARY 28 SEPTEMBER 30
1998 1999 1999
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Trade creditors...................................... $2,136,434 $2,490,899 $2,041,133
Other creditors...................................... 4,045,087 3,275,299 5,937,766
Social security & other taxes........................ -- 86,801 103,628
Corporation tax...................................... 89,616 49,082 209,384
---------- ---------- ----------
$6,271,137 $5,902,081 $8,291,911
========== ========== ==========
</TABLE>
F-95
<PAGE> 183
KNS HOLDING LIMITED
NOTES TO THE ACCOUNTS (CONTINUED)
AT FEBRUARY 28, 1999
13. PROVISIONS FOR LIABILITIES AND CHARGES
Deferred taxation provided in the accounts and amounts not provided are as
follows:
Provided
<TABLE>
<CAPTION>
FEBRUARY 28 FEBRUARY 28 SEPTEMBER 30
1998 1999 1999
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Capital allowances in advance of depreciation........ $ -- $12,959 $16,469
======= ======= =======
</TABLE>
Not provided
<TABLE>
<CAPTION>
FEBRUARY 28 FEBRUARY 28 SEPTEMBER 30
1998 1999 1999
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Capital allowances in advance of depreciation........ $(14,069) $ -- $ --
======== ========== ==========
</TABLE>
14. ACCRUALS AND DEFERRED INCOME
<TABLE>
<CAPTION>
FEBRUARY 28 FEBRUARY 28 SEPTEMBER 30
1998 1999 1999
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Accruals............................................. $161,047 $310,053 $ 76,202
Deferred income...................................... 136,597 69,110 96,377
-------- -------- --------
$297,644 $379,163 $172,579
======== ======== ========
</TABLE>
15. SHARE CAPITAL
<TABLE>
<CAPTION>
FEBRUARY 28 FEBRUARY 28 SEPTEMBER 30
1998 1999 1999
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Authorized:
Ordinary shares of L0.01p each..................... $237,096 $237,096 $237,096
======== ======== ========
Allotted, issued and fully paid:
Ordinary shares of L0.01p each..................... $237,096 $237,096 $237,096
======== ======== ========
</TABLE>
F-96
<PAGE> 184
KNS HOLDING LIMITED
NOTES TO THE ACCOUNTS (CONTINUED)
AT FEBRUARY 28, 1999
16. MOVEMENTS IN RESERVES
<TABLE>
<CAPTION>
CUMULATIVE TOTAL
SHARE OTHER PROFIT & TRANSLATION SHAREHOLDERS'
CAPITAL RESERVES LOSS ACCOUNT ADJUSTMENT FUNDS
-------- --------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
At March 1, 1997............ $ -- $ -- $ -- $ -- $ --
Arising on share issues..... 237,096 703,056 -- -- 940,152
Retained profit............. -- -- 3,858 -- 3,858
Exchange gain............... -- -- -- 11 11
-------- --------- -------- -------- ----------
At February 28, 1998........ 237,096 703,056 3,858 11 944,021
Retained loss............... -- -- (62,819) -- (62,819)
Exchange loss............... -- -- -- (23,523) (23,523)
Transfer from other
reserves.................. -- (282,034) 283,389 (1,355) --
-------- --------- -------- -------- ----------
At February 28, 1999........ $237,096 $ 421,022 $224,428 $(24,867) $ 857,679
======== ========= ======== ======== ==========
At September 30, 1999
(unaudited)............... $237,096 $ 421,022 $505,799 $ (544) $1,163,373
======== ========= ======== ======== ==========
</TABLE>
17. NOTES TO THE STATEMENT OF CASH FLOWS
(a) Reconciliation of operating profit to net cash inflow from operating
activities
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED 9 MONTHS ENDED
FEBRUARY 28 FEBRUARY 28 SEPTEMBER 30
1998 1999 1999
------------ ----------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Operating profit.................................. $ 22,743 $ 633,945 $ 486,138
Depreciation...................................... 22,489 213,227 106,181
Profit on sale of fixed assets.................... -- (11,667) (10,008)
(Increase)/decrease in debtors.................... 507,848 (154,152) (2,226,103)
(Increase)/decrease in stocks..................... (560,965) (155,256) 48,895
Increase/(decrease) in creditors.................. (54,547) 607,832 (488,219)
--------- ---------- -----------
Net cash inflow from operating activities......... $ (62,432) $1,133,929 $(2,083,116)
========= ========== ===========
</TABLE>
(b) Analysis of net debt
<TABLE>
<CAPTION>
AT AT
MARCH 1 CASH EXCHANGE FEBRUARY 28
1998 FLOW DIFFERENCES 1999
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Cash at bank and in hand................. $ 1,221,645 $(669,845) $(11,801) $ 539,999
Loans.................................... (4,045,087) 682,064 87,724 (3,275,299)
----------- --------- -------- -----------
$(2,823,442) $ 12,219 $ 75,923 $(2,735,300)
=========== ========= ======== ===========
</TABLE>
F-97
<PAGE> 185
KNS HOLDING LIMITED
NOTES TO THE ACCOUNTS (CONTINUED)
AT FEBRUARY 28, 1999
<TABLE>
<CAPTION>
AT AT
JANUARY 1 CASH EXCHANGE SEPTEMBER 30
1999 FLOW DIFFERENCES 1999
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Cash at bank and in hand............... $ 765,343 $ (552,028) $(13,702) $ 199,613
Loans.................................. (2,954,767) (2,326,210) 5,029 (5,275,948)
----------- ----------- -------- -----------
$(2,189,424) $(2,878,238) $ (8,673) $(5,076,335)
=========== =========== ======== ===========
</TABLE>
18. RELATED PARTY TRANSACTIONS
The group's ultimate controlling parties are the Bennett family
settlements. During the year the group undertook the following transactions with
Kerridge Computer Limited, a company which is controlled by the same parties as
KNS Holdings Limited:
- The group sold good and services totaling $679,229 of which a balance of
$91,809 was outstanding at the period end.
- The group bought goods and services totaling $122,695 of which a balance
of $74,519 was outstanding at the period end.
- Kerridge Computer Company Limited incurred expenditure totaling
$2,189,876 on behalf of the group which has not been repaid at the period
end.
- Kerridge Computer Company Limited has charged a management charge
amounting to $111,677 which was outstanding at the period end.
- Kerridge Computer Company Limited has charged interest on the loan
amounting to $336,892 which was outstanding at the period end.
- KNS Limited has loaned Panic Systems Limited $160,083 to assist in the
development of a new product. KNS Limited has charged interest of $33,310
on this loan. The loan and accrued interest are outstanding at the period
end.
19. COMMITMENTS UNDER OPERATING LEASES
At February 28, 1999 the group had annual commitments under non-cancelable
operating leases as set out below:
<TABLE>
<CAPTION>
1998 1999
------------------- --------------------
LAND & LAND &
BUILDINGS OTHER BUILDINGS OTHER
--------- ------ --------- -------
<S> <C> <C> <C> <C>
Operating leases which expire:
within one year.................................. $ -- $2,282 $ -- $ --
within two to five years......................... 189,348 -- 184,230 10,525
-------- ------ -------- -------
$189,348 $2,282 $184,230 $10,525
======== ====== ======== =======
</TABLE>
F-98
<PAGE> 186
KNS HOLDING LIMITED
NOTES TO THE ACCOUNTS (CONTINUED)
AT FEBRUARY 28, 1999
20. PENSION SCHEMES
The group operates defined contribution pension schemes on behalf of the
directors and employees, the assets of which are held separately from those of
the group in independently administered funds. Pension costs are charged to the
profit and loss account as incurred. At February 28, 1999 unpaid contributions
totaled $nil.
21. DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
The consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United Kingdom ("UK GAAP") which
differ in certain respects from those generally accepted in the United States
("US GAAP"). The significant differences applicable to KNS Holdings Limited are
described below.
Deferred taxation
Under UK GAAP provision is made for deferred taxation using the liability
method on short-term timing differences and all material timing differences
which are not expected to continue in the future. Under US GAAP, deferred
taxation is provided on a full liability basis on all temporary differences
between the tax and book bases of assets and liabilities including the
differences between the assigned fair values and tax bases of assets and
liabilities acquired. Future tax benefits are recognized as deferred tax assets,
subject to a valuation allowance to the extent that it is more likely than not
that any part will be realized.
PROFIT FOR THE PERIOD
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED 9 MONTHS ENDED
FEBRUARY 28 FEBRUARY 28 SEPTEMBER 30
1998 1999 1999
------------ ----------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Profit/(loss) for the period as reported in the
consolidated profit and loss account under UK
GAAP............................................ $3,858 $(62,819) $146,774
------ -------- --------
ADJUSTMENTS:
Deferred taxation
Methodology..................................... 1,169 -- --
------ -------- --------
Net income as adjusted to accord with US GAAP..... $5,027 $(62,819) $146,774
====== ======== ========
</TABLE>
F-99
<PAGE> 187
KNS HOLDING LIMITED
NOTES TO THE ACCOUNTS (CONTINUED)
AT FEBRUARY 28, 1999
INVESTED CAPITAL
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED 9 MONTHS ENDED
FEBRUARY 28 FEBRUARY 28 SEPTEMBER 30
1998 1999 1999
------------ ----------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Invested capital as reported in the consolidated
balance sheet under UK GAAP..................... $944,021 $857,679 $1,163,373
-------- -------- ----------
ADJUSTMENTS:
Deferred taxation
Methodology..................................... 14,069 -- --
-------- -------- ----------
Invested capital as adjusted to accord with US
GAAP............................................ $958,090 $857,679 $1,163,373
======== ======== ==========
</TABLE>
REVENUE RECOGNITION
The group recognizes revenues in accordance with American Institute of
Certified Public Accountants statement of Position 97-2, Software Revenue
Recognition, as amended. Accordingly, no adjustment is necessary under US GAAP.
CONSOLIDATED STATEMENT OF CASH FLOWS
The consolidated statements of cash flows prepared under UK GAAP present
substantially the same information as those required under US GAAP but they
differ, however, with regard to classification of items within them and as
regards the definition of cash and cash equivalents. Under UK GAAP, cash is
defined as cash in hand and at bank and deposits repayable on demand less bank
overdrafts. Under US GAAP, cash and cash equivalents would not include bank
overdrafts but would include cash deposits repayable within three months at
inception. Under UK GAAP, cash flows are presented separately for operating
activities, returns on investments and servicing of finance, taxation, capital
expenditure and financial investment, acquisitions, equity dividends, management
of liquid resources and financing. US GAAP require only three categories of cash
flow activity to be reported: operating, investing and financing. Cash flows
from taxation and returns on investments and servicing of finance shown under UK
GAAP would be included in the determination of cash flows from operating
activities under US GAAP. Under US GAAP, the payment of dividends would be
included as a financing activity and capital expenditure and financial
investment and acquisitions would be included within investing activities.
The categories of cash flow activity under US GAAP can be summarized as
follows:
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED 9 MONTHS ENDED
FEBRUARY 28 FEBRUARY 28 SEPTEMBER 30
1998 1999 1999
------------ ----------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Cash (outflow)/inflow from operating activities... $ (62,432) $ 712,464 $(2,262,812)
Cash outflow on investing activities.............. (346,594) (700,245) (615,426)
Cash inflow/(outflow) from financing activities... 959,246 (682,064) 2,326,210
--------- --------- -----------
Increase/(Decrease) in cash and cash
equivalents..................................... $ 550,220 $(669,845) $ (552,028)
========= ========= ===========
</TABLE>
F-100
<PAGE> 188
KNS HOLDING LIMITED
NOTES TO THE ACCOUNTS (CONTINUED)
AT FEBRUARY 28, 1999
COMBINED STATEMENT OF COMPREHENSIVE INCOME
KNS Holdings Limited has no amounts which, under US GAAP, would be reported
as other comprehensive income.
CONCENTRATIONS OF CREDIT RISK
KNS Holdings Limited did not consider there to be any significant
concentration of credit risk at February 28, 1999.
FINANCIAL INSTRUMENTS
The carrying amounts and fair values of the material financial instruments
of KNS Holdings Limited which comprise cash and external borrowings, approximate
their carrying amounts. KNS Holdings Limited has not utilized derivatives.
DEFERRED TAXATION
The analysis of the deferred taxation balance under US GAAP is as follows:
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED 9 MONTHS ENDED
FEBRUARY 28 FEBRUARY 28 SEPTEMBER 30
1998 1999 1999
------------ ----------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Deferred taxation liabilities
Excess of book value over taxation value of fixed
assets........................................... $ -- $(12,959) $(16,469)
------- -------- --------
-- (12,959) (16,469)
------- -------- --------
Deferred taxation assets
Excess of taxation value over book value of fixed
assets........................................... 14,069 -- --
------- -------- --------
14,069 -- --
------- -------- --------
Net deferred taxation asset/(liability)............... $14,069 $(12,959) $(16,469)
======= ======== ========
</TABLE>
F-101
<PAGE> 189
VERTICAL SOFTWARE, INC.
FINANCIAL STATEMENTS
F-102
<PAGE> 190
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders of
Vertical Software, Inc.
We have audited the accompanying balance sheets of Vertical Software, Inc.
as of December 31, 1996, 1997 and 1998, and the related statements of
operations, 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 audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 Vertical Software, Inc. at
December 31, 1996, 1997 and 1998, 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.
/s/ ERNST & YOUNG LLP
McLean, Virginia
January 7, 2000
F-103
<PAGE> 191
VERTICAL SOFTWARE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------ SEPTEMBER 30,
1996 1997 1998 1999
---------- ---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash..................................... $ 244,541 $ 397,400 $ 206,178 $ 260,080
Accounts receivable:
Trade................................. 573,180 603,912 1,693,700 2,038,350
Related party......................... -- -- 51,056 6,286
Inventory................................ 185,818 76,285 270,424 230,896
Employee advances and prepaid expenses... 13,130 13,552 12,092 20,552
---------- ---------- ---------- ----------
Total current assets....................... 1,016,669 1,091,149 2,233,450 2,556,164
Property and equipment, net................ 105,184 105,481 157,193 154,403
Other asset................................ 5,547 5,547 5,547 5,547
---------- ---------- ---------- ----------
Total assets..................... $1,127,400 $1,202,177 $2,396,190 $2,716,114
========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Demand note payable...................... $ 245,000 $ -- $ -- $ --
Accounts payable:
Trade................................. 407,187 139,882 526,443 623,274
Related party......................... -- -- 17,395 12,111
Accrued expenses......................... 67,215 109,407 241,675 289,487
Customer deposits........................ 28,123 110,916 148,026 143,944
Deferred revenue......................... 101,906 204,132 381,710 262,380
Demand notes payable -- related
parties............................... 94,359 92,957 201,623 116,622
---------- ---------- ---------- ----------
Total current liabilities........... 943,790 657,294 1,516,872 1,447,818
STOCKHOLDERS' EQUITY:
Common stock -- $1 par value, 100,000
shares authorized, 102 shares issued
and outstanding....................... 102 102 102 102
Additional paid-in capital............... 898 898 898 898
Retained earnings........................ 182,610 543,883 878,318 1,267,296
---------- ---------- ---------- ----------
Total stockholders' equity.......... 183,610 544,883 879,318 1,268,296
---------- ---------- ---------- ----------
Total liabilities and stockholders'
equity........................... $1,127,400 $1,202,177 $2,396,190 $2,716,114
========== ========== ========== ==========
</TABLE>
See accompanying notes.
F-104
<PAGE> 192
VERTICAL SOFTWARE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS
DECEMBER 31, ENDED
-------------------------------------- SEPTEMBER 30,
1996 1997 1998 1999
---------- ---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues:
Equipment sales....................... $2,445,747 $3,220,679 $6,774,585 $5,833,290
Installation, services, and other
fees............................... 925,199 1,897,846 3,014,287 3,624,332
---------- ---------- ---------- ----------
Total net revenues................. 3,370,946 5,118,525 9,788,872 9,457,622
Costs and expenses:
Costs of equipment sales.............. 1,966,537 2,501,350 5,382,931 4,695,712
Costs of services and other fees...... 72,609 167,753 246,964 243,216
Sales and marketing................... 177,666 192,573 360,156 516,672
General and administrative............ 933,170 1,406,058 2,499,222 2,720,098
Depreciation.......................... 27,582 31,323 37,737 30,052
---------- ---------- ---------- ----------
Total costs and expenses........... 3,177,564 4,299,057 8,527,010 8,205,750
---------- ---------- ---------- ----------
Income from operations.................. 193,382 819,468 1,261,862 1,251,872
Other expense:
Loss on disposal of equipment......... (3,348) (5,073) (11,115) (242)
Interest income (expense), net........ (28,975) (3,818) 15,888 (5,152)
---------- ---------- ---------- ----------
(32,323) (8,891) 4,773 (5,394)
---------- ---------- ---------- ----------
Net income.............................. $ 161,059 $ 810,577 $1,266,635 $1,246,478
========== ========== ========== ==========
Unaudited pro forma information:
Pro forma income tax expense.......... $ 62,274 $ 313,353 $ 482,601 $ 479,844
========== ========== ========== ==========
Pro forma net income.................. $ 98,785 $ 497,224 $ 784,034 $ 766,634
========== ========== ========== ==========
</TABLE>
See accompanying notes.
F-105
<PAGE> 193
VERTICAL SOFTWARE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL RETAINED TOTAL
COMMON PAID-IN EARNINGS STOCKHOLDERS'
STOCK CAPITAL (DEFICIT) EQUITY
------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1995................. $102 $898 $ 79,551 $ 80,551
Net income............................... -- -- 161,059 161,059
Distributions............................ -- -- (58,000) (58,000)
---- ---- ---------- ----------
Balance, December 31, 1996................. 102 898 182,610 183,610
Net income............................... -- -- 810,577 810,577
Distributions............................ -- -- (449,304) (449,304)
---- ---- ---------- ----------
Balance, December 31, 1997................. 102 898 543,883 544,883
Net income............................... -- -- 1,266,635 1,266,635
Distributions............................ -- -- (932,200) (932,200)
---- ---- ---------- ----------
Balance, December 31, 1998................. 102 898 878,318 879,318
Net income (Unaudited)................... -- -- 1,246,478 1,246,478
Distributions (Unaudited)................ -- -- (857,500) (857,500)
---- ---- ---------- ----------
Balance, September 30, 1999
(Unaudited).............................. $102 $898 $1,267,296 $1,268,296
==== ==== ========== ==========
</TABLE>
See accompanying notes.
F-106
<PAGE> 194
VERTICAL SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
----------------------------------- SEPTEMBER 30,
1996 1997 1998 1999
--------- --------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................... $ 161,059 $ 810,577 $ 1,266,635 $1,246,478
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation................................ 27,582 31,323 37,737 30,052
Loss on disposal of equipment............... 3,348 5,073 11,115 242
Changes in operating assets and liabilities:
Accounts receivable -- trade............. (254,132) (30,732) (1,089,788) (344,650)
Accounts receivable -- related party..... -- -- (51,056) 44,770
Inventory................................ (149,181) 109,533 (194,139) 39,528
Employee advances and prepaid expenses... (2,165) (422) 1,460 (8,460)
Accounts payable -- trade................ 347,870 (267,305) 386,561 96,831
Accounts payable -- related party........ -- -- 17,395 (5,284)
Accrued expenses......................... 32,949 42,192 132,268 47,812
Customer deposits........................ 24,750 82,793 37,110 (4,082)
Deferred revenue......................... 69,583 102,226 177,578 (119,330)
--------- --------- ----------- ----------
Net cash provided by operating
activities.......................... 261,663 885,258 732,876 1,023,907
INVESTING ACTIVITIES
Proceeds from sale of equipment............... -- -- 818 --
Purchases of property and equipment........... (35,994) (36,693) (101,382) (27,504)
--------- --------- ----------- ----------
Net cash used in investing activities......... (35,994) (36,693) (100,564) (27,504)
FINANCING ACTIVITIES
Net borrowings (repayments) on credit line.... 40,000 (245,000) -- --
Proceeds from issuance of demand notes
payable -- related parties.................. 24,254 42,863 184,045 --
Payments on demand notes payable -- related
parties..................................... -- (44,265) (75,379) (85,001)
Distributions to stockholders'................ (58,000) (449,304) (932,200) (857,500)
--------- --------- ----------- ----------
Net cash provided by (used in) financing
activities.................................. 6,254 (695,706) (823,534) (942,501)
--------- --------- ----------- ----------
Net increase (decrease) in cash............... 231,923 152,859 (191,222) 53,902
Cash at beginning of period................... 12,618 244,541 397,400 206,178
--------- --------- ----------- ----------
Cash at end of period......................... $ 244,541 $ 397,400 $ 206,178 $ 260,080
========= ========= =========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest........................ $ 5,000 $ 13,000 $ 8,000 $ 13,000
========= ========= =========== ==========
</TABLE>
See accompanying notes.
F-107
<PAGE> 195
VERTICAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Vertical Software, Inc. (the "Company") is a regional provider of system
integration and information technology services. The Company was incorporated in
1989 under the laws of the State of Maryland. The Company expects to continue to
focus on increasing its client base in Maryland, Virginia and Washington, D.C.
and expand into the southern states market.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INVENTORIES
Inventories consist primarily of computer equipment purchased for specific
contracts and are carried at the lower of cost or market. Cost of inventories
purchased for contracts is determined on a specific identification basis.
Inventory also consists of computer equipment frequently used in fulfilling
installation contracts. These items are carried at the lower of cost or market,
under the first in first out method (FIFO).
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is calculated
over the estimated useful lives of the assets ranging between five and seven
years for furniture and equipment and three years for computer software.
Maintenance and repairs are charged to expense as incurred and the costs of
improvements that extend the useful lives of assets are capitalized.
UNAUDITED FINANCIAL INFORMATION
All disclosures and balances pertaining to the nine months ended September
30, 1999 in the accompanying footnotes are unaudited.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews the recoverability of long-lived assets whenever events
or changes in circumstances indicate that the carrying value of such assets may
not be recoverable. If the expected future cash flows from the use of such
assets (undiscounted and without interest charges) are less than the carrying
value, the Company's policy is to record a write-down that is determined based
on the difference between the carrying value of the asset and its estimated fair
value.
REVENUE RECOGNITION AND COST OF REVENUE
The Company recognizes equipment and software sales at the time of shipment
and installation revenue on a time-and-material basis based upon time (at
established rates) and direct costs as incurred. The Company also offers
maintenance contracts for technical support services that are generally paid for
in
F-108
<PAGE> 196
VERTICAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
advance by customers. The Company defers recognition of revenue on these advance
payments and amortizes amounts as services are provided. The Company writes off
uncollectible accounts for customers who are provided credit terms based on
specific identification.
Costs of revenues consist primarily of computer equipment, software, and
labor costs inherent in the provision of network and Internet integration and
infrastructures services.
ADVERTISING COSTS
Advertising and promotion costs are expensed as incurred. For the years
ended December 31, 1996, 1997, and 1998 advertising and promotion costs were
$1,016, $12,788, and $56,845, respectively. For the nine months ended September
30, 1999, advertising and promotion costs were $65,910.
INCOME TAXES
Historically, the Company has elected, by the consent of its stockholders,
to be taxed under the provisions of Subchapter S of the Internal Revenue Code
(the "Code"). Under provisions of the Code, the stockholders include the
Company's corporate income in their personal income tax returns. The Company has
elected to be treated under similar provisions for state income tax reporting
purposes. Accordingly, the Company was not subject to federal and state
corporate income taxes during the period for which it was an S Corporation.
FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
The carrying value of cash, accounts receivable, accounts payable and
accrued expenses approximates their fair value based on the liquidity of these
financial instruments or based on their short-term nature.
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash and accounts receivable.
The Company places its cash with its principal bank, which is a high credit
quality financial institution. Accounts receivable are subject to credit limits,
ongoing credit evaluations and account monitoring procedures to minimize the
risk of loss. In certain instances, customer deposits are obtained which would
also reduce the risk of loss. Collateral is generally not required. During the
years ended December 31, 1996, 1997 and 1998, and the nine months ended
September 30, 1999, four of the Company's clients comprised approximately 35%,
34%, 39%, and 30%, respectively of total revenue.
SOURCES OF SUPPLIES
The Company relies on computer and computer equipment distributors to
provide computer hardware, software and supplies. Although management believes
alternative suppliers could be found in a timely manner, any disruption of these
services could have an adverse effect on operating results. In addition, if the
suppliers are unable to meet the Company's needs as its business and market
share grow, then delays and increased costs in the expansion of the Company's
integration and information technology solutions service could potentially
result in an adverse effect on the Company's operating results.
RECENT PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("Statement No. 130"), Comprehensive
Income, which was required to be adopted in the year ended December 31, 1998.
Statement No. 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in the financial statements, and (b)
display the accumulated
F-109
<PAGE> 197
VERTICAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the Statement of Stockholders' Equity. The
adoption of Statement No. 130 did not have any effect on the Company's financial
statements as the Company does not have any elements of comprehensive income.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("Statement No. 131"), Disclosures about
Segments of an Enterprise and Related Information, which was required to be
adopted for the year ended December 31, 1998. Statement No. 131 changes the way
public companies report segment information in annual financial statements and
also requires those companies to report selected segment information in interim
financial reports to stockholders. The Company has only one reportable segment,
system integration and information technology services.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------- SEPTEMBER 30,
1996 1997 1998 1999
-------- -------- -------- -------------
<S> <C> <C> <C> <C>
Furniture, fixtures, and office equipment... $131,784 $152,017 $204,804 $229,336
Vehicles.................................... 23,339 23,339 50,308 50,308
Other....................................... 6,173 5,165 4,874 6,928
-------- -------- -------- --------
161,296 180,521 259,986 286,572
Less accumulated depreciation............... 56,112 75,040 102,793 132,169
-------- -------- -------- --------
$105,184 $105,481 $157,193 $154,403
======== ======== ======== ========
</TABLE>
4. ACCRUED EXPENSES
Accrued expenses consist of the following
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------- SEPTEMBER 30,
1996 1997 1998 1999
------- -------- -------- -------------
<S> <C> <C> <C> <C>
Payroll and related costs.................... $40,665 $ 89,225 $176,505 $225,912
Sales tax payable............................ 21,273 -- 38,072 34,032
Employee benefits payable.................... 5,277 20,182 27,098 29,543
------- -------- -------- --------
Total accrued expenses..................... $67,215 $109,407 $241,675 $289,487
======= ======== ======== ========
</TABLE>
5. RELATED PARTY TRANSACTIONS
Commencing in 1998, the Company is reimbursed monthly from a commonly owned
affiliate for payroll and benefits provided to its employees by Vertical
Software, Inc. Amounts received from the related party were $37,675 and $167,777
for the year ended December 31, 1998 and for the nine months ended September 30,
1999, respectively, and were netted against the related expenses. The Company
discontinued these activities with the affiliate effective January 1, 2000. The
Company also purchases computer software, for resale, from this affiliate.
During August of 1999, the Company entered into a month to month agreement
with a party related by common ownership, for travel services. The agreement
terms require monthly reimbursements of $1,000 for the Company's portion of
expenses.
F-110
<PAGE> 198
VERTICAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Company also has $94,359, $92,957, $201,623, and $116,622 of unsecured
demand notes payable to related parties at December 31, 1996, 1997, 1998, and at
September 30, 1999, respectively. These notes bear interest in a range of 7 1/2%
to 8%, per annum. Interest expense related to the notes was $7,850, $9,834,
$8,344, and $19,583 for the years ended December 31, 1996, 1997, and 1998, and
for the nine months ended September 30, 1999, respectively.
6. DEMAND NOTES PAYABLE
The Company maintains a $1 million ($520,000 at December 31, 1998) line of
credit with its principal bank. Borrowings against the line bear interest at
9 1/2% per annum. The line is secured by accounts receivable and inventory and
is personally guaranteed by the Company's stockholders. At December 31, 1996
$245,000 was outstanding against the line of credit. No borrowings related to
this line of credit were outstanding as of December 31, 1997, 1998, and
September 30, 1999.
During 1998, the Company also maintained a $275,000 line of credit with a
financial service corporation. This borrowing arrangement is secured by a second
collateral position in the Company's accounts receivable and inventory and is
used to make significant inventory purchases for contracts. No borrowings
related to this line of credit were outstanding as of December 31, 1997, 1998,
and September 30, 1999.
7. RETIREMENT PLAN
The Company maintains a defined contribution pension plan covering
substantially all employees. Under this plan, participants may elect to defer a
portion of their wages subject to the annual limitations imposed by section 402
of the Internal Revenue Code. Matching and profit sharing contributions to the
plan are made at the discretion of the Board of Directors. Matching
contributions, charged to expense, for the years ended December 31, 1996, 1997
and 1998 were $5,277, $15,945 and $28,051, respectively. No contributions were
made to this plan during the nine months ended September 30, 1999.
Effective June 1, 1999, the Company adopted a qualified 401(k) profit
sharing plan for substantially all employees. Under this plan, participants can
elect to contribute a portion of their compensation, subject to limitations
imposed by the Internal Revenue Code, to the plan. The Company may make annual
discretionary matching and qualified non-elective contributions to the plan.
Matching 401(k) plan contributions, charged to expense, for the nine months
ended September 30, 1999, were $37,778.
The Company intends to make all future contributions to the 401K profit
sharing plan and discontinue payments to the defined contribution pension plan.
8. COMMITMENTS AND CONTINGENCIES
The Company leases its office space under a non-cancelable operating lease
that expires on February 28, 2000. Rent expense was $68,266, $70,280 and $96,919
for the years ended December 31, 1996, 1997 and 1998, respectively. During 1999,
the Company entered into two operating leases for office space in Virginia.
These leases require monthly rentals of $1,537 and expire through October 2001.
The Company has also entered into a new operating lease for its Maryland offices
commencing March 1, 2000
F-111
<PAGE> 199
VERTICAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
through February 28, 2010. This lease requires initial monthly rentals of
$14,720 that increase 3% each year. Future minimum lease payments under all
leases are:
<TABLE>
<S> <C>
1999..................................................... $ 107,118
2000..................................................... 181,056
2001..................................................... 190,476
2002..................................................... 186,472
2003..................................................... 192,072
Thereafter............................................... 1,515,890
----------
Total.................................................. $2,373,084
==========
</TABLE>
9. INCOME TAX
Upon consummation of an agreement to sell the outstanding stock of the
Company to FutureLink Corp. and FutureLink Maryland Acquisition Corp.
(collectively "FutureLink"), the Company's status as an S Corporation under the
Code will automatically terminate and normal Federal and state corporate income
tax rates will apply.
On a pro forma basis (unaudited), assuming the Company's status as an S
corporation terminated as of December 31, 1995, the Company would have had pro
forma federal and state income tax expense of $62,274, $313,353, $482,601, and
$479,844 for the years ended 1996, 1997 and 1998, and for the nine months ended
September 30, 1999, respectively. The Company would have had pro forma net
deferred tax liabilities of approximately $10,000, $46,000, $91,000, and
$141,000 at December 31, 1996, 1997, 1998, and September 30, 1999, respectively.
10. SUBSEQUENT EVENTS
The Company's stockholders have entered into an agreement to sell their
shares of capital stock in the Company to FutureLink. The Company's stockholders
will exchange their shares in the Company for cash and shares of common stock of
FutureLink. Upon consummation of the agreement, FutureLink will become the sole
stockholder of the Company. The related party unsecured demand note payable as
described in Note 5 will be paid upon consummation of the merger discussed
above.
F-112
<PAGE> 200
MICROLAN SYSTEMS, INC.
DBA MADISON TECHNOLOGY GROUP
FINANCIAL STATEMENTS
F-113
<PAGE> 201
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Microlan Systems, Inc.
"DBA" Madison Technology Group
New York, New York
We have audited the accompanying balance sheets of Microlan Systems, Inc.
"DBA" Madison Technology Group as of December 31, 1998 and 1997 and the related
statement 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 have conducted our audits in accordance with generally accepted audited
standards. These standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. Our audits include examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our audits
also include 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 Microlan Systems Inc. "DBA"
Madison Technology Group as of December 31, 1998 and 1997, and the results of
its operations and cash flows for the years then ended in conformity with
generally accepted accounting principles.
JOEL E. SAMMET & CO.
Certified Public Accountants
New York, New York
January 18, 2000
F-114
<PAGE> 202
MICROLAN SYSTEMS, INC.
"DBA" MADISON TECHNOLOGY GROUP
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents (Note 3)........................ $ 53,572 $ 29,159
Accounts receivable, less allowance for doubtful accounts
of $40,149 in 1998 (Note 2)............................ 1,964,688 2,373,507
Inventory -- at cost (Note 2)............................. 278,747 59,415
Due from related parties.................................. 16,204 4,116
Other current assets...................................... 6,789 487
---------- ----------
Total Current Assets................................... 2,320,000 2,466,684
---------- ----------
Property and Other Assets
Property and equipment (net of accumulated depreciation of
$177,647 and $108,510)................................. 238,509 241,653
Other assets.............................................. 30,000 40,000
---------- ----------
Total Property, Equipment and Other Assets............. 268,509 281,653
---------- ----------
Total Assets...................................... $2,588,509 $2,748,337
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Cash overdraft............................................ $ 0 $ 42,832
Line of credit (Note 4)................................... 950,000 750,000
Loans payable -- due to related parties (Note 5).......... 150,000 240,539
Accounts payable.......................................... 742,755 1,037,712
Accrued purchases and expenses............................ 390,000 184,744
Other current liabilities................................. 0 86,506
---------- ----------
Total Current Liabilities.............................. 2,232,755 2,342,333
---------- ----------
Shareholders' Equity
Capital stock, 500 shares authorized, 50 shares issued and
outstanding............................................ 20,863 20,863
Retained earnings......................................... 334,891 385,141
---------- ----------
Total Shareholders' Equity............................. 355,754 406,004
---------- ----------
Total Liabilities and Shareholders' Equity........ $2,588,509 $2,748,337
========== ==========
</TABLE>
See the Accompanying Independent Auditor's Report and Notes to Financial
Statements.
F-115
<PAGE> 203
MICROLAN SYSTEMS, INC.
"DBA" MADISON TECHNOLOGY GROUP
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Revenue..................................................... $5,798,124 $6,204,711
Cost of sales............................................... 2,619,991 3,254,848
Cost of service and delivery................................ 1,290,483 1,060,304
Selling, general and administrative expenses................ 1,779,576 1,663,296
---------- ----------
Income from operations...................................... 108,074 226,263
Interest income............................................. 1,947 1,383
Interest expense............................................ 99,521 52,922
---------- ----------
Income before income taxes.................................. 10,500 174,724
Provision for State and City taxes.......................... 7,581 14,088
---------- ----------
Net Income.................................................. $ 2,919 $ 160,636
========== ==========
</TABLE>
See the Accompanying Independent Auditor's Report and Notes to Financial
Statements.
F-116
<PAGE> 204
MICROLAN SYSTEMS, INC.
"DBA" MADISON TECHNOLOGY GROUP
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK
----------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
------ ------- -------- --------
<S> <C> <C> <C> <C>
Balances as of December 31, 1996................... 50 $20,863 $283,725 $304,588
Net income......................................... 160,636 160,636
Distribution to shareholders....................... (59,220) (59,220)
-- ------- -------- --------
Balances as of December 31, 1997................... 50 20,863 385,141 406,004
Net income......................................... 2,919 2,919
Distribution to shareholders....................... (53,169) (53,169)
-- ------- -------- --------
Balances as of December 31, 1998................... 50 $20,863 $334,891 $355,754
== ======= ======== ========
</TABLE>
See the Accompanying Independent Auditor's Report and Notes to Financial
Statements.
F-117
<PAGE> 205
MICROLAN SYSTEMS, INC.
"DBA" MADISON TECHNOLOGY GROUP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------- -----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income................................................ $ 2,919 $ 160,636
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Provision for losses on accounts receivable............ 40,149 0
Depreciation........................................... 69,137 51,546
(Increase) decrease in operating assets:
Inventory............................................ (219,332) 315,207
Accounts receivable.................................. 368,670 (1,051,114)
Due from related parties............................. (12,088) 0
Other current assets................................. 3,698 7,425
Increase (decrease) in operating liabilities:
Accounts payable..................................... (294,957) (19,204)
Accrued purchases and expenses......................... 205,256 120,368
Other current liabilities............................ (86,506) (75,350)
--------- -----------
Net Cash Provided (Used) by Operating
Activities...................................... 76,946 (490,486)
--------- -----------
Cash Flows (Used by) Investing Activities:
Purchase of computers, office equipment and leasehold
improvements........................................... (65,993) (256,798)
--------- -----------
Cash Flows From (Used in) Financing Activities:
Proceeds from line of credit.............................. $ 200,000 $ 500,000
Proceeds (payments) of loans from shareholders and related
party.................................................. (90,539) 240,539
Distributions to shareholders............................. (53,169) (59,220)
--------- -----------
Net Cash Provided by Financing Activities......... 56,292 681,319
--------- -----------
Net increase (decrease) in cash............................. 67,245 (65,965)
Cash at January 1, 1998 and 1997............................ (13,673) 52,292
--------- -----------
Cash at December 31, 1998 and 1997.......................... $ 53,572 $ (13,673)
========= ===========
</TABLE>
Cash paid for income taxes for the years ended December 31, 1998 and 1997 was
$14,325 and $9,932, respectively. Cash paid for interest for the years ended
December 31, 1998 and 1997 was $96,978 and $41,149, respectively.
See the Accompanying Independent Auditor's Report and Notes to Financial
Statements.
F-118
<PAGE> 206
MICROLAN SYSTEMS, INC.
"DBA" MADISON TECHNOLOGY GROUP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 -- NATURE OF BUSINESS
Microlan Systems, Inc. doing business as Madison Technology Group (the
"Company") installs, services and provides consultant, design and integration
services for computer hardware systems, software systems and networks. The
Company is an authorized dealer for Novell, Microsoft, Citrix, Cisco and various
other major companies.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenue is recognized when products are shipped and training revenue is
recognized when performed. Income from service contracts is recognized over the
life of the contract on a pro rata basis. Losses on returns and contract costs
are recorded when they occur.
Inventory
Inventory consists primarily of hardware and software products and other
related parts. It is valued at the lower of cost or market on a first-in,
first-out basis. Market is current selling price.
Property and Equipment
Property and equipment are recorded at cost. The Company provides for
depreciation by charges to operations based upon estimated useful lives of the
assets using the straight-line method. Maintenance and repair costs are charged
to expense when incurred.
Allowance for Doubtful Accounts
The Company reflects accounts receivable at net realizable value. There is
an allowance for doubtful accounts at December 31, 1998 of $40,149. There is no
allowance for doubtful accounts at December 31, 1997.
Income Taxes
The Company has elected under the Internal Revenue Service Code to be taxed
as an S corporation which is also effective for state tax purposes. In lieu of
corporate income taxes, the shareholders of an S corporation are taxed on their
proportionate share of the company's taxable income. Therefore, no provision or
liability for federal income tax has been included in the financial statements.
However, state
See the Accompanying Independent Auditor's Report.
F-119
<PAGE> 207
MICROLAN SYSTEMS, INC.
"DBA" MADISON TECHNOLOGY GROUP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
and city taxes calculated at the greater of minimum, regular or alternative tax
methods have been provided for in the financial statements.
Deferred Service Contract Income
The Company sells service contracts which may cover a period of time of one
year or more. At December 31, 1997 several service contracts were prepaid.
Management determines deferred service contract income based upon the contract
period.
NOTE 3 -- CASH AND CASH EQUIVALENTS
Cash and cash equivalents include a certificate of deposit which represents
an investment in a three month certificate of deposit, which is being held as
collateral pursuant to the Company's line of credit arrangement (Note 4). The
investment is shown at cost. At December 31, 1998 and 1997, the Company held a
certificate of deposit of $30,538 and $29,159, respectively.
NOTE 4 -- LINE OF CREDIT
The Company has a line of credit with a bank, which is in the form of a
time secured loan maturing March 18, 1999. The loan is secured by eligible
accounts receivable and a certificate of deposit held with the bank (see Note
3). The Company can borrow up to 70% of eligible accounts receivable
(outstanding 90 days or less) up to $1,000,000 and $750,000 at December 31, 1998
and 1997, respectively. Interest is payable monthly at 1.50% over the bank's
prime rate which amounted to 10.00% and 9.25% at December 31, 1998 and 1997,
respectively. As of December 31, 1998 and 1997, outstanding borrowings under the
line of credit are $950,000 and $750,000, respectively. Loans payable to
shareholders are subordinated to this time secured loan.
NOTE 5 -- LOANS PAYABLE -- RELATED PARTIES
Loans payable to shareholders and related party consists of borrowings for
working capital purposes and are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Shareholders........................................... $150,000 $132,703
Related Party.......................................... 0 107,836
-------- --------
$150,000 $240,539
======== ========
</TABLE>
Loans payable to shareholders are unsecured and bear interest at a rate of
8.5%. A loan payable to the father of the shareholders of the Company was also
unsecured and bore interest at a rate of 10%. This loan was paid back in 1998.
Loans payable to shareholders are subordinated to the bank line of credit.
See the Accompanying Independent Auditor's Report.
F-120
<PAGE> 208
MICROLAN SYSTEMS, INC.
"DBA" MADISON TECHNOLOGY GROUP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
NOTE 6 -- RELATED PARTY TRANSACTIONS
During 1998 and 1997, the Company had transactions with affiliated
companies, Madison Consulting Resources, Inc., a Company which is owned by the
father of the shareholders of the Company and Madison Consulting Resources NJ,
Inc. During 1998, the Company shared office space with these affiliated
companies, and charged overhead, primarily for rent and shared administrative
salaries.
Following is a summary of transactions and balances with these affiliated
companies for 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Sales....................................................... $435,558 $80,732
======== =======
Accounts receivable (included in the accompanying balance
sheets)................................................... $ 72,102 $80,732
======== =======
Due from affiliated company (included in the accompanying
balance sheets)........................................... $ 16,204 $ 4,116
======== =======
Overhead charged (included as a reduction to general and
administrative expenses)
Madison Consulting Resources, Inc........................... $202,912
Madison Consulting Resources NJ, Inc........................ 15,291
-------- -------
$218,203 $ 0
======== =======
</TABLE>
NOTE 7 -- LEASES
The Company leases office space under an operating lease expiring in 2007.
Total rental expense recorded in the financial statements under this office
lease was $130,953 and $ 41,067 for 1998 and 1997, respectively.
Future minimum rental payments at December 31, 1998, under this operating
lease is as follows:
<TABLE>
<S> <C>
Year ended December 31,
1999................................................... $ 148,800
2000................................................... 148,800
2001................................................... 148,800
2002................................................... 148,800
2003................................................... 148,800
Thereafter............................................. 499,100
----------
$1,243,100
==========
</TABLE>
See the Accompanying Independent Auditor's Report.
F-121
<PAGE> 209
MICROLAN SYSTEMS, INC.
"DBA" MADISON TECHNOLOGY GROUP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
NOTE 8 -- INCOME TAXES
Income tax expense for the years ended December 31, 1998 and 1997 is
comprised of the following:
<TABLE>
<CAPTION>
1998 1997
------ -------
<S> <C> <C>
New York State Franchise tax.............................. $ 325 $ 325
New York City corporation tax............................. 7,256 13,763
------ -------
$7,581 $14,088
====== =======
</TABLE>
NOTE 9 -- PENSION PLAN
The Company has adopted a qualified pension plan (the "Plan") under
provisions of Section 401(k) of the Internal Revenue Code. Under the provisions
of the Plan, each participant is able to defer a percentage of his compensation
up to statutory maximums. The plan is administered by a professional retirement
plan consulting firm and assets are held in trust in mutual funds run by a major
insurance company. The Company has not made any contributions to the Plan for
the years ending December 31, 1998 and 1997, respectively.
NOTE 10 -- CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of cash and cash equivalents
and trade receivables. The Company places its cash with federally insured
financial institutions and as of December 31, 1998 and 1997, the Company's
balances do not exceed federally insured limits. Fair value of these financial
instruments approximates their carrying values.
Trade receivables are primarily short-term receivables which arise in the
normal course of business. The Company generally does not require collateral,
and all of its trade receivables are unsecured. At December 31, 1997, the
Company had one customer which had an accounts receivable balance of
approximately 30% of the total accounts receivable balance. There were no other
customers that individually had accounts receivable balances exceeding 10% of
the total accounts receivable balance for the years ended December 31, 1998 and
1997, respectively.
F-122
<PAGE> 210
INDEPENDENT ACCOUNTANT'S REVIEW REPORT
To the Board of Directors
Microlan Systems, Inc.
"DBA" Madison Technology Group
New York, New York
We have reviewed the accompanying balance sheet of Microlan Systems, Inc.
"DBA" Madison Technology Group as of September 30, 1999 and 1998 and the related
statement of income, retained earnings and cash flows for the nine months then
ended, in accordance with Statements on Standards for Accounting and Review
Services issued by the American Institute of Certified Public Accountants. All
information included in these financial statements is the representation of the
management of Microlan Systems, Inc. "DBA" Madison Technology Group.
A review consists principally of inquiries of company personnel and
analytical procedures applied to financial data. It is substantially less in
scope than an audit in accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements in order for them to be
in conformity with generally accepted accounting principles.
Our review was made for the purpose of expressing limited assurance that
there are no material modifications that should be made to the financial
statements in order for them to be in conformity with generally accepted
accounting principles.
JOEL E. SAMMET & CO.
Certified Public Accountants
New York, New York
January 27, 2000
F-123
<PAGE> 211
MICROLAN SYSTEMS, INC.
"DBA" MADISON TECHNOLOGY GROUP
BALANCE SHEETS
SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents (Note 3)........................ $ 67,090 $ 46,159
Accounts receivable (Net of allowance for doubtful
accounts of $105,149 at September 30, 1999)............ 4,158,944 1,799,683
Inventory (Note 2)........................................ 433,976 288,402
Other current assets...................................... 3,000 24,070
---------- ----------
Total Current Assets................................... 4,663,010 2,158,314
---------- ----------
Fixed and Other Assets (Note 2)
Property and equipment (net of accumulated depreciation of
$228,597 and $176,999)................................. 292,267 223,421
Other assets.............................................. 51,263 40,000
---------- ----------
Total Fixed and Other Assets........................... 343,530 263,421
---------- ----------
Total Assets........................................... $5,006,540 $2,421,735
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable -- Merchants Bank (Note 4).................. $1,450,000 $ 880,000
Loans payable -- due to related parties (Note 5).......... 150,000 150,000
Accounts payable.......................................... 1,673,203 704,469
Accrued purchases and expenses............................ 951,449 300,330
Other current liabilities (Note 2)........................ 128,683 40,391
---------- ----------
Total Current Liabilities.............................. 4,353,335 2,075,190
Shareholders' Equity
Capital stock, 500 shares authorized 50 shares issued and
outstanding............................................ 20,863 20,863
Retained earnings......................................... 632,342 325,682
---------- ----------
Total Shareholders' Equity............................. 653,205 346,545
---------- ----------
Total Liabilities and Shareholders' Equity............. $5,006,540 $2,421,735
========== ==========
</TABLE>
See Accompanying Accountant's Review Report and Notes to Financial Statements.
F-124
<PAGE> 212
MICROLAN SYSTEMS, INC.
"DBA" MADISON TECHNOLOGY GROUP
STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Revenue..................................................... $9,179,522 $4,003,267
Cost of hardware and software............................... 5,533,680 1,660,417
Cost of service and delivery................................ 1,189,435 980,045
Selling, general and administrative expenses................ 2,054,383 1,288,714
Operating income before interest income (expenses) and
taxes..................................................... 402,024 74,091
Interest income............................................. 910 1,082
Interest expense............................................ (82,001) (74,255)
---------- ----------
Net income before taxes..................................... 320,933 918
Provision for State and City taxes (Note 7)................. 23,484 0
---------- ----------
Net Income.................................................. $ 297,449 $ 918
========== ==========
</TABLE>
See Accompanying Accountant's Review Report and Notes to Financial Statements.
F-125
<PAGE> 213
MICROLAN SYSTEMS, INC.
"DBA" MADISON TECHNOLOGY GROUP
STATEMENTS OF RETAINED EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Retained earnings -- beginning January 1.................... $334,893 $377,933
Distributions to shareholders............................... 0 (53,169)
Net income.................................................. 297,449 918
-------- --------
Retained Earnings -- Ending September 30.................... $632,342 $325,682
======== ========
</TABLE>
See Accompanying Accountant's Review Report and Notes to Financial Statements.
F-126
<PAGE> 214
MICROLAN SYSTEMS, INC.
"DBA" MADISON TECHNOLOGY GROUP
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- ---------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income................................................ $ 297,449 $ 918
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation........................................... 50,949 61,281
(Increase) decrease in operating assets:
Inventory............................................ (155,229) (228,987)
Accounts receivable.................................. (2,194,256) 573,824
Due from related parties............................. 16,204 4,116
Other current assets................................. 3,789 (23,583)
Other assets......................................... (21,263) 0
Increase (decrease) in operating liabilities:
Accounts payable..................................... 930,448 (333,243)
Accrued purchases and expenses......................... 561,452 115,586
Other current liabilities.............................. 128,683 (46,115)
----------- ---------
Total Adjustments................................. (679,223) 122,879
----------- ---------
Net Cash Flows From (Used by) Operating
Activities...................................... (381,774) 123,797
----------- ---------
Cash Flows From (Used by) Investing Activities:
Purchase of property and equipment........................ (104,708) (50,257)
----------- ---------
Cash Flows From (Used by) Financing Activities:
Proceeds from note payable -- Merchants Bank.............. 500,000 130,000
Net payments on loans from related party.................. 0 (90,539)
Distributions to shareholders............................. 0 (53,169)
----------- ---------
Net Cash Flows From (Used by) Financing
Activities...................................... 500,000 (13,708)
----------- ---------
Net increase in cash and cash equivalents................... 13,518 59,832
Cash and cash equivalents -- beginning of period............ 53,572 (13,673)
----------- ---------
Cash and Cash Equivalents -- End of Period.................. $ 67,090 $ 46,159
=========== =========
</TABLE>
See Accompanying Accountant's Review Report and Notes to Financial Statements.
F-127
<PAGE> 215
MICROLAN SYSTEMS, INC.
"DBA" MADISON TECHNOLOGY GROUP
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
NOTE 1 -- NATURE OF BUSINESS
Microlan Systems, Inc. doing business as Madison Technology Group (the
"Company") installs, services and provides consultant, design and integration
services for computer hardware systems, software systems and networks. The
Company is an authorized dealer for Novell, Microsoft, Citrix, Cisco and various
other major companies.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenue is recognized when products are shipped and training revenue is
recognized when performed. Income from service contracts is recognized over the
life of the contract on a pro rata basis. Losses on returns and contract costs
are recorded when they occur.
Inventory
Inventory consists primarily of hardware and software products and other
related parts. It is valued at the lower of cost or market on a first-in,
first-out basis. Market is current selling price.
Property and Equipment
Property and equipment are recorded at cost. The Company provides for
depreciation by charges to operations based upon estimated useful lives of the
assets using the straight-line method. Maintenance and repair costs are charged
to expense when incurred.
Income Taxes
The Company has elected under the Internal Revenue Service Code to be taxed
as an S corporation which is also effective for state tax purposes. In lieu of
corporate income taxes, the shareholders of an S corporation are taxed on their
proportionate share of the company's taxable income. Therefore, no provision or
liability for federal income tax has been included in the financial statements.
However, state and city taxes calculated at the greater of minimum, regular or
alternative tax methods have been provided for in the financial statements.
See the Accompanying Independent Accountant's Review Report.
F-128
<PAGE> 216
MICROLAN SYSTEMS, INC.
"DBA" MADISON TECHNOLOGY GROUP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999 AND 1998
Deferred Service Contract Income
The Company sells service contracts which may cover a period of time of one
year or more. At September 30, 1999 service contracts were prepaid. Management
determines deferred service contract income based upon the contract period.
NOTE 3 -- CASH AND CASH EQUIVALENTS
Cash and cash equivalents include a certificate of deposit which represents
an investment in a three month certificate of deposit, which is being held as
collateral pursuant to the Company's line of credit arrangement (note 4). The
investment is shown at cost. At September 30, 1999 and 1998, the Company held a
certificate of deposit of $31,455 and $30,196, respectively.
NOTE 4 -- LINE OF CREDIT
The Company has a line of credit with a bank, which is in the form of a
time secured loan maturing every three months subject to bank renewal. The loan
is secured by eligible accounts receivable and a certificate of deposit held
with the bank (see Note 3). The Company can borrow up to 70% of eligible
accounts receivable (outstanding 90 days or less) up to $1,500,000 and
$1,000,000 at September 30, 1999 and 1998, respectively. Interest is payable
monthly at 1.50% over the bank's prime rate which amounted to 10.00% and 9.25%
at September 30, 1999 and 1998, respectively. As of September 30, 1999 and 1998,
outstanding borrowings under the line of credit are $1,450,000 and $880,000,
respectively. Loans payable to shareholders are subordinated to this time
secured loan.
NOTE 5 -- LOANS PAYABLE -- DUE TO RELATED PARTIES
Loans payable to shareholders and related party consists of borrowings for
working capital purposes and amounted to $150,000 at September 30, 1999 and
1998.
Loans payable to shareholders are unsecured and bear interest at a rate of
8.5%.
NOTE 6 -- RELATED PARTY TRANSACTIONS
During 1999 and 1998, the Company had transactions with affiliated
companies, Madison Consulting Resources, Inc., a Company which is owned by the
father of the shareholders of the Company and Madison Consulting Resources NJ,
Inc. During 1999 and 1998, the Company shared office space with these affiliated
companies, and charged overhead, primarily for rent and shared administrative
salaries.
See the Accompanying Independent Accountant's Review Report.
F-129
<PAGE> 217
MICROLAN SYSTEMS, INC.
"DBA" MADISON TECHNOLOGY GROUP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999 AND 1998
Following is a summary of transactions and balances with these affiliated
companies for the nine months ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------- --------
<S> <C> <C>
Sales....................................................... $28,439 $336,903
======= ========
Accounts receivable (included in the accompanying balance
sheets)................................................... $ 322 $ 36,336
======= ========
Due to affiliated company (included in the accompanying
balance sheets)........................................... $ -- $ 24,354
======= ========
Overhead charged (included as a reduction to general and
administrative expenses).................................. $42,000 $118,200
======= ========
</TABLE>
NOTE 7 -- LEASES
The Company leases office space under an operating lease expiring in 2007.
Future minimum rental payments at September 30, 1999, under this operating
lease is as follows:
<TABLE>
<S> <C>
Year ended December 31,
1999................. $ 37,200
2000................. 37,200
2001................. 37,200
2002................. 37,200
2003................. 37,200
Thereafter........... 499,100
--------
$685,100
========
</TABLE>
NOTE 8 -- INCOME TAXES
Income tax expense for the nine months then ended September 30, 1999 and
1998 is comprised of the following:
<TABLE>
<CAPTION>
1999 1998
------- ----
<S> <C> <C>
New York State Franchise tax................................ $ 2,657 $0
New York City corporation tax............................... 20,827 0
------- --
$23,484 $0
======= ==
</TABLE>
NOTE 9 -- PENSION PLAN
The Company has adopted a qualified pension plan (the "Plan") under
provisions of Section 401(k) of the Internal Revenue Code. Under the provisions
of the Plan, each participant is able to defer a percentage of his compensation
up to statutory maximums. The plan is administered by a professional retirement
plan consulting firm and assets are held in trust in mutual funds run by a major
insurance company. The Company has not made any contributions to the Plan for
the nine months then ended September 30, 1999 and 1998, respectively.
See the Accompanying Independent Accountant's Review Report.
F-130
<PAGE> 218
MICROLAN SYSTEMS, INC.
"DBA" MADISON TECHNOLOGY GROUP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999 AND 1998
NOTE 10 -- CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of cash and cash equivalents
and trade receivables. The Company places its cash with federally insured
financial institutions and as of September 30, 1999 and 1998, the Company's
balances do not exceed federally insured limits. Fair value of these financial
instruments approximates their carrying values.
Trade receivables are primarily short-term receivables which arise in the
normal course of business. The Company generally does not require collateral,
and all of its trade receivables are unsecured.
NOTE 11 -- SUBSEQUENT EVENTS
In January, 2000 the Company agreed to pay a settlement in the amount of
$550,000 relating to a lawsuit in which the plaintiff alledged that the Company
took key employees away from the plaintiff by offering them positions. The
payment of this settlement is personally guaranteed by the shareholders of the
corporation.
See the Accompanying Independent Accountant's Review Report.
F-131
<PAGE> 219
MADISON CONSULTING RESOURCES, INC.
FINANCIAL STATEMENTS
F-132
<PAGE> 220
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Madison Consulting Resources, Inc.
New York, New York
We have audited the accompanying balance sheets of Madison Consulting
Resources, Inc. as of December 31, 1998 and 1997, its initial years of
operation, 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 have conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. Our audits include examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our audits
also include 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 Madison Consulting
Resources, Inc. as of December 31, 1998 and 1997, and the results of its
operations and cash flows for the years then ended in conformity with generally
accepted accounting principles.
JOEL E. SAMMET & CO.
Certified Public Accountants
New York, New York
January 18, 2000
F-133
<PAGE> 221
MADISON CONSULTING RESOURCES, INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- --------
<S> <C> <C>
ASSETS
Current Assets
Cash...................................................... $ 51,186 $ 52,101
Accounts receivable (Note 2).............................. 620,914 250,852
Due from related party (Note 5)........................... 672,238 0
---------- --------
Total Current Assets................................... 1,344,338 302,953
Other Assets................................................ 7,000 0
---------- --------
Total Assets........................................... $1,351,338 $302,953
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Line of credit (Note 3)................................... $ 785,000 $ 0
Accounts payable.......................................... 154,556 119,467
Accrued expenses payable.................................. 1,028 0
Due to related party (Note 6)............................. 16,204 4,116
---------- --------
Total Current Liabilities.............................. 956,788 123,583
Long-Term Liabilities
Loan payable -- related party (Note 4).................... 437,400 250,000
---------- --------
Total Liabilities...................................... 1,394,188 373,583
---------- --------
Shareholders' Equity
Capital stock -- 150 shares issued and outstanding........ 20,000 20,000
Retained earnings (deficit)............................... (62,850) (90,630)
---------- --------
Total Shareholders' Equity............................. (42,850) (70,630)
---------- --------
Total Liabilities and Shareholders' Equity............. $1,351,338 $302,953
========== ========
</TABLE>
See the Accompanying Independent Auditor's Report and Notes to Financial
Statements.
F-134
<PAGE> 222
MADISON CONSULTING RESOURCES, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- --------
<S> <C> <C>
Revenue..................................................... $2,577,819 $503,446
Cost of sales............................................... 1,980,654 376,712
Selling, general and administrative expenses................ 568,357 216,739
---------- --------
Operating income (loss) before income taxes................. 28,808 (90,005)
Provision for state and city taxes.......................... 1,028 625
---------- --------
Net Income (Loss)........................................... $ 27,780 $(90,630)
========== ========
</TABLE>
See the Accompanying Independent Auditor's Report and Notes to Financial
Statements.
F-135
<PAGE> 223
MADISON CONSULTING RESOURCES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
----------------- EARNINGS
SHARES AMOUNT (DEFICIT) TOTAL
------ ------- --------- --------
<S> <C> <C> <C> <C>
Common stock issued................................ 0 $20,000 $ 0 $ 20,000
Net loss........................................... 0 0 (90,630) (90,630)
-- ------- -------- --------
Balances as of December 31, 1997................... 0 20,000 (90,630) (70,630)
Net income......................................... 0 0 27,780 27,780
-- ------- -------- --------
Balances as of December 31, 1998................... 0 $20,000 $(62,850) $(42,850)
== ======= ======== ========
</TABLE>
See the Accompanying Independent Auditor's Report and Notes to Financial
Statements.
F-136
<PAGE> 224
MADISON CONSULTING RESOURCES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Cash Flow from Operating Activities
Net income (loss)......................................... $ 27,780 $ (90,630)
Adjustments to reconcile net income to net cash (used)
provided by operating activities:
Increase in accounts receivable........................ (370,062) (250,852)
Increase in other assets............................... (7,000) 0
Increase in accounts payable........................... 35,089 119,467
Increase in due related parties........................ 12,088 4,116
Increase in accrued expenses payable................... 1,028 0
--------- ---------
Net Cash Used by Operating Activities.................. (301,077) (217,899)
Cash Flows from Financing Activities
Increase in loan payable -- related party................. 187,400 250,000
Increase in line of credit................................ 785,000 0
Increase in receivable from related party................. (672,238) 0
Increase in common stock.................................. 0 20,000
--------- ---------
Cash Flows Provided by Financing Activities.......... 300,162 270,000
--------- ---------
Net increase (decrease) in cash............................. (915) 52,101
Cash at January 1, 1998 and 1997............................ 52,101 0
--------- ---------
Cash and Cash Equivalents at End of Year.................... $ 51,186 $ 52,101
========= =========
</TABLE>
Cash paid for income taxes for the years ended December 31, 1998 and 1997 was
$625 and $-0-, respectively. Cash paid for interest for the years ended December
31, 1998 and 1997 was $17,865 and $-0-, respectively.
See the Accompanying Independent Auditor's Report and Notes to Financial
Statements.
F-137
<PAGE> 225
MADISON CONSULTING RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 -- NATURE OF BUSINESS
Madison Consulting Resources, Inc. (the "Company") was formed in 1997 and
is a provider of information technology through placement of computer
consultants on a temporary and permanent basis to Fortune 1000 companies.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenue is recognized from the temporary placement of computer consultants
as services are performed. Permanent placement revenues are recognized when
computer consultants are placed. Losses on allowances and permanent placement
revenues are recorded when they occur.
Allowance for Doubtful Accounts
The Company reflects accounts receivable at net realizable value. The
Company considers accounts receivable to be fully collectible. Accordingly,
there is no allowance for doubtful accounts at December 31, 1998 and 1997,
respectively.
Income Taxes
The Company has elected under the Internal Revenue Service Code to be taxed
as an S corporation, which is also effective for state tax purposes. In lieu of
corporate income taxes, the shareholders of an S corporation are taxed on their
proportionate share of the company's taxable income. Therefore, no provision or
liability for federal income tax has been included in the financial statements.
However, state and city taxes calculated at the greater of minimum, regular or
alternative tax methods have been provided for in the financial statements.
NOTE 3 -- LINE OF CREDIT
The Company has a line of credit with a bank, which is in the form of a
time secured loan maturing February 19, 1999. The loan is secured by eligible
accounts receivable. The Company can borrow up to 80% of eligible accounts
receivable (outstanding 90 days or less) up to $1,000,000 at December 31, 1998.
Interest is payable monthly at 1.50% over the bank's prime rate which amounted
to 10.00% at December 31, 1998. As of December 31, 1998, outstanding borrowings
under the line of credit is $785,000. Loan payable to shareholder is
subordinated to this time secured loan.
See the Accompanying Independent Auditor's Report.
F-138
<PAGE> 226
MADISON CONSULTING RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
NOTE 4 -- LOAN PAYABLE -- RELATED PARTY
Loan payable to shareholder consists of borrowings for working capital
purposes and amounted to $437,400 and $250,000 at December 31, 1998 and 1997,
respectively.
At the shareholders discretion, interest on this loan was deferred. No
accrual has been made for interest expense on this loan for December 31, 1998
and 1997, respectively.
Loan payable to shareholder is unsecured and is subordinated to the bank
line of credit.
NOTE 5 -- DUE FROM RELATED PARTY
During 1998, the Company had transactions with an affiliated company,
Madison Consulting Resources NJ, Inc. ("MCR NJ") a company which is majority
owned by the sole shareholder of the Company. During 1998, the Company shared
office expenses with MCR NJ, and charged it for common office and administrative
expenses paid for or incurred by the Company primarily based on an allocation of
monthly sales or outstanding accounts receivable balances. In addition, the
Company charged MCR NJ $120,000 for management services for the year ended
December 31, 1998.
The Company also loaned MCR NJ amounts for working capital purposes. At
December 31, 1998, the Company had a balance due from MCR NJ in the amount of
$672,238.
NOTE 6 -- RELATED PARTY TRANSACTIONS
During 1998 and 1997, the Company had transactions with an affiliated
company, Microlan Systems, Inc. DBA Madison Technology Group, a company which is
owned by the sons of the sole shareholder of the Company. During 1998, the
Company shared office space with this affiliated company, and was charged for
overhead, primarily for rent and shared administrative salaries.
Following is a summary of transactions and balances with this affiliated
company for 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Purchase of computer consultants labor (included in cost of
sales).................................................... $435,558 $80,732
======== =======
Accounts payable (included in the accompanying balance
sheets)................................................... $ 72,102 $80,732
======== =======
Due to affiliated company (included in the accompanying
balance sheets)........................................... $ 16,204 $ 4,116
======== =======
Overhead charged, reduced by $15,291 for amount allocated to
MCR NJ
(included in general and administrative expenses)......... $202,912 $ 0
======== =======
</TABLE>
NOTE 7 -- CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of cash and cash equivalents
and trade receivables. The Company places its cash with federally insured
financial institutions and as of December 31, 1998 and 1997, the Company's
balances do not exceed federally insured limits. Fair value of these financial
instruments approximates their carrying values.
See the Accompanying Independent Auditor's Report.
F-139
<PAGE> 227
MADISON CONSULTING RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
Trade receivables are primarily short-term receivables which arise in the
normal course of business. The Company generally does not require collateral,
and all of its trade receivables are unsecured. At December 31, 1998,
approximately 38% of the Company's trade receivables were represented by two
customers, with one customer representing approximately 25% of the outstanding
trade receivable balance. At December 31, 1997, substantially all of the
Company's customers had individual accounts receivable balances exceeding 10% of
the outstanding trade receivable balance. There were no other customers that
individually had accounts receivable balances exceeding 10% of the total
accounts receivable balance for the year ended December 31, 1998.
F-140
<PAGE> 228
INDEPENDENT ACCOUNTANT'S REVIEW REPORT
To the Board of Directors
Madison Consulting Resources, Inc.
New York, New York
We have reviewed the accompanying balance sheet of Madison Consulting
Resources, Inc. as of September 30, 1999 and 1998 and the related statement of
income, retained earnings and cash flows for the nine months then ended, in
accordance with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants. All
information included in these financial statements is the representation of the
management of Madison Consulting Resources, Inc.
A review consists principally of inquiries of company personnel and
analytical procedures applied to financial data. It is substantially less in
scope than an audit in accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements in order for them to be
in conformity with generally accepted accounting principles.
Our review was made for the purpose of expressing limited assurance that
there are no material modifications that should be made to the financial
statements in order for them to be in conformity with generally accepted
accounting principles.
JOEL E. SAMMET & CO.
Certified Public Accountants
New York, New York
January 27, 2000
F-141
<PAGE> 229
MADISON CONSULTING RESOURCES, INC.
BALANCE SHEETS
SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Current Assets
Cash...................................................... $ 22,462 $ (46,920)
Accounts receivable (less allowance for doubtful accounts
of $75,000 at September 30, 1999)...................... 994,103 458,253
Due from related party (Note 5)........................... 803,579 599,801
Other current assets...................................... 46,541 18,194
---------- ----------
Total Current Assets................................... 1,866,685 1,029,328
Other assets................................................ 8,539 7,000
---------- ----------
Total Assets........................................... $1,875,224 $1,036,328
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Loan payable -- Merchants Bank............................ $1,150,000 $ 490,000
Accounts and accrued expenses payable..................... 187,334 155,924
---------- ----------
Total Current Liabilities.............................. 1,337,334 645,924
Long-Term Liabilities
Loans payable -- related party (Note 4)................... 437,400 437,400
---------- ----------
Total Liabilities...................................... 1,774,734 1,083,324
---------- ----------
Shareholders' Equity
Common stock.............................................. 20,000 20,000
Retained earnings......................................... 80,490 (66,996)
---------- ----------
Total Shareholders' Equity............................. 100,490 (46,996)
---------- ----------
Total Liabilities and Shareholders' Equity............. $1,875,224 $1,036,328
========== ==========
</TABLE>
See the Accompanying Independent Accountant's Review Report and Notes to
Financial Statements.
F-142
<PAGE> 230
MADISON CONSULTING RESOURCES, INC.
STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Revenue..................................................... $2,977,266 $1,810,741
Cost of Sales............................................... 1,983,446 1,327,474
Selling, general and administrative expenses................ 791,701 457,133
---------- ----------
Operating income before interest expense.................... 202,119 26,134
Interest expense............................................ 44,779 0
---------- ----------
Net income before provision for income tax.................. 157,340 26,134
Provision for income taxes.................................. 14,000 2,500
---------- ----------
Net Income................................................ $ 143,340 $ 23,634
========== ==========
</TABLE>
See the Accompanying Independent Accountant's Review Report and Notes to
Financial Statements.
F-143
<PAGE> 231
MADISON CONSULTING RESOURCES, INC.
STATEMENTS OF RETAINED EARNINGS (DEFICIT)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Beginning retained earnings (deficit)....................... $(62,850) $(90,630)
Net income.................................................. 143,340 23,634
-------- --------
Ending Retained Earnings (Deficit)........................ $ 80,490 $(66,996)
======== ========
</TABLE>
See the Accompanying Independent Accountant's Review Report and Notes to
Financial Statements.
F-144
<PAGE> 232
MADISON CONSULTING RESOURCES, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income................................................ $ 143,340 $ 23,634
Adjustment to reconcile net net income to net cash used in
operating activities:
(Increase) decrease in operating assets:
Accounts receivable.................................. (373,189) (207,401)
Due from related party............................... (131,341) (599,801)
Other current assets................................. (46,541) (18,194)
Other assets......................................... (1,539) (7,000)
Increase (decrease) in operating liabilities:
Accounts payable..................................... 18,778 36,457
Due to related party................................. (16,204) (4,116)
Accrued expenses payable............................. 12,972 0
--------- ---------
Total Adjustments................................. (537,064) (800,055)
--------- ---------
Net Cash Flows (Used by) Operating Activities..... (393,724) (776,421)
Cash Flows Provided by Financing Activities:
Proceeds of note payable -- Merchants Bank................ 365,000 490,000
Loans from related party.................................. 0 187,400
--------- ---------
Net Cash Flows Provided by Financing Activities... 365,000 677,400
Net decrease to cash........................................ (28,724) (99,021)
Beginning cash balance...................................... 51,186 52,101
--------- ---------
Ending Cash Balance............................... $ 22,462 $ (46,920)
========= =========
</TABLE>
See the Accompanying Independent Accountant's Review Report and Notes to
Financial Statements.
F-145
<PAGE> 233
MADISON CONSULTING RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
NOTE 1 -- NATURE OF BUSINESS
Madison Consulting Resources, Inc. (the "Company") was formed in 1997 and
is a provider of information technology through placement of computer
consultants on a temporary and permanent basis to Fortune 1000 companies.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenue is recognized from the temporary placement of computer consultants
as services are performed. Permanent placement revenues are recognized when
computer consultants are placed. Losses on allowances and permanent placement
revenues are recorded when they occur.
Income Taxes
The Company has elected under the Internal Revenue Service Code to be taxed
as an S corporation, which is also effective for state tax purposes. In lieu of
corporate income taxes, the shareholders of an S corporation are taxed on their
proportionate share of the company's taxable income. Therefore, no provision or
liability for federal income tax has been included in the financial statements.
However, state and city taxes calculated at the greater of minimum, regular or
alternative tax methods have been provided for in the financial statements.
NOTE 3 -- LINE OF CREDIT
The Company has a line of credit with a bank, which is in the form of a
time secured loan maturing every 3 months subject to bank's renewal. The loan is
secured by eligible accounts receivable. The Company can borrow up to 80% of
eligible accounts receivable (outstanding 90 days or less) up to $2,000,000 at
September 30, 1999 and $1,000,000 at September 30, 1998. Interest is payable
monthly at 1.50% over the bank's prime rate which amounted to 10.00% and 9.25%
at September 30, 1999 and 1998, respectively. As of September 30, 1999 and 1998,
outstanding borrowings under the line of credit was $1,150,000 and $490,000,
respectively. Loan payable to shareholder is subordinated to this time secured
loan.
NOTE 4 -- LOAN PAYABLE -- RELATED PARTY
Loan payable to shareholder consists of borrowings for working capital
purposes and amounted to $437,400 at September 30, 1999 and 1998, respectively.
See the Accompanying Independent Accountant's Review Report.
F-146
<PAGE> 234
MADISON CONSULTING RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999 AND 1998
At the shareholders discretion, interest on this loan was deferred. No
accrual has been made for interest expense on this loan for the nine months
ended September 30, 1999 and 1998, respectively.
Loan payable to shareholder is unsecured and is subordinated to the bank
line of credit.
NOTE 5 -- DUE FROM RELATED PARTY
During 1999 and 1998, the Company had transactions with an affiliated
company, Madison Consulting Resources NJ, Inc. ("MCR NJ") a company which is
majority owned by the sole shareholder of the Company. During 1999 and 1998, the
Company shared office expenses with MCR NJ, and charged it for common office and
administrative expenses paid for or incurred by the Company primarily based on
an allocation of monthly sales or outstanding accounts receivable balances.
The Company also loaned MCR NJ amounts for working capital purposes. At
September 30, 1999 and 1998, the Company had a balance due from MCR NJ in the
amounts of $803,579 and $599,801, respectively.
NOTE 6 -- RELATED PARTY TRANSACTIONS
During 1999 and 1998, the Company had transactions with an affiliated
company, Microlan Systems, Inc. DBA Madison Technology Group, a company which is
owned by the sons of the sole shareholder of the Company. During 1999 and 1998,
the Company shared office space with this affiliated company, and was charged
for overhead, primarily for rent and shared administrative salaries.
Following is a summary of transactions and balances with this affiliated
company for the nine months ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Sales to affiliates......................................... $253,985 $ 1,954
======== ========
Purchase of computer consultants labor (included in cost of
sales).................................................... $ 28,439 $336,903
======== ========
Accounts receivable (included in accompanying balance
sheets.................................................... $253,985 $ 1,954
======== ========
Accounts payable (included in the accompanying balance
sheets)................................................... $ 322 $ 36,336
======== ========
Due from affiliated company (included in the accompanying
balance sheets)........................................... $ 0 $ 24,354
======== ========
Overhead charged, reduced by $16,375 for amount allocated to
MCR NJ
(included in general and administrative expenses)........... $ 25,625 $100,000
======== ========
</TABLE>
NOTE 7 -- CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of cash and cash equivalents
and trade receivables. The Company places its cash with federally insured
financial institutions and as of September 30, 1999 and 1998, the Company's
balances do not exceed federally insured limits. Fair value of these financial
instruments approximates their carrying values.
See the Accompanying Independent Accountant's Review Report.
F-147
<PAGE> 235
MADISON CONSULTING RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999 AND 1998
Trade receivables are primarily short-term receivables which arise in the
normal course of business. The Company generally does not require collateral,
and all of its trade receivables are unsecured. At September 30, 1999,
approximately 60% of the Company's trade receivables were represented by three
customers, with one customer representing approximately 25% of the outstanding
trade receivable balance. At September 30, 1998, substantially all of the
Company's customers accounts receivable balances will represented by three
customers. There were no other customers that individually had accounts
receivable balances exceeding 10% of the total accounts receivable balance at
September 30, 1999.
See the Accompanying Independent Accountant's Review Report.
F-148
<PAGE> 236
MADISON CONSULTING RESOURCES NJ, INC.
FINANCIAL STATEMENTS
F-149
<PAGE> 237
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Madison Consulting Resources NJ, Inc.
New York, New York
We have audited the accompanying balance sheet of Madison Consulting
Resources NJ, Inc. as of December 31, 1998, its initial year of operation, and
the related statement of income, shareholders' equity and cash flow for the year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We have conducted our audit in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. 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 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 Madison Consulting Resources
NJ, Inc. as of December 31, 1998, and the results of its operations and cash
flows for the year then ended in conformity with generally accepted accounting
principles.
JOEL E. SAMMET & CO.
Certified Public Accountants
New York, New York
January 18, 2000
F-150
<PAGE> 238
MADISON CONSULTING RESOURCES NJ, INC.
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Current Assets
Cash...................................................... $ 43,320
Accounts receivable -- Trade.............................. 670,738
Loan receivable -- related party.......................... 8,000
--------
Total Assets........................................... $722,058
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable.......................................... $ 7,920
Accrued expenses payable.................................. 200
Due to related party (Note 3 & 4)......................... 672,238
--------
Total Current Liabilities.............................. 680,358
--------
Shareholders' Equity
Capital stock -- 200 shares issued and outstanding........ 20,000
Retained earnings......................................... 21,700
--------
Total Shareholders' Equity............................. 41,700
--------
Total Liabilities and Shareholders' Equity............. $722,058
========
</TABLE>
See the Accompanying Independent Auditor's Report and Notes to Financial
Statements.
F-151
<PAGE> 239
MADISON CONSULTING RESOURCES NJ, INC.
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
Net sales................................................... $2,512,757
Cost of sales............................................... 1,850,451
Selling, general and administrative expenses................ 640,406
----------
Income before income taxes................................ 21,900
Provision for state taxes................................... 200
----------
Net Income.................................................. $ 21,700
==========
</TABLE>
See the Accompanying Independent Auditor's Report and Notes to Financial
Statements.
F-152
<PAGE> 240
MADISON CONSULTING RESOURCES NJ, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMMON STOCK
----------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
------ ------- -------- -------
<S> <C> <C> <C> <C>
Common stock issued.......................... 0 $20,000 $ 0 $20,000
Net income................................... 0 0 21,700 21,700
-- ------- ------- -------
Balances as of December 31, 1998............. 0 $20,000 $21,700 $41,700
== ======= ======= =======
</TABLE>
See the Accompanying Independent Auditor's Report and Notes to Financial
Statements.
F-153
<PAGE> 241
MADISON CONSULTING RESOURCES NJ, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
Cash Flows from Operating Activities
Net income................................................ $ 21,700
Adjustments to reconcile net income to net cash provided
by operating activities:
Increase in accounts receivable........................ (670,738)
Increase in receivable from related party.............. (8,000)
Increase in accounts payable........................... 7,920
Increase in current liability due to related party..... 672,238
Increase in accrued expenses payable................... 200
---------
Total Adjustments.................................... 1,620
---------
Net Cash Provided by Operating Activities............ 23,320
Cash Flows from Financing Activities
Proceeds from issuance of common stock.................... 20,000
---------
Net increase in cash and cash equivalents................... 43,320
Cash and cash equivalents at beginning of year.............. 0
---------
Cash and Cash Equivalents At End of Year.................... $ 43,320
=========
Taxes Paid.................................................. $ 0
=========
Interest Paid............................................... $ 0
=========
</TABLE>
See the Accompanying Independent Auditor's Report and Notes to Financial
Statements.
F-154
<PAGE> 242
MADISON CONSULTING RESOURCES NJ, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 -- NATURE OF BUSINESS
Madison Consulting Resources NJ, Inc. (the "Company") was formed in 1998
and is a top provider of information technology through placement of computer
consultants on a temporary and permanent basis to Fortune 1000 companies.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenue is recognized from the temporary placement of computer consultants
as services are performed. Permanent placement revenues are recognized when
computer consultants are placed. Losses on allowances and permanent placement
revenues are recorded when they occur.
Allowance for Doubtful Accounts
The Company considers accounts receivable to be fully collectible.
Accordingly, there is no allowance for doubtful accounts at December 31, 1998.
Income Taxes
The Company has elected under the Internal Revenue Service Code to be taxed
as an S corporation. In lieu of corporate income taxes, the shareholders of an S
corporation are taxed on their proportionate share of the company's taxable
income. Therefore, no provision or liability for federal income tax has been
included in the financial statements. However, state taxes calculated at the
greater of minimum, regular or alternative tax methods have been provided for in
the financial statements.
NOTE 3 -- DUE TO RELATED PARTY
During 1998, the Company had transactions with an affiliated company,
Madison Consulting Resources, Inc. ("MCR"), a company which is owned by the
majority shareholder of the Company. During 1998, the Company shared office
expenses with MCR, and was charged for common office and administrative expenses
paid or incurred by MCR primarily based on an allocation of monthly sales or
outstanding accounts receivable balances. In addition, MCR charged the Company
$120,000 for management services for the year ended December 31, 1998.
The Company also had borrowings from MCR for working capital purposes. At
December 31, 1998, the Company had a balance due to MCR in the amount of
$672,238.
See the Accompanying Independent Auditor's Report.
F-155
<PAGE> 243
MADISON CONSULTING RESOURCES NJ, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 4 -- RELATED PARTY TRANSACTIONS
During 1998, the Company was allocated with an overhead charge by MCR from
an affiliated company, Microlan Systems, Inc. DBA Madison Technology Group, a
company which is owned by the sons of the majority shareholder of the Company.
For the year ending December 31, 1998, overhead allocated by MCR from this
affiliate in the amount of $15,291 is included in general and administrative
expenses.
NOTE 5 -- CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of cash and cash equivalents
and trade receivables. The Company places its cash with federally insured
financial institutions and as of December 31, 1998, the Company's balances do
not exceed federally insured limits. Fair value of these financial instruments
approximates their carrying values.
Trade receivables are primarily short-term receivables which arise in the
normal course of business. The Company generally does not require collateral,
and all of its trade receivables are unsecured. At December 31, 1998,
approximately 75% of the Company's trade receivables were represented by three
customers, with one customer representing approximately 40% of the outstanding
trade receivable balance. There were no other customers that individually had
accounts receivable balances exceeding 10% of the total accounts receivable
balance for the year ended December 31, 1998.
F-156
<PAGE> 244
INDEPENDENT ACCOUNTANT'S REVIEW REPORT
To the Board of Directors
Madison Consulting Resources NJ, Inc.
New York, New York
We have reviewed the accompanying balance sheet of Madison Consulting
Resources NJ, Inc. as of September 30, 1999 and 1998 and the related statement
of income, retained earnings and cash flows for the nine months then ended, in
accordance with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants. All
information included in these financial statements is the representation of the
management of Madison Consulting Resources NJ, Inc.
A review consists principally of inquiries of company personnel and
analytical procedures applied to financial data. It is substantially less in
scope than an audit in accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements in order for them to be
in conformity with generally accepted accounting principles.
Our review was made for the purpose of expressing limited assurance that
there are no material modifications that should be made to the financial
statements in order for them to be in conformity with generally accepted
accounting principles.
JOEL E. SAMMET & CO.
Certified Public Accountants
New York, New York
January 27, 2000
F-157
<PAGE> 245
MADISON CONSULTING RESOURCES NJ, INC.
BALANCE SHEETS
SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------- --------
<S> <C> <C>
ASSETS
Current Assets
Cash...................................................... $ 45,214 $ 22,351
Accounts receivable (less allowance for doubtful accounts
of $14,184 at September 30, 1999)...................... 1,074,308 567,386
Loan receivable -- related party.......................... 20,500 6,000
Other current assets...................................... 20,718 20,006
---------- --------
Total Current Assets................................... 1,160,740 615,743
Other Assets
Property and equipment.................................... 59,161 0
Stock subscription receivable............................. 0 10,000
Other assets.............................................. 442 0
---------- --------
Total Other Assets..................................... 59,603 10,000
---------- --------
Total Assets........................................... $1,220,343 $625,743
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts and accrued expenses payable..................... $ 143,050 $ 1,106
Due to related party (Note 3)............................. 803,579 599,801
---------- --------
Total Current Liabilities.............................. 946,629 600,907
Shareholders' Equity
Capital stock............................................. 20,000 10,000
Retained earnings......................................... 253,714 14,836
---------- --------
Total Shareholders' Equity............................. 273,714 24,836
---------- --------
Total Liabilities and Shareholders' Equity............. $1,220,343 $625,743
========== ========
</TABLE>
See the Accompanying Independent Accountant's Review Report and Notes to
Financial Statements.
F-158
<PAGE> 246
MADISON CONSULTING RESOURCES NJ, INC.
STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Revenue..................................................... $4,491,842 $1,428,523
Cost of Sales............................................... 3,303,253 1,079,747
Selling, general and administrative expenses................ 907,798 333,940
---------- ----------
Operating income before interest expense and provision for
taxes..................................................... 280,791 14,836
Interest income............................................. 357 0
Interest expense............................................ 48,934 0
---------- ----------
Operating income before provision for taxes................. 232,214 14,836
Provision for income taxes.................................. 200 0
---------- ----------
Net Income.................................................. $ 232,014 $ 14,836
========== ==========
</TABLE>
See the Accompanying Independent Accountant's Review Report and Notes to
Financial Statements.
F-159
<PAGE> 247
MADISON CONSULTING RESOURCES NJ, INC.
STATEMENTS OF RETAINED EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
-------- -------
<S> <C> <C>
Beginning retained earnings............................. $ 21,700 $ 0
Net income.............................................. 232,014 14,836
-------- -------
Ending Retained Earnings................................ $253,714 $14,836
======== =======
</TABLE>
See the Accompanying Independent Accountant's Review Report and Notes to
Financial Statements.
F-160
<PAGE> 248
MADISON CONSULTING RESOURCES NJ, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
-------- ---------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income................................................ $232,014 $ 14,836
Adjustments to reconcile net income to net cash used in
operating activities:
(Increase) decrease in operating assets:
Accounts receivable.................................. (403,570) (567,386)
Loan receivable -- related party..................... (12,500) (6,000)
Other current assets................................. (21,160) (20,006)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses................ 134,930 1,106
Due to related party................................. 131,341 599,801
Stock subscription................................... 0 (10,000)
-------- ---------
Total Adjustments................................. (170,959) (2,485)
Net Cash Flows Provided by Operating Activities... 61,055 12,351
Cash Flows from Financing Activities:
Issuance of capital stock................................. 0 10,000
Cash Flows (Used by) Investing Activities:
Purchases of property and equipment....................... (59,161) 0
-------- ---------
Net increase in cash........................................ 1,894 22,351
Beginning cash balance...................................... 43,320 0
-------- ---------
Ending Cash Balance......................................... $ 45,214 $ 22,351
======== =========
</TABLE>
See the Accompanying Independent Accountant's Review Report and Notes to
Financial Statements.
F-161
<PAGE> 249
MADISON CONSULTING RESOURCES NJ, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
NOTE 1 -- NATURE OF BUSINESS
Madison Consulting Resources NJ, Inc. (the "Company") was formed in 1998
and is a top provider of information technology through placement of computer
consultants on a temporary and permanent basis to Fortune 1000 companies.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenue is recognized from the temporary placement of computer consultants
as services are performed. Permanent placement revenues are recognized when
computer consultants are placed. Losses on allowances and permanent placement
revenues are recorded when they occur.
Income Taxes
The Company has elected under the Internal Revenue Service Code to be taxed
as an S corporation. In lieu of corporate income taxes, the shareholders of an S
corporation are taxed on their proportionate share of the company's taxable
income. Therefore, no provision or liability for federal income tax has been
included in the financial statements. However, state taxes calculated at the
greater of minimum, regular or alternative tax methods have been provided for in
the financial statements.
NOTE 3 -- DUE TO RELATED PARTY
During 1999 and 1998, the Company had transactions with an affiliated
company, Madison Consulting Resources, Inc. ("MCR"), a company which is owned by
the majority shareholder of the Company. During 1999 and 1998, the Company
shared office expenses with MCR, and was charged for common office and
administrative expenses paid or incurred by MCR primarily based on an allocation
of monthly sales or outstanding accounts receivable balances.
The Company also had borrowings from MCR for working capital purposes. At
September 30, 1999 and 1998, the Company had balances due to MCR in the amount
of $803,579 and $599,801, respectively.
NOTE 4 -- RELATED PARTY TRANSACTIONS
During 1999 and 1998, the Company was allocated with an overhead charge by
MCR from an affiliated company, Microlan Systems, Inc. DBA Madison Technology
Group, a company which is owned by the sons of the majority shareholder of the
Company. For the nine months ended September 30, 1999
and 1998, overhead allocated by MCR from this affiliate in the amount of
$16,375 and $-0-, respectively is included in general and administrative
expenses.
F-162
<PAGE> 250
MADISON CONSULTING RESOURCES NJ, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999 AND 1998
NOTE 5 -- CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of cash and cash equivalents
and trade receivables. The Company places its cash with federally insured
financial institutions and as of September 30, 1999 and 1998, the Company's
balances do not exceed federally insured limits. Fair value of these financial
instruments approximates their carrying values.
Trade receivables are primarily short-term receivables which arise in the
normal course of business. The Company generally does not require collateral,
and all of its trade receivables are unsecured. At September 30, 1999,
approximately 65% of the Company's trade receivables were represented by three
customers, with one customer representing approximately 40% of the outstanding
trade receivable balance. There were no other customers that individually had
accounts receivable balances exceeding 10% of the total accounts receivable
balance for the nine months ended September 30, 1999.
F-163
<PAGE> 251
CHARON SYSTEMS, INC.
FINANCIAL STATEMENTS
F-164
<PAGE> 252
AUDITORS' REPORT
To the Directors of
Charon Systems Inc.
We have audited the balance sheets of Charon Systems Inc. as at July 31,
1998 and 1999 and the statements of operations and retained earnings 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 in Canada. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at July 31, 1998 and 1999 and
the results of its operations and its cash flows for the years then ended in
accordance with generally accepted accounting principles in Canada.
/s/ BDO Dunwoody LLP
Chartered Accountants
Markham, Ontario
January 31, 2000
F-165
<PAGE> 253
CHARON SYSTEMS INC.
BALANCE SHEETS
(CANADIAN $)
<TABLE>
<CAPTION>
JULY 31 JULY 31 SEPTEMBER 30
1998 1999 1999
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current
Cash and short term investments........................ $ 270,850 $ 976,007 $ 331,439
Accounts receivable.................................... 3,671,058 2,512,058 2,449,542
Inventory.............................................. 42,633 158,135 620,562
Prepaid expenses and deposits.......................... 8,485 186,796 151,796
---------- ---------- ----------
3,993,026 3,832,996 3,553,339
Equipment (Note 1)....................................... 140,904 263,502 282,651
---------- ---------- ----------
$4,133,930 $4,096,498 $3,835,990
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities............... $3,729,034 $3,194,839 $2,872,687
Income taxes payable................................... 74,377 92,327 80,527
Deferred income taxes.................................. -- 74,000 60,800
---------- ---------- ----------
3,803,411 3,361,166 3,014,014
Due to shareholder (Note 2).............................. 75,000 -- --
Deferred income taxes.................................... -- 36,000 36,000
---------- ---------- ----------
3,878,411 3,397,166 3,050,014
---------- ---------- ----------
SHAREHOLDERS' EQUITY
Share capital (Note 3)................................. 900 63,450 66,350
Retained earnings...................................... 254,619 635,882 719,626
---------- ---------- ----------
255,519 699,332 785,976
---------- ---------- ----------
$4,133,930 $4,096,498 $3,835,990
========== ========== ==========
</TABLE>
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements
F-166
<PAGE> 254
CHARON SYSTEMS INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(CANADIAN $)
<TABLE>
<CAPTION>
FOR THE PERIODS ENDED
--------------------------------------------------------
TWO MONTHS
YEARS ENDED JULY 31 ENDED SEPTEMBER 30
-------------------------- --------------------------
1998 1999 1998 1999
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
SALES
Sales -- computer hardware and
software........................... $12,183,387 $14,864,429 $1,901,190 $2,054,560
Sales -- services..................... 2,290,127 4,324,660 456,799 750,732
Other................................. 134,139 260,061 9,139 50,912
----------- ----------- ---------- ----------
14,607,653 19,449,150 2,367,128 2,856,204
----------- ----------- ---------- ----------
EXPENSES
Cost of Hardware and Software......... 10,633,028 12,949,963 1,654,951 1,630,737
Cost of Service Delivery.............. 1,404,875 2,418,975 255,079 449,754
Selling, general and administrative... 2,212,503 3,338,025 393,404 652,256
Depreciation.......................... 38,272 61,445 7,282 12,984
Interest and bank charges............. 3,025 5,611 618 1,729
----------- ----------- ---------- ----------
14,291,703 18,774,019 2,311,334 2,747,460
----------- ----------- ---------- ----------
Income before income taxes.............. 315,950 675,131 55,794 108,744
----------- ----------- ---------- ----------
INCOME TAXES
Current............................... 115,820 183,868 12,275 38,200
Deferred (reduction).................. -- 110,000 -- (13,200)
----------- ----------- ---------- ----------
115,820 293,868 12,275 25,000
----------- ----------- ---------- ----------
Net income for the period............... 200,130 381,263 43,519 83,744
Retained earnings, beginning of
period................................ 304,389 254,619 254,619 635,882
Dividends............................... (100,000) -- -- --
Premium paid on cancellation of shares
previously issued and outstanding..... (149,900) -- -- --
----------- ----------- ---------- ----------
Retained earnings, end of period........ $ 254,619 $ 635,882 $ 298,138 $ 719,626
=========== =========== ========== ==========
</TABLE>
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements
F-167
<PAGE> 255
CHARON SYSTEMS INC.
STATEMENTS OF CASH FLOWS
(CANADIAN $)
<TABLE>
<CAPTION>
FOR THE PERIODS ENDED
-------------------------------------------------------
TWO MONTHS
YEARS ENDED JULY 31 ENDED SEPTEMBER 30
------------------------- --------------------------
1998 1999 1998 1999
----------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH PROVIDED BY (USED IN)
Cash flows from operating activities
Net income for the period............... $ 200,130 $ 381,263 $ 43,519 $ 83,744
Adjustments to reconcile net income to
net cash provided by operating
activities
Deferred income taxes................ -- 110,000 -- (13,200)
Depreciation......................... 38,272 61,445 7,282 12,984
Changes in non-cash working capital
balances
Accounts receivable................ (2,755,697) 1,159,000 995,166 62,516
Inventory.......................... 79,502 (115,502) (351,507) (462,427)
Prepaid expenses and deposits...... 2,345 (178,311) -- 35,000
Accounts payable and accrued
liabilities..................... 2,463,411 (534,195) (619,946) (322,152)
Income taxes....................... (30,830) 17,950 (42,225) 11,800
----------- ---------- --------- ---------
(2,867) 901,650 32,289 (615,335)
----------- ---------- --------- ---------
Cash flows from investing activities
Purchase of equipment................... (74,031) (184,043) (18,474) (32,133)
----------- ---------- --------- ---------
Cash flows from financing activities
Payment on cancellation of common
shares............................... (75,000) -- -- --
Issuance of common shares............... -- 12,550 -- --
Dividends............................... (100,000) -- -- --
Due to/from shareholder (net)........... -- (25,000) -- 2,900
----------- ---------- --------- ---------
(175,000) (12,450) -- 2,900
----------- ---------- --------- ---------
Increase (decrease) in cash and short term
investments during the period........... (251,898) 705,157 13,815 (644,568)
Cash and short term investments, beginning
of period............................... 522,748 270,850 270,850 976,007
----------- ---------- --------- ---------
Cash and short term investments, end of
period.................................. $ 270,850 $ 976,007 $ 284,665 $ 331,439
=========== ========== ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest.................. $ 3,025 $ 5,611 $ 618 $ 1,729
Cash paid for income taxes.............. $ 146,650 $ 165,918 $ -- $ 50,000
NON-CASH TRANSACTIONS
Issuance of common shares............... 50,000 137,450 -- --
Cancellation of common shares........... (75,000) -- -- --
Due from/to shareholder................. 25,000 (137,450) -- --
</TABLE>
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements
F-168
<PAGE> 256
CHARON SYSTEMS INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SEPTEMBER 30, 1999 AND 1998 (UNAUDITED), AND JULY 31, 1999 AND 1998
(CANADIAN $)
INVENTORY
Inventory is stated at the lower of cost and net realizable value. Cost is
generally determined based on a specific item basis.
EQUIPMENT
Equipment is stated at cost less accumulated depreciation. Depreciation is
provided based on the estimated useful life as follows:
<TABLE>
<S> <C>
Computer equipment................................ 30% declining balance basis
Computer software................................. 30% declining balance basis
Leasehold improvements............................ 20% declining balance basis
Office furniture and fixtures..................... 20% declining balance basis
</TABLE>
FOREIGN CURRENCY TRANSLATION
Foreign currency accounts are translated to Canadian dollars as follows:
At the transaction date, each asset, liability, revenue and expense is
translated into Canadian dollars by the use of the exchange rate in effect at
that date. At the year end date, monetary assets and liabilities are translated
into Canadian dollars by using the exchange rate in effect at that date and the
resulting foreign exchange gains and losses are included in income in the
current period.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates that affect
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 period. Actual results could differ from management's best estimates
as additional information becomes available in the future.
REVENUE RECOGNITION
Revenue from product sales is generally recorded on shipment. Service
revenue is recognized when the service is provided.
F-169
<PAGE> 257
CHARON SYSTEMS INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998 (UNAUDITED), AND JULY 31, 1999 AND 1998
(CANADIAN $)
1. EQUIPMENT
<TABLE>
<CAPTION>
JULY 31, 1998 JULY 31, 1999 SEPTEMBER 30, 1999
------------------------ ------------------------ ------------------------
ACCUMULATED ACCUMULATED ACCUMULATED
COST DEPRECIATION COST DEPRECIATION COST DEPRECIATION
-------- ------------- -------- ------------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Computer equipment............................ $108,633 $ 57,742 $229,219 $ 91,060 $229,219 $ 97,968
Computer software............................. 7,363 5,217 -- -- -- --
Leasehold improvements........................ 64,851 19,966 87,093 35,161 122,046 30,919
Office furniture and fixtures................. 58,177 15,195 101,539 28,128 98,012 39,349
-------- -------- -------- -------- -------- --------
$239,024 98,120 $417,851 154,349 $449,277 168,236
-------- -------- -------- -------- -------- --------
Cost less accumulated amortization............ $140,904 $263,502 $281,041
======== ======== ========
</TABLE>
2. DUE TO SHAREHOLDER
The amount is non-interest bearing, with no specific terms of repayment.
3. SHARE CAPITAL
Authorized
Unlimited voting common shares
Unlimited non-voting common shares
<TABLE>
<CAPTION>
JULY 31, 1998 JULY 31, 1999 SEPTEMBER 30, 1999
------------------ --------------------- -----------------------
# $ # $ # $
------- -------- --------- --------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
ISSUED
Voting common shares.................................. 950,000 $ 50,900 1,055,000 $ 155,900 1,055,000 $ 155,900
Non-voting common shares.............................. -- -- 45,000 45,000 45,000 45,000
------- -------- --------- --------- --------- ---------
950,000 50,900 1,100,000 200,900 1,100,000 200,900
Less: Share purchase loan............................. (50,000) (137,450) (134,550)
-------- --------- ---------
$ 900 $ 63,450 $ 66,350
======== ========= =========
</TABLE>
On January 8, 1999, pursuant to Articles of Amendment, the company revised
its authorized share capital to an unlimited number of voting and unlimited
non-voting common shares, from an unlimited number of common shares. All shares
that were previously considered common shares became voting common shares.
In fiscal 1999, 150,000 (1998 - 50,000) common shares were issued for cash
of $12,550 (1998 - nil) and share purchase loans of $137,450 (1998 - $50,000).
In fiscal 1998, the company redeemed 100,000 common shares (stated value of
$100) for $150,000.
The share purchase loans are non-interest bearing with no specific terms of
repayment.
F-170
<PAGE> 258
CHARON SYSTEMS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999 AND 1998 (UNAUDITED), AND JULY 31, 1999 AND 1998
(CANADIAN $)
4. RELATED PARTY TRANSACTIONS
The following table summarizes the company's related party transactions for
the periods:
<TABLE>
<CAPTION>
JULY 31 SEPTEMBER 30
-------------------- ------------------
1998 1999 1998 1999
-------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Management fees paid to company owned by a
shareholder included in consulting fees......... $527,489 $332,326 $54,072 $81,443
-------- -------- ------- -------
</TABLE>
The transactions were measured at the exchange amount.
<TABLE>
<CAPTION>
JULY 31 SEPTEMBER 30
----------------- --------------
1998 1999 1998 1999
------- ------- ---- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Accounts payable
Shareholders.............................................. $28,916 $18,344 $-- $18,344
Company 100% owned by shareholder......................... $14,160 $35,003 $-- $35,003
</TABLE>
5. COMMITMENTS
The Company has leased realty to December 2003 and equipment to January
2003.
Future minimum lease payments for the next five years are approximately as
follows:
<TABLE>
<S> <C>
2000...................................................... $214,000
2001...................................................... 212,000
2002...................................................... 178,000
2003...................................................... 102,000
2004...................................................... 12,000
--------
$718,000
========
</TABLE>
6. SUBSEQUENT EVENT
On January 31, 2000 the company issued 24,000 options to acquire common
shares at an exercise price of $1.00 per share.
7. STOCK OPTIONS
The Company has a fixed stock option plan. The status of the stock option
plans as of September 30, 1999 and July 31, 1999, and changes during the periods
ending on those dates is presented below:
<TABLE>
<CAPTION>
JULY 31 SEPTEMBER 30 EXERCISE PRICE
1999 1999 PER SHARE
-------- ------------ --------------
(UNAUDITED)
<S> <C> <C> <C>
Outstanding at beginning of period........... -- --
Granted during period........................ 150,000 --
Exercised during the period.................. (150,000) -- $1
-------- --
Outstanding at end of period................. -- --
======== ==
</TABLE>
F-171
<PAGE> 259
CHARON SYSTEMS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999 AND 1998 (UNAUDITED), AND JULY 31, 1999 AND 1998
(CANADIAN $)
100,000 options were granted and exercised in January 2000 at prices
ranging from $1 to $2.50 per share.
8. FINANCIAL INSTRUMENTS
Unless otherwise noted, it is management's opinion that the Company is not
exposed to significant interest, credit, or currency risks arising from its
financial instruments.
9. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000.
If the Year 2000 Issue is not addressed by the Company and its major
customers, suppliers and other third party business associates, the impact on
the Company's operations and financial reporting may range from minor errors to
significant systems failure which could affect the Company's ability to conduct
normal business operations. It is not possible to be certain that all aspects of
the Year 2000 Issue affecting the Company, including those related to the
efforts of customers, suppliers, or other third parties, will be fully resolved.
10. CANADIAN/U.S. GAAP RECONCILIATION
The financial statements of the company have been prepared in accordance
with Canadian generally accepted accounting principles which differ from U.S.
generally accepted accounting principles as follows:
<TABLE>
<CAPTION>
JULY 31 SEPTEMBER 30
-------------------- ------------------
1998 1999 1998 1999
-------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net income per Canadian GAAP...................... $200,130 $381,263 $43,519 $58,887
Stock compensation expense........................ -- (75,000) -- --
-------- -------- ------- -------
200,130 306,263 43,519 58,887
Income tax effect -- Stock compensation expense... -- 33,000 -- --
-------- -------- ------- -------
Net income per U.S. GAAP.......................... $200,130 $339,263 $43,519 $58,887
======== ======== ======= =======
</TABLE>
Under Canadian GAAP, options issued at lower than fair value do not result
in a compensation expense. For U.S. GAAP, in accordance with APB 25 for
accounting for options issued to employees, the difference between fair value of
the shares of $1.50 and the exercise price is recorded as compensation expense.
The effect on the balance sheet was to increase share capital by $75,000,
decrease income taxes payable by $33,000 and decrease retained earnings by
$42,000.
F-172
<PAGE> 260
- ------------------------------------------------------
- ------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT OR ADDITIONAL INFORMATION.
THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT SEEKING AN OFFER TO BUY SHARES
OF OUR COMMON STOCK IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF THE DELIVERY OF THIS
PROSPECTUS OR ANY SALE OF OUR COMMON STOCK.
-------------------------
TABLE OF CONTENTS
-------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 6
Use of Proceeds....................... 17
Dividend Policy....................... 17
Price Range of Our Common Stock....... 18
Capitalization........................ 19
Dilution.............................. 20
Acquisitions.......................... 21
Pro Forma Condensed Consolidated
Financial Information............... 24
Selected Consolidated Financial
Data................................ 36
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 37
Business.............................. 44
Management............................ 53
Principal Stockholders................ 62
Certain Relationships and Related
Transactions........................ 64
Description of Capital Stock.......... 66
Shares Eligible for Future Sale....... 69
Underwriting.......................... 71
Legal Matters......................... 73
Experts............................... 73
Where You Can Find More Information... 74
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
[FUTURELINK LOGO]
5,000,000 SHARES
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
BEAR, STEARNS & CO. INC.
ROBERTSON STEPHENS
CIBC WORLD MARKETS
C.E. UNTERBERG, TOWBIN
, 2000
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 261
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
SEC registration fee........................................ $34,535
NASD filing fee............................................. 13,581
Blue Sky fees and expenses.................................. 7,500
Attorneys' fees and expenses................................
Accountants' fees and expenses..............................
Transfer Agent's and Registrar's fees and expenses..........
Printing and engraving fees.................................
Miscellaneous...............................................
-------
Total............................................. $
=======
</TABLE>
The amounts set forth above are estimates except for the SEC registration
fee and the NASD filing fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law provides, in summary,
that directors and officers of Delaware corporations are entitled, under certain
circumstances, to be indemnified against all expenses and liabilities, including
attorneys' fees, incurred by them as a result of suits brought against them in
their capacity as a director or officer, if they acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests of
the Company, and, with respect to any criminal action or proceeding, if they had
no reasonable cause to believe their conduct was unlawful; provided that no
indemnification may be made against expenses in respect of any claim, issue or
matter as to which they shall have been adjudged to be liable to the Company,
unless and only to the extent that the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, they are fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper. Any such indemnification may be made by the Company only as authorized
in each specific case upon a determination by the shareholders or disinterested
directors that indemnification is proper because the indemnitee has met the
applicable standard of conduct.
The Company's Certificate of Incorporation provides that to the fullest
extent permitted by the laws of the State of Delaware, as the same may be
amended from time to time, a director of the Company shall not be personally
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director.
The Certificate of Incorporation and By-Laws provide for indemnification of
its directors and officers to the fullest extent permitted by Delaware law, as
the same may be amended from time to time.
In addition, the Company maintains liability insurance for its directors
and officers.
The following is a description of our securities issuances since January
31, 1997.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since January 1, 1997, we have issued the following securities without
registration under the Securities Act. Each of the disclosures take into account
the stock splits referred to in the prospectus.
II-1
<PAGE> 262
1. On June 9, 1997, we issued 6,000 shares of common stock to two non-U.S.
residents. In exchange for the issuance, we received total consideration of
$10,000. We issued these securities pursuant to an exemption provided by
Rule 903 of Regulation S under the Securities Act Rules.
2. On July 23, 1997, we issued 10,000 shares of common stock to twenty-three
non-U.S. residents. In exchange for the issuance, we received total
consideration of $100,000. We issued these securities pursuant to an
exemption provided by Rule 903 of Regulation S under the Securities Act
Rules.
3. On December 18, 1997, we issued 10,000 shares of common stock to twenty-five
non-U.S. residents. In exchange for the issuance, we received total
consideration of $100,000. We issued these securities pursuant to an
exemption provided by Rule 903 of Regulation S under the Securities Act
Rules.
4. On January 20, 1998, we issued 308,000 shares of common stock to 5 non-US
residents. In exchange for the issuances, we received 1,540,000 Class A
Common Voting Shares of FutureLink Alberta. We also issued 700,000 shares of
common stock to various employees in exchange for prior services. We issued
these securities pursuant to an exemption provided by Rule 903 of Regulation
S under the Securities Act Rules, and Rule 504 of Regulation D under the
Securities Act Rules.
5. On January 29, 1998, we issued 16,666 shares of common stock and a warrant
to purchase up to 16,666 shares of common stock to a non-U.S. entity. In
exchange for the issuances, we received total consideration of $250,000. We
issued these securities pursuant to an exemption provided by each of Rule
903 of Regulation S under the Securities Act Rules, and Rule 504 of
Regulation D under the Securities Act Rules.
6. On April 3, 1998, we issued 13,696 shares of common stock and a warrant to
purchase up to 13,696 shares of common stock to a non-U.S. entity. In
exchange for the issuances, we received total consideration of $256,000. We
issued these securities pursuant to an exemption provided by each of Rule
903 of Regulation S under the Securities Act Rules, and Rule 504 of
Regulation D under the Securities Act Rules.
7. On April 3, 1998, we issued 7,467 shares of common stock and a warrant to
purchase up to 7,467 shares of common stock to a non-U.S. entity. In
exchange for the issuances, we received total consideration of $140,000. We
issued these securities pursuant to an exemption provided by each of Rule
903 of Regulation S under the Securities Act Rules, and Rule 504 of
Regulation D under the Securities Act Rules.
8. On April 22, 1998, we issued 9,333 shares of common stock and a warrant to
purchase up to 9,333 shares of common stock to a non-U.S. entity. In
exchange for the issuances, we received total consideration of $140,000. We
issued these securities pursuant to an exemption provided by each of Rule
903 of Regulation S under the Securities Act Rules, and Rule 504 of
Regulation D under the Securities Act Rules.
9. On April 24, 1998, we issued 4,000 shares of common stock and a warrant to
purchase up to 4,000 shares of common stock to a non-U.S. entity. In
exchange for the issuances, we received total consideration of $60,000. We
issued these securities pursuant to an exemption provided by each of Rule
903 of Regulation S under the Securities Act Rules, and Rule 504 of
Regulation D under the Securities Act Rules.
10. On April 29, 1998, we issued 117,756 shares of common stock and a warrant to
purchase up to 117,756 shares of common stock to a non-U.S. entity. In
exchange for the issuances, we received total consideration of $382,706. We
also issued 107,692 shares of common stock and a warrant to purchase up to
107,692 shares of common stock to a non-US entity. In exchange for those
issuances, we received total consideration of $350,000. We issued these
securities pursuant to an exemption provided by each of Rule 903 of
Regulation S under the Securities Act Rules, and Rule 506 of Regulation D
under the Securities Act Rules.
II-2
<PAGE> 263
11. On August 14, 1998, we financed, with Thomson Kernaghan & Co. Limited, a $5
million convertible debenture facility consisting of 10% convertible
debentures and warrants to subscribe for 208,333 shares of common stock. We
placed in an escrow account 3,800,000 shares of common stock underlying the
convertible debenture and warrants. We also compensated Thomson Kernaghan &
Co., Limited for acting as a financial consultant to us by issuing it 64,703
shares of common stock. In February 1999, we increased the total of this
debenture facility to $6,000,0000. On April 26, 1999, we repriced the
warrants and set a new fixed conversion price for the debentures. At that
time, we also issued to Thomson Kernaghan & Co., Limited additional warrants
to purchase 1,121,201 shares of common stock. On June 1, 1999, we issued
36,706 shares of common stock to Thomson Kernaghan & Co., Limited to cover
interest accrued on $1,470,000 of outstanding convertible debentures which
had been called by us in accordance with the April 26, 1999 amendment.
Effective December 7, 1999, we entered into another agreement with Thomson
Kernaghan & Co., Limited its remaining $1.53 million of convertible
debentures and exercised its remaining warrants, pursuant to which it
converted its and received an additional 125,000 shares. A portion of the
securities were registered pursuant to Amendment No. 4 to our Registration
Statement on Form SB-2 filed December 21, 1998. The rest of the securities
were issued pursuant to an exemption provided by each of Rule 903 of
Regulation S under the Securities Act Rules, and Rule 506 of Regulation D
under the Securities Act Rules.
12. On August 24, 1998, we issued 4,250,000 exchangeable shares convertible into
850,000 shares of common stock to two non-US residents. In exchange for the
issuance, we received all of the outstanding stock of Riverview Management
Corporation, (renamed FutureLink/SysGold Ltd. at closing) and its
subsidiaries SysGold, Inc., and SysGold, Ltd. We issued these securities
pursuant to an exemption provided by each of Rule 903 of Regulation S under
the Securities Act Rules, and Rule 506 of Regulation D under the Securities
Act Rules.
13. On November 23, 1998, we issued 334,755 shares of common stock to 77
non-U.S. investors. In exchange for the issuances, we received 1,673,775
shares of Class A Common Voting shares of FutureLink Alberta, giving us
96.4% of FutureLink Alberta's voting stock. We issued these securities
pursuant to an exemption provided by each of Rule 903 of Regulation S under
the Securities Act Rules, and Rule 506 of Regulation D under the Securities
Act Rules.
14. On February 22, 1999, we issued a $150,620.62 convertible debenture to each
of Cameron Chell and Linda Carling, and granted Mr. Chell and Ms. Carling
warrants to purchase up to 75,311 and 75,310 shares of common stock,
respectively. The issuances were made in exchange for the satisfaction of
the principal and interest due on loans of $144,632 that each had made to us
on August 11, 1998. On August 18, 1999, we issued 27,431 shares to Linda
Carling on conversion of her remaining $54,862 of debenture principal. We
issued these securities pursuant to an exemption provided by each of Rule
903 of Regulation S under the Securities Act Rules, and Rule 506 of
Regulation D under the Securities Act Rules.
15. On February 26, 1999, we issued an aggregate of 23,500 shares of our common
stock to the remaining minority shareholders of FutureLink Alberta, all
non-US residents. In exchange for the issuances, we received the final
107,500 Class A Common Voting Shares of FutureLink Alberta which we did not
already own. We issued these securities pursuant to an exemption provided by
each of Rule 903 of Regulation S under the Securities Act Rules.
16. On March 2, 1999, we issued an aggregate of $500,000 in 8% convertible
debentures, and warrants to purchase up to 26,553 shares of common stock to
a non-U.S. entity. In exchange for those issuances, we received total
consideration of $500,000. We also issued 524,332 shares of common stock in
the name of the same entity, and delivered such shares to an escrow account.
Those shares represent the common stock underlying the convertible
debentures and warrants. In August 1999, we issued 355,836 shares to such
entity upon conversion of the debenture, and in December, 1999, it exercised
its warrants to acquire 26,553 shares of common stock. We are currently
taking steps to cancel the remaining shares still held in escrow. We issued
these securities pursuant to an exemption provided by
II-3
<PAGE> 264
each of Rule 903 of Regulation S under the Securities Act Rules, and Rule
506 of Regulation D under the Securities Act Rules.
17. Between April 29 and May 7, 1999, we issued 8% Senior Subordinated
Convertible Notes totaling $8,038,500 to various investors, including
$433,000 in notes to certain members of our management. We also issued
3,802,750 warrants to external investors and 216,500 warrants to members of
our management. Commonwealth Associates, L.P. acted as our agent and advisor
in the offering in exchange for $723,465 (9% of the gross proceeds of the
offering) and 4,000,001 agent's warrants. Between August 23, 1999 and
November 8, 1999 we issued 8,579,020 shares upon the conversion of
$7,418,000 of principal outstanding on the notes. We also issued 7,329,782
shares upon the exercise of 7,709,001 warrants.
18. On May 7, 1999, we issued a 10% convertible debenture in the amount of
$278,160 and a warrant to purchase up to 44,505 shares of common stock to a
non-U.S. entity. We made these issuances in satisfaction of a debt in the
amount of $278,160 owed to Global.
19. On June 1, 1999, we effected a one-for-five reverse stock split. We issued
227 new shares to round fractional shares up to the nearest whole share as
directed by the Securities and Exchange Commission.
20. On July 27, 1999, we issued an additional $15 million in units consisting of
8% senior subordinated convertible notes and warrants to purchase up to
2,250,000 shares of common stock, to various investors. In exchange for
those issuances, we received gross proceeds of $15 million. Commonwealth
Associates, L.P. acted as placement agent in exchange for commissions and
placement fees equal to $1,350,000 (9% of the gross proceeds of the
offering) and 225,000 agent's warrants. In October 1999, we issued 2,727,172
shares and 711,805 warrants upon the automatic conversion of the notes. We
issued these securities pursuant to an exemption provided by Rule 506 of
Regulation D under the Securities Act Rules.
21. On August 1, 1999, we issued 232,829 shares of common stock to Vincent L.
Romano and delivered such shares to an escrow account. In exchange for the
issuance, Mr. Romano agreed to serve as our Executive Vice President of
Sales and Marketing. We issued these securities pursuant to an exemption
provided by Rule 506 of Regulation D under the Securities Act Rules.
22. Effective August 7, 1999, we issued 53,552 shares of common stock and 33,467
warrants to purchase shares of common stock to a U.S. entity. In exchange
for the issuances and certain other consideration, we retained that entity
to provide marketing and advertising services. We issued these securities
pursuant to an exemption provided by Rule 506 of Regulation D under the
Securities Act Rules.
23. On October 15, 1999, we issued 7,200,000 shares of common stock to the
Holmes Trust. In exchange for the issuance and certain other consideration,
we acquired Executive LAN Management, Inc., d.b.a. Micro Visions. We issued
these securities pursuant to an exemption provided by Rule 506 of Regulation
D under the Securities Act Rules.
24. On October 15, 1999, we issued 9,090,909 shares of common stock and warrants
to purchase up to 2,372,727 shares of common stock to various investment
funds. In exchange for the issuances, we received total consideration of $50
million. Gerard Klauer Mattison & Co., Inc. acted as our placement agent and
received commissions and placement fees equal to $3 million (6% of the gross
proceeds of the offering) and 909,091 agent's warrants. We issued these
securities pursuant to an exemption provided by Rule 506 of Regulation D
under the Securities Act Rules.
25. On November 3, 1999, we issued warrants to purchase up to 29,413 shares of
our common stock to TBCC Funding Trust. The issuance was made in conjunction
with a lease financing arrangement with Transamerica Business Credit
Corporation. We issued these securities pursuant to an exemption provided by
Rule 506 of Regulation D under the Securities Act Rules.
II-4
<PAGE> 265
26. On November 5, 1999, we issued 1,181,816 shares of our common stock to the
prior shareholders of CN Networks, Inc. In exchange for the issuances and
certain other consideration, we acquired CN Networks. We issued these
securities pursuant to an exemption provided by Rule 506 of Regulation D
under the Securities Act Rules.
27. On November 26, 1999, we issued 1,298,705 shares of our common stock to the
prior owners of Async Technologies, Inc. In exchange for the issuances and
certain other consideration, we acquired Async Technologies, Inc. We issued
these securities pursuant to an exemption provided by Rule 506 of Regulation
D under the Securities Act Rules.
28. On December 12, 1999, we issued 112,590 shares of common stock to a U.S.
entity. In exchange for the issuance, we received total consideration of
$2.20 million. We issued these securities pursuant to an exemption provided
by Rule 506 of Regulation D under the Securities Act Rules.
29. On December 16, 1999, we issued a warrant to acquire up to 13,140 shares of
common stock to EMC Corporation. The issuance was made as partial
consideration for an equipment financing arrangement. We issued these
securities pursuant to an exemption provided by Rule 506 of Regulation D
under the Securities Act Rules.
30. On December 22, 1999, we issued 2,160,307 shares of common stock to the
selling shareholders of KNS Holdings Limited, a foreign entity. In exchange
for the issuances and certain other consideration, we acquired KNS Holdings
Limited. We issued these securities pursuant to an exemption provided by
each of Rule 903 of Regulation S under the Securities Act Rules, and Rule
506 of Regulation D under the Securities Act Rules.
31. On January 31, 2000, we issued 1,026,316 shares of common stock to the
selling shareholders of Vertical Software, Inc. d.b.a VSI Technology
Solutions. In exchange for the issuances and certain other consideration, we
acquired VSI Technology Solutions. We issued these securities pursuant to an
exemption provided by Rule 506 of Regulation D under the Securities Act
Rules.
32. Between June 29, 1998 and January 31, 2000, we issued an aggregate of
7,447,500 stock options to directors, officers and employees at various
exercises prices of which 4,000,000 were registered by our Registration
Statement on Form S-8 filed August 6, 1999. Since, we issued 449,000 shares
of common stock upon the exercise of those stock options. We issued these
securities pursuant to Rule 701 of Regulation E under the Securities Act
Rules.
Except as otherwise set forth above, no underwriters were engaged in
connection with the foregoing sales of securities.
II-5
<PAGE> 266
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
2.1 Share Purchase Agreement dated August 4, 1998 between
FutureLink Distribution Corp., a Colorado corporation,
Donald A. Bialik, Olivia B. Bialik, Bialik Family Trust,
Riverview Management Corporation, SysGold Ltd., and
FutureLink Distribution Corp., an Alberta corporation(1)
2.2 Targetco Acquisition Agreement dated August 3, 1998 between
FutureLink Distribution Corp., a Colorado corporation, and
FutureLink Alberta(1)
2.3 Amending Agreement to Share Purchase Agreement dated August
21, 1998 between FutureLink Distribution Corp., a Colorado
corporation, Donald A. Bialik, Olivia B. Bialik, Bialik
Family Trust, Riverview Management Corporation, SysGold
Ltd., and FutureLink Alberta(3)
2.4 Agreement and Plan of Reorganization and Merger dated June
2, 1999 between FutureLink Distribution Corp., FutureLink
California Acquisition Corp., Executive Lan Management,
Inc., dba Micro Visions, and the selling shareholders of
Micro Visions(6)
2.5 Agreement and Plan of Merger dated August 1, 1999 between
FutureLink Distribution Corp. and FutureLink California
Acquisition Corporation, a Delaware corporation(8)
2.6 Agreement and Plan of Reorganization and Merger dated
September 7, 1999 between FutureLink Distribution Corp.,
FutureLink Pleasanton Acquisition Corp., CN Networks, Inc.,
and the selling shareholders of CN Networks(9)
2.7 Agreement and Plan of Reorganization and Merger dated
September 7, 1999 between FutureLink Distribution Corp.,
FutureLink Michigan Acquisition Corp., Async Technologies,
Inc., and the selling shareholders of Async Technologies(10)
2.8 Certificate of Merger dated October 15, 1999 of FutureLink
Distribution Corp., a Colorado corporation, into FutureLink
California Acquisition Corp., a Delaware corporation(8)
2.9 Amending Agreement dated October 15, 1999 to Agreement and
Plan of Reorganization and Merger between FutureLink Corp.,
FutureLink California Acquisition Corp., and the selling
shareholders of Micro Visions(8)
2.10 Amending Agreement dated October 29, 1999 to Agreement and
Plan of Reorganization and Merger, between FutureLink
Distribution Corp., FutureLink Michigan Acquisition Corp.,
Async Technologies, and the selling shareholders of Async
Technologies(10)
2.11 Amending Agreement dated October 31, 1999 to Agreement and
Plan of Reorganization and Merger between FutureLink Corp.,
FutureLink Pleasanton Acquisition Corp., CN Networks, and
the selling shareholders of CN Networks(9)
2.12 Amending Agreement dated November 14, 1999 to Agreement and
Plan of Reorganization and Merger between FutureLink Corp.,
FutureLink Michigan Acquisition Corp., Async Technologies,
and the selling shareholders of Async Technologies(10)
2.13 Agreement for the Sale and Purchase of the Entire Issued
Share Capital of KNS Holdings Limited dated November 15,
1999 between FutureLink Corp. and the selling shareholders
of KNS Holdings(11)
2.14 Amending Agreement dated November 26, 1999 to Agreement and
Plan of Reorganization and Merger between FutureLink Corp.,
FutureLink Michigan Acquisition Corp., Async Technologies,
and the selling shareholders of Async Technologies(10)
2.15 Supplemental Agreement dated December 20, 1999 to Agreement
for Sale and Purchase of the Entire Issued Share Capital of
KNS Holdings, between FutureLink Corp. and the selling
shareholders of KNS Holdings(11)
3.1 Certificate of Incorporation of FutureLink Corp.(8)
3.2 Bylaws of FutureLink Corp.(8)
</TABLE>
II-7
<PAGE> 267
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
5.1* Opinion of Paul, Hastings, Janofsky & Walker LLP with
respect to the validity of the securities being offered
10.1 Stock Option Plan dated June 29, 1998(1)
10.2** First Amendment to Second Amended and Restated Stock Option
Plan dated December 10, 1999, as amended
10.3 Agency Agreement dated April 14, 1999 between FutureLink
Distribution Corp. and Commonwealth(5)
10.4** Letter Agreement dated December 6, 1999 between FutureLink
Distribution Corp. and Thomson Kernaghan
10.5 Advisory Agreement dated May 1, 1999 between FutureLink
Distribution Corp. and Commonwealth(5)
10.6 Agency Agreement dated July 1, 1999 between FutureLink
Distribution Corp. and Commonwealth(7)
10.7 Loan Agreement dated August 1, 1999 between FutureLink Corp.
and Vincent Romano(7)
10.8 Securities Purchase Agreement dated October 15, 1999 between
FutureLink Corp., Pequot Private Investment Fund II, L.P.
and certain other investors(8)
10.9 Registration Rights Agreement dated October 15, 1999 between
FutureLink Corp., Pequot Private Investment Fund, and
certain other investors(8)
10.10** Registration Rights Agreement dated December 6, 1999 between
FutureLink Corp. and CPQ Holdings, Inc.
10.11** Securities Purchase Agreement dated December 6, 1999 between
FutureLink Corp. and CPQ Holdings, Inc.
10.12** Employment Agreement dated June 1, 1999 between Philip
Ladouceur and FutureLink Distribution Corp.(12)
10.13** Employment Agreement dated September 30, 1999 between Glenn
C. Holmes and FutureLink Corp.
10.14** Employment Agreement dated August 1, 1999 between Vincent
Romano and FutureLink Corp.
10.15** Client/Agency Agreement dated August 7, 1999 between Sicola,
Martin, Koons & Frank, Inc. and FutureLink Distribution
Corp., as revised
10.16** Master Loan and Security Agreement dated November 3, 1999
between Transamerica Business Credit Corporation, FutureLink
Corp. and FutureLink Micro Visions Corp.
10.17** Security Agreement dated November 3, 1999 between
Transamerica Business Credit Corporation and FutureLink
Distribution Corp.
10.18** Master Lease and Financing Agreement dated November 15, 1999
between Compaq Financial Services and FutureLink Corp.
10.19** Master Lease Agreement dated December 16, 1999 between EMC
and FutureLink Corp.
10.20 Revised Offer to Lease dated March 24, 1998 between Bow
Valley Square Management Ltd. and SysGold, Ltd., as amended,
for 250 6th Avenue, Calgary(1)
10.21** Lease Agreement dated September 23, 1999 between Kilroy
Realty, L.P., Kilroy Realty Corporation, and FutureLink
Distribution Corporation for 220 Technology Drive, Irvine
and assignment thereof dated October 15, 1999
10.22* Microsoft Certified Solution Provider Agreement dated
January 28, 2000 between Microsoft and FutureLink Corp.(13)
10.23** Microsoft Application Services Agreement dated December 23,
1999 between Microsoft and FutureLink Corp.(13)
10.24 Final Invoice/Enrollment Contract (MSCP) dated April 28,
1998 between Microsoft and FutureLink Corp.(1)(13)
10.25** Direct Commercial Service License Agreement dated May 21,
1999 between Microsoft and FutureLink Distribution Corp.(13)
10.26 Service Agreement dated June 1, 1998 between Willson
Stationers and FutureLink Alberta(1)
</TABLE>
II-8
<PAGE> 268
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.27 Solution Provider Contract dated July 27, 1998 between IBM
Canada Ltd. and FutureLink/ SysGold Ltd.(1)
10.28** Hosting Services Distributor Agreement (version 4) dated
November 12, 1998 between Onyx Software and FutureLink
Distribution Corp.
10.29** Onyx Software License Agreement dated August 5, 1998 between
Onyx Software and FutureLink Distribution Corp.
10.30** Alliance Partner Agreement dated October 26, 1998 between
Great Plains Software and FutureLink Distribution Corp.
10.31** Citrix Solutions Network Gold Renewal Membership Agreement
dated July 16, 1999 between Citrix and FutureLink
Distribution Corp.(13)
10.32** Citrix Solutions Network Platinum Renewal Membership
Agreement dated April 20, 1999 between Citrix and Async
Technologies(13)
10.33** Information Systems Services Agreement dated January 19,
1999 between FutureLink Alberta and Numac Energy, Inc.
10.34** Information Systems Services Agreement dated July 1, 1999
between Canadian Natural Resources, Ltd. and FutureLink
Alberta
10.35 Alliance Partner Agreement dated February 12, 1999 between
FutureLink Alberta and JAWS Technologies(1)
10.36** Master Consulting Agreement dated December 1, 1998 between
Ameriquest Mortgage Company and Micro Visions
10.37** Internet Data Center Services Agreement dated May 7, 1999
between Exodus Communications, Inc. and Micro Visions
10.38** Form of EMC Corporation Software License Agreement
23.1* Consent of Paul, Hastings, Janofsky & Walker LLP (consent
included in 5.1)
23.2 ** Consent of Ernst & Young LLP, Independent Auditors, Calgary,
Canada
23.3 ** Consent of Ernst & Young LLP, Independent Auditors, Orange
County, California
23.4 ** Consent of Moreland & Davis
23.5 ** Consent of M. Jevahirian and Co., Independent Auditors
23.6 ** Consent of Ernst & Young, Independent Auditors, Reading,
England
23.7 ** Consent of Ernst & Young LLP, Independent Auditors, McLean,
Virginia
23.8 ** Consents of Joel E. Sammet & Co., Certified Public
Accountants
23.9 ** Consent of BDO Dunwoody LLP, Independent Auditors, Markham,
Ontario
24.1 Power of Attorney (included in signature page)
</TABLE>
- -------------------------
* To be filed in an amendment.
** Filed herewith.
(1) Included as an Exhibit to FutureLink's Registration Statement on Form SB-2
filed August 24, 1998.
(2) Included as an Exhibit to FutureLink's Amendment No. 1 to Registration
Statement on Form SB-2 filed October 23, 1998.
(3) Included as an Exhibit to FutureLink's Amendment No. 2 to Registration
Statement on Form SB-2 filed November 24, 1998.
(4) Included as an Exhibit to FutureLink's Amendment No. 3 to Registration
Statement on Form SB-2 filed December 14, 1998.
(5) Included as an Exhibit to FutureLink's Quarterly Report on Form 10-QSB for
period ended March 31, 1999, filed May 20, 1999.
(6) Included as an Exhibit to FutureLink's Current Report on Form 8-K filed
June 16, 1999.
(7) Included as an Exhibit to FutureLink's Quarterly Report on Form 10-QSB for
period ended June 30, 1999, filed August 18, 1999.
II-9
<PAGE> 269
(8) Included as an Exhibit to FutureLink's Current Report on Form 8-K filed
October 27, 1999.
(9) Included as an Exhibit to FutureLink's Current Report on Form 8-K filed
November 23, 1999.
(10) Included as an Exhibit to FutureLink's Current Report on Form 8-K filed
December 8, 1999.
(11) Included as an Exhibit to FutureLink's Current Report on Form 8-K filed
January 6, 2000.
(12) We entered into an employment agreement with Raghu Kilambi on June 1, 1999,
which we amended on October 8, 1999 that is substantially identical in all
material respects, except as to salary and bonus provisions. Mr. Kilambi's
base salary is $180,000 per year and he is entitled to receive a
performance bonus of up to $180,000.
(13) Some of our subsidiaries are parties to agreements with the same party that
are substantially identical in all material respects.
(b) FINANCIAL STATEMENT SCHEDULES.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes to provide to the
Underwriters at the closing specified in the [U.S.]. Underwriting Agreement [and
the International Underwriting Agreement] certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities, other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding, is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-10
<PAGE> 270
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has duly caused this Registration Statement on Form
SB-2 to be signed on its behalf by the undersigned, thereunto duly authorized,
in Irvine, California on February 10, 2000.
FUTURELINK CORP.
By: /s/ PHILIP R. LADOUCEUR
------------------------------------
Philip R. Ladouceur
Chairman and Chief Executive Officer
II-11
<PAGE> 271
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Philip R. Ladouceur and Kyle B.A. Scott
and either of them, as such person's true and lawful attorneys-in-fact and
agents, with full power of substitution and presubstitution, for such person and
in such person's name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission and any
other regulatory authority, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in connection therewith, as fully to
all intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or either
of them, or their or such person's substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ PHILIP R. LADOUCEUR Chairman, Chief Executive Officer February 10, 2000
- --------------------------------------------- and Director
Philip R. Ladouceur
/s/ GLEN C. HOLMES President, Chief Operating Officer February 10, 2000
- --------------------------------------------- and Director
Glen C. Holmes
/s/ RAGHUNATH KILAMBI Executive Vice President, Chief February 10, 2000
- --------------------------------------------- Financial Officer, Principal
Raghunath Kilambi Accounting Officer and Director
/s/ F. BRYSON FARRILL Director February 10, 2000
- ---------------------------------------------
F. Bryson Farrill
/s/ TIMOTHY P. FLYNN Director February 10, 2000
- ---------------------------------------------
Timothy P. Flynn
/s/ MICHAEL S. FALK Director February 10, 2000
- ---------------------------------------------
Michael S. Falk
/s/ GERALD A. POCH Director February 10, 2000
- ---------------------------------------------
Gerald A. Poch
/s/ JAMES P. MCNIEL Director February 10, 2000
- ---------------------------------------------
James P. McNiel
/s/ KYLE B.A. SCOTT Vice President, Secretary and February 10, 2000
- --------------------------------------------- General Counsel
Kyle B.A. Scott
</TABLE>
II-12
<PAGE> 272
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
2.1 Share Purchase Agreement dated August 4, 1998 between
FutureLink Distribution Corp., a Colorado corporation,
Donald A. Bialik, Olivia B. Bialik, Bialik Family Trust,
Riverview Management Corporation, SysGold Ltd., and
FutureLink Distribution Corp., an Alberta corporation(1)
2.2 Targetco Acquisition Agreement dated August 3, 1998 between
FutureLink Distribution Corp., a Colorado corporation, and
FutureLink Alberta(1)
2.3 Amending Agreement to Share Purchase Agreement dated August
21, 1998 between FutureLink Distribution Corp., a Colorado
corporation, Donald A. Bialik, Olivia B. Bialik, Bialik
Family Trust, Riverview Management Corporation, SysGold
Ltd., and FutureLink Alberta(3)
2.4 Agreement and Plan of Reorganization and Merger dated June
2, 1999 between FutureLink Distribution Corp., FutureLink
California Acquisition Corp., Executive Lan Management,
Inc., dba Micro Visions, and the selling shareholders of
Micro Visions(6)
2.5 Agreement and Plan of Merger dated August 1, 1999 between
FutureLink Distribution Corp. and FutureLink California
Acquisition Corporation, a Delaware corporation(8)
2.6 Agreement and Plan of Reorganization and Merger dated
September 7, 1999 between FutureLink Distribution Corp.,
FutureLink Pleasanton Acquisition Corp., CN Networks, Inc.,
and the selling shareholders of CN Networks(9)
2.7 Agreement and Plan of Reorganization and Merger dated
September 7, 1999 between FutureLink Distribution Corp.,
FutureLink Michigan Acquisition Corp., Async Technologies,
Inc., and the selling shareholders of Async Technologies(10)
2.8 Certificate of Merger dated October 15, 1999 of FutureLink
Distribution Corp., a Colorado corporation, into FutureLink
California Acquisition Corp., a Delaware corporation(8)
2.9 Amending Agreement dated October 15, 1999 to Agreement and
Plan of Reorganization and Merger between FutureLink Corp.,
FutureLink California Acquisition Corp., and the selling
shareholders of Micro Visions(8)
2.10 Amending Agreement dated October 29, 1999 to Agreement and
Plan of Reorganization and Merger, between FutureLink
Distribution Corp., FutureLink Michigan Acquisition Corp.,
Async Technologies, and the selling shareholders of Async
Technologies(10)
2.11 Amending Agreement dated October 31, 1999 to Agreement and
Plan of Reorganization and Merger between FutureLink Corp.,
FutureLink Pleasanton Acquisition Corp., CN Networks, and
the selling shareholders of CN Networks(9)
2.12 Amending Agreement dated November 14, 1999 to Agreement and
Plan of Reorganization and Merger between FutureLink Corp.,
FutureLink Michigan Acquisition Corp., Async Technologies,
and the selling shareholders of Async Technologies(10)
2.13 Agreement for the Sale and Purchase of the Entire Issued
Share Capital of KNS Holdings Limited dated November 15,
1999 between FutureLink Corp. and the selling shareholders
of KNS Holdings(11)
2.14 Amending Agreement dated November 26, 1999 to Agreement and
Plan of Reorganization and Merger between FutureLink Corp.,
FutureLink Michigan Acquisition Corp., Async Technologies,
and the selling shareholders of Async Technologies(10)
2.15 Supplemental Agreement dated December 20, 1999 to Agreement
for Sale and Purchase of the Entire Issued Share Capital of
KNS Holdings, between FutureLink Corp. and the selling
shareholders of KNS Holdings(11)
3.1 Certificate of Incorporation of FutureLink Corp.(8)
3.2 Bylaws of FutureLink Corp.(8)
5.1* Opinion of Paul, Hastings, Janofsky & Walker LLP with
respect to the validity of the securities being offered
</TABLE>
<PAGE> 273
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.1 Stock Option Plan dated June 29, 1998(1)
10.2** First Amendment to Second Amended and Restated Stock Option
Plan dated December 10, 1999, as amended
10.3 Agency Agreement dated April 14, 1999 between FutureLink
Distribution Corp. and Commonwealth(5)
10.4** Letter Agreement dated December 6, 1999 between FutureLink
Distribution Corp. and Thomson Kernaghan
10.5 Advisory Agreement dated May 1, 1999 between FutureLink
Distribution Corp. and Commonwealth(5)
10.6 Agency Agreement dated July 1, 1999 between FutureLink
Distribution Corp. and Commonwealth(7)
10.7 Loan Agreement dated August 1, 1999 between FutureLink Corp.
and Vincent Romano(7)
10.8 Securities Purchase Agreement dated October 15, 1999 between
FutureLink Corp., Pequot Private Investment Fund II, L.P.
and certain other investors(8)
10.9 Registration Rights Agreement dated October 15, 1999 between
FutureLink Corp., Pequot Private Investment Fund, and
certain other investors(8)
10.10** Registration Rights Agreement dated December 6, 1999 between
FutureLink Corp. and CPQ Holdings, Inc.
10.11** Securities Purchase Agreement dated December 6, 1999 between
FutureLink Corp. and CPQ Holdings, Inc.
10.12** Employment Agreement dated June 1, 1999 between Philip
Ladouceur and FutureLink Distribution Corp.(12)
10.13** Employment Agreement dated September 30, 1999 between Glenn
C. Holmes and FutureLink Corp.
10.14** Employment Agreement dated August 1, 1999 between Vincent
Romano and FutureLink Corp.
10.15** Client/Agency Agreement dated August 7, 1999 between Sicola,
Martin, Koons & Frank, Inc. and FutureLink Distribution
Corp., as revised
10.16** Master Loan and Security Agreement dated November 3, 1999
between Transamerica Business Credit Corporation, FutureLink
Corp. and FutureLink Micro Visions Corp.
10.17** Security Agreement dated November 3, 1999 between
Transamerica Business Credit Corporation and FutureLink
Distribution Corp.
10.18** Master Lease and Financing Agreement dated November 15, 1999
between Compaq Financial Services and FutureLink Corp.
10.19** Master Lease Agreement dated December 16, 1999 between EMC
and FutureLink Corp.
10.20 Revised Offer to Lease dated March 24, 1998 between Bow
Valley Square Management Ltd. and SysGold, Ltd., as amended,
for 250 6th Avenue, Calgary(1)
10.21** Lease Agreement dated September 23, 1999 between Kilroy
Realty, L.P., Kilroy Realty Corporation, and FutureLink
Distribution Corporation for 220 Technology Drive, Irvine
and assignment thereof dated October 15, 1999
10.22* Microsoft Certified Solution Provider Agreement dated
January 28, 2000 between Microsoft and FutureLink Corp.(13)
10.23** Microsoft Application Services Agreement dated December 23,
1999 between Microsoft and FutureLink Corp.(13)
10.24 Final Invoice/Enrollment Contract (MSCP) dated April 28,
1998 between Microsoft and FutureLink Corp.(1)(13)
10.25** Direct Commercial Service License Agreement dated May 21,
1999 between Microsoft and FutureLink Distribution Corp.(13)
10.26 Service Agreement dated June 1, 1998 between Willson
Stationers and FutureLink Alberta(1)
10.27 Solution Provider Contract dated July 27, 1998 between IBM
Canada Ltd. and FutureLink/ SysGold Ltd.(1)
</TABLE>
<PAGE> 274
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.28** Hosting Services Distributor Agreement (version 4) dated
November 12, 1998 between Onyx Software and FutureLink
Distribution Corp.
10.29** Onyx Software License Agreement dated August 5, 1998 between
Onyx Software and FutureLink Distribution Corp.
10.30** Alliance Partner Agreement dated October 26, 1998 between
Great Plains Software and FutureLink Distribution Corp.
10.31** Citrix Solutions Network Gold Renewal Membership Agreement
dated July 16, 1999 between Citrix and FutureLink
Distribution Corp.(13)
10.32** Citrix Solutions Network Platinum Renewal Membership
Agreement dated April 20, 1999 between Citrix and Async
Technologies(13)
10.33** Information Systems Services Agreement dated January 19,
1999 between FutureLink Alberta and Numac Energy, Inc.
10.34** Information Systems Services Agreement dated July 1, 1999
between Canadian Natural Resources, Ltd. and FutureLink
Alberta
10.35 Alliance Partner Agreement dated February 12, 1999 between
FutureLink Alberta and JAWS Technologies(1)
10.36** Master Consulting Agreement dated December 1, 1998 between
Ameriquest Mortgage Company and Micro Visions
10.37** Internet Data Center Services Agreement dated May 7, 1999
between Exodus Communications, Inc. and Micro Visions
10.38** Form of EMC Corporation Software License Agreement
23.1* Consent of Paul, Hastings, Janofsky & Walker LLP (consent
included in 5.1)
23.2** Consent of Ernst & Young LLP, Independent Auditors, Calgary,
Canada
23.3** Consent of Ernst & Young LLP, Independent Auditors, Orange
County, California
23.4** Consent of Moreland & Davis
23.5** Consent of M. Jevahirian and Co., Independent Auditors
23.6** Consent of Ernst & Young, Independent Auditors, Reading,
England
23.7** Consent of Ernst & Young LLP, Independent Auditors, McLean,
Virginia
23.8** Consents of Joel E. Sammet & Co., Certified Public
Accountants
23.9** Consent of BDO Dunwoody LLP, Independent Auditors, Markham,
Ontario
24.1 Power of Attorney (included in signature page)
</TABLE>
- -------------------------
* To be filed in an amendment.
** Filed herewith.
(1) Included as an Exhibit to FutureLink's Registration Statement on Form SB-2
filed August 24, 1998.
(2) Included as an Exhibit to FutureLink's Amendment No. 1 to Registration
Statement on Form SB-2 filed October 23, 1998.
(3) Included as an Exhibit to FutureLink's Amendment No. 2 to Registration
Statement on Form SB-2 filed November 24, 1998.
(4) Included as an Exhibit to FutureLink's Amendment No. 3 to Registration
Statement on Form SB-2 filed December 14, 1998.
(5) Included as an Exhibit to FutureLink's Quarterly Report on Form 10-QSB for
period ended March 31, 1999, filed May 20, 1999.
(6) Included as an Exhibit to FutureLink's Current Report on Form 8-K filed
June 16, 1999.
(7) Included as an Exhibit to FutureLink's Quarterly Report on Form 10-QSB for
period ended June 30, 1999, filed August 18, 1999.
(8) Included as an Exhibit to FutureLink's Current Report on Form 8-K filed
October 27, 1999.
<PAGE> 275
(9) Included as an Exhibit to FutureLink's Current Report on Form 8-K filed
November 23, 1999.
(10) Included as an Exhibit to FutureLink's Current Report on Form 8-K filed
December 8, 1999.
(11) Included as an Exhibit to FutureLink's Current Report on Form 8-K filed
January 6, 2000.
(12) We entered into an employment agreement with Raghu Kilambi on June 1, 1999,
which we amended on October 8, 1999 that is substantially identical in all
material respects, except as to salary and bonus provisions. Mr. Kilambi's
base salary is $180,000 per year and he is entitled to receive a
performance bonus of up to $180,000.
(13) Some of our subsidiaries are parties to agreements with the same party that
are substantially identical in all material respects.
<PAGE> 1
EXHIBIT 10.2
FIRST AMENDMENT TO SECOND AMENDED AND
RESTATED STOCK OPTION PLAN
OF
FUTURELINK CORP.
a Delaware corporation
The undersigned, being the duly elected and acting Secretary of
FutureLink Corp., a Delaware corporation (the "Company"), does hereby certify as
follows:
1. The Board of Directors of the Company duly adopted the following
resolution as of December __, 1999 amending the Company's Second Amended and
Restated Stock Option Plan:
"RESOLVED, that Sections 6 and 7.4 of the Plan of this Company are
hereby amended to read in their entirety as follows:
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 (20%) of the shares of Common Stock,
calculated on a fully diluted basis not including Common Stock
underlying outstanding stock options, at the time of each grant
(subject to adjustment as provided in Section 7.13 hereof)
including shares previously issued under the Plan; provided,
however, that at no time shall the total number of shares of
Common Stock issuable upon the exercise of all outstanding
options and the total number of shares of Common Stock provided
for under any stock bonus or similar plan of the Company exceed
the applicable percentage as calculated in accordance with the
conditions and exclusions of Rule 260.140.45 of Title 10 of the
California Code of Regulations, based on the shares of Common
Stock of the Company which are outstanding at the time the
calculation is made. 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 (subject to adjustment as
provided in Section 7.13 hereof). The maximum number of shares
with respect to which Incentive Stock Options may be granted
under this Plan shall not exceed 2,000,000 in the aggregate
(subject to adjustment as provided in Section 7.13 hereof). In
the event that any outstanding Option under the Plan for any
reason expires, or is terminated, the shares of 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.
7.4 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
<PAGE> 2
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, except that such shorter periods shall not be less
than thirty (30) days in the event of termination of employment
for any reason other than death or disability and not less than
six (6) months in the event of termination as a result of death
or disability. Notwithstanding the foregoing, in the case of any
Incentive Stock Option granted under the Plan to an employee who
owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company, its parent or any
of its subsidiary corporations, the term of such Option shall
not be more than five years from the date the Option is
granted."
2. Such amendment has not been rescinded or repealed and is now in full
force and effect.
IN WITNESS WHEREOF, I have hereunto executed this certificate dated as
of December __, 1999.
/s/ KYLE B.A. SCOTT
------------------------------------
Kyle B.A. Scott, Secretary
<PAGE> 3
FUTURELINK CORP.
SECOND AMENDED
AND RESTATED
STOCK OPTION PLAN
i
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. Purpose............................................................................ 1
2. Incentive and Non-Qualified Stock Options.......................................... 1
3. Definitions........................................................................ 1
3.1 Board...................................................................... 1
3.2 Code....................................................................... 1
3.3 Common Stock............................................................... 1
3.4 Company.................................................................... 1
3.5 Disabled or Disability..................................................... 1
3.6 Fair Market Value.......................................................... 1
3.7 Incentive Stock Option..................................................... 2
3.8 Non-Qualified Stock Option................................................. 2
3.9 Optionee................................................................... 2
3.10 Plan........................................................................ 2
3.11 Plan Administrator.......................................................... 2
3.12 Stock Option or Option...................................................... 2
4. Administration..................................................................... 2
4.1 Administration by Board.................................................... 2
4.2 Administration by Committee................................................ 3
5. Eligibility........................................................................ 3
6. Shares Subject to Options.......................................................... 4
7. Terms and Conditions of Options.................................................... 4
7.1 Number of Shares Subject to Option......................................... 4
7.2 Option Price............................................................... 4
7.3 Notice and Payment......................................................... 5
7.4 Term of Option............................................................. 6
7.5 Exercise of Option......................................................... 6
7.6 No Transfer of Option...................................................... 7
7.7 Limit on Incentive Stock Options........................................... 7
7.8 Restriction on Issuance of Shares.......................................... 7
7.9 Investment Representation.................................................. 7
7.10 Rights as a Shareholder or Employee......................................... 7
7.11 No Fractional Shares........................................................ 8
7.12 Exercisability in the Event of Death........................................ 8
7.13 Recapitalization or Reorganization of Company............................... 8
</TABLE>
ii
<PAGE> 5
<TABLE>
<S> <C>
7.14 Modification, Extension, and Renewal of Options............................. 9
7.15 Other Provisions............................................................ 9
8. Termination or Amendment of the Plan............................................... 9
9. Indemnification.................................................................... 10
10. Effective Date and Term of Plan.................................................... 10
</TABLE>
iii
<PAGE> 6
FUTURELINK CORP.
SECOND AMENDED AND RESTATED STOCK OPTION PLAN
1. PURPOSE. The purpose of this FutureLink Corp. Stock Option Plan
("Plan") is to further the growth and development of FutureLink Corp.
(the "Company") by providing, through ownership of stock of the
Company, an incentive to officers, other key employees and directors
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 or service 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. Two types of Stock Options
(referred to herein as "Options" without distinction between such two
types, except as provided herein) 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 favorable income tax treatment by the Code.
3. DEFINITIONS. The following definitions are applicable to the Plan:
3.1 BOARD. The Board of Directors of the Company.
3.2 CODE. The Internal Revenue Code of 1986, as amended from time
to time.
3.3 COMMON STOCK. The shares of the $.0001 par value per share
common stock of the Company.
3.4 COMPANY. FutureLink Corp., a Delaware corporation.
3.5 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.
3.6 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 Stock
Market's 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 The
Nasdaq Stock Market, or (b) if the Common Stock is not then
listed on an
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exchange or The Nasdaq Stock Market's National Market System,
the closing price per share on the last trading day
immediately preceding such date reported by The Nasdaq Stock
Market, or if sales are not reported by The Nasdaq Stock
Market, the average of the closing bid and asked prices per
share for the Common Stock in the over-the-counter market as
quoted on the last trading day immediately preceding such
date, or (c) if the Common Stock is not then listed on an
exchange, The Nasdaq Stock Market's National Market System or
reported by The Nasdaq Stock Market or quoted in the
over-the-counter market, a value determined in good faith by
the Plan Administrator.
3.7 INCENTIVE STOCK OPTION. Any Stock Option which qualifies as an
"incentive stock option" within the meaning of Section 422 of
the Code.
3.8 NON-QUALIFIED STOCK OPTION. Any Stock Option that is not an
Incentive Stock Option.
3.9 OPTIONEE. The recipient of a Stock Option.
3.10 PLAN. The FutureLink Corp. Second Amended and Restated Stock
Option Plan, as amended from time to time.
3.11 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.
3.12 STOCK OPTION OR OPTION. Any option to purchase shares of
Common Stock granted pursuant to Section 7 hereof.
4. ADMINISTRATION.
4.1 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. Section 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
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<PAGE> 8
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.
4.2 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, if 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 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 under such act.
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. Subject to the determination of the Plan Administrator,
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 any
person who owns more than ten
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<PAGE> 9
percent (10%) of the total combined voting power of all classes of
outstanding stock of the Company, its parent or any of its subsidiaries
shall not receive an Option unless (i) the purchase price of the shares
subject to the Option is at least one hundred ten percent (110%) of the
Fair Market Value of such shares on the date of grant, and (ii) if such
Option is intended to be an Incentive Stock Option, such Option by its
terms is not exercisable after the expiration of five (5) years from
the date of grant. An Optionee may receive more than one Option under
the Plan. Non-employee directors and non-employee consultants shall not
be eligible to receive any 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 not including Common Stock
underlying outstanding stock options, 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 (subject to adjustment as
provided in Section 7.13 hereof). The maximum number of shares with
respect to which Incentive Stock Options may be granted under this Plan
shall not exceed 2,000,000 in the aggregate (subject to adjustment as
provided in Section 7.13 hereof). In the event that any outstanding
Option under the Plan for any reason expires, or is terminated, the
shares of 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) in 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.
7.1 NUMBER OF SHARES SUBJECT TO OPTION. Each Option agreement
shall specify the number of shares subject to the Option.
7.2 OPTION PRICE. The purchase price for any shares subject to an
Option granted under the Plan shall be determined by the Plan
Administrator at the time of grant in accordance with the
requirements of this Section 7.2. In all instances, the
purchase price for any shares subject to an Option under the
Plan shall be at least eighty-five percent (85%) of the Fair
Market Value of such shares on the date of grant; provided,
however, if such Option is an Incentive Stock Option, the
purchase price for the shares subject to such Option shall not
be less than one hundred percent (100%)
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<PAGE> 10
of the Fair Market Value of such shares on the date of grant.
Notwithstanding the foregoing, with respect to any Option
granted to any person who owns more than ten percent (10%) of
the total combined voting power of all classes of outstanding
stock of the Company, its parent or any of it's subsidiaries,
the purchase price of the shares subject to such Option shall
be at least one hundred ten percent (110%) of the Fair Market
Value of such shares on the date of grant.
7.3 NOTICE AND PAYMENT. Any exercisable portion of a Stock Option may be
exercised only by:
(a) 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;
(b) 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");
(c) 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
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<PAGE> 11
(d) delivery of a written notice to the Company requesting that
the Company direct the transfer agent to issue to the Optionee
(or to his or her 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, in its sole and
absolute discretion, 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.
7.4 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. Notwithstanding the
foregoing, in the case of any Incentive Stock Option granted under the
Plan to an employee who owns stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company, its
parent or any of its subsidiary corporations, the term of such Option
shall not be more than five years from the date the Option is granted.
7.5 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. Notwithstanding the foregoing,
any Options granted under the Plan shall become exercisable at a
minimum rate of twenty percent (20%) per year. 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, stating the number of shares
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<PAGE> 12
being purchased and accompanied by payment in full of the exercise
price for such shares.
7.6 NO TRANSFER OF OPTION. No Option shall be transferable by an Optionee
other than by will or the laws of decent and distribution.
7.7 LIMIT ON INCENTIVE STOCK OPTIONS. The aggregate Fair Market Value
(determined at the time the Option is granted) of the Common Stock with
respect to which any Incentive Stock Options granted to an Optionee are
exercisable for the first time by an Optionee during any calendar year
(under all 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.
7.8 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.
7.9 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 purposes only 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.
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7.10 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.
7.11 NO FRACTIONAL SHARES. In no event shall the Company be required to
issue fractional shares upon the exercise of an Option.
7.12 EXERCISABILITY 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.
7.13 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,
recapitalization, 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.
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<PAGE> 14
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 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.
7.14 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.
7.15 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.
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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. This Plan shall become effective (the
"Effective Date") on June 29, 1998. 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 as of November 17, 1999.
FUTURELINK CORP.
By: /s/ Raghu Kilambi
-----------------------------
Raghu Kilambi
Chief Financial Officer
By: /s/ Kyle B.A. Scott
-----------------------------
Kyle B.A. Scott
General Counsel & Secretary
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EXHIBIT 10.4
Raghu Kilambi
Chief Financial Officer
Direct Line: (403) 509-5090
E-Mail: [email protected]
VIA FACSIMILE: (416) 367-8055
December 6, 1999
Thomson Kernaghan & Co. Limited
365 Bay Street
Toronto, Ontario M5H 2V2
Attention: Mark Valentine
Executive Vice-President
Dear Sir:
RE: CONFIRMATION OF AND CONVERSION OF EXISTING SECURITIES ISSUED TO
THOMSON KERNAGHAN ("TK")
Further to recent discussions between ourselves and other senior officers of
FutureLink Corp. ("FutureLink" or the "Company") in which our earlier verbal
agreement, as modified, was confirmed regarding the conversion of all of TK's
existing securities to FutureLink common stock, subject to certain terms, this
letter summarizes such agreement for your formal acknowledgement and acceptance.
As you know, our Company's chief goal in these negotiations has been to clean up
our capital structure to focus on creating shareholder value, while TK wishes to
be in a satisfactory position for its financing and other efforts on behalf of
the Company and on behalf of its investors.
As per our discussions, this letter will review TK's current position in
FutureLink securities and the agreement to convert these securities to common
stock, subject to certain escrow and leak-out restrictions.
TK's Current Position
With regard to TK's current position in FutureLink securities, under the
Debenture Acquisition Agreement, as amended, TK funded a total of $6 million for
which it received convertible debentures ($2,000,000 of which, plus accrued
interest, having been converted to 1,572,009 shares of common stock (post split)
prior to the end of January, 1999) plus 208,333 (post-split) warrants originally
exercisable at $4.80 per share. Our Registration Statement accepted January 6,
1999 registered 1,923,077 shares (post-split) underlying the convertible
debenture and 200,000 shares (post-split) underlying the warrants. Under the
February 26, 1999 amendment letter which increased the facility to $6 million,
TK and FutureLink agreed to issue additional shares in escrow and to issue TK
additional warrants which have not yet been issued by FutureLink. The warrant
pricing formula was tied to a proposed TK-led financing which did not go
forward, the Company opting instead to proceed with an offering led by
Commonwealth Associates. As April 14, 1999 was the date the Company's next
financing proceeded (which is the date it became absolutely certain that
FutureLink would not proceed with a TK-led private placement), it should
<PAGE> 2
Thomson Kernaghan
December 6, 1999
Page 2
be the date used to set the number of warrants and exercise price. The 20 day
average closing price to and including April 14th was $1.5445 per share and 125%
of this average price is $1.93 per share. The $250,000 warrant coverage using
these figures becomes warrants to acquire 129,534 shares of common stock (on a
post-split basis), which FutureLink remains obligated to issue.
On April 26, 1999, TK and FutureLink entered into a further letter agreement to
modify the number of warrants granted to TK and lower their exercise price to
$1.25 per share (post-split). The pricing of outstanding warrants was reduced
and additional warrants were issuable such that TK investors would hold a total
of 1,200,000 warrants exercisable at $1.25 per share (post-split). The
outstanding TK debentures, which had been convertible on a floating conversion
price formula, were altered to provide for a fixed conversion rate of $1.00 per
share for principal (again, post-split). Certain TK debentures were not altered,
but instead paid out. The agreement provided that the Company prepay $1.47
million of outstanding TK debentures through payment of the principal in full
together with a 28% premium (a total of $1,881,600), with such TK debenture
holders thereby obligated to accept common stock for accrued interest based on
the "market price formula" contained in the TK debentures. This prepayment was
effected to the satisfaction of TK.
Following the payout of the $1.47 million on the debentures, FutureLink carried
on its books $2,500,000 of outstanding TK debentures and 1,200,000 (post split)
warrants. It is apparent that these figures did not account for an additional
$30,000 of funding from TK for which a debenture was to be issued (and will be
issued with a May 1, 1999 effective date), nor that the warrants issuable as per
the February, 1999 agreement had not been issued. As such, prior to conversions
or exercises of debentures and warrants received by the Company following April
26, 1999, the position of TK and its investors should be $2,530,000 of
debentures convertible to common stock at $1.00 per share and warrants to
acquire 1,200,000 shares of common stock at an exercise price of $1.25 per share
and 129,534 shares of common stock at an exercise price of $1.93 per share (all
figures post reverse split).
Recent Conversions or Exercises of TK Securities
On April 27, 1999, TK provided FutureLink with Notices of Conversion for a total
of $370,000 of principal plus accrued interest for 351,068 post split shares of
registered common stock released from escrow on October 26, 1999 and 22,980
restricted shares of common stock. On July 19, 1999 TK provided FutureLink with
Notice of Exercise of a warrant for 52,083 shares of common stock and provided
payment of $65,103.75 for same. On September 4, 1999, TK provided FutureLink
with Notices of Conversion for a total of $630,000 of principal plus accrued
interest for 647,005 post split shares of common stock which were issued October
26, 1999 without restrictions in accordance with Rule 144. On November 19, 1999,
TK provided FutureLink with Notice of Exercise of a Warrant for 156,250 shares
of common stock (post-split) and provided payment of $195,312.50 for same.
With these conversions and based on the above review, TK currently holds
$1,530,000 of debentures (convertible to common stock at $1.00 per share) plus
warrants to acquire 1,121,201 shares of common stock.
<PAGE> 3
Thomson Kernaghan
December 6, 1999
Page 3
Future Conversion of TK Securities
As per the verbal agreement reached on October 21, 1999, TK has agreed to
convert all of its outstanding securities to FutureLink common stock and
FutureLink has agreed to allow this early conversion on favourable terms as
consideration for the conversion and to clear up all outstanding matters between
TK and FutureLink.
Under the agreement, FutureLink will allow TK to convert the outstanding
debentures at the reduced conversion price of $0.85 per share rather than the
current $1.00 per share, such conversion to be made effective October 21, 1999.
As such, the principal amount of these debentures will convert into 1,800,000
shares of FutureLink common stock. Interest on these debentures will be
calculated to and including October 21, 1999, to which will be added interest on
recently converted debentures whose conversions were delayed (the April 27, 1999
and September 4, 1999 conversions, whereby the principal portion converted will
collect interest to October 21, 1999). This interest shall be paid in common
stock issued at the "market price" based on the average of the closing bid and
ask prices for the common stock over the five trading day period ending October
21st, which is $11.86 per share.
As our juniors have discussed, the number of warrants exercised recently by TK
result in the issuance of 208,333 shares of common stock, exceeding the 200,000
registered shares underlying such warrants. As such, we will permit the revision
of the notices of exercise such that 50,000 warrants are exercised (instead of
52,083) and 150,000 warrants are exercised (instead of 156,250), with the now
unexercised portion to remain outstanding until converted in accordance with
this agreement. FutureLink shall refund $2,603.75 and $7,812.50, respectively,
to TK with regard to these reduced conversions.
It is FutureLink's understanding that some confusion arose during the exercise
of the 52,083 warrants and that two share certificates each in the amount of
52,083 shares are in TK's possession. Please return both of these certificates
to our Transfer Agent who shall issue a certificate for 50,000 shares to replace
same.
With regard to the 1,129,534 (as adjusted) outstanding TK warrants, FutureLink
will allow a "cashless" exercise of these warrants on the basis of a set
formula. Using a fixed share price of $15.00 per share (the closing bid price
for the common stock on October 21, 1999), FutureLink will allow TK to exercise
its outstanding warrants on a cashless basis (and only on a cashless basis) at
the reduced exercise price of $0.50 per share. Under this formula, TK will
receive 96.67 shares of common stock for each 100 warrants held with no further
cash consideration to be paid. As such, the 1,129,534 outstanding warrants will
convert to 1,091,921 shares of common stock.
As well as the above conversions and exercises of securities, FutureLink shall
issue a further 125,000 shares of common stock to TK as consideration for the
lock-up and leak out provisions governing TK's common stock and for TK's
acknowledgment that any and all liabilities owed to TK or its investors under
the terms of outstanding agreements with, or securities issued by, FutureLink
have been satisfied in full.
All together, under this agreement, TK receives 1.8 million shares for the
remaining debentures, 1,091,921 shares on cashless exercise of the remaining
warrants plus the 125,000 additional consideration shares, for a total of
3,016,921 shares (before interest shares), with FutureLink obligated to repay
$10,416.25 to TK regarding the adjusted exercise of warrants for registered
stock.
<PAGE> 4
Thomson Kernaghan
December 6, 1999
Page 4
Lock-Up, Leak Out and Escrow Provisions
In consideration of the favourable early conversion terms under which TK
receives additional shares of FutureLink common stock than available under
standard conversion terms associated with TK's securities, and in consideration
of the additional 125,000 shares of common stock being issued to TK in
accordance with this agreement, TK has agreed to lock-up the shares of common
stock received hereunder, subject to certain lock-up and leak out provisions.
Under the agreement, the 3,016,921 shares of common stock issued upon early
conversion and early exercises of TK's remaining debentures and warrants shall
be locked-up, to be released in alternating amounts on the 1st day of each of
the twelve months following October 21, 1999, commencing November 1, 1999 (the
first day of the month following our original verbal agreement) or the date of
execution of this agreement by TK, whichever is later, and ending October 1,
2000. FutureLink shall issue 12 share certificates (such certificates legended
to reflect to their registration status and the restrictions imposed by this
agreement), six of 333,333 shares each, five of 175,000 shares each and one for
the balance of the stock issuable hereunder to simplify this process. These
shares shall be issued in escrow to John Mann Esq., Attorney at Law, of Houston,
Texas, as escrow agent, and released in accordance with the above terms which
shall be embodied in a new escrow agreement, also to be dated effective October
21, 1999.
The shares shall be released from escrow as to the following schedules:
November 1, 1999 (or later) 333,333
December 1, 1999 175,000
January 1, 2000 333,333
February 1, 2000 175,000
March 1, 2000 333,333
April 1, 2000 175,000
May 1, 2000 333,333
June 1, 2000 175,000
July 1, 2000 333,333
August 1, 2000 175,000
September 1, 2000 333,333
October 1, 2000 Balance Remaining
-------------------
Total 3,016,921 plus interest shares
=========
Should FutureLink be acquired by another entity, such that FutureLink is not the
surviving, publicly traded corporation, these lock-up provisions shall terminate
thirty days following such acquisition.
Satisfaction of Claims; Retraction of Statements
TK hereby agrees that the agreement evidenced by this letter involves the
satisfaction of any and all liabilities of and claims against FutureLink and TK
shall execute the release in favour of FutureLink in the form attached as
Exhibit "A" hereto. Without limiting the generality of the foregoing, TK shall
release FutureLink from any liability to TK for any additional consideration
which may be owed by FutureLink to TK for consulting services or under any prior
agreement among TK and FutureLink, for commissions, interest, penalties or
otherwise. All prior contracts involving TK and FutureLink are hereby null and
void and of no further force and effect.
<PAGE> 5
Thomson Kernaghan
December 6, 1999
Page 5
TK further formally retracts all prior statements, both verbal and in writing,
alleging liabilities owed to TK and/or its investors by FutureLink.
Registration Rights
The registration rights set forth below shall apply to all common stock issued
to TK in accordance with the October 21, 1999 agreement evidenced by this
letter, superceding all prior registration rights granted to TK by FutureLink
with regard to FutureLink securities issued to TK.
All FutureLink common stock held by TK following the early conversions of
debentures and exercise of warrants contemplated by this agreement shall be
entitled to registration for resale under the Securities Act of 1933 at
FutureLink's expense. Should FutureLink fail to effect such registration prior
to April 30, 2000, TK shall, effective May 1, 2000, have the right to demand
registration of such common stock for resale and FutureLink shall thereafter be
obligated to use its reasonable best efforts to thereafter effect registration
of common stock as soon as possible.
It is anticipated by the parties that the 1,800,000 shares of FutureLink common
stock to be issued on conversion of TK's remaining convertible debentures in
accordance with this agreement shall be entitled to resale in accordance with
Rule 144 promulgated under the Securities Act, and that FutureLink is entitled
to limit the registration for resale of TK common stock to the common stock
issued on exercise of warrants and as consideration for lock-up, if FutureLink
is requested to so limit the TK shares to be registered by an underwriter
advising FutureLink with regard to a possible future offering of its securities.
Summary
o TK convertible debentures ($1,530,000) to convert to 1,800,000 shares of
common stock;
o TK warrants, net of recent cash exercises, will be converted on a cashless
basis such that 96.67 shares of common stock will be issued for each 100
warrants held;
o FutureLink shall issue TK an additional 125,000 shares of common stock as
consideration for TK's agreement to lock-up and release any and all claims
against FutureLink;
o All common stock issued to TK in accordance with early conversion, early
exercise and as additional consideration shall be locked up and held in
third party escrow, to be released as to 333,333 shares and 175,000 shares
in each alternating month during the twelve months of November, 1999 through
October, 2000 and the balance of the common stock released in October, 2000
(on the 1st day of such months);
o All common stock issued to TK hereunder to be registered on or before April
30, 2000 (subject to Rule 144 releases, etc.) and TK shall have the right to
demand registration following May 1, 2000.
<PAGE> 6
Thomson Kernaghan
December 6, 1999
Page 6
Acknowledgment of Agreement
We trust that the above accurately reflects the agreement verbally reached
between TK and FutureLink on October 21, 1999, as amended, and by executing the
"Acknowledgment" area below, TK hereby confirms the terms of said agreement as
set forth in this letter. As advised, this agreement remains subject to final
approval by the Executive Committee of FutureLink's Board of Directors.
Please feel free to contact me at either my direct line given above or on my
cell at (403) 617-7798 should you have any additional comments regarding these
matters. Please also feel free to contact Kyle Scott, FutureLink's General
Counsel, at his direct line of (403) 509-5015 or on his cell at (403) 620-7352.
Yours truly,
FUTURELINK CORP.
Raghu Kilambi
Executive Vice-President & CFO
ACKNOWLEDGMENT
Thomson Kernaghan & Co. Limited ("TK") hereby acknowledges that the above terms
accurately reflect the agreement reached on October 21, 1999 with FutureLink
Corp., as amended, and agrees to early conversion of its debentures and warrants
subject to the terms outlined above, agrees to execute the Release attached as
Schedule "A" hereto, and acknowledges that this agreement supercedes all prior
agreements and understandings between TK and FutureLink.
TK further formally retracts all prior statements, both verbal and in writing,
alleging liabilities owed to TK and/or its investors by FutureLink and, without
limiting the generality of the foregoing, formally retracts (i) the letters of
October 6, 1999 alleging liabilities and (ii) the letter of November 19, 1999
addressed to Mr. Kyle Scott of FutureLink purporting to repudiate the October
21, 1999 agreement as well as all other statements made therein.
Dated: November , 1999 Per:
-----------------------------
Name:
----------------------------
Position:
------------------------
<PAGE> 1
EXHIBIT 10.10
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (the "Agreement") dated as of December 6,
1999, by and among Futurelink Corp., a Delaware corporation (the "Company") and
CPQ Holdings, Inc., a Delaware corporation (the "Stockholder").
Terms and Conditions
In consideration of the mutual covenants and agreements contained in
this Agreement and the Purchase Agreement, and intending to be legally bound,
the parties hereto agree as follows:
Section 1 . Definitions. As used in this Agreement, the following terms
have the meanings indicated below or in the referenced sections of this
Agreement:
"Common Stock." The Company's Common Stock, $.0001 par value per share,
as the same may be constituted from time to time.
"Exchange Act." The Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder.
"NASD." The National Association of Securities Dealers, Inc.
"Person." An individual, a partnership, a corporation, a limited
liability company or partnership, an association, a joint stock company, a
trust, a business trust, a joint venture, an unincorporated organization or a
government entity or any department, agency, or political subdivision thereof.
"Piggyback Registration." As defined in Section 3(a) hereof.
"Registrable Securities." Any shares of Common Stock of the Company
acquired by the Stockholder pursuant to the Securities Purchase Agreement
between the Company and Stockholder, of even date herewith, and any securities
of the Company issued with respect thereto; provided, that a Registrable
Security ceases to be a Registrable Security when (i) it is registered under the
Securities Act or (ii) it is eligible to be sold or transferred under Rule 144
(or similar provisions then in effect) promulgated by the SEC under the
Securities Act ("Rule 144") and any lock-up agreements relating to such
Registrable Security have expired.
"Registration Expenses." As defined in Section 6(a) hereof.
"SEC." The United States Securities and Exchange Commission.
"Securities Act." The Securities Act of 1933, as amended, and the rules
and regulations thereunder.
<PAGE> 2
Section 2 . Securities Subject to this Agreement. A Person is deemed to
be a holder of Registrable Securities whenever that Person owns, directly or
beneficially, Registrable Securities.
Section 3 . Piggyback Registrations.
(a) Right to Piggyback. Whenever the Company proposes to register
(including on behalf of a selling stockholder) any of its securities under the
Securities Act (except for the registration of securities to be offered pursuant
to an employee benefit plan registered on Form S-8 or to a registration made on
Form S-4 or any successor forms then in effect at any time and the registration
form to be used may be used for the registration of the Registrable Securities
(a "Piggyback Registration"), it will so notify the Stockholder in writing no
later than forty-five (45) days prior to the anticipated filing date. Subject to
the provisions of Section 3(c), the Company will include in the Piggyback
Registration all Registrable Securities with respect to which the Company has
received written request for inclusion from the Stockholder within fifteen (15)
business days after the Stockholder's receipt of the Company's notice. The
Stockholder may withdraw all or any part of the Registrable Securities from a
Piggyback Registration at any time before ten (10) business days prior to the
effective date of the Piggyback Registration. If the Piggyback Registration is
in connection with an underwritten offering, the Stockholder must sell its
securities in compliance with Section 9 hereof.
(b) Piggyback Expenses. The Company shall pay to the Stockholder all
Registration Expenses incurred by it (except to the extent prohibited by
applicable state securities laws).
(c) Priority on Piggyback Registrations. If the Piggyback Registration
is an underwritten offering and if the managing underwriter gives the Company
its written opinion that the total number or dollar amount of securities
requested to be included in the registration exceeds the number or dollar amount
of securities that can be sold, the Company will include the securities in the
registration in the following order of priority: (i) first, all securities the
Company or the holder for whom the Company is effecting the registration, as the
case may be, proposes to sell; and (ii) second, any other securities (provided
they are of the same class as the securities sold by the Company) requested to
be included, allocated pro rata among the holders of such securities on the
basis of the number of securities requested to be included. In the event that
the managing underwriter advises the Company that an underwriters'
over-allotment option is necessary or advisable, the preceding priority shall
apply to the determination of which securities are to be included in the primary
portion of such registration.
(d) Selection of Underwriters. If any Piggyback Registration is an
underwritten offering, the Company will select the investment banker(s) and
manager(s) that will administer the offering. The Company and the Stockholder
shall enter into a customary underwriting agreement with such investment
banker(s) and manager(s).
Section 4 . Restrictions on Public Sale by the Stockholder.
The Stockholder agrees not to make any public sale or distribution of
equity securities of the Company (except as part of the underwritten
registration effected pursuant to a Piggyback
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<PAGE> 3
Registration), including a sale pursuant to Rule 144, during such customary
period following the effective date of any underwritten Piggyback Registration
as any managing underwriter(s) of such underwriting may reasonably request.
Section 5 . Registration Procedures.
(a) Obligations of the Company. Whenever the Stockholder requests the
registration of any Registrable Securities pursuant to this Agreement, the
Company shall use its best efforts to register and to permit the sale of the
Registrable Securities in accordance with the intended method of disposition. To
carry out this obligation, the Company shall as expeditiously as practicable:
(1) prepare and file with the SEC a registration statement on
the appropriate form and use commercially reasonable efforts to cause
the registration statement to become effective;
(2) immediately notify the Stockholder of any stop order
threatened or issued by the SEC and take all actions reasonably required
to prevent the entry of a stop order or if entered to have it rescinded
or otherwise removed;
(3) prepare and file with the SEC such amendments and
supplements to the registration statement and the corresponding
prospectus necessary to keep the registration statement effective for
one-hundred eighty (180) days or such shorter period as may be required
to sell all Registrable Securities covered by the registration
statement; and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by the registration
statement during such period in accordance with the sellers' intended
methods of disposition as set forth in the registration statement;
(4) furnish to the Stockholder a sufficient number of copies of
the registration statement, each amendment and supplement thereto (in
each case including all exhibits), the corresponding prospectus
(including each preliminary prospectus), and such other documents as the
Stockholder may reasonably request to facilitate the disposition of the
Registrable Securities;
(5) use its best efforts to register or qualify the Registrable
Securities under securities or blue sky laws of jurisdictions in the
United States of America as the Stockholder requests and do any and all
other reasonable acts and things that may be necessary or advisable to
enable the Stockholder to consummate the disposition of the Registrable
Securities in such jurisdiction; provided, however, that the Company
shall not be obligated to qualify as a foreign corporation to do
business under the laws of any jurisdiction in which it is not then
qualified or to file any general consent to service of process;
(6) notify the Stockholder, at any time when a prospectus is
required to be delivered under the Securities Act, of any event as a
result of which the prospectus or any document incorporated therein by
reference contains an untrue statement of a material
3
<PAGE> 4
fact or omits to state any material fact necessary to make the
statements therein not misleading in light of the circumstances under
which such statements were made, and prepare a supplement or amendment
to the prospectus or any such document incorporated therein so that
thereafter the prospectus will not contain an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not misleading in light of the circumstances under
which such statements were made;
(7) cause all registered Registrable Securities to be listed on
each securities exchange, if any, on which similar securities issued by
the Company are then listed;
(8) provide an institutional transfer agent and registrar and a
CUSIP number for all Registrable Securities on or before the effective
date of the registration statement;
(9) enter into such customary agreements (including an
underwriting agreement in customary form) and take all other actions in
connection with those agreements as the Stockholder or the underwriters,
if any, reasonably request to expedite or facilitate the disposition of
the Registrable Securities;
(10) make available for inspection by the Stockholder, any
underwriter participating in any disposition pursuant to the
registration statement, and any attorney, accountant, or other agent of
any underwriter, all financial and other records, pertinent corporate
documents, and properties of the Company, and cause the Company's
officers, directors and employees to supply all information requested by
any underwriter or its attorneys, accountants, or other agents in
connection with the registration statement; provided that an appropriate
and customary confidentiality agreement is executed by any such
underwriter, attorney, accountant or other agent;
(11) in connection with any underwritten offering, obtain a
"comfort" letter from the Company's independent public accountants in
customary form and covering those matters customarily covered by
"comfort" letters as the managing underwriter reasonably requests;
(12) in connection with any underwritten offering, furnish an
opinion of counsel representing the Company for the purposes of the
registration, in the form and substance customarily given to
underwriters in an underwritten public offering and reasonably
satisfactory to counsel representing the underwriter(s) of the offering,
addressed to the underwriters;
(13) use its best efforts to comply with all applicable rules
and regulations of the SEC, and make available to its security holders,
as soon as reasonably practicable, an earnings statement complying with
the provisions of Section 11(a) of the Securities Act and covering the
period of at least twelve (12) months, but not more than eighteen (18)
months, beginning with the first month after the effective date of the
Registration Statement;
4
<PAGE> 5
(14) cooperate with the Stockholder and each underwriter
participating in the disposition of such Registrable Securities and
their respective counsel in connection with any filings required to be
made with the NASD; and
(15) in connection with any underwritten offering, send
appropriate officers of the Company to attend any "road shows" and
analysts presentations scheduled in connection with any such
registration and use reasonable efforts to co-operate in the marketing
of the Registerable Securities.
(16) take all other steps reasonably necessary to effect the
registration of the Registrable Securities contemplated hereby.
(b) Stockholder Information. In the event of any registration by the
Company, from time to time, the Company may require the Stockholder to furnish
to the Company information regarding itself and the distribution of the
securities subject to the registration, and the Stockholder shall furnish all
such information reasonably requested by the Company.
(c) Notice to Discontinue. The Stockholder agrees that, upon receipt of
any notice from the Company of any event of the kind described in Section
5(a)(6), the Stockholder will discontinue disposition of Registrable Securities
until the Stockholder receives copies of the supplemented or amended prospectus
contemplated by Section 5(a)(6). In addition, if the Company requests, the
Stockholder will deliver to the Company (at the Company's expense) all copies,
other than permanent file copies then in the holder's possession, of the
prospectus covering the Registrable Securities current at the time of receipt of
the notice. If the Company gives any such notice, the time period mentioned in
Section 5(a)(3) shall be extended by the number of days elapsing between the
date of notice and the date that the Stockholder receives the copies of the
supplemented or amended prospectus contemplated in Section 5(a)(6).
(d) Notice by Stockholder. Whenever the Stockholder has requested that
any Registrable Securities be registered pursuant to this Agreement, it shall
notify the Company, at any time when a prospectus relating thereto is required
to be delivered under the Securities Act, of the happening of any event, which
as to the Stockholder is (i) to his or its respective knowledge, (ii) solely
within his or its respective knowledge and (iii) solely as to matters concerning
that the Stockholder, as a result of which the prospectus included in the
registration statement contains an untrue statement of a material fact or omits
to state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
Section 6 . Registration Expenses.
(a) Generally. All Registration Expenses incident to the Company's
performance of or compliance with this Agreement shall be paid as provided in
this Agreement. The term "Registration Expenses" includes without limitation all
registration filing fees, reasonable professional fees and other reasonable
expenses of the Company's compliance with federal, state and other securities
laws (including fees and disbursements of counsel for the underwriters in
connection with state or other securities law qualifications and registrations),
printing expenses,
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<PAGE> 6
messenger, telephone and delivery expenses; reasonable fees and disbursements of
counsel for the Company; reasonable fees and disbursement of all independent
certified public accountants employed by the Company in connection with the
registration of Registrable Securities (including the expenses of any audit or
"comfort" letters required by or incident to performance of the obligations
contemplated by this Agreement); fees and expenses of the underwriters engaged
by the Company (excluding discounts and commissions); fees and expenses of any
special experts retained by the Company at the request of the managing
underwriters in connection with the registration; and applicable stock exchange
and NASD registration and filing fees. The term "Registration Expenses" does not
include the Company's internal expenses (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit and the fees and expenses
incurred in connection with the listing of the securities to be registered on
each securities exchange on which similar securities issued by the Company are
then listed, all of which shall be paid by the Company, nor does it include
underwriting fees or commissions or transfer taxes or fees and expenses of
counsel retained by the Stockholder, all of which shall be paid by the
Stockholder.
(b) Other Expenses. To the extent the Company is not required to pay
Registration Expenses, the Stockholder will pay those Registration Expenses
allocable to the Stockholder's securities so included, and any Registration
Expenses not allocable will be borne by all sellers in proportion to the number
of securities each registers.
Section 7 . Indemnification.
(a) Indemnification by Company. In the event of any registration of
Registrable Securities under the Securities Act pursuant to this Agreement, to
the full extent permitted by law, the Company agrees to indemnify the
Stockholder, its officers, directors, trustees, partners, employees, advisors
and agents, and each Person who controls the Stockholder (within the meaning of
the Securities Act and the Exchange Act) against all losses, claims, damages,
liabilities and expenses caused by any untrue or allegedly untrue statement of
material fact contained in any registration statement under which such
Registrable Securities were registered under the Securities Act, any prospectus
or preliminary prospectus contained therein or any omission or alleged omission
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which such
statements were made, except to the extent the untrue or allegedly untrue
statement or omission or alleged omission resulted from information that the
holder furnished in writing to the Company expressly for use therein. In
connection with a firm or best efforts underwritten offering, to the extent
customarily required by the managing underwriter, the Company will indemnify the
underwriters, their officers and directors and each Person who controls the
underwriters (within the meaning of the Securities Act and the Exchange Act), to
the extent customary in such agreements.
(b) Indemnification by the Stockholder. In connection with any
registration statement, the Stockholder will furnish to the Company in writing
such information and affidavits as the Company reasonably requests for use in
connection with any registration statement or prospectus and the Stockholder
agrees to indemnify, to the extent permitted by law,
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<PAGE> 7
the Company, its directors, officers, trustees, partners, employees, advisors
and agents, and each Person who controls the Company (within the meaning of the
Securities Act and the Exchange Act) against any losses, claims, damages,
liabilities and expenses resulting from any untrue or allegedly untrue statement
of a material fact or any omission or alleged omission to state a material fact
required to be stated in the registration statement or prospectus or any
amendment thereof or supplement thereto necessary to make the statements therein
not misleading in light of the circumstances under which such statements were
made, but only to the extent that the untrue or allegedly untrue statement or
omission or alleged omission is contained in or omitted from any information the
Stockholder furnished in writing to the Company expressly for use therein and
only in an amount not exceeding the net proceeds received by the holder with
respect to securities sold pursuant to such registration statement. In
connection with a firm or best efforts underwritten offering, to the extent
customarily required by the managing underwriter, the Stockholder will indemnify
the underwriters, their officers and directors and each Person who controls the
underwriters (within the meaning of the Securities Act and the Exchange Act), to
the extent customary in such agreements.
(c) Indemnification Proceedings. Any Person entitled to indemnification
under this Agreement will (i) give prompt notice to the indemnifying party of
any claim with respect to which it seeks indemnification and (ii) unless in the
indemnified party's reasonable judgment a conflict of interest may exist between
the indemnified and indemnifying parties with respect to the claim, permit the
indemnifying party to assume the defense of the claim with counsel reasonably
satisfactory to the indemnified party. If the indemnifying party does not assume
the defense, the indemnifying party will not be liable for any settlement made
without its consent (but that consent may not be unreasonably withheld). No
indemnifying party will consent to entry of any judgment or will enter into any
settlement that does not include as an unconditional term thereof the claimant's
or plaintiff's release of the indemnified party from all liability concerning
the claim or litigation. An indemnifying party who is not entitled to or elects
not to assume the defense of a claim will not be under an obligation to pay the
fees and expenses of more than one counsel for all parties indemnified by the
indemnifying party with respect to the claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between the
indemnified party and any other indemnified party with respect to the claim, in
which event the indemnifying party shall be obligated to pay the fees and
expenses of no more than one additional counsel for the indemnified parties.
(d) Contribution. If the indemnification provided for in Section 7(a) or
(b) is unavailable to an indemnified party in respect of any losses, claims,
damages, liabilities or expenses referred to therein, then each indemnifying
party thereunder shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative fault of
the Company and the Stockholder in connection with the statements or omissions
that resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative fault of the
Company and the Stockholder shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Stockholder and the parties' relative intent
and knowledge.
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<PAGE> 8
The parties hereto agree that it would not be just and equitable if
contribution pursuant this Section 7(d) were determined by pro rata allocation
or by any other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph.
Notwithstanding anything herein to the contrary, the Stockholder shall not be
required to contribute any amount in excess of the amount by which the net
proceeds of the offering (before deducting expenses, if any) received by the
Stockholder exceeds the amount of any damages that the Stockholder has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
Section 8 . Rule 144. The Company covenants that it will file the
reports required to be filed by it under the Securities Act and the Exchange Act
and the rules and regulations adopted by the SEC thereunder, and it will take
such further action as the Stockholder reasonably may request, all to the extent
required from time to time, to enable such holder to sell Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by (i) Rule 144 under the Securities Act, or (ii) any
similar rule or regulation hereafter adopted by the SEC. Upon the request of the
Stockholder, the Company will deliver to the Stockholder a written statement as
to whether it has complied with Rule 144's or any successor rule's requirements.
The Company also covenants that in such event it will provide all such
information and it will take such further action as the Stockholder reasonably
may request to enable the Stockholder to sell Registrable Securities without
registration under the Securities Act within the limitation of Rule 144 under
the Securities Act or any successor rule requirements.
Section 9 . Participation in Underwritten Registration. The Stockholder
may not participate in any underwritten registration without (a) agreeing to
sell securities on the basis provided in underwriting arrangements approved by
the Company and (b) completing and executing all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required by
the underwriting arrangements.
Section 10. Miscellaneous.
(a) Recapitalizations, Exchanges, etc. The provisions of this Agreement
shall apply to the full extent set forth herein with respect to (i) the shares
of Common Stock held by the Stockholder, (ii) any and all shares of voting
common stock of the Company into which the shares of such Common Stock are
converted, exchanged or substituted in any recapitalization or other capital
reorganization by the Company and (iii) any and all equity securities of the
Company or any successor or assign of the Company (whether by merger,
consolidation, sale of assets or otherwise) which may be issued in respect of,
in conversion of, in exchange for or in substitution of, such shares of Common
Stock and shall be appropriately adjusted for any stock dividends, splits,
reverse splits, combinations, recapitalizations and the like occurring after the
date hereof.
(b) Amendment. This Agreement may be amended or modified only by a
written agreement executed by the Company and the Stockholder.
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(c) Attorneys' Fees. In any legal action or proceeding brought to
enforce any provision of this Agreement, the prevailing party shall be entitled
to recover all reasonable expenses, charges, court costs and attorneys' fees in
addition to any other available remedy at law or in equity.
(d) Benefit of Parties; Assignment. All of the terms and provisions of
this Agreement shall be binding on and inure to the benefit of the parties and
their respective successors and assigns, including without limitation all
subsequent holders of securities entitled to the benefits of this Agreement who
agree in writing to become bound by the terms of this Agreement.
(e) Captions. The captions of the sections and subsections of this
Agreement are solely for convenient reference and shall not be deemed to affect
the meaning or interpretation of any provision of this Agreement.
(f) Cooperation. The parties agree that after execution of this
Agreement they will from time to time, upon the request of any other party and
without further consideration, execute, acknowledge and deliver in proper form
any further instruments and take such other action as any other party may
reasonably require to carry out effectively the intent of this Agreement.
(g) Counterparts; Facsimile Execution. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same agreement.
Facsimile execution and delivery of this Agreement shall be legal, valid and
binding execution and delivery for all purposes.
(h) Entire Agreement. This Agreement contains the entire understanding
of the parties with respect to the subject matter of this Agreement and
supersedes all prior agreements and understandings between the parties with
respect thereto. There are no promises, covenants or undertakings other than
those expressly set forth or provided for in this Agreement.
(i) Governing Law. The internal law of the State of New York will govern
the interpretation, construction, and enforcement of this Agreement and all
transactions and agreements contemplated hereby, notwithstanding any state's
choice of law rules to the contrary.
(j) Notices. All notices, requests, demands, or other communications
that are required or may be given pursuant to the terms of this Agreement shall
be in writing and delivery shall be deemed sufficient in all respects and to
have been duly given on the date of service if delivered personally to the party
to whom notice is to be given, or upon receipt if mailed by first class mail,
return receipt requested, postage prepaid, and properly addressed to the
addresses of the parties set forth in the Purchase Agreement or to such other
address(es) as the respective parties hereto shall from time to time designate
to the other(s) in writing.
(k) Specific Performance. Each of the parties agrees that damages for a
breach of or default under this Agreement would be inadequate and that in
addition to all other remedies available at law or in equity that the parties
and their successors and assigns shall be entitled to specific performance or
injunctive relief, or both, in the event of a breach or a threatened breach of
this Agreement.
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(l) Validity of Provisions. Should any part of this Agreement for any
reason be declared by any court of competent jurisdiction to be invalid, that
decision shall not affect the validity of the remaining portion, which shall
continue in full force and effect as if this Agreement had been executed with
the invalid portion eliminated, it being the intent of the parties that they
would have executed the remaining portion of the Agreement without including any
part or portion that may for any reason be declared invalid.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
FUTURELINK CORP.
By: /s/ RAGHUNATH KILAMBI
--------------------------------------
Name: Raghunath Kilambi
Title: Executive Vice President and Chief
Financial Officer
CPQ HOLDINGS, INC.
By: /s/
--------------------------------------
Name:
Title:
11
<PAGE> 1
EXHIBIT 10.11
================================================================================
SECURITIES PURCHASE AGREEMENT
BETWEEN
FUTURELINK CORP.
AND
CPQ HOLDINGS, INC.
DATED AS OF
DECEMBER 6, 1999
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINITIONS.................................................................. 1
Section 1.1 "Action".......................................................... 1
Section 1.2 "Affiliate"....................................................... 1
Section 1.3 "Agreement"....................................................... 1
Section 1.4 "Board of Directors".............................................. 1
Section 1.5 "Business Day".................................................... 1
Section 1.6 "Buyer"........................................................... 1
Section 1.7 "Closing"......................................................... 2
Section 1.8 "Closing Date".................................................... 2
Section 1.9 "Commitment"...................................................... 2
Section 1.10 "Company"........................................................ 2
Section 1.11 "Company Charter"................................................. 2
Section 1.12 "Company Common Stock"............................................ 2
Section 1.13 "Company Reports"................................................. 2
Section 1.14 "Company Stock"................................................... 2
Section 1.15 "Exchange Act".................................................... 2
Section 1.16 "GAAP"............................................................ 2
Section 1.17 "Government Authority"............................................ 2
Section 1.18 "Liabilities"..................................................... 2
Section 1.19 "Liens"........................................................... 3
Section 1.20 "Master Lease Agreement".......................................... 3
Section 1.21 "Material Adverse Effect"......................................... 3
Section 1.22 "person".......................................................... 3
Section 1.23 "Purchase Price".................................................. 3
Section 1.24 "Purchased Shares"................................................ 3
Section 1.25 "Registration Rights Agreement"................................... 3
Section 1.26 "SEC"............................................................. 3
Section 1.27 "Securities Laws"................................................. 3
Section 1.28 "Subsidiaries".................................................... 3
ARTICLE II PURCHASE AND SALE OF COMPANY STOCK; CLOSING................................. 4
Section 2.1 Purchase and Sale................................................. 4
Section 2.2 Consideration..................................................... 4
Section 2.3 Additional Agreements and Closing Deliveries...................... 4
Section 2.4 Time and Place of Closing......................................... 4
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY.............................. 5
Section 3.1 Organization and Qualification; Subsidiaries...................... 5
Section 3.2 Authority Relative to Agreements; Board Approval.................. 6
Section 3.3 No Conflicts; No Defaults; Required Filings and Consents.......... 6
Section 3.4 SEC and Other Documents; Financial Statements..................... 7
Section 3.5 Absence of Certain Changes or Events.............................. 7
Section 3.6 No Undisclosed Liabilities........................................ 8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER..................................... 8
Section 4.1 Organization...................................................... 8
Section 4.2 Due Authorization................................................. 8
Section 4.3 Conflicting Agreements and Other Matters.......................... 8
Section 4.4 Acquisition for Investment; Sophistication........................ 9
Section 4.5 Resources......................................................... 9
</TABLE>
i
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<TABLE>
<S> <C>
Section 4.6 Brokers or Finders................................................ 9
ARTICLE V COVENANTS RELATING TO CLOSING................................................ 10
Section 5.1 Taking of Necessary Action........................................ 10
Section 5.2 Registration Rights Agreement..................................... 10
Section 5.3 Public Announcements; Confidentiality............................. 10
ARTICLE VI CONDITIONS TO CLOSING....................................................... 11
Section 6.1 Conditions of Closing............................................. 11
Section 6.2 Conditions of Sale................................................ 12
ARTICLE VII SURVIVAL 13
Section 7.1 Survival.......................................................... 13
ARTICLE VIII MISCELLANEOUS............................................................. 13
Section 8.1 Counterparts...................................................... 13
Section 8.2 Governing Law..................................................... 13
Section 8.3 Entire Agreement.................................................. 13
Section 8.4 Notices........................................................... 14
Section 8.5 Successors and Assigns............................................ 14
Section 8.6 Headings.......................................................... 14
Section 8.7 Amendments and Waivers............................................ 15
Section 8.8 Interpretation; Absence of Presumption............................ 15
Section 8.9 Severability...................................................... 15
Section 8.10 Further Assurances................................................ 15
Section 8.11 Specific Performance.............................................. 15
Section 8.12 Interpretation of Schedules....................................... 15
</TABLE>
EXHIBITS
Exhibit A Registration Rights Agreement
Exhibit B Lock-Up Agreement
Exhibit C Side Letter dated November 11, 1999
ii
<PAGE> 4
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of
December 6, 1999, is made by and between FUTURELINK CORP., a Delaware
corporation (the "Company") and CPQ HOLDINGS, INC. ("Buyer").
RECITALS:
WHEREAS, concurrently herewith Buyer and Company are entering into the
Master Lease and Financing Agreement, dated the date hereof, providing for a
$20,000,000 lease line of credit ("Master Lease Agreement"); and
WHEREAS, Buyer wishes to purchase from the Company, and the Company
wishes to sell to Buyer, for an aggregate purchase price of $2.2 million in
cash, 112,590 shares of the Company's common stock, par value $0.0001 per share
(the "Company Common Stock") on the terms set forth herein;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound hereby, the parties
hereto hereby agree as follows:
ARTICLE I
Definitions
As used in this Agreement, the following terms shall have the following
respective meanings:
Section 1.1 "Action" shall mean any action, suit, arbitration, inquiry,
proceeding or investigation by or before any Government Authority.
Section 1.2 "Affiliate" shall have the meaning ascribed thereto in Rule
12b- 2 promulgated under the Exchange Act, and as in effect on the date hereof.
Section 1.3 "Agreement" shall have the meaning set forth in the first
paragraph hereof.
Section 1.4 "Board of Directors" shall mean the Board of Directors of
the Company.
Section 1.5 "Business Day" shall mean any day other than a Saturday, a
Sunday or a bank holiday in New York, N.Y.
Section 1.6 "Buyer" shall have the meaning set forth in the first
paragraph hereof, together with the successors and assigns of such entity.
<PAGE> 5
Section 1.7 "Closing" shall mean the closing of the transactions
contemplated by this Agreement.
Section 1.8 "Closing Date" shall mean the date on which the closing of
the transactions contemplated by this Agreement shall occur.
Section 1.9 "Commitment" shall have the meaning set forth in Section
3.5.
Section 1.10 "Company" shall mean FutureLink Corp., a Delaware
corporation.
Section 1.11 "Company Charter" shall mean the Certificate of
Incorporation of the Company and any amendment or supplement thereto, as in
effect on the date hereof.
Section 1.12 "Company Common Stock" shall have the meaning set forth in
the third paragraph hereof.
Section 1.13 "Company Reports" shall have the meaning set forth in
Section 3.4(a).
Section 1.14 "Company Stock" shall mean, collectively, the Company
Common Stock and any other shares of capital stock of the Company.
Section 1.15 "Exchange Act" shall have the meaning set forth in Section
3.3(a)(iv).
Section 1.16 "GAAP" shall have the meaning set forth in Section 3.4(b).
Section 1.17 "Government Authority" shall mean any government or state
(or any subdivision thereof) of or in the United States, or Canada, or any
agency, authority, bureau, commission, department or similar body or
instrumentality thereof, or any governmental court or tribunal.
Section 1.18 "Liabilities" shall mean, as to any person, all debts,
adverse claims, liabilities and obligations, direct, indirect, absolute or
contingent of such person, whether known or unknown, accrued, vested or
otherwise, whether in contract, tort, strict liability or otherwise and whether
or not actually reflected, or required by GAAP to be reflected, in such person's
or entity's balance sheets or other books and records, including, without
limitation, (i) obligations arising from non-compliance with any law, rule or
regulation of any Government Authority or imposed by any court or any arbitrator
of any kind, (ii) all indebtedness or liability of such person for borrowed
money, or for the purchase price of property or services (including trade
obligations), (iii) all obligations of such person as lessee under leases,
capital or other, (iv) liabilities of such person in respect of plans covered by
Title IV of ERISA, or otherwise arising in respect of plans for Employees or
former Employees or their respective families or beneficiaries, (v)
reimbursement obligations of such person in respect of letters of credit, (vi)
all
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obligations of such person arising under acceptance facilities, (vii) all
liabilities of other persons or entities, directly or indirectly, guaranteed,
endorsed (other than for collection or deposit in the ordinary course of
business) or discounted with recourse by such person or with respect to which
the person in question is otherwise directly or indirectly liable, (viii) all
obligations secured by any Lien on property of such person, whether or not the
obligations have been assumed, and (ix) all other items which have been, or in
accordance with GAAP would be, included in determining total liabilities on the
liability side of the balance sheet.
Section 1.19 "Liens" shall mean all liens, mortgages, deeds of trust,
deeds to secure debt, security interests, pledges, claims, charges, easements
and other encumbrances of any nature whatsoever.
Section 1.20 "Master Lease Agreement"shall have the meaning set forth in
the second paragraphs hereof.
Section 1.21 "Material Adverse Effect" shall mean a material adverse
effect on the financial condition, results of operations, business or prospects
of the Company and its Subsidiaries taken as a whole.
Section 1.22 "person" shall mean any individual, corporation,
partnership, limited liability company, joint venture, trust, unincorporated
organization, other form of business or legal entity or Government Authority.
Section 1.23 "Purchase Price" shall have the meaning set forth in
Section 2.1.
Section 1.24 "Purchased Shares" shall have the meaning set forth in
Section 2.1.
Section 1.25 "Registration Rights Agreement" shall have the meaning set
forth in Section 2.3.
Section 1.26 "SEC" shall mean the Securities and Exchange Commission.
Section 1.27 "Securities Laws" shall have the meaning set forth in
Section 3.4(a).
Section 1.28 "Subsidiaries" shall mean with respect to any person, any
corporation, partnership, limited liability company, joint venture, business
trust or other entity, of which such person, directly or indirectly, owns or
controls 50% or more of the securities or other interests entitled to vote in
the election of directors or others performing similar functions with respect to
such corporation or other organization, or to otherwise control such
corporation, partnership, limited liability company, joint venture, business
trust or other entity.
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ARTICLE II
Purchase and Sale of Company Stock; Closing
Section 2.1 Purchase and Sale. Subject to the terms and conditions
hereof, the Company will sell, convey, assign, transfer, and deliver, and Buyer
will purchase and acquire from the Company, an aggregate of 112,590 shares of
Company Common Stock (the "Purchased Shares").
Section 2.2 Consideration. Subject to the terms and conditions hereof,
at the Closing, Buyer shall deliver to the Company the amount of $2,200,000 (the
"Purchase Price") by wire transfer of immediately available funds in U.S.
dollars to the account or accounts specified in writing by the Company.
Section 2.3 Additional Agreements and Closing Deliveries.
(a) At the Closing the Company and the Buyer shall enter into a
registration rights agreement substantially in the form attached as Exhibit A
(the "Registration Rights Agreement").
(b) In addition to the other things required to be done hereby, at the
Closing, the Company shall deliver, or cause to be delivered, to the Buyer the
following: (i) a certificate representing the Purchased Shares, (ii) a
certificate, dated the Closing Date and validly executed on behalf of the
Company, as contemplated by Section 6.1(a), (iii) if not previously delivered to
the Buyer all certificates and other instruments and documents required by this
Agreement to be delivered by the Company to the Buyer at or prior to the
Closing, and (iv) such other instruments reasonably requested by the Buyer, as
may be necessary or appropriate to confirm or carry out the provisions of this
Agreement.
(c) In addition to the delivery of the Purchase Price and the other
things required to be done hereby, at the Closing, Buyer shall deliver, or cause
to be delivered, to the Company such instruments reasonably requested by the
Company, as may be necessary or appropriate to confirm or carry out the
provisions of this Agreement.
Section 2.4 Time and Place of Closing. The Closing shall take place at
10:00 a.m. New York time on the first business day following satisfaction or
waiver of all conditions to the obligations of the parties hereunder (other than
conditions relating to deliveries of instruments, certificates and opinions to
be delivered by the parties or their representatives at the Closing itself), at
the offices of Paul, Hastings, Janofsky & Walker LLP, 399 Park Avenue, New York,
New York, or at such other place and time as the Company and Buyer shall
mutually agree.
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<PAGE> 8
ARTICLE III
Representations and Warranties of the Company
The Company hereby represents and warrants to Buyers as follows:
Section 3.1 Organization and Qualification; Subsidiaries.
(a) The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware. The Company has all
requisite corporate power and authority to own, operate, lease and encumber its
properties and carry on its business as now conducted, and to enter into this
Agreement and the Registration Rights Agreement, and to perform its obligations
hereunder and thereunder.
(b) Each Subsidiary of the Company is a corporation, partnership or
limited liability company duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization, and has
the corporate, partnership or limited liability company power and authority to
own its properties and to carry on its business as it is now being conducted.
(c) Except as set forth on Schedule 3.1(c), each of the Company and its
Subsidiaries is duly qualified to do business and in good standing in each
jurisdiction in which the ownership of its property or the conduct of its
business requires such qualification, except for any failures to be so qualified
or to be in good standing as would not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.
(d) The authorized capital stock of the Company as of the date hereof
consists of 300,000,000 shares of Common Stock, par value $0.0001 per share, and
20,000,000 shares of Preferred Stock, no par value (the "Company Preferred
Stock"). As of the date hereof, after giving effect to the issuance of the
Purchased Shares, there are 45,623,078 shares of Company Common Stock issued and
outstanding and no shares of Company Preferred Stock issued and outstanding. All
such issued and outstanding shares of Company Common Stock are duly authorized,
validly issued, fully paid, nonassessable and free of preemptive rights. Except
as set forth on Schedule 3.1(d), the Company has no outstanding bonds,
debentures, notes or other obligations the holders of which have the right to
vote (or which are convertible into or exercisable for securities the holders of
which have the right to vote) with the stockholders of the Company on any
matter. As of the date hereof, except as set forth in Schedule 3.1(d) to this
Agreement, there are no existing options, warrants, calls, subscriptions,
convertible securities, or other rights, agreements or commitments which
obligate the Company to issue, transfer or sell any shares of capital stock or
other equity interests of the Company. No person has any preemptive rights with
respect to the issuance of the Purchased Shares.
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<PAGE> 9
Section 3.2 Authority Relative to Agreements; Board Approval.
(a) The execution, delivery and performance of this Agreement and the
Registration Rights Agreement have been duly and validly authorized by all
necessary corporate action on the part of the Company. This Agreement and the
Registration Rights Agreement have been duly executed and delivered by the
Company and constitute the valid and legally binding obligations of the Company,
enforceable against the Company in accordance with their terms, subject to
applicable bankruptcy, insolvency, moratorium or other similar laws relating to
creditors' rights or general principles of equity.
(b) The Board of Directors of the Company has, as of the date hereof,
approved this Agreement and the Registration Rights Agreement and the
transactions contemplated hereby and thereby.
(c) The shares of Company Common Stock to be acquired pursuant to this
Agreement have been duly authorized for issuance, and upon issuance will be duly
and validly issued, fully paid and nonassessable.
(d) The issue and sale of the shares of the Purchased Shares hereunder
will not give any person the right to demand payment for its shares or give rise
to any preemptive or similar rights.
Section 3.3 No Conflicts; No Defaults; Required Filings and Consents.
(a) Neither the execution and delivery by the Company of this Agreement
nor the consummation by the Company of the transactions contemplated hereby in
accordance with the terms hereof will:
(i) conflict with or result in a breach of any provision of the
Company Charter or the by-laws of the Company;
(ii) violate or conflict with any statute, regulation, judgment,
order, writ, decree or injunction applicable to the Company or its
Subsidiaries;
(iii) violate or conflict with or result in a breach of any
provision of, or constitute a default (or any event which, with notice
or lapse of time or both, would constitute a default) under, or result
in the termination or in a right of termination or cancellation of, or
accelerate the performance required by, or result in the creation of any
Lien upon any of the properties of the Company or its Subsidiaries
under, or result in being declared void, voidable or without further
binding effect, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust or any license, franchise,
permit, lease, contract, agreement or other instrument, commitment or
obligation to which the Company or any of its Subsidiaries is a party,
or by which the Company or any of its Subsidiaries or any of their
respective properties is bound or affected; or
6
<PAGE> 10
(iv) require any consent, approval or authorization of, or
declaration, filing or registration with, any Government Authority,
other than any filings required under the Securities Exchange Act of
1934, as amended (the "Exchange Act").
(b) Subject to the accuracy of the representations and
warranties of Buyer contained in Article IV, neither the Company nor any agent
acting for it has offered any of the securities being sold hereunder or
solicited offers to buy such securities in violation of the Securities Act or
any applicable state "blue sky" securities laws (and without limitation of the
foregoing, neither the Company nor any of its agents have offered such
securities through any general solicitation or advertising); and neither the
Company nor any of its agents shall take any action which would cause the offer
and sale of securities as contemplated by this Agreement to be in violation of
such laws.
Section 3.4 SEC and Other Documents; Financial Statements.
(a) The Company has delivered or made available to Buyer each
registration statement, report, proxy statement or information statement and all
exhibits, amendments and supplements thereto prepared by it or relating to its
properties (including exhibits and any amendments and supplements thereto) filed
with the SEC since January 1, 1999, each in the form so filed (collectively, the
"Company Reports"). Except as set forth on Schedule 3.4(a), the Company Reports
were filed with the SEC in a timely manner and constitute all forms, reports and
documents required to be filed by the Company under the Securities Act, the
Exchange Act and the rules and regulations promulgated thereunder (the
"Securities Laws"). Except as set forth on Schedule 3.4(a), as of their
respective dates, the Company Reports (i) complied as to form in all material
respects with the applicable requirements of the Securities Laws and (ii) did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading.
(b) Each of the balance sheets included in or incorporated by reference
into the Company Reports (including the related notes and schedules) fairly
presented the financial position of the entity or entities to which it relates
as of its date and each of the statements of operations, stockholders' equity
(deficit) and cash flows included in or incorporated by reference into the
Company Reports (including any related notes and schedules) fairly presented the
results of operations, retained earnings or cash flows, as the case may be, of
the entity or entities to which it relates for the periods set forth therein, in
each case in accordance with United States generally accepted accounting
principles ("GAAP") consistently applied during the periods involved, except as
may be noted therein and except, in the case of the unaudited statements, (i)
for the absence of notes thereto, and (ii) subject to normal recurring year-end
adjustments which have not been and will not be material in nature or amount.
Section 3.5 Absence of Certain Changes or Events. Except as disclosed in
the Company Reports filed with the SEC prior to the date hereof, the Company and
each of its Subsidiaries has conducted its business only in the ordinary
7
<PAGE> 11
course, and there has not been (a) any change, circumstance or event that could
reasonably be expected to result in a Material Adverse Effect, (b) any
declaration, setting aside or payment of any dividend or other distribution with
respect to the Company Common Stock, (c) any commitment, contractual obligation,
borrowing, capital expenditure or transaction (each, a "Commitment") entered
into by the Company or any of its Subsidiaries outside the ordinary course of
business, or (d) any material change in the Company's accounting principles,
practices or methods.
Section 3.6 No Undisclosed Liabilities. Except as and to the extent set
forth (i) in Schedule 3.6 or (ii) in the Company Reports and the Company's
financial statements filed with the SEC or in any Schedule hereto, none of the
Company or any of its Subsidiaries has any Liabilities (nor do there exist any
circumstance which are likely to give rise to Liabilities) other than
Liabilities incurred in the ordinary course of business and consistent with past
practice since June 30, 1999.
Section 3.7 Brokers or Finders. No agent, broker, investment banker or
other firm or person, including any of the foregoing that is an Affiliate of the
Company, is or will be entitled to any broker's or finder's fee or any other
commission or similar fee from the Company or any Buyer in connection with this
Agreement or any of the transactions contemplated hereby.
ARTICLE IV
Representations and Warranties of Buyer
Buyer hereby represents and warrants to the Company as follows:
Section 4.1 Organization. Buyer is a corporation, duly incorporated,
validly existing and in good standing under the laws of the State of Delaware.
Such Buyer has all requisite corporate power and authority to carry on its
business as now conducted, to enter into this Agreement and the Registration
Rights Agreement and to perform its obligations hereunder and thereunder.
Section 4.2 Due Authorization. The execution, delivery and performance
of this Agreement and the Registration Rights Agreement have been duly and
validly authorized by all necessary action on the part of Buyer. This Agreement
has been duly executed and delivered by Buyer and constitutes the valid and
legally binding obligations of Buyer, enforceable against Buyer in accordance
with its terms, subject to applicable bankruptcy, insolvency, moratorium or
other similar laws relating to creditors' rights or general principles of
equity.
Section 4.3 Conflicting Agreements and Other Matters. Neither the
execution and delivery of this Agreement nor the performance by Buyer of its
obligations hereunder will conflict with, result in a breach of the terms,
conditions or provisions of, constitute a default under, result in the creation
of any mortgage, security interest, encumbrance, lien or charge of any kind upon
any of the properties or assets of Buyer pursuant to, or require any consent,
approval or other action by or any notice to or filing
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with any Government Authority pursuant to, the organizational documents or
agreements of Buyer or any agreement, instrument, order, judgment, decree,
statute, law, rule or regulation by which Buyer is bound.
Section 4.4 Acquisition for Investment; Sophistication.
(a) Buyer is acquiring the Company Common Stock being purchased by it
for its own account for the purpose of investment and not with a view to or for
sale in connection with any distribution thereof, and Buyer has no present
intention or plan to effect any distribution of shares of Company Common Stock.
The certificates representing the Purchased Shares shall bear a prominent legend
with respect to the restrictions on transfer under the Securities Act and under
applicable state securities laws. Prior to any proposed transfer of any
Purchased Shares, unless such transfer is made pursuant to an effective
registration statement under the Securities Act, Buyer will deliver to the
Company an opinion of counsel, reasonably satisfactory in form and substance to
the Company, to the effect that the Purchased Shares may be sold or otherwise
transferred without registration under the Securities Act. The Company will
remove the legend relating to Securities Act restrictions from any Purchased
Shares at any time two years after issuance if such Buyer delivers to the
Company an opinion of counsel, reasonably satisfactory in form and substance to
the Company, to the effect that such Purchased Shares are no longer subject to
transfer restrictions under the Securities Act. Upon original issuance thereof,
and until such time as the same shall have been registered under the Securities
Act or sold pursuant to Rule 144 promulgated thereunder (or any similar or
successor rule or regulation) each certificate for the Purchased Shares shall
bear any restricted securities legend required hereby, unless such legend is no
longer required hereunder. Buyer is able to bear the economic risk of the
acquisition of Purchased Shares pursuant hereto and can afford to sustain a
total loss on such investment, and has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of the proposed investment.
(b) Buyer is an "accredited investor" as such term is defined in
Regulation D promulgated under the Securities Act.
Section 4.5 Resources. Buyer has requisite cash, cash equivalents,
equity commitments or other sources of financing available to consummate the
transactions contemplated hereby.
Section 4.6 Brokers or Finders. Buyer has not engaged any agent, broker,
investment banker or other firm or person that will be entitled to any broker's
or finder's fee or any other commission or similar fee in connection with this
Agreement or any of the transactions contemplated hereby for which the Company
or any of its Affiliates will be responsible.
9
<PAGE> 13
ARTICLE V
Covenants Relating to Closing
Section 5.1 Taking of Necessary Action. Each party hereto agrees to use
its commercially reasonable best efforts promptly to take or cause to be taken
all action and promptly to do or cause to be done all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement and the Registration
Rights Agreement, subject to the terms and conditions hereof and thereof,
including all actions and things necessary to cause all conditions precedent set
forth in Article VI to be satisfied.
Section 5.2 Registration Rights Agreement. At the Closing, the Company
and Buyer shall enter into the Registration Rights Agreement.
Section 5.3 Public Announcements; Confidentiality.
(a) Subject to each party's disclosure obligations imposed by law and
any stock exchange or similar rules and the confidentiality provisions contained
in Section 5.3(b), the Company and Buyer will cooperate with each other in the
development and distribution of all news releases and other public information
disclosures with respect to this Agreement and any of the transactions
contemplated hereby. If a party is required by law or any stock exchange or
similar rule to issue a news release or other public announcement with respect
to this Agreement and any of the transactions contemplated hereby, it shall
advise the other party in advance thereof and use reasonable best efforts to
cause a mutually agreeable release or announcement to be issued.
(b) Buyer agrees that all information provided to it or any of its
representatives pursuant to this Agreement shall be kept confidential, and Buyer
shall not (x) disclose such information to any persons other than the directors,
officers, employees, financial advisors, investors, lenders, legal advisors,
accountants, consultants and Affiliates of Buyer who reasonably need to have
access to the confidential information and who are advised of the confidential
nature of such information or (y) use such information in a manner which would
be detrimental to the Company; provided, however, the foregoing obligation of
Buyer shall not (i) relate to any information that (1) is or becomes generally
available to the public other than as a result of unauthorized disclosure by
Buyer or by persons to whom Buyer has made such information available, (2) is or
becomes available to Buyer on a non-confidential basis from a third party that
is not, to Buyer's knowledge, bound by any other confidentiality agreement with
the Company, or (ii) prohibit disclosure of any information if required by law,
rule, regulation, court order or other legal or governmental process, provided
that in such event the party which believes it is so required to make any such
disclosure shall (x) give the Company reasonable advance notice thereof to the
extent practicable, (y) to the extent practicable, give the Company the
opportunity, at its expense, to oppose any such required disclosure or seek
confidential treatment thereof by the recipient of such information and (z)
cooperate with the Company in connection therewith. Buyers
10
<PAGE> 14
acknowledge that United States securities laws restrict trading in securities
while in possession of material non-public information, and they shall not,
directly or indirectly, alone or with others, in any manner acquire or attempt
to acquire or dispose of any securities of the Company in violation of such
laws.
ARTICLE VI
Conditions to Closing
Section 6.1 Conditions of Closing. The obligation of Buyer to purchase
and pay for the Purchased Shares to be purchased by it hereunder is subject to
satisfaction or waiver of each of the following conditions precedent:
(a) Representations and Warranties; Covenants. The representations and
warranties of the Company contained herein shall have been true and correct in
all respects on and as of the date hereof, and shall be true and correct in all
respects on and as of the time of the Closing, with the same effect as though
such representations and warranties had been made on and as of the Closing Date
(except for representations and warranties that speak as of a specific date or
time other than the Closing Date (which need only be true and correct in all
respects as of such date or time)), other than, in all such cases, such failures
to be true and/or correct as would not in the aggregate reasonably be expected
to have a Material Adverse Effect; provided, however, that if any of the
representations and warranties are already qualified in any respect by
materiality or as to Material Adverse Effect, for purposes of this Section
6.1(a) such materiality or Material Adverse Effect qualification will be in all
respects ignored (but subject to the overall standard as to Material Adverse
Effect set forth immediately prior to this proviso). The Company shall have
delivered to Buyer at the Closing a certificate of an appropriate officer in
form and substance reasonably satisfactory to Buyer dated the Closing Date to
such effect.
In making any determination as to Material Adverse Effect under this
Section 6.1(a), the matters referred to in such Section shall be aggregated and
considered together.
(b) No Material Adverse Change. Since December 31, 1998 there shall not
have been any change, circumstance or event which has had, or presents a
substantial possibility of, a Material Adverse Effect.
(c) Registration Rights Agreement. The Registration Rights Agreement
shall have been executed and delivered by the parties thereto.
(d) No Injunction, etc. There shall not be in effect any final order,
decree or injunction of a court or Governmental Authority of competent
jurisdiction which enjoins or prohibits consummation of the transactions
contemplated hereby; there shall be no threatened or pending Action by any
Governmental Authority seeking to enjoin or prohibit such consummation; and
there shall be no pending or threatened Actions which would reasonably be
expected to have a material adverse effect on the
11
<PAGE> 15
Company or any Subsidiary or on the ability of the Company to consummate the
transactions contemplated hereby or to issue the Company Common Stock.
(e) No Defaults. The Company shall not have taken any action or omitted
to take any action which action or omission shall have caused a material default
or breach of its covenants or agreements hereunder.
Section 6.2 Conditions of Sale. The obligations of the Company to issue
and sell the Company Common Stock at the Closing are subject to satisfaction or
waiver of each of the following conditions precedent:
(a) Representations and Warranties; Covenants. The representations and
warranties of Buyer contained herein shall have been true and correct in all
respects on and as of the date hereof, and shall be true and correct in all
respects on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of the Closing Date
(except for representations and warranties that speak as of a specific date or
time other than such Closing Date (which need only be true and correct in all
respects as of such date or time)), other than, in all such cases, such failures
to be true and/or correct as would not in the aggregate reasonably be expected
to have a Material Adverse Effect on Buyer's ability to consummate the
transactions contemplated hereby; provided, however, that if any of the
representations and warranties is already qualified in any respect by
materiality or as to Material Adverse Effect, for purposes of this Section
6.2(a) such materiality or Material Adverse Effect qualification will be in all
respects ignored (but subject to the overall standard as to Material Adverse
Effect set forth immediately prior to this proviso). The covenants and
agreements of Buyer to be performed on or before the Closing Date in accordance
with this Agreement shall have been duly performed in all respects, other than
such failures as would not in the aggregate reasonably be expected to have a
Material Adverse Effect on Buyer's ability to consummate the transactions
contemplated hereby (provided, however, that if any such covenant or agreement
is already qualified in any respect by materiality or as to Material Adverse
Effect for purposes of determining whether this condition has been satisfied,
such materiality or Material Adverse Effect qualification will be in all
respects ignored and such covenant or agreement shall have been performed in all
respects without regard to such qualification (but subject to the overall
exception as to Material Adverse Effect set forth immediately prior to this
proviso)).
(b) Buyer shall have entered into (i) the Master Lease Agreement and
(ii) the lock-up agreement in the form attached hereto as Exhibit B.
(c) No Injunction. There shall not be in effect any final order, decree
or injunction of a court or Governmental Authority of competent jurisdiction
which enjoins or prohibits consummation of the transactions contemplated hereby.
12
<PAGE> 16
ARTICLE VII
Survival
Section 7.1 Survival. All representations, warranties and covenants and
agreements of the parties contained herein, or in any Schedule or Exhibit
hereto, or any certificate, document or other instrument delivered in connection
herewith shall survive the Closing until 5:00 p.m. New York time on December 6,
2000 except for representations, warranties and covenants and agreements of the
parties contained in sections 3.2, 3.3 and 3.7 which shall survive until the
expiration of the applicable statute of limitations. No Action or proceeding may
be brought with respect to any of the representations and warranties, or any of
the covenants or agreements unless written notice thereof, setting forth in
reasonable detail the claimed misrepresentation or breach of warranty or breach
of covenant or agreement, shall have been delivered to the party alleged to have
breached such representation or warranty or such covenant or agreement on or
prior to the expiration of the right of action hereunder.
ARTICLE VIII
Miscellaneous
Section 8.1 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each
party hereto and delivered to each other party. Copies of executed counterparts
transmitted by telecopy, telefax or other electronic transmission service shall
be considered original executed counterparts for purposes of this Section,
provided receipt of copies of such counterparts is confirmed.
Section 8.2 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without reference
to the choice of law principles thereof.
Section 8.3 Entire Agreement. This Agreement, the Side Letter dated
November 11, 1999 attached as Exhibit C and the agreements referenced herein and
the Schedules and Exhibits hereto contain the entire agreement between the
parties with respect to the subject matter hereof and there are no agreements,
understandings, representations or warranties between the parties other than
those set forth or referred to herein. This Agreement is not intended to confer
upon any person not a party hereto (and their successors and assigns) any rights
or remedies hereunder. The confidentiality agreement relating to the
transactions contemplated hereby is superseded hereby.
13
<PAGE> 17
Section 8.4 Notices. All notices and other communications hereunder
shall be sufficiently given for all purposes hereunder if in writing and
delivered personally, sent by documented overnight delivery service or, to the
extent receipt is confirmed, telecopy, telefax or other electronic transmission
service to the appropriate address or number as set forth below. Notices to the
Company shall be addressed to:
FutureLink Corp.
6 Morgan, Suite 100
Irvine, California 92618
Attention: Raghu Kilambi
with a copy to:
Paul, Hastings, Janofsky & Walker LLP
345 California Street
29th Floor
San Francisco, California 94104-2635
Attention: Thomas Pollock, Esq.
Telecopy: 415-217-5333
or at such other address and to the attention of such other person as the
Company may designate by written notice to Buyer. Notices to Buyer shall be
addressed to:
CPQ Holdings, Inc.
40 Old Bolton Road, MSOGO1-2/T8
Stow, MA 01775
Attn: David Myers
Telecopy: 978-496-8104
With a copy to:
CPQ Holdings, Inc.
20555 S.H. 249
Houston, TX 77070
Attn: General Counsel
Telecopy: 281-518-1388
Section 8.5 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns, provided that the rights of Buyer under the other provisions hereof
shall not be binding upon or inure to the benefit of any transferee in a public
offering or in a Rule 144 sale.
Section 8.6 Headings. The Section, Article and other headings contained
in this Agreement are inserted for convenience of reference only and will not
affect the meaning or interpretation of this Agreement. All references to
Sections or
14
<PAGE> 18
Articles contained herein mean Sections or Articles of this Agreement unless
otherwise stated.
Section 8.7 Amendments and Waivers. This Agreement may not be modified
or amended except by an instrument or instruments in writing signed by the party
against whom enforcement of any such modification or amendment is sought. Either
party hereto may, only by an instrument in writing, waive compliance by the
other party hereto with any term or provision hereof on the part of such other
party hereto to be performed or complied with. The waiver by any party hereto of
a breach of any term or provision hereof shall not be construed as a waiver of
any subsequent breach.
Section 8.8 Interpretation; Absence of Presumption.
(a) For the purposes hereof, (i) words in the singular shall be held to
include the plural and vice versa and words of one gender shall be held to
include the other gender as the context requires, (ii) the terms "hereof",
"herein", and "herewith" and words of similar import shall, unless otherwise
stated, be construed to refer to this Agreement as a whole (including all of the
Schedules and Exhibits hereto) and not to any particular provision of this
Agreement, and Article, Section, paragraph, Exhibit and Schedule references are
to the Articles, Sections, paragraphs, Exhibits and Schedules to this Agreement
unless otherwise specified, (iii) the word "including" and words of similar
import when used in this Agreement shall mean "including, without limitation,"
unless the context otherwise requires or unless otherwise specified, (iv) the
word "or" shall not be exclusive, and (v) provisions shall apply, when
appropriate, to successive events and transactions.
(b) This Agreement shall be construed without regard to any presumption
or rule requiring construction or interpretation against the party drafting or
causing any instrument to be drafted.
Section 8.9 Severability. Any provision hereof which is invalid or
unenforceable shall be ineffective to the extent of such invalidity or
unenforceability, without affecting in any way the remaining provisions hereof.
Section 8.10 Further Assurances. The Company and Buyer agree that, from
time to time, whether before, at or after any Closing Date, each of them will
execute and deliver such further instruments of conveyance and transfer and take
such other action as may be necessary to carry out the purposes and intents
hereof.
Section 8.11 Specific Performance. Buyer and the Company acknowledge
that, in view of the uniqueness of the parties hereto, the parties hereto would
not have an adequate remedy at law for money damages in the event that this
Agreement were not performed in accordance with its terms, and therefore agree
that the parties hereto shall be entitled to specific enforcement of the terms
hereof in addition to any other remedy to which the parties hereto may be
entitled at law or in equity.
Section 8.12 Interpretation of Schedules. Any matter set forth on any
Schedule shall be deemed to be referred to on all other Schedules to which such
matter
15
<PAGE> 19
logically relates and where such reference would be appropriate and can
reasonably be inferred from the matters disclosed on the first Schedule as if
set forth on such other Schedules.
16
<PAGE> 20
IN WITNESS WHEREOF, this Agreement has been signed by or on behalf of
each of the parties hereto as of the day first above written.
FUTURELINK CORP.
By: /s/ RAGHUNATH KILAMBI
---------------------------------
Name: Raghunath Kilambi
Title: Executive Vice President
and Chief Financial Officer
CPQ HOLDINGS, INC.
By: /s/
----------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.12
ADDENDUM NO. 1 dated October 8, 1999 to the Employment Agreement dated
effective June 1, 1999,
BETWEEN:
FUTURELINK DISTRIBUTION CORP., a corporation incorporated pursuant to
the laws of the State of Colorado, with its head office in Irvine,
California (hereinafter referred to as "the Company")
OF THE FIRST PART
- and -
PHILIP R. LADOUCEUR, an individual resident in Calgary, Alberta
(hereinafter referred to as "the Officer")
OF THE SECOND PART
WHEREAS the Officer has served as Executive Chairman of the Company
since June 1, 1999 in accordance with an Employment Agreement between the
parties made effective that date (the "Employment Agreement");
AND WHEREAS on August 30, 1999, the Officer was named interim Chief
Executive Officer ("CEO") and President of the Company by the Company's Board of
Directors;
AND WHEREAS the Officer has since resigned as President but continues
to serve as CEO:
AND WHEREAS the Company wishes to modify the terms of the Employment
Agreement by way of this Amending Agreement to reflect the Officer's status as
Executive Chairman and CEO such that the specific terms of this Amending
Agreement shall modify or supersede the Employment Agreement;
THEREFORE, for and in consideration of the sum of $10.00 now paid by
each party to the other party (the receipt and sufficiency of which is hereby
acknowledged by each of the parties hereto) and the mutual covenants and
agreements hereinafter contained, the parties hereto covenant and agree, each
with the other, that the Employment Agreement is amended as follows:
1. EXECUTIVE CHAIRMAN AND CEO
Section 2 of the Employment Agreement is deleted in its entirety and
the following is substituted therefor:
<PAGE> 2
2
2. EXECUTIVE CHAIRMAN & CEO
The Company agrees to employ the Officer during the term of
the Agreement as Executive Chairman and CEO of the Company, with power
and authority to manage, supervise and direct all aspects of the
Company's business and affairs, with an emphasis on public and private
financings, mergers and acquisitions, regulatory compliance and general
corporate strategy, and to undertake such other duties as may from time
to time be assigned to or vested in the Officer by the Board of
Directors of the Company, subject always to the control and direction
of the Board of Directors of the Company.
The Officer agrees, during the term of this Agreement, to
devote his full business time, attention and abilities to the business
and affairs of the Company and to serve the Company faithfully and use
the Officer's best efforts to promote the interests of the Company. The
Officer shall be free to assume non-executive and non-management roles
with other organizations, including without limitation serving on the
Boards of Directors of companies and non-profit (community) activities
that are not affiliated with the Company, but shall provide the Company
with notice of such other commitments.
2. REMUNERATION
Section 3 of the Employment Agreement is deleted in its entirety and
the following is substituted therefor:
3. REMUNERATION
(a) Effective October 1, 1999, the Company agrees to pay the
Officer a base salary of $200,000.00 (U.S.) per annum. The
Company agrees to review the Officer's base salary annually
(such review to be completed by May 1st of each year of this
Agreement) and agrees that following each such review, the
then current base salary may be increased to reflect the
Officer's performance, the Company's performance and other
relevant factors;
(b) In addition to the foregoing, the Company shall pay to the
Officer an Annual Performance Bonus in an amount up to
$400,000.00 (U.S.) per annum. The Annual Performance Bonus
shall be comprised of a maximum of two Bonus Interval
Performance Payments and shall be based on the Officer's
performance, the Company's performance and other relevant
factors, including the following:
(A) the Annual Performance Bonus shall be based on two
separate six month intervals (the "Bonus Intervals"),
being July 1 to December 31 and January 1 to June 30,
hereafter;
<PAGE> 3
3
(B) in the event that the Company achieves its
capitalization and revenue objectives as set forth in
the Company's Business Plan for the applicable
period, as approved by the Board of Directors before
or during the Bonus Interval in question, the Company
shall pay to the Officer a Bonus Interval Performance
Payment of $100,000.00 (US) within sixty (60) days of
the end of the Bonus Interval; and
(C) in the event that the Company exceeds the
capitalization and revenue objects set forth in the
Company's Business Plan for the Bonus Interval in
question by more than 20%, the Company shall pay to
the Officer a further Bonus Interval Performance
Payment of an additional $100,000.00 (US), also to be
paid within sixty (60) days of the end of the Bonus
Interval.
3. NOTICE
Any notice or other instrument which may be required or permitted to be
delivered or served on the other party to the Employment Agreement, as amended,
shall be sufficiently given to or served on such party if in writing and
delivered by hand in a sealed envelope addressed to such party and left, during
normal business hours, at the following addresses:
(a) if to the Officer:
PHILIP R. LADOUCEUR
119 Valley Ridge Green N.W.
Calgary, AB T3B 5L5
(b) if to the Company:
FUTURELINK DISTRIBUTION CORP.
Suite 100, 6 Morgan
Irvine, California 92618
Attention: President
with a copy to:
Paul Hastings Janofsky & Walker LLP
17th Floor, 695 Town Center Drive
Costa Mesa, California
Attention: Stephen D. Cooke
<PAGE> 4
4
Either the Company or the Officer may, by notice delivered in
accordance with this section, change the address for notices set out above.
4. NO CHANGE OF CONTROL
The Officer hereby acknowledges that neither the Company's proposed
acquisition of Executive LAN Management, Inc. d.b.a. Micro Visions or the
proposed private placement financing of approximately $50,000,000 to be placed
by Gerard Klauer Mattison for the Company constitute a "Change of Control" under
the terms of the Employment Agreement.
The parties hereto have duly executed this Amending Agreement to the
Employment Agreement as of the 8th day of October 1999.
FUTURELINK DISTRIBUTION CORP.
Per: /s/ Glen C. Holmes
-------------------------------------
Glen C. Holmes
President and Chief Operating Officer
Per: /s/ R. Kilambi
-------------------------------------
Raghu Kilambi
Executive Vice-President and
Chief Financial Officer
/s/ K.B. Scott /s/ Philip R. Ladouceur
- ----------------------------- -------------------------------------
Witness as to the signature of PHILIP R. LADOUCEUR
PHILIP R. LADOUCEUR
<PAGE> 5
THIS AGREEMENT made effective the first day of June, 1999.
BETWEEN:
FUTURELINK DISTRIBUTION CORP., a corporation incorporated pursuant to
the laws of the State of Colorado, with a head office in Calgary,
Alberta (hereinafter referred to as "the Company")
OF THE FIRST PART
- and -
PHILIP R. LADOUCEUR, an individual resident in Calgary, Alberta
(hereinafter referred to as "the Officer")
OF THE SECOND PART
WHEREAS the Officer has been offered employment with the Company as
Executive Chairman pursuant to the provisions of verbal and written offers of
employment, the terms of which the Company and the Officer wish to supersede by
this Agreement;
AND WHEREAS the Board of Directors of the Company recognizes that the
Officer will make valuable contributions to the productivity and profitability
of the Company and that the Officer has specific expertise relating to and an
extensive knowledge of the business of the Company and its affiliated or
associated companies and that it is in the best interests of the Company to
secure the future employment of the Officer with the Company pursuant to the
provisions of this Agreement;
AND WHEREAS the Company and the Officer have agreed that the employment
of the Officer by the Company will be in accordance with the provisions of this
Agreement;
THEREFORE, for and in consideration of the sum of $10.00 now paid by
each party to the other party (the receipt and sufficiency of which is hereby
acknowledged by each of the parties hereto) and the mutual covenants and
agreements hereinafter contained, the parties hereto covenant and agree, each
with the other, as follows:
1. DEFINITIONS
In addition to the terms defined elsewhere in this Agreement, the
following terms shall have the following meanings:
<PAGE> 6
-2-
"CHANGE OF CONTROL" means:
(i) any change in the registered holdings and/or beneficial
ownership of the outstanding Common Shares of the Company
which results in:
(A) a Person or group of Persons "acting jointly or in
concert" (as defined in the Securities Act, S.A.,
1981, c. S-6.1, as amended from time to time); or
(B) an "affiliate" or "associate" (as defined in the
Business Corporations Act, S.A. 1981, c. B-15, as
amended from time to time) of such Person or group of
Persons
being in a position to exercise effective control of the
Company which, for the purposes of this clause, shall be
deemed to be any Person or group of Persons holding, owning or
controlling, directly or indirectly, more than 50% of the
outstanding Common Shares of the Company; or
(ii) Incumbent Directors no longer constituting a majority of the
Company's Board of Directors; or
(iii) the sale, lease or transfer of all or substantially all of the
Company's assets to any other Person or Persons; or
(iv) any determination by the majority of Incumbent Independent
Directors of the Company that a Change of Control has occurred
or is about to occur and any such determination shall be
binding and conclusive for all purposes of this Agreement;
"COMMON SHARES" means the shares of the Company's common stock which
are entitled to one vote per share at any meeting of the shareholders
of the Company;
"COMPENSATION" means the salary and all benefits which the Officer is
receiving or entitled to at the time of Change of Control, including
but not limited to bonuses, stock options, pension benefits, medical
plan benefits, vacation pay and any insurance premiums paid by the
Company for the Officer;
"INCUMBENT DIRECTORS" shall mean, at any time, those persons who were
directors of the Company as of the date hereof and continue to be at
such time and any other person who is a director at such time whose
election, or nomination for election , as a director by the Company's
shareholders, was approved by a majority of the Incumbent Directors at
the time of such election. The approval referred to in this definition
may be by either a specific vote or by approval of the proxy statement
of the Company in which such person is a nominee for director, without
objection to such nomination;
<PAGE> 7
-3-
"INCUMBENT INDEPENDENT DIRECTORS" shall mean, at any time, the
Incumbent Directors at such time who are not employees and officers of
the Company;
"PERSON" includes an individual, a partnership, a corporation and any
other entity or association;
"TERMINATION DATE" means:
(i) the effective date that the Officer's employment with the
Company is terminated by the Company without just cause; or
(ii) the date that the Officer provides to the Company written
notice of election to treat the Officer's employment as
terminated as contemplated by subsections 9(a)(ii) and
9(a)(iii) of this Agreement; and
"THIS AGREEMENT" and terms such as "HEREOF", "HEREIN" and similar
expressions mean this Agreement, as amended, supplemented or modified
in writing from time to time.
2. EXECUTIVE CHAIRMAN
The Company agrees to employ the Officer during the term of the
Agreement as Executive Chairman of the Company, with power and authority to
manage, supervise and direct the non-operational and public company aspects of
the Company's business and affairs, with an emphasis on public and private
financings, mergers and acquisitions, regulatory compliance and general
corporate strategy, and to undertake such other duties as may from time to time
be assigned to or vested in the Officer by the Board of Directors of the
Company, subject always to the control and direction of the Board of Directors
of the Company.
The Officer agrees, during the term of this Agreement, to devote the
majority of the Officer's working time, attention and abilities to the business
and affairs of the Company and to serve the Company faithfully and use the
Officer's best efforts to promote the interests of the Company. The Officer
shall be free to assume non-executive and non-management roles with other
organizations, but shall provide the Company with notice of such other
commitments.
3. REMUNERATION
(a) The Company agrees to pay the Officer a base salary of
$180,000.00 (U.S.) per annum. The Company agrees to review the
Officer's base salary annually (such review to be completed by
May 1st of each year of this Agreement) and agrees that
following each such review, the then current base salary may
be increased to reflect the Officer's performance, the
Company's performance and other relevant factors;
(b) In addition to the foregoing, the Company shall pay to the
Officer an Annual Performance Bonus in an amount up to
$360,000.00 (U.S.) per annum. The Annual
<PAGE> 8
-4-
Performance Bonus shall be comprised of a maximum of two Bonus
Interval Performance Payments and shall be based on the
Officer's performance, the Company's performance and other
relevant factors, including the following:
(i) the Annual Performance Bonus shall be based on two
separate six month intervals (the "Bonus Intervals"),
being July 1 to December 31 and January 1 to June 30,
hereafter;
(ii) in the event that the Company achieves its
capitalization and revenue objectives as set forth in
the Company's Business Plan for the applicable
period, as approved by the Board of Directors before
or during the Bonus Interval in question, the Company
shall pay to the Officer a Bonus Interval Performance
Payment of $90,000.00 (US) within sixty (60) days of
the end of the Bonus Interval; and
(iii) in the event that the Company exceeds the
capitalization and revenue objects set forth in the
Company's Business Plan for the Bonus Interval in
question by more than 20%, the Company shall pay to
the Officer a further Bonus Interval Performance
Payment of an additional $90,000.00 (US), also to be
paid within sixty (60) days of the end of the Bonus
Interval.
4. BENEFITS
The Officer shall be entitled to participate in the Company's employee
benefits plan as may be in effect at any given time, subject to satisfying any
insurability requirements established by the carrier or carriers that provide
the benefits.
5. EXPENSES
(a) The Company agrees that during the term of this Agreement the
Officer shall be reimbursed by the Company for all travelling
and other expenses actually and properly incurred by the
Officer in connection with the Officer's duties hereunder. The
Officer shall furnish to the Company statements and vouchers
for all such expenses in accordance with the Company's
reimbursement policy as established from time to time;
(b) The Company agrees that during the term of this Agreement the
Company shall pay to or on behalf of the Officer parking fees
for a location designated by the Company.
6. VACATION
During each year of the term of this Agreement the Officer shall be
entitled to five (5) weeks vacation provided that the timing of such vacation in
any year is subject to the reasonable direction of the Board of Directors of the
Company.
<PAGE> 9
-5-
7. STOCK OPTIONS
Subject to approval by relevant regulatory bodies and pursuant to
applicable securities legislation, the Company may during the term of this
Agreement grant options to purchase the shares of the Company as the
Compensation Committee of the Board of Directors may determine.
8. CONFIDENTIALITY, NON-COMPETITION AND NON-SOLICITATION
The Officer agrees as a condition of the Officer's employment hereunder
to execute the Confidentiality and Non-Competition Agreement which is attached
hereto as Schedule "A".
9. CHANGE OF CONTROL
In the event:
(a) a Change of Control occurs and in the further event that:
(i) the Officer's employment with the Company is
subsequently or contemporaneously terminated by the
Company without just cause within six (6) months of
the date of a Change of Control; or
(ii) the Officer does not continue to be employed by the
Company at a level of responsibility or a level of
Compensation at least commensurate with the Officer's
existing level of responsibility and Compensation
immediately prior to the Change of Control and the
Officer elects in a written notice to the Company
within six (6) months of the date of a Change of
Control to treat the Officer's employment as being
terminated as a result of either such reduction with
the said termination being effective as at the date
of the said written notice; or
(iii) the Officer elects in a written notice to the Company
within three (3) months of the date of a Change of
Control to terminate the Officer's employment
effective as at the date of the said written notice;
then the Company agrees to:
(b) pay to the Officer within one month following the Termination
Date, or at such other time as is mutually agreed upon between
the Company and the Officer, a settlement payment equal to the
total of:
(i) an amount equal to the product of the monthly salary
to which the Officer was entitled at the Termination
Date multiplied by twelve (12); plus
(ii) an amount equal to the product of the Company's
monthly premium contributions paid on behalf of the
Officer immediately prior to the
<PAGE> 10
-6-
Termination Date relating to the Company's employee
benefits plan multiplied by twelve (12); plus
(iii) an amount equal to the most recent Annual Performance
Bonus paid by the Company to the Officer prior to the
Termination Date conditional upon the said payment of
the most recent bonus having been made within the
period of twelve (12) months immediately prior to the
Termination Date;
(c) accelerate the vesting dates pursuant to any stock option
agreements between the Officer and the Company (the "Option
Agreement") to allow the Officer to exercise the option to
purchase shares granted thereby, with regard to that number of
shares in respect of which such option has not previously been
exercised, for a period of three (3) months commencing on the
Termination Date or the expiry time of such Option Agreement,
whichever occurs first. Any Option Agreement and any and all
rights the Officer has or may have pursuant to any Option
Agreement shall terminate and otherwise be extinguished on the
date three (3) months following the Termination Date. In the
event that any of the terms of such option are not
ascertainable or in the event that applicable securities
legislation precludes the acceleration of the vesting dates in
the manner described herein, the Company agrees to compensate
the Officer by way of a cash payment with that amount of money
which the Officer would have been entitled to if he had
exercised any such option on the Termination Date at the price
pursuant to the Option Agreement and sold the securities on
the NASDAQ Stock Exchange or, if the said shares are not
listed thereon or are listed on another Canadian of U.S. stock
exchange, on such stock exchange which the said shares are
listed as may be selected for such purpose by the Company's
Board of Directors, or if the said shares are not listed on
any stock exchange, then on the over-the-counter market. The
said trading price shall be based upon the weighted average
trading price of the Company's shares sold on the said
exchange or market, as the case may be, during the last five
days preceding the Termination Date on which the subject
securities were traded. In the event the foregoing cannot be
determined, then the current market price of the said shares
shall be established by a qualified independent valuer
approved by the independent members of the Board of Directors
of the Company. In the further event that such weighted
average trading price or current market price does not exceed
the exercise price, no compensation is payable by either party
with respect to the Option Agreement; and
(d) provide, at the Company's expense, relocation and financial
counselling to the Officer at a cost not to exceed $10,000.00
with the Officer having the right, in the Officer's sole and
absolute discretion, to receive payment of $10,000.00 in lieu
of the said relocation and financial counselling services.
<PAGE> 11
-7-
10. TERM AND TERMINATION OF AGREEMENT
(a) Subject to the provisions of section 9 of this Agreement
pertaining to a Change of Control situation or the provisions
of section 14 pertaining to a termination for just cause, this
Agreement shall continue and remain in full force until
terminated by either the Company or the Officer in accordance
with the provisions outlined below;
(b) The Officer shall have the right to terminate this Agreement
and the Officer's employment hereunder by providing the
Company with written notice to that effect which notice shall
provide for a Termination Date which is effective one month
after the giving of the notice. The Officer shall receive the
Remuneration, Benefits and Expenses contemplated by this
Agreement up to and including the effective Termination Date
and the Officer shall not be entitled to any other
remuneration, reimbursement or payment whatsoever;
(c) The Company shall have the right to terminate this Agreement
and the Officer's employment hereunder at any time without
just cause by providing the Officer with written notice to
that effect which notice shall provide for a Termination Date
which is effective as of the date of the said notice and the
Company shall, at the same time, do the following:
(i) pay to the Officer within one month following the
Termination Date, or at such other time as is
mutually agreed upon between the Company and the
Officer, a settlement payment equal to the total of:
(1) an amount equal to the product of the
monthly base salary to which the Officer was
entitled at the Termination Date multiplied
by twelve (12); plus
(2) an amount equal to the product of the
Company's monthly premium contributions paid
on behalf of the Officer immediately prior
to the Termination Date relating to the
Company's employee benefits plan multiplied
by twelve (12);
(3) an amount equal to the most recent Annual
Performance Bonus paid by the Company to the
Officer prior to the Termination Date
conditional upon the said payment of the
most recent bonus having been made within
the period of twelve (12) months immediately
prior to the Termination Date;
(ii) provide, at the Company's expense, relocation and
financial counselling to the Officer at a cost not to
exceed $10,000.00 with the Officer having the right,
in the Officer's sole and absolute discretion, to
receive payment of $10,000.00 in lieu of the said
relocation and financial counselling services;
(d) The employment of the Officer by the Company shall be deemed
to be terminated by the Company pursuant to subsection 10(c)
if the Company unilaterally changes the
<PAGE> 12
-8-
terms of the employment relationship such that the Officer
does not continue to be employed by the Company at a level of
responsibility or a level of Compensation at least
commensurate with the Officer's existing level of
responsibility and Compensation immediately prior to the said
change and the Officer elects in a written notice to the
Company to treat the Officer's employment as being terminated
as a result of either such reduction with the said termination
being effective as at the date of the said written notice.
11. RELEASE
In consideration of the payment to the Officer of the aforesaid amounts
and the additional provisions of this Agreement, the Officer agrees to tender
the Officer's immediate resignation in a form satisfactory to the Company acting
reasonably and forever release and discharge the Company from any and all
obligations to pay any further amounts or benefits to the Officer with respect
to the Officer's employment or the termination thereof.
12. DUTY TO MITIGATE
The Officer shall be under no duty to mitigate the Officer's losses
with respect to the termination of the Officer's employment with the Company.
13. SUBSEQUENT EMPLOYMENT
The Officer shall not be bound in any manner whatsoever to rebate to
the Company nor to forgive any claim against the Company with respect to any
amounts or benefits payable hereunder in the event of the Officer's subsequent
reemployment in any manner whatsoever.
14. TERMINATION FOR CAUSE
Notwithstanding the other provisions of this Agreement, the Company
shall be entitled to terminate this Agreement and the Officer's employment
hereunder forthwith for just cause without any further notice or payment in lieu
of notice. In the event of such termination for just cause, the other provisions
of this Agreement shall not apply.
15. PRIOR AGREEMENTS/ENTIRE AGREEMENT
It is acknowledged and agreed by the Company and the Officer that this
Agreement, including the attached Schedule, constitutes the entire agreement
between the parties and that any and all prior agreements, written or verbal,
express or implied, between the parties relating to or in any way connected with
the employment of the Officer by the Company are hereby rendered null and void
and are superseded by the terms of this Agreement.
<PAGE> 13
-9-
16. APPLICABLE LAWS
This Agreement shall be construed in accordance with the laws in effect
in the Province of Alberta and the parties hereto hereby attorn to the Courts of
the Province of Alberta and, if applicable, the Courts of Canada.
17. FURTHER ASSURANCES
Each of the parties shall from time to time and at all times do all
such further acts and execute and deliver all such further deeds and documents
as shall be reasonably required in order to fully perform the terms of this
Agreement.
18. ENUREMENT
This Agreement shall enure to the benefit of and be binding upon the
parties and their respective heirs, executors, administrators, successors and
assigns.
19. NOTICE
Any notice or other instrument which may be required or permitted to be
delivered or served on the other party hereto shall be sufficiently given to or
served on such party if in writing and delivered by hand in a sealed envelope
addressed to such party and left, during normal business hours, at the following
addresses:
(a) if to the Officer:
PHILIP R. LADOUCEUR
119 Valley Ridge Green N.W.
Calgary, AB
T3B 5L5
(b) if to the Company:
FUTURELINK DISTRIBUTION CORP.
300, 250 - 6th Avenue S.W.
Calgary, AB
T2P 3H7
Attention: Corporate Secretary
with a copy to:
<PAGE> 14
-10-
Code Hunter Wittmann
1200, 700 - 2nd Street S.W.
Calgary, Alberta
T2P 4V5
Attention: Eric R. Holden
Either the Company or the Officer may, by notice delivered in
accordance with this section, change the address for notices set out above.
The parties hereto have duly executed this Agreement as of the date
first above written.
FUTURELINK DISTRIBUTION CORP.
Per: /s/ C. Chell
-------------------------------------
Cameron B. Chell
President and Chief Executive Officer
/s/ Ora Zabloski /s/ Philip R. Ladouceur
- -------------------------------- -------------------------------------
Witness as to the signature of PHILIP R. LADOUCEUR
PHILIP R. LADOUCEUR
<PAGE> 15
SCHEDULE "A"
CONFIDENTIALITY AND NON-COMPETITION AGREEMENT
THIS AGREEMENT made effective this first day of June, 1999.
BETWEEN:
FUTURELINK DISTRIBUTION CORP., a body corporate, incorporated under the
laws of the State of Colorado and with a head office in Calgary,
Alberta (hereinafter referred to as the "Company")
- and -
PHILIP R. LADOUCEUR, an individual resident in Calgary, Alberta
(hereinafter referred to as the "Officer")
WHEREAS the Company, either directly or through its affiliated or
associated companies, carries on business consisting principally of computer
utility services that include Application Service Provision, computer
infrastructure management, computer network outsourcing and IT business
consulting;
AND WHEREAS the Officer has been a director of the Company and the
Company has recently made an offer of employment to the Officer as Executive
Chairman, which offer has been accepted, necessitating a formal employment
agreement between the Officer and the Company, which includes this Agreement;
AND WHEREAS the Company and the Officer both agree that it is
reasonable and necessary for the Officer to execute and deliver this Agreement
concurrent with the Officer's acceptance of the new position;
<PAGE> 16
-2-
NOW THEREFORE in consideration of the sum of ten ($10.00) dollars now
paid by each party to the other, the receipt and sufficiency of which is hereby
acknowledged, and for other good and valuable consideration, the Officer hereby
covenants and agrees with the Company as follows:
CONFIDENTIALITY
1. The Officer acknowledges that in the course of employment, the Officer will
receive, have access to and be entrusted with information which is strictly
confidential, not publicly known, has value from not being publicly known, and
is subject to efforts of the Company or its affiliated or associated companies
to maintain its confidentiality. This information shall include, but shall not
be limited to:
(1) existing and prospective business opportunities, including all
ventures considered by the Company, whether or not they are
pursued;
(2) information regarding the development, marketing, sale and
maintenance of computer utility services that include
Application Service Provision ("ASP"), computer infrastructure
management, IT business consulting, out-sourced computer
network management and all other related services;
(3) financial and marketing strategies relating to ASP, including
existing and prospective acquisitions, mergers, business
arrangements, sales arrangements, contracts and concepts;
(4) information regarding acquisition financing and partnerships,
including existing and prospective financing concepts and
co-ventures;
(5) customer information, including customer names, addresses,
contacts, and details of pricing, budgeting, marketing and
supply strategies and information;
<PAGE> 17
-3-
(6) supplier information, including supplier names, addresses,
contacts and details of supply contracts;
(7) financial information, including the Company's business plans,
financial statements, and accounting records;
(h) matters of a business nature or of a technical nature,
including, but not limited to: corporate strategies; marketing
research, strategies and methods; product research and
development; business systems, policies and procedures;
strategic ideas; inventions (whether patentable or not); and
computer systems, software and databases;
(i) concepts, strategies, research methodologies and other related
ideas and processes which form the basis for the proposals
which the Company or its affiliated or associated companies
prepare for customers;
(j) information that the Company or its affiliated or associated
companies acquires during the course of completing projects
for its customers, including information regarding clients or
customers, their competitors and their marketplace;
(k) concepts and technical and other information regarding the
development and maintenance of the computer hardware and
software of the Company or its affiliated or associated
companies and their suppliers.
All such information and the documents or records containing information
furnished to or received by the Officer, together with any and all analyses,
compilations, studies or other documents prepared or obtained by the Officer
which contains or otherwise reflects such information, shall be hereinafter
referred to as the "Information".
<PAGE> 18
-4-
2. Information as hereinbefore defined does not include the following:
(1) knowledge or documents within the public domain at the time of
its use or disclosure;
(2) knowledge or documents already possessed by the Officer prior
to becoming a Director or commencing employment with the
Company;
(3) knowledge or documents independently received by the Officer
without obligation or confidence from a third party which do
not relate to the Officer's employment; or
(4) knowledge or documents required to be disclosed pursuant to an
order from a court of competent jurisdiction.
3. The Officer acknowledges and agrees:
(1) that the Information embodies creative efforts and has been
obtained and developed at significant effort or cost to the
Company or its affiliated or associated companies;
(2) that the Information is commercially valuable;
(3) that the Information is the exclusive property of the Company
or its affiliated or associated companies;
(4) that the Company or its affiliated or associated companies
have the right to maintain the confidentiality of the
Information and such rights constitute proprietary rights
which the Company is entitled to protect; and
(5) that use or disclosure, either directly or indirectly, of the
Information by or to anyone, but particularly to the public or
competitors of the Company or its affiliated or
<PAGE> 19
-5-
associated companies, could be highly detrimental to the
interests of the Company or its affiliated or associated
companies.
4. The Officer agrees, during the course of employment and after termination of
the employment relationship for any reason or by any means, to keep confidential
and refrain from using or disclosing, directly or indirectly, any of the
Information for any purpose other than carrying out the Officer's duties for the
Company. Without limiting the generality of the foregoing, the Officer shall
not:
(1) use the Information for the Officer's personal benefit or the
benefit of any third party;
(2) use the Information in any way detrimental to the Company or
its affiliated or associated companies;
(3) copy, disclose, divulge, publish, transcribe or transfer the
Information in any manner whatsoever in whole or in part
except as is required to perform the Officer's duties as an
Officer of the Company;
(4) disclose that the Information has been made available to the
Officer; or
(5) disclose that the Officer's engagement with the Company
enables the Officer to have access to the Information.
5. The Officer shall:
(1) take precautions to maintain the confidentiality of the
Information; and
(2) use the Officer's best efforts to prevent any person from
making unauthorized use of the Information.
<PAGE> 20
-6-
6. The Officer agrees that all matters comprising the Information which are
made, devised, or worked on by the Officer during the course of the Officer's
employment with the Company are the sole and exclusive property of the Company
and that the Officer has no proprietary rights therein.
7. The Officer agrees that the Officer shall disclose and assign to the Company
as its exclusive property all proprietary rights, patent rights, copyrights,
trade secrets, confidential information and any other intellectual or industrial
proprietary rights relating to the business and operations of the Company or its
affiliated or associated companies, or relating to the Information, which: are
developed or conceived (whether alone or with others) during the Officer's
employment with the Company or are suggested by any work that the Officer may do
for the Company or its affiliated or associated companies, or are otherwise made
through the use of any of the Company's or its affiliated or associated
companies' time, facilities, materials, or services.
8. The Officer agrees that the Officer shall execute, during and after the
Officer's employment with the Company, any necessary papers, and provide other
proper assistance, at the Company's expense, to enable the Company or its
affiliated or associated companies to obtain any patents, copyrights or other
legal protection for any of the Company's or its affiliated or associated
companies' proprietary rights, intellectual property or Information. In the
event that any concept, invention, discovery or design developed by the Officer
for the Company is patented, developed, registered or published, the Company
shall acknowledge the Officer as the author or co-author, as the case may be.
9. The Officer agrees that the Information is the sole and exclusive property of
the Company and that immediately upon termination, or at any time upon demand of
the Company, the Officer shall return or supply to the Company any and all
Information in the Officer's possession, any analysis or derivative work
relating to the Information, and no copies of the Information, analysis or
derivative work shall be made or retained.
<PAGE> 21
-7-
COVENANT AGAINST COMPETITION
10. The Officer acknowledges that by reason of employment with the Company, the
Officer will develop a close working relationship with the Company's or its
affiliated or associated companies' customers, suppliers, agents, and other
similar parties, gaining knowledge of the Company's or its affiliated or
associated companies' methods of operation, and acquire and be exposed to
Information, all of which would cause irreparable harm and injury to the Company
or its affiliated or associated companies if made available to a competitor or
if used for competitive purposes.
11. The Officer agrees that the Company has a material interest in protecting
the relationships it has developed with its customers, suppliers, agents, and
other similar parties against impairment by competitive activities of a former
officer and employee.
12. During the period of employment with the Company and for a period of twelve
(12) months after the termination of the Officer's employment with the Company,
whether with or without proper notice or just cause, the Officer shall not:
(1) either directly or indirectly, as principal, agent, owner,
partner, shareholder, director, officer, employee or
otherwise, own, operate, be engaged in, be concerned with the
operation of or directly or indirectly have any financial or
other interest in any business operation, whether a
proprietorship, partnership, joint venture or corporation or
otherwise, carrying on or engaged in a business which competes
with the business of the Company or its affiliated or
associated companies anywhere in Calgary, Alberta; Tampa,
Florida; Los Angeles, California; Irvine, California; Phoenix,
Arizona; Atlanta, Georgia; Raleigh-Durham, North Carolina; Las
Vegas, Nevada; Houston, Texas and Seattle, Washington and
within a fifty (50) kilometre radius of the municipal
boundaries of the said cities and anywhere within any other
city in the Province of Alberta and the states of Florida,
California, Nevada, Washington, Arizona, Georgia, Texas and
North Carolina and within a fifty (50) kilometre radius
<PAGE> 22
-8-
of the said other city or cities where the Company actively
provides work or services for customers at the time of the
said termination of the Officer's employment;
(2) call upon, solicit or attempt to solicit, or be interested in
or connected, either directly or indirectly, with any business
operation that calls upon, solicits or attempts to solicit any
customer or prospective customer of the Company or its
affiliated or associated companies anywhere in Calgary,
Alberta; Tampa, Florida; Los Angeles, California; Irvine,
California; Phoenix, Arizona; Atlanta, Georgia;
Raleigh-Durham, North Carolina; Las Vegas, Nevada; Houston,
Texas and Seattle, Washington and within a fifty (50)
kilometre radius of the said cities and anywhere within any
other city in the Province of Alberta and the states of
Florida, California, Nevada, Washington, Arizona, Georgia,
Texas and North Carolina and within a fifty (50) kilometre
radius of the said other city or cities where the Company
actively provides work or services for customers at the time
of the said termination of the Officer's employment; or
(3) either directly or indirectly, contact any of the clients or
suppliers anywhere in Calgary, Alberta; Tampa, Florida; Los
Angeles, California; Irvine, California; Phoenix, Arizona;
Atlanta, Georgia; Raleigh-Durham, North Carolina; Las Vegas,
Nevada; Houston, Texas and Seattle, Washington and within a
fifty (50) kilometre radius of the municipal boundaries of the
said cities and anywhere within any other city in the Province
of Alberta and the states of Florida, California, Nevada,
Washington, Arizona, Georgia, Texas and North Carolina and
within a fifty (50) kilometre radius of the said other city or
cities where the Company actively provides work or services
for customers at the time of the said termination of the
Officer's employment which the Officer contacted, served or
developed on behalf of the Company or its affiliated or
associated companies during the Officer's employment with the
purpose or intent of competing with the Company or its
affiliated or associated companies.
<PAGE> 23
-9-
(4) solicit, hire, or retain any other employee of the Company or
its affiliated or associated companies so as to cause or
otherwise encourage such employee to cease his or her
employment with the Company or its affiliated or associated
companies.
13. The Officer agrees and acknowledges that the foregoing time and geographic
limitations in paragraph 12 are reasonable and properly required for the
adequate protection of the business interests of the Company or its affiliated
or associated companies, and in the event that any limits with respect to
capacities, activities, time periods or geographic areas are found to be
unreasonable by a court of competent jurisdiction, then the Officer agrees to be
bound to such reduced limits with respect to capacities, activities, time
periods or geographic areas as the said court deems to be reasonable.
14. The Officer understands and agrees that the restrictions and covenants
contained in paragraph 12 constitute a material inducement to the Company to
enter into this Agreement and to employ the Officer, and that the Company would
not enter into this Agreement absent such inducement.
MISCELLANEOUS
15. The Officer understands, acknowledges, covenants and agrees that compliance
with the terms and conditions of this Agreement is necessary to protect the
Information and the economic position of the Company or its affiliated or
associated companies and that in the event of a breach or a threatened breach by
the Officer of any of the provisions of this Agreement, the Company, in addition
to and not in limitation of any other rights, remedies or damages available to
it at law or in equity, shall be entitled to an injunction in order to prevent
or to restrain any such breach or threatened breach by the Officer, or by any of
the Officer's agents, representatives, employees or advisors and any and all
persons directly or indirectly acting for or on behalf of the Officer.
<PAGE> 24
-10-
16. The Company may exercise any remedies herein agreed to at such times and in
such order as it may choose and such remedies shall be cumulative and may be
exercised independently or jointly as decided by the Company.
17. In the event that the Company retains counsel in order to enforce its rights
under this Agreement and a court of competent jurisdiction determines the
Officer is in breach of this Agreement, the Company shall be entitled to
recover, in addition to any other relief available, its related expenses and
costs on a solicitor and client basis.
18. This Agreement shall be construed and enforced in accordance with the laws
of the Province of Alberta and each of the parties hereto hereby irrevocably
attorns to the jurisdiction of the courts of the Province of Alberta.
19. No waiver by or on behalf of the Company of any breach by the Officer of any
of the provisions of this Agreement shall take effect or be binding upon the
Company unless the same is expressed in writing, and signed by a duly authorized
representative of the Company and, in any event, any waiver so expressed shall
not limit or affect the Company's rights with respect to any other or future
breach by the Officer of any provision of this Agreement.
20. No delay, or failure, of the Company to exercise any right hereunder, and no
partial or single exercise thereof, shall be deemed to constitute a waiver of
such right, or any other rights hereunder. Any consent by the Company, or any
waiver of, or breach of any express or implied term of this Agreement, shall not
constitute a consent to, waiver of, or excuse of any subsequent or other breach
of any expressed or implied term of this Agreement.
21. All the clauses of this Agreement are distinct and severable and if any
clause shall be held illegal or void, it shall not affect the validity or
legality of the remaining clauses of this Agreement. If any clause or part
thereof shall be held illegal or void, the parties shall negotiate in good faith
a modification of such clause, so as to maintain, insofar as is practical and
lawful, the intent of such clause.
<PAGE> 25
-11-
22. The covenants by the Officer in this Agreement shall survive notwithstanding
termination of employment for any reason whatsoever.
23. The recitals to this Agreement form part hereof and are to be construed and
interpreted as such.
24. The captions and headings used in this Agreement are for convenience only
and do not constitute substantive matter to be considered and construed in the
terms of this Agreement.
25. The within Agreement contains the entire agreement between the parties with
respect to the matters herein and any agreements, verbal representations or
warranties made by any of the parties prior to the date hereof with respect to
the matters herein are hereby rendered null and void.
26. Time shall be of the essence in this Agreement.
27. Any word used in this Agreement is deemed to include the masculine, feminine
or neuter form thereof as the context so requires.
28. This Agreement shall enure to the benefit of and be binding upon the parties
hereto and their respective heirs, executors, administrators, successors and
permitted assigns.
29. The Officer acknowledges and agrees that the Officer has carefully read and
considered the provisions of this Agreement and, having done so, agrees that the
restrictions set forth are fair and reasonable and are reasonably required for
the protection of the Company or its affiliated or associated companies.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as
of the day and year first above written.
<PAGE> 26
-12-
FUTURELINK DISTRIBUTION CORP.
Per: /s/ C. Chell
-------------------------------------
Cameron B. Chell,
President and Chief Executive Officer
SIGNED, SEALED AND DELIVERED
in the presence of:
/s/ Ora Zabloski /s/ Philip R. Ladouceur
- -------------------------------- -------------------------------------
Witness PHILIP R. LADOUCEUR
<PAGE> 1
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
as of September 30, 1999, by and between FUTURELINK DISTRIBUTION CORP., a
Colorado corporation (the "Company"), and GLEN C. HOLMES ("Executive").
I.
EMPLOYMENT
I.1 Position and Duties. The Company hereby engages and employs
Executive as President for the term set forth in this Agreement.
The Company's Board of Directors (the "Board") may provide such
additional designations of title to Executive as the Board, in its discretion,
may deem appropriate. Executive shall perform the executive duties and functions
related to the above positions, subject to the reasonable limitations of
authority set forth from time to time in the resolutions of the Board and
applicable law.
I.2 Best Efforts. Executive agrees to devote his full time and
attention to the Company, to use his best efforts to advance the business and
welfare of the Company, to render his services under this Agreement fully,
faithfully, diligently, competently and to the best of his ability, and not to
engage in any other employment activities. Notwithstanding anything herein to
the contrary, Executive shall not be precluded from (a) engaging in charitable
activities and community affairs; (b) managing his personal investments and
affairs, provided that such activities do not materially interfere with the
proper performance of his duties and responsibilities under this Agreement; or
(c) owning up to 1% of a publicly-held company engaged in the same or similar
business as the Company.
II.
COMPENSATION AND BENEFITS
II.1 Base Salary. For all services to be rendered by Executive under
this Agreement, the Company agrees to pay Executive an annual base salary of not
less than $200,000, less deductions required by law, payable in accordance with
the normal payroll practices of the Company.
II.2 Bonus. Within 10 days following each calendar quarter during the
term of this Agreement, the Company shall pay to Executive a minimum bonus of
$50,000 per quarter, and a discretionary performance bonus, as determined by the
board.
II.3 Other Benefits. The Company shall further provide to Executive the
following other benefits:
a) an annual vacation leave of a minimum of three (3) weeks per
calendar year at full pay;
b) a grant of options to purchase 100,000 shares of the Company's
Common Stock at $5.00 per share, vesting 50% on grant, and 25% annually
thereafter; and
<PAGE> 2
c) full participation, on a basis commensurate with his position
with the Company, in all plans of life, accident, disability and health
insurance that generally are made available to senior executives of the Company.
II.4 Expense Reimbursement. The Company shall promptly reimburse
Executive for all actual and reasonable business expenses incurred by Executive
in promoting the business of the Company, including expenditures for
entertainment, travel, or other expenses, provided that (a) such expenditures
are of a nature qualifying them as legitimate business deductions and (b)
Executive furnishes to the Company adequate records and other documentary
evidence reasonably required by the Company to substantiate such expenditures.
III.
TERMINATION AND SEVERANCE PAY
III.1 At Will. Executive and the Company acknowledge and agree that
Executive's employment with the Company is expressly "at-will" both during and
after the term of this Agreement. This means that either party may terminate
Executive's employment with or without cause. Any termination of Executive's
employment is, however, subject to the terms and provisions of this Agreement as
to severance pay and other obligations.
III.2 Involuntary Termination.
a) Severance Pay. In the event that Executive's employment with
the Company is terminated by the Company for Cause (as defined in Section 3.3),
Executive shall be entitled to no severance pay. In the event that Executive's
employment with the Company is terminated by the Company other than for Cause,
then in consideration of Executive's compliance with his obligations under
Article V and Article VI and Executive's execution of a general release in favor
of the Company, Executive shall be entitled to severance pay ("Severance Pay")
in the form of (i) monthly payments to Executive in the amount of Executive's
monthly base salary and minimum bonus as in effect on the date of termination,
payable in accordance with customary payroll practices, for 18 months following
such termination. Executive shall also be entitled to Severance Pay if his
employment is terminated for any reason by the Company, or its successors,
within eighteen months of a Corporate Transaction, as defined below in Section
3.4, or the transfer of Company stock consisting of more than fifty percent
(50%) of the total combined voting power of the Company's outstanding
securities. Executive acknowledges and agrees that in the event Executive
breaches any provision of Article V or Article VI, his right to receive
severance payments under this Section 3.2(a) shall automatically terminate.
b) Benefits. Following termination, Executive shall cease to be a
Company employee and shall not be entitled to any employee benefits. This shall
not preclude Executive from exercising his COBRA benefits under applicable law.
III.3 Cause. For purposes of this Agreement, "Cause" shall mean (i) the
willful refusal of Executive to comply with a lawful instruction of the Board;
(ii) an act or acts of personal dishonesty by Executive that were intended to
result in personal enrichment of
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<PAGE> 3
Executive at the expense of the Company; (iii) Executive's conviction of any
felony involving an act of moral turpitude; or (iv) Executive's gross
negligence, gross incompetence, willful insubordination or misconduct,
intentional or persistent failure to perform stated duties or abide by the
Company's policies, or material breach of any provision of this Agreement,
including without limitation any representation or covenant contained in Article
V or Article VI of this Agreement.
III.4 Corporate Transaction. Corporate Transaction shall mean either of
the following transactions to which the Company is a party: a merger or
consolidation in which securities possessing more than fifty percent (50%) of
the total combined voting power of the Company's outstanding securities are
transferred to a person or persons different from the persons holding those
securities immediately prior to such transaction, or the sale, transfer or other
disposition of all or substantially all of the Company's assets in complete
liquidation or dissolution of the Company.
III.5 Voluntary Termination.
a) Severance Pay. In the event Executive voluntarily terminates
his employment with the Company without Good Reason (as defined in Section 3.6),
Executive shall be entitled to no Severance Pay. In the event Executive
voluntarily terminates his employment with the Company for Good Reason (as
defined in Section 3.6), Executive shall be entitled to the Severance Pay set
forth in Section 3.2(a) if (i) Executive gives written notice of his resignation
within ninety (90) days of such Good Reason and advises, as part of such
resignation, that he is resigning because of the Good Reason, and (ii) the Good
Reason was other than for Cause.
For purposes of this Agreement, the Term "voluntarily terminates" shall
not include a resignation that is tendered by Executive pursuant to a direct
request for the Board. A resignation tendered by Executive pursuant to a direct
request of the Board shall, for purposes of this Agreement, be treated as an
involuntary termination, and Executive's entitlement to Severance Pay in
accordance with the provisions of Section 3.2(a) shall depend upon whether the
Board's request was based on Cause (as defined in Section 3.3).
III.6 Good Reason. For purposes of this Agreement, "Good Reason" shall
mean (i) the material reduction or material adverse modification of Executive's
authority or duties without his prior written consent (i.e., the substantial
diminution or adverse modification in Executive's title, status, overall
position, responsibilities, reporting relationship or general working
environment); (ii) any reduction in Executive's base compensation, bonus
potential or material reduction in employee benefits; or (iii) any requirement
to move Executive's principal place of employment from Orange County,
California.
III.7 Death. In the event of Executive's death, this Agreement shall
automatically terminate and shall be of no further force and effect. Termination
of Executive's employment as a result of his death shall not result in any
obligation by the Company to pay Severance Pay or other benefits to Executive's
estate or heirs.
III.8 Disability. In the event of Executive's Disability (as defined
below) during the term of this Agreement for any period of at least three (3)
consecutive months, the
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Company shall have the right, which may be exercised in its sole discretion, to
terminate this Agreement. In the event the Company does elect to terminate this
Agreement, Executive shall not be entitled to any Severance Pay at any time but
shall be entitled to normal disability benefits in accordance with the policies
established from time to time by the Company. For purposes of this Agreement,
"Disability" shall mean the inability of Executive to perform his employment
services hereunder by reason of physical or mental illness or incapacity as
determined by a physician chosen by the Company and reasonably satisfactory to
Executive or his legal representative.
IV.
TERM
IV.1 Term. Subject to the provisions of Article III hereof, the Term of
Executive's employment under this Agreement shall commence on the date hereof
and shall continue for two years from the date hereof, as such date may be
extended from time to time. After expiration of the initial two year period of
this Agreement, Executive's employment will automatically renew for a period of
one year, each year, on the same terms and conditions as are set forth herein,
unless either party gives the other notice of non-renewal at least six months
prior to the end of the initial term of employment, or for any year in which the
employment was renewed, whichever the case may be.
V.
NONDISCLOSURE OF INFORMATION
AND NON-SOLICITATION OF EMPLOYEES
V.1 Nondisclosure of Confidential Information. Except in the
performance of his duties hereunder, Executive shall not disclose to any person
or entity or use for his own direct or indirect benefit any Confidential
Information (as defined below) pertaining to the Company obtained by Executive
in the course of his employment with the Company. For purposes of this
Agreement, "Confidential Information" shall include the Company's products,
services, processes, suppliers, customers, customers' account, executives,
employees, financial, sales and distribution information, price lists, identity
and list of actual and potential customers, trade secrets, technical
information, business plans and strategies to the extent that such information
has not been publicly disseminated by the Company, other than through a breach
hereof.
V.2 Return of Information. Upon termination of Executive's employment,
Executive will deliver to the Company all customer lists, proposals, reports,
memoranda, computer software and programming, budgets and other financial
information, and other materials or records or writings of any type (including
any copies thereof and regardless of the medium in which the information exists)
made, used or obtained by Executive in connection with his employment by the
Company.
V.3 Employee Proprietary Information and Inventions Agreement.
Executive shall be subject to the provisions of the Company's Employee
Proprietary Information and Inventions Agreement, a copy of which is attached
hereto as Exhibit A and incorporated herein by this reference.
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<PAGE> 5
V.4 Non-Solicitation. Executive agrees that, so long as he is employed
by the Company and for a period of two (2) years after termination of his
employment for any reason, he shall not (a) directly or indirectly solicit,
induce or attempt to solicit or induce any Company employee to discontinue his
or her employment with the Company, (b) usurp any opportunity of the Company
that Executive became aware of during his tenure at the Company or which is made
available to him on the basis of the belief that Executive is still employed by
the Company, or (c) directly or indirectly solicit or induce or attempt to
influence any person or business that is an account, customer or client of the
Company to restrict or cancel the business of any such account, customer or
client with the Company.
VI.
NONCOMPETITION
[This section left intentionally blank]
VII.
MISCELLANEOUS
VII.1 Successors; Binding Agreement. This Agreement shall not be
terminated by the voluntary or involuntary dissolution of the Company or by any
merger or consolidation, whether or not the Company is the surviving or
resulting corporation, or upon any transfer of all or substantially all of the
assets of the Company. In the event of any such merger, consolidation or
transfer of assets, the provisions of this Agreement shall bind and inure to the
benefit of the surviving or resulting corporation, or the corporation to which
such assets shall have been transferred, as the case may be; provided, however,
that the Company will require any successor to all or substantially all of the
business and/or assets of the Company, by agreement in form and substance
satisfactory to Executive, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place.
VII.2 Arbitration. Any disputes or controversy between the parties to
this Agreement, including allegations of fraud and misrepresentation arising
from or as a result of this Agreement, the resulting business dealings between
Company and Executive, Executive's employment or the termination thereof,
including any claims of discrimination or other claims under any federal, state,
or local law or regulation now in existence or hereinafter enacted concerning in
any way the subject of Executive's employment with Company or its termination,
shall be resolved, after the parties attempt informal resolution, exclusively by
arbitration in accordance with the National Rules for the Resolution of
Employment Disputes of the American Arbitration Association. All arbitration
hearings shall be held in Orange County, California within one hundred twenty
(120) days from the date arbitration is demanded by any of the parties and the
arbitrator shall render his/her written decision within thirty days (30) after
the arbitration hearing has concluded. The decision of the arbitrator shall be
final and binding on all parties, and may be entered as a judgment by any party
with any federal or state court of competent jurisdiction. The parties to the
arbitration hearing shall share any filing fees and arbitrator's fees which must
be paid in advance of the hearing equally; however, as set forth below the
prevailing party shall be entitled to recover from the losing party all costs
that it has incurred as a result of the arbitration hearing, including fees paid
to the arbitrator, travel costs and Attorneys' fees. This
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<PAGE> 6
provision shall not alter the rights of the parties to seek and obtain the
provisional equitable remedies provided under any applicable state or federal
law. Executive represents, by his signature, that he is making a voluntary and
knowing waiver of his right to pursue any and all employment related claims in
court.
VII.3 No Waiver. The waiver by either party of a breach of any
provision of this Agreement shall not operate as or be construed as a waiver of
any subsequent breach thereof.
VII.4 Governing Law. This Agreement shall be construed and enforced in
accordance with the laws and decisions of the State of California.
VII.5 Entire Agreement; Modifications. This Agreement represents the
entire agreement between the parties with respect to the matters set forth
herein and supersedes all prior agreements and understandings between the
parties relating to the employment of Executive by the Company, and it may not
be changed or terminated orally. No modification, termination, or attempted
waiver of any other provisions of this Agreement shall be valid unless in
writing signed by the party against whom the same is sought to be enforced.
VII.6 Jurisdiction; Venue. The parties do hereby agree and submit to
personal jurisdiction in the State of California for the purposes of any
proceedings brought to enforce or construe the terms of this Agreement or to
resolve any dispute or controversy relating to Executive's employment or arising
under, as a result of, or in connection with this Agreement, and do hereby agree
and stipulate that any such proceedings shall be venued and held in Orange
County, California.
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IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the day and year first above written.
"COMPANY"
FUTURELINK CORP.
By: /s/ RAGHUNATH KILAMBI
----------------------------------------
Name: Raghunath Kilambi
Title: Chief Financial Officer
"EXECUTIVE"
/s/ GLEN C. HOLMES
--------------------------------------------
Glen C. Holmes
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<PAGE> 8
EXHIBITS
EXHIBIT A Employee Proprietary Information and Inventions Agreement
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<PAGE> 1
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
this 15th day of July, 1999, to be effective August 1, 1999, by and between
FUTURELINK DISTRIBUTION CORP., a Colorado corporation (the "Company"), and
VINCENT ROMANO (the "Executive"), an individual residing in Annandale, Virginia.
I
EMPLOYMENT
1.1 Position and Duties. The Company hereby engages and employs the
Executive as Executive Vice-President Sales and Marketing, with his principal
office to be located in Tyson's Corner, Virginia, for the term set forth in this
Agreement.
The Company's Board of Directors (the "Board") may provide
such additional designations of title to the Executive as the Board, in its
discretion, may deem appropriate. The Executive shall perform the executive
duties and functions related to the above positions, subject to the reasonable
limitations of authority set forth from time to time in the resolutions of the
Board and applicable law.
1.2 Best Efforts. The Executive agrees to devote his full time and
attention to the Company, to use his best efforts to advance the business and
welfare of the Company, to render his services under this Agreement fully,
faithfully, diligently, competently and to the best of his ability, and not to
engage in any other employment activities. Notwithstanding anything herein to
the contrary, the Executive shall not be precluded from (a) engaging in
charitable activities and community affairs; (b) managing his personal
investments and affairs, provided that such activities do not materially
interfere with the proper performance of his duties and responsibilities under
this Agreement; or (c) owning up to 1% of a publicly-held company engaged in the
same or similar business as the Company.
II
COMPENSATION AND BENEFITS
2.1 Base Salary. For all services to be rendered by the Executive under
this Agreement, the Company agrees to pay the Executive an annual base salary of
not less than $180,000, less deductions required by law, payable in accordance
with the normal payroll practices of the Company.
2.2 Cash Bonus. The Executive shall be entitled to receive a bonus
payment upon execution of this Agreement and also be eligible for ongoing
performance bonuses during the life of the contract, as follows:
<PAGE> 2
(a) A signing bonus of $95,000, less deductions required by law,
shall be paid by the Company to the Executive upon the
execution of this Agreement and all ancillary documents and
agreements attached as Schedules hereto, and in no event, no
later than two (2) business days following the Executive's
execution of this Employment Agreement. Should the Executive
voluntarily terminate this Agreement within the first six (6)
months of employment, $50,000 of this signing bonus shall be
repayable by the Executive to the Company. In addition, upon
the Executive's execution of this Agreement and the ancillary
agreement(s) attached hereto as schedules, the Company shall
pay the Executive's legal counsel, James M. Sack, $5,000
towards his legal fees and disbursements incurred representing
the Executive in this matter; and
(b) A performance bonus plan with cash compensation up to a
further $180,000 per annum (100% of base salary), less
deductions required by law, based on achieving measurable
performance targets to be set by the Board of Directors. These
measures include sales revenue, margin and other defined
factors. The bonus plan shall be so structured that partial
performance will yield a partial bonus. The performance bonus
will be prorated and paid semi-annually for 1999, and paid
quarterly in 2000, 2001, and 2002;
2.3 Other Benefits. The Company shall further provide to the Executive
the following other benefits:
(a) An annual vacation leave of a minimum of four (4) weeks per
calendar year at full pay; and
(b) Full participation, on a basis commensurate with his position
with the Company, in all plans of life, accident, disability
and health insurance that generally are made available to
senior executives of the Company.
2.4 Share Purchase and Loan. Upon execution of this Employment
Agreement and ancillary agreements, including but not limited to, the
Confidentiality and Non-Competition Agreement attached as Schedule "A" hereto,
the Loan Agreement attached as Schedule "B" hereto (the "Loan Agreement") and
the Escrow Agreement attached as Schedule "C" hereto (the "Escrow Agreement"),
the company shall immediately loan to the Executive the sum of $2,000,000 in
accordance with the terms of the Loan Agreement. The Loan Agreement shall
provide that the Executive pay a simple (not compounded), fixed rate of interest
of five and five-eighths (5.625%) percent per annum, payable annually. Upon
receipt of funds advanced pursuant to the Loan Agreement, the Executive shall
immediately thereafter pay to the Company $2,000,000 as a subscription for
shares in accordance with the Subscription Agreement attached as Schedule "D"
hereto (the "Subscription Agreement"). As provided in the Subscription
Agreement, the Executive shall be issued a number of shares of the Company's
common stock equal to the $2,000,000 of subscription funds divided by a "market
value" price per share equal to the average of the closing bid and ask prices as
quoted on the over-the-counter bulletin board regulated by the National
Association of Securities Dealers, five (5) trading immediately preceding the
date of execution of this Agreement.
2
<PAGE> 3
The shares of the Company's common stock issued in accordance
with the Subscription Agreement shall be deposited in escrow in accordance with
the Escrow Agreement. Subject to the terms of the Escrow Agreement, one-eighth
of this escrowed common stock ("Escrowed Shares") shall be released from escrow
on the first day following the end date of each of the next eight quarters
beginning October 1, 1999 and ending July 1, 2001. Similarly, under the terms of
the Loan Agreement, so long as the Executive remains employed by the Company,
$250,000 of the principal amount of the original $2,000,000 loan shall be
forgiven on the day following the last day of each of the said eight fiscal
quarters hereafter. Furthermore, the annual interest payable by the Executive on
the principal amount of the loan shall be forgiven at the end of each annual
period hereafter when due should the Executive remain employed by the Company at
such time. The forgiveness of any principal or interest due under the Loan
Agreement shall constitute a benefit to the Executive under the terms of this
Employment Agreement and shall be subject to deductions required by law.
Should the employment of the Executive be terminated by the
Company without cause prior to all of the Escrowed Shares being released from
escrow under the Escrow Agreement and prior to the full amount of the loan being
forgiven or repaid under the terms of the Loan Agreement, any further release of
Escrowed Shares shall cease and the remaining principal amount of the loan shall
become immediately due and payable under the demand provisions of the Loan
Agreement. Thereafter, the Executive shall have ten (10) business days to
provide the Company with payment of all or a portion of the outstanding
principal amount of the loan, by certified check, bank draft or wire transfer.
If, at the end of ten (10) business days following termination of the
Executive's employment, any principal amount of the loan remains outstanding,
the Company shall seize the collateral securing the loan, being Escrowed Shares
held pursuant to the Escrow Agreement, and cancel the said shares of common
stock. The parties hereto agree that value per share of any common stock seized
and cancelled by the Company in accordance with the above shall be identical to
the price per share originally paid by the Executive for the common stock in
accordance with this Agreement and the Subscription Agreement, regardless of the
market price of the Company's common stock on the date of termination or the
date of realization on the collateral by the Company. Any Escrowed Shares not
seized as security under the Loan Agreement and cancelled by the Company as a
result of the Executive repaying all or a portion of the principal amount of the
loan in accordance with the above provisions shall remain held in escrow under
the Escrow Agreement and released in accordance with the terms thereof.
Should the Executive voluntarily terminate his employment with
the Company or be terminated by the Company with Cause, any remaining Escrowed
Shares shall be immediately seized by the Company as collateral for the loan
which shall be immediately retired thereby. The parties hereto agree that value
per share of any common stock seized and cancelled by the Company in accordance
with the above shall be identical to the price per share originally paid by the
Executive for the common stock in accordance with this Employment Agreement and
the Subscription Agreement, regardless of the market price of the Company's
common stock on the date of voluntary termination or termination for Cause
and/or the date of realization on the Escrowed Shares by the Company (as
security under the Loan Agreement) and cancellation of such shares.
3
<PAGE> 4
The Executive acknowledges, that in respect to any Escrowed
Shares to which the Executive is otherwise entitled under this paragraph 2.4 of
this Employment Agreement and in respect to the Escrowed Shares issued in the
name of the Executive and not yet released from escrow under the terms of the
Escrow Agreement, these Escrowed Shares are specifically subject to the
following terms:
(a) Escrowed Shares which have been released from escrow under the
terms of the Escrow Agreement effective the actual day of the
Executive's termination of employment are the only Shares of
the Escrowed Shares originally deposited in escrow under the
terms of the Escrow Agreement to which the Executive is
entitled under this Employment Agreement on the termination of
the Executive's employment or office, unless the Executive is
terminated by the Company without just cause and the Executive
elects to pay out any outstanding principal amount owing to
the Company advanced to the Executive pursuant to the terms of
the Loan Agreement so as to remain eligible to receive
Escrowed Shares pursuant to the Escrow Agreement; and
(b) In the event of the termination of the Executive's employment
or office in circumstances under which the Executive may be
entitled at law or in equity to reasonable notice of
termination of employment or compensation in lieu thereof, or
is entitled to a specific period of notice or compensation in
lieu thereof, the Executive is not entitled to claim any right
to further unreleased Escrowed Shares or further time for
Escrowed Shares to be released from escrow during the said
reasonable notice period or during the said specific notice
period, or compensation in lieu thereof by way of general
damages, or special damages, whether in contract, in tort or
otherwise.
The Escrowed Shares issued to the Executive pursuant to the
Subscription Agreement shall be issued in accordance with exemptions from
registration in accordance with applicable securities laws and shall be
"legended" appropriately. However, these Escrowed Shares, whether or not
released from escrow in accordance with the Escrow Agreement, shall be entitled
to the following registration rights:
(a) The Company hereby agrees with the Executive that it shall
include the Escrowed Shares in a subsequent Registration
Statement on Form S-1 or such other form as the Company deems
appropriate, with the Securities and Exchange Commission (the
"SEC"), covering the resale of the Escrowed Shares. The
Escrowed Shares shall be entitled to "piggy-back" registration
rights and be included on either the Registration Statement
currently being prepared by the Company or on the next
Registration Statement to be filed by the Company, at the
Company's discretion;
(b) The Company shall use its best efforts to cause the
Registration Statement provided for above to be filed with the
SEC no later than January 31, 2000 and to effective no later
than March 31, 2000;
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<PAGE> 5
(c) Should the Company fail to cause a Registration Statement with
respect to the registration of the Escrowed Shares to be filed
on or before January 31, 2000, the Executive shall thereafter
have the right to demand that the Company prepare and file a
Registration Statement covering the resale of the Escrowed
Shares immediately thereafter; and
(d) The Company shall file any Registration Statement including
the registration for resale of the Escrowed Shares without
charge to the Executive. The Executive shall, however, bear
the fees of his own counsel and any transfer taxes applicable
to the resale of the Escrowed Shares sold by the Executive
pursuant thereto.
2.5 Options. The Executive shall receive grant of stock options to
acquire up to 250,000 shares of common stock of the Company at an exercise price
of US$6.08 per share exercisable on or before June 30, 2004 upon execution of
this Agreement. The Company shall prepare its standard form Stock Option
Agreement evidencing the grant of Stock Options to vest as follows:
(a) 62,500 stock options immediately vested;
(b) 62,500 stock options vesting June 30, 2000;
(c) 62,500 stock options vesting June 30, 2001; and
(d) 62,500 stock options vesting June 30, 2002
The total number of stock options granted by the Company
currently exceeds the number of stock options, which may be granted under the
Company's existing Stock Option Plan, and, as such, this grant of stock options
to the Executive remains subject to shareholder ratification and approval of a
revised Stock Option Plan, which is anticipated prior to the end of September,
1999. Should the above grant of stock options fail to be ratified at the next
meeting of the Company's shareholders, the Company shall compensate the
Executive based on the price differential between the exercise price of the
above grant of stock options and the exercise price stock options granted to the
Executive at a later date in accordance with a shareholder approved stock option
plan, should the later grant, if necessary, be effected at a higher exercise
price.
The Executive acknowledges, that in respect to any shares of
common stock to which the Executive is otherwise entitled to receive upon
exercise of stock options granted under this paragraph 2.5 of this Agreement and
in respect to the stock options granted to the Executive and not yet vested
under the terms of this Agreement and the Stock Option Agreement, these stock
options and the shares of common stock underlying same are specifically subject
to the following terms:
(a) Stock options which have vested under the terms of this
Agreement and the Stock Option Agreement effective the actual
day of the Executive's termination of employment are the only
stock options which the Executive will be entitled to exercise
under this Employment Agreement following the termination of
the Executive's employment or office; and
(b) In the event of the termination of the Executive's employment
or office in circumstances under which the Executive may be
entitled at law or in equity to
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<PAGE> 6
reasonable notice of termination of employment or compensation
in lieu thereof, or is entitled to a specific period of notice
or compensation in lieu thereof, the Executive is not entitled
to claim any right to further unreleased or unvested stock
options or the shares of common stock underlying same or
further time for the stock options to be exercised during the
said reasonable notice period or during the said specific
notice period, or compensation in lieu thereof by way of
general damages, or special damages, whether in contract, in
tort or otherwise.
2.6 Expense Reimbursement. The Company shall promptly reimburse the
Executive for all actual and reasonable business expenses incurred by the
Executive in promoting the business of the Company, including expenditures for
entertainment, travel, or other expenses, provided that (a) such expenditures
are of a nature qualifying them as legitimate business deductions and (b) the
Executive furnishes to the Company adequate records and other documentary
evidence reasonably required by the Company to substantiate such expenditures.
III
TERMINATION; SEVERANCE
3.1 At Will. The Executive and the Company acknowledge and agree that
the Executive's employment with the Company is expressly "at-will" both during
and after the term of this Agreement. This means that either party may terminate
the Executive's employment with or without cause with minimal or no notice.
3.2 Benefits. Following termination, the Executive shall cease to be a
Company employee and shall not be entitled to any employee benefits. This shall
not preclude the Executive from exercising his COBRA benefits under applicable
law.
3.3 No Severance on Termination. In the event the Executive's
employment terminates prior to the expiry of the term, whether such termination
results from the Executive's voluntarily termination of his employment, or the
Company terminates the Executive with or without "just cause", the Executive
shall not be entitled to severance pay. The Executive hereby expressly waives
any and all entitlement he may have at law or in equity to any severance, pay in
lieu of notice or retiring allowance upon termination of this Agreement for any
reason.
3.4 Death. In the event of the Executive's death, this Agreement shall
automatically terminate and shall be of no further force and effect. Termination
of the Executive's employment as a result of his death shall not result in any
obligation by the Company to pay severance pay or other benefits to the
Executive's estate or heirs.
3.5 Disability. In the event of the Executive's Disability (as defined
below) during the term of this Agreement for any period of at least three (3)
consecutive months, the Company shall have the right, which may be exercised in
its sole discretion, to terminate this Agreement. In the event the Company does
elect to terminate this Agreement, the Executive shall not be entitled to any
severance pay at any time but shall be entitled to normal disability benefits in
accordance with the policies established from time to time by the Company. For
purposes of this Agreement, "Disability" shall mean the inability of the
Executive to perform his employment services hereunder by reason of physical or
mental illness or incapacity as determined by a
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<PAGE> 7
physician chosen by the Company and reasonably satisfactory to the Executive or
his legal representative.
IV
TERM
4.1 Term. Subject to the provisions of Article III hereof, the term of
the Executive's employment under this Agreement shall commence on the date
hereof and shall continue for three (3) years from the date hereof, as such date
may be extended from time to time. After expiration of the initial three (3)
year period of this Agreement, the Executive's employment will automatically
renew for a period of one year, each year, on the same terms and conditions as
are set forth herein, unless either party gives the other notice of non-renewal
at least six months prior to the end of the initial term of employment, or for
any year in which the employment was renewed, whichever the case may be.
V
CONFIDENTIALITY AND NON-COMPETITION
5.1 Please refer to Schedule "A" attached hereto.
VI
INDEMNITY
6.1 During the initial three (3) year term of this Agreement, the
Company shall indemnify the Executive for any and all legal costs incurred by
the Executive to defend any action brought by USinternetworking, Inc. ("USi"),
excluding any third party action brought by USi. The Executive hereby represents
that he has lawfully terminated his employment with his prior employer, USi, and
there are no pending or threatened actions by USi against the Executive. The
Executive shall continue to comport himself in accordance with any Agreements
between the Executive and USi and in the event that a court of law determines
that the Executive breached his agreement or applicable law regarding his
employment by USi or his activities after termination of employment, the
Executive shall not be entitled to indemnification for the amount of any
judgment, including damages and cost awarded to USi, hereunder. The Executive
further represents that the only written agreements between USi and himself are
as follows:
(a) Offer of Employment Letter Agreement dated June 4, 1998 and
accepted by the Executive on June 7, 1998; and
(b) Incentive Stock Option Agreement dated July 16, 1998,
True and correct copies of which having been provided to the Company by the
Executive; and
(c) Limited Power of Attorney executed by the Executive with
regard to USi's initial public offering in April, 1999.
7
<PAGE> 8
VII
REPRESENTATIONS AND WARRANTIES
7.1 The Executive hereby represents and warrants to the Company, which
representations and warranties constitute a material inducement to the
Company to offer employment to the Executive, the following:
(a) The Executive has never been suspended or expelled from
membership or barred from association with a member of a
national securities exchange;
(b) The Executive has never been subject to United States Postal
Service false representation order or subject to a restraining
order or a preliminary injunction with respect thereto;
(c) The Executive has never been convicted of felony, or any
misdemeanor in connection with the purchase or sale of any
security or involved in the making of any false filing with
the Securities Exchange Commission, or misdemeanors arising
out of the conduct of the business of an underwriter broker,
dealer, municipal securities dealer or investment advisor;
(d) The Executive is not currently engaged as an Employee or
consultant to any other business;
(e) The Executive is not currently engaged in any litigation as a
plaintiff or defendant;
(f) The Executive has not declared bankruptcy within the prior
five years;
(g) The execution of this Employment Agreement is not a breach or
default under any other Agreement to which the Executive is a
party.
VIII
MISCELLANEOUS
8.1 Successors; Binding Agreement. This Agreement shall not be
terminated by the voluntary or involuntary dissolution of the Company or by any
merger or consolidation, whether or not the Company is the surviving or
resulting corporation, or upon any transfer of all or substantially all of the
assets of the Company. In the event of any such merger, consolidation or
transfer of assets, the provisions of this Agreement shall bind and inure to the
benefit of the surviving or resulting corporation, or the corporation to which
such assets shall have been transferred, as the case may be; provided, however,
that the Company will require any successor
8
<PAGE> 9
to all or substantially all of the business and/or assets of the Company, by
agreement in form and substance satisfactory to the Executive, to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place.
8.2 Arbitration. Any disputes or controversy between the parties to
this Agreement, including allegations of fraud and misrepresentation arising
from or as a result of this Agreement, the resulting business dealings between
Company and the Executive, the Executive's employment or the termination
thereof, including any claims of discrimination or other claims under any
federal, state, or local law or regulation now in existence or hereinafter
enacted concerning in any way the subject of the Executive's employment with
Company or its termination, shall be resolved, after the parties attempt
informal resolution, exclusively by arbitration in accordance with the National
Rules for the Resolution of Employment Disputes of the American Arbitration
Association. All arbitration hearings shall be held in Orange County, California
within one hundred twenty (120) days from the date arbitration is demanded by
any of the parties and the arbitrator shall render his/his written decision
within thirty days after the arbitration hearing has concluded. The decision of
the arbitrator shall be final and binding on all parties, and may be entered as
a judgment by any party with any federal or state court of competent
jurisdiction. The parties to the arbitration hearing shall share any filing fees
and arbitrator's fees which must be paid in advance of the hearing equally;
however, as set forth below the prevailing party shall be entitled to recover
from the losing party all costs that it has incurred as a result of the
arbitration hearing, including fees paid to the arbitrator, travel costs and
attorneys' fees. This provision shall not alter the rights of the parties to
seek and obtain the provisional equitable remedies provided under any applicable
state or federal law. The Executive represents, by his signature, that he is
making a voluntary and knowing waiver of his right to pursue any and all
employment-related claims in court.
8.3 No Waiver. The waiver by either party of a breach of any provision
of this Agreement shall not operate as or be construed as a waiver of any
subsequent breach thereof.
8.4 Governing Law. This Agreement shall be construed and enforced in
accordance with the laws and decisions of the State of California.
8.5 Entire Agreement; Modifications. This Agreement, the Schedules
attached hereto, together with the written offer of employment dated July 12,
1999 sent by the Company to the Executive (the "Offer Letter") represent the
entire agreement between the parties with respect to the matters set forth
herein and supersedes all prior agreements and understandings between the
parties relating to the employment of the Executive by the Company, and it may
not be changed or terminated orally. In the event of any conflict between the
terms of this Agreement and the Offer Letter, the terms of this Agreement shall
prevail. No modification, termination, or attempted waiver of any other
provisions of this Agreement shall be valid unless in writing signed by the
party against whom the same is sought to be enforced.
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<PAGE> 10
8.6 Jurisdiction; Venue. The parties do hereby agree and submit to
personal jurisdiction in the State of California for the purposes of any
proceedings brought to enforce or construe the terms of this Agreement or to
resolve any dispute or controversy relating to the Executive's employment or
arising under, as a result of, or in connection with this Agreement, and do
hereby agree and stipulate that any such proceedings shall be venued and held in
Orange County, California.
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the day and year first above written.
The "Company":
FUTURELINK DISTRIBUTION CORP.
Per: /s/ RAGHU KILAMBI
--------------------------------------
Raghu Kilambi, Chief Financial Officer
Per: /s/ KYLE B.A. SCOTT
--------------------------------------
Kyle B.A. Scott, Secretary
) The "Executive":
)
/s/ )
- ---------------------- ) By: /s/ VINCENT ROMANO
Witness ) --------------------------------------
VINCENT ROMANO
10
<PAGE> 1
EXHIBIT 10.15
ADDENDUM TO 1999 CLIENT/AGENCY PROPOSAL
BETWEEN FUTURELINK DISTRIBUTION CORP. ("FUTURELINK")
AND SICOLAMARTIN ("SICOLAMARTIN") DATED AUGUST 7, 1999
AS REVISED SEPTEMBER 8, 1999, and OCTOBER 22, 1999 (THE "AGREEMENT")
This addendum ("Addendum"), effective September 8, 1999, replaces and
supercedes (i) the compensation provisions set forth in the Agreement, and (ii)
the addendum by and between FutureLink and SicolaMartin dated as of November 4,
1999, and October 28, 1999, respectively. Notwithstanding any term or provision
of the Agreement to the contrary, in consideration of the Agreement and of the
mutual premises set forth herein, FutureLink and SicolaMartin agree as follows:
1. For services to be provided by SicolaMartin pursuant to the
Agreement, FutureLink agrees to (i) pay to SicolaMartin cash compensation of Six
Hundred Thousand and NO/100 Dollars ($600,000.00) (the "Cash Compensation"), and
(ii) other compensation, including stock, a stock warrant and certain contract
rights, as set forth below (the "Other Compensation").
2. The Cash Compensation shall be payable as follows:
A. Months 4 through 11 of the Agreement - FutureLink will pay
SicolaMartin Sixty-Six Thousand Six Hundred Sixty-Six and 66/100 Dollars
($66,666.66) per month for a total of Five Hundred Thirty-Three Thousand Three
Hundred Thirty-Three and 28/100 Dollars ($533,333.28).
B. Month 12 of the Agreement - FutureLink will pay
SicolaMartin Sixty-Six Thousand Six Hundred Sixty-Six and 72/100 Dollars
($66,666.72).
All Cash Compensation will be invoiced at the beginning of the month in which
services will be provided and will be due and payable in thirty days. Past due
Cash Compensation will bear interest at the rate of 12% interest per annum from
the date due until paid.
3. The Other Compensation shall be payable as follows:
A. Common Stock of FutureLink - As compensation for services
rendered during months 1 through 3, in lieu of paying Agreement fees in cash, on
execution hereof FutureLink will issue and deliver, 53,552 shares of its common
stock (the "Monthly Shares") to SicolaMartin. The value per Monthly Share is
agreed to be $7.47, which value represents the Current Market Price (as defined
below), and the effective date of issue, and the date the Monthly Shares are
deemed due and payable, is agreed to be October 15, 1999. There shall be no
adjustment in the Current Market Price with respect to the Monthly Shares. The
Monthly Shares, when issued, shall have been duly and validly issued, fully paid
and nonassessable, will not have been issued in violation of or subject to any
preemptive rights and will be free and clear of all liens, claims and
encumbrances. FutureLink represents to SicolaMartin that it has reserved a total
of 53,552 Monthly Shares for issuance and delivery as of October 15, 1999, as
provided herein and that such shares, when issued, shall, to the extent
applicable, be issued
<PAGE> 2
subject to the provisions of the warrant agreement attached hereto as Exhibit
"A", including, without limitation, the representations and warranties set forth
therein.
For the purposes of this subsection, "Current Market Price" has been
determined by the Board of Directors to be $7.47, which price represents the
average of the closing bid and ask prices of FutureLink's common stock for the
five business days ended September 7, 1999. Such valuation was made in good
faith, and such determination, in the absence of fraud or bad faith, shall be
binding upon FutureLink.
B. Warrants - Upon execution of this Addendum, FutureLink
shall deliver to SicolaMartin an executed warrant agreement (and associated
warrant(s) ["Warrant"]) in substantially the same form as Exhibit "A" attached
hereto and incorporated herein by reference. The Warrant, which shall be
effective as of September 7, 1999, and expire as of 11:59 P.M. on August 7,
2000, shall grant SicolaMartin the right to purchase up to 33,467 shares of
FutureLink's common stock (the "Warrant Shares") at an exercise price per share
price of $7.47. The Warrant shall be exercisable in whole or in part. FutureLink
represents to SicolaMartin (i) that it has reserved a total of 33,467 Warrant
Shares for issuance upon exercise of the Warrant, and (ii) such reserved shares,
when issued in accordance with the terms hereof, will be duly and validly
issued, fully paid and nonassessable, will not have been issued in violation of
or subject to any preemptive rights and will be free and clear of all liens,
claims and encumbrances.
C. FutureLink Board Authorization - Upon execution of this
Addendum, FutureLink shall deliver to SicolaMartin a resolution of its Board of
Directors authorizing the payment of the Other Compensation as provided herein.
D. Registration Rights - SicolaMartin shall have registration
rights with respect to the Monthly Shares and the Warrant Shares, as set forth
in the Registration Rights Agreement attached hereto.
E. Remedy - In addition to all remedies available at law and
equity, the parties agree that SicolaMartin shall have the right of specific
performance with respect to the issuance and delivery of the Other Compensation.
4. Subject to the parties mutual agreement on the terms of service,
SicolaMartin agrees to engage FutureLink as its full-service Application Service
Provider during the term of the Agreement.
5. FutureLink and SicolaMartin acknowledge and agree that FutureLink
has deposited cash consideration with SicolaMartin in advance payment for Cash
Compensation due hereunder. FutureLink and SicolaMartin further acknowledge and
agree that (i) as of the date hereof, some, but not all, of such sums have been
earned by SicolaMartin, and (ii) SicolaMartin will, upon FutureLink's written
request, return any unearned Cash Compensation on deposit with SicolaMartin.
<PAGE> 3
Except as provided herein, all terms and provisions of the Agreement
shall remain in full force and effect.
This Addendum may be executed in any number of counterparts by
facsimile, each of which when so executed and delivered shall be deemed an
original but such counterparts shall together constitute one and the same
instrument.
FutureLink Distribution Corp. Sicola, Martin, Koons & Frank, Inc.
By: /s/ By: /s/
-------------------------- -------------------------------
Name: Name:
------------------------ -----------------------------
Title: Title:
----------------------- ----------------------------
<PAGE> 4
ADDENDUM TO 1999 CLIENT/AGENCY PROPOSAL
BETWEEN FUTURELINK DISTRIBUTION CORP. ("FUTURELINK") AND SICOLAMARTIN ("SM")
DATED AUGUST 7, 1999 AS REVISED SEPTEMBER 8, 1999 (THE "AGREEMENT")
This addendum ("Addendum") is meant to replace and supercede the compensation
terms as set out in the Agreement. By entering into this Addendum the parties
agree as follows:
A. Compensation:
1. FutureLink agrees to pay to SM for services to be provided by
SM as set out in the Agreement, a fee of $1,000,000 (one
million dollars) (the "Compensation")
2. The Compensation shall consist of:
(a) $600,000 (six hundred thousand dollars) in cash
consideration; and
(b) $400,000 (four hundred thousand dollars) in stock in
FutureLink to be issued at $7.47 per share, being the
average of the closing bid and ask prices of the
FutureLink common stock for the five business days
ended September 7, 1999.
3. The Compensation will be paid according to the following
schedule:
(a) Months 1-3 of the Agreement - FutureLink will pay SM
cash consideration of $125,000 (one hundred
twenty-five thousand dollars) per month for a total
of $375,000 (three hundred seventy-five thousand
dollars) for months 1-3
(b) Months 4-12 of the Agreement - FutureLink will pay
SM:
(i) Cash consideration of $25,000 (twenty five
thousand dollars) per month for a total of
$225,000 (two hundred twenty five thousand
dollars) for months 4-12; and
(ii) Stock consideration of stock in FutureLink
at $7.47 per share of 6,694 shares per month
for a total of 53,552 shares worth $400,000
(four hundred thousand dollars) for months
4-12.
B. Other Conditions:
1. FutureLink shall also issue to SM, a warrant to purchase an
additional $250,000 (two hundred-fifty thousand dollars) of
FutureLink common stock at $7.47 per share (a total of 33,467
shares) expiring August 7, 2000 and SM agrees that it shall
exercise same prior to expiry.
2. SM agrees to engage FutureLink as its full-service Application
Service Provider for 80 to 100 seats.
3. FutureLink agrees to register the stock to be paid as
consideration and the stock underlying the warrants in
conjunction with the registration of stock issued by the
FutureLink to acquire Executive LAN Management, Inc. dba Micro
Visions.
This Addendum may be executed in any number of counterparts by facsimile, each
of which when so executed and delivered shall be deemed an original but such
counterparts shall together constitute one and the same instrument.
FUTURELINK DISTRIBUTION CORP. SICOLA MARTIN
By: /s/ By: /s/
--------------------------- ------------------------------
Title: Title:
------------------------ ---------------------------
Date: Date:
------------------------- ----------------------------
By:
---------------------------
Title:
------------------------
Date:
-------------------------
<PAGE> 5
[SICOLAMARTIN LOGO]
1999 CLIENT/AGENCY
PROPOSAL
Prepared for
[FUTURELINK LOGO]
August 7, 1999
As revised 10/22/99
<PAGE> 6
CONTENT OUTLINE
o Overview
o Company Goals
o Relationship Proposal
o Proposed Services
o Account Team
o Professional Fees
o Terms and Conditions
2
<PAGE> 7
OVERVIEW
A new category of service provider has emerged within the IT market. This is the
Application Service Provider (ASP) category. Simply stated, ASP's deliver
applications to any desktop of any type via WAN/LAN connectivity. The key
benefits to the customer of this emerging technology are the ability to:
o Simplify IT within the organization
o Rapidly deploy applications and upgrades to users in any location
around the world
o Eliminate the budget and costs associated with application deployment
and maintenance
o Focus on strategic use of information, not on maintaining the
underlying IT and application infrastructure
o Budget against predictable costs
o Ensure a guaranteed level of service, including levels of network
performance and the end-user experience
FutureLink is a pioneer in the ASP arena, and has potential to be the dominant
provider in the category. FutureLink is completing its acquisition of Micro
Visions, the leading Citrix reseller, and will leverage Micro Visions
competencies and experience in server-based computing to achieve a leadership
position in the ASP category.
FutureLink has requested that SicolaMartin offer strategic marketing and
creative services to achieve the following key goals:
o MIND SHARE - Develop dominant brand awareness and preference among key
target audiences to ensure that FutureLink is recognized as and
considered the leader in the ASP market
o CHANNEL DEVELOPMENT - Develop channel recruitment, support and
opportunity-driving programs to maximize market reach
o OPPORTUNITY - Generate sales opportunities as a key element of the
channel support program and to achieve the company's sales and share
of market goals
o Partnership - Attract world class alliance partners
3
<PAGE> 8
RELATIONSHIP PROPOSAL
SicolaMartin proposes a retainer-based relationship in which the agency will
support FutureLink's marketing and communications department. This approach
will allow SicolaMartin to:
o Offer unbiased, strategically sound counsel that will assist
FutureLink in meeting its business and marketing objectives during
the initial planning and strategic development stage
o Plan and align FutureLink Marcom efforts to maximize the company's
return on investment while simultaneously meeting specific business
requirements
o Meet immediate and ongoing needs of the company
o Create marketing communication materials to help support and improve
relationships with prospective resellers, customers, alliance
partners, investors and employees
The scope of this proposal is for the time period of August 15, 1999 through
August 31, 2000. Strategic marketing consultation, communications planning,
market research recommendations, creative strategy documents, creative
services, art direction, copywriting, proofreading and account management are
covered under this proposal.
4
<PAGE> 9
PROPOSED SERVICES
PROGRAM OVERVIEW
In order to support the company's immediate and long-term goals, SicolaMartin
has developed this proposal to cover the following key areas of strategic
marketing planning and creative services:
o Positioning and messaging and near-term marketing strategy
o Corporate and brand identity system
o Immediate creative deliverables for 1999
o Strategic marketing planning and execution for 2000
5
<PAGE> 10
PROPOSED SERVICES
POSITIONING AND MESSAGING AND NEAR-TERM STRATEGY
This effort is to develop the strategic foundation for all programs and
communications deliverables. It will provide the framework necessary to
differentiate the company from its competitors, and is based on a level of
understanding and development of the company's Unique Selling Proposition (USP).
The result will be a clearly defined company and brand positioning platform.
This platform will enable FutureLink to deliver consistent, high-impact
messages to well defined target audiences, across the complete spectrum of
communication vehicles, from public relations through brochures, from
advertising to trade shows -- whatever medium might be employed. The specific
deliverables are:
o Near-term strategic planning -- further definition of company goals and
marketing communications objectives, near-term requirements and actions
to develop immediate mind share and to support the launch of the
company's channel program beta
o Target audience definition and refinement in order to pinpoint the best
prospects for the company's offerings
o Management team interviews and work session to identify immediate
requirements, plan for support of near-term milestones, and develop
preliminary positioning and messaging solutions.
o Positioning and messaging. Development of positioning and messaging
platform from which all creative strategies are developed, for all
communications vehicles. Deliverables include a positioning sentence,
paragraph and description as well as a benefit-oriented key message map.
o Competitive assessment in order to assure that the positioning and
messaging has a unique position within the competitive landscape.
o Brand personality attribute assessment and recommendations in order to
agree upon and develop the ideal visual personality traits of the
company
6
<PAGE> 11
PROPOSED SERVICES
CORPORATE AND BRAND IDENTITY SYSTEM
A company's brand identity should reflect and visually communicate the
Company's positioning, unique selling proposition and desired personality
attributes. In order to maximize impact, this identity should be developed
and managed through all communications media from the company's logo and
paper system to its website.
While the FutureLink name appears to be well suited for the business in
which the company in engaged, SicolaMartin recommends an assessment and
research of the logo as to its ability to communicate the desired company
personality and uniquely differentiate the company. Based upon this
assessment, SicolaMartin will develop brand identity system concepts that
would include the following:
- Corporate logo (if a change is appropriate)
- Corporate paper system (letterhead, envelopes, business cards,
mailing labels, fax forms, press release format, internal forms
such as a reseller application, pocket folder)
- Graphic standards development, writing, design and production of
a design standards guide to provide methodologies and resources
for global design management. Scope includes delivery of an
original master document and files. This will be developed upon
completion of the logo and paper system.
7
<PAGE> 12
PROPOSED SERVICES
CORPORATE AND BRAND IDENTITY SYSTEM (CONT.)
Using the brand identity positioning and messaging as the foundation,
SicolaMartin will develop three (3) brand identity concepts.
Recommendations will include hierarchical collateral formats,
photo/illustration styles, typography, color, graphics, copy tone and
design methodologies. (Not included: Actual design implementation, draft
or final copy, actual photography or actual illustrations, production of
mechanical art.)
Design deliverables include the following potential deliverable (final
list to be developed in conjunction with FutureLink.
- Corporate overview/capabilities brochure
- End-customer capabilities and service overview brochure
- Service offering spec sheets
- White paper
- Presentation template
- Pocket folder
- Case study template
- Branded environment (trade show/event/seminar graphics)
- Top-level web-site design concepts (brand identity concepts only)
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<PAGE> 13
PROPOSED SERVICES
IMMEDIATE MARKETING DELIVERABLES
FutureLink has indicated the need to maximize mind share and support several
key milestones including the launch of its channel beta program and numerous
industry events such as iForum. SicolaMartin proposes to work with FutureLink
to identify immediate support requirements, partner with FutureLink's PR
agencies to align efforts and coordinate messages, and develop appropriate
marketing support materials for the near-term. These materials may include:
o Company overview brochure
o Company presentation
o Recruitment deliverables
o Additional items as determined via discussions
9
<PAGE> 14
PROPOSED SERVICES
STRATEGIC MARKETING PLANNING AND EXECUTION FOR 2000
In order to meet FutureLink's long-term mind share, channel development
opportunity-generation and sales goals, SicolaMartin recommends the following
key activities and deliverables:
o Development and production of agreed-to brand identity system
elements and creative deliverables, including
Reseller overview brochure
Reseller sales toolkit
Multimedia presentation
Technical spec sheets
Customer case studies
Interactive CD-Rom
Technical white papers
o Development of a mind share execution and creative concepts plan to
achieve the company's awareness and preference goals against key
target audiences
o Development of a comprehensive channel recruitment and support
program and sales enablement tools
o Assessment of the company's website and development of an interactive
strategy in support of FutureLink's mind share, channel program and
opportunity-generation programs
o Development of an opportunity-generation program and creative
concepts to generate qualified selling opportunities for FutureLink
reseller
10
<PAGE> 15
FUTURELINK ACCOUNT TEAM
SicolaMartin is pleased to be given the opportunity to work with FutureLink. We
recognize that the company is a leader in the emerging ASP marketplace and we
welcome the opportunity to assist the company establish a dominant worldwide
marketplace position. The agency team outlined below is a best of breed team
that have the extensive experience required to achieve FutureLink's goals and
objectives as they are known today. The type and level of personnel assigned to
FutureLink is subject to change as the relationship between SM and FutureLink
matures and as needs and requirements grow and change over time.
CONSULTING AGENCY PARTNER
Executive strategy and creative consultation and direction
- Tom Sicola, President (15%)
MARKETING AND ACCOUNT PLANNING SERVICES
Strategic planning, positioning & messaging, research supervision and marketing
consultation
- Jim Tallman, VP Marketing Services (10%)
- Don Saathoff, Account Planning Director (15%)
ACCOUNT MANAGEMENT
Account direction, strategy development, relationship management and ongoing
project management
- Barry Rumac, Account Director/Marketing Consultant (50%)
- Liz Bullington, Account Supervisor (50%)
- Jennifer Gorski, Account Manager (50%)
- To be assigned, Account Manager (50%)
- To be assigned, Account Coordinator (50%)
11
<PAGE> 16
ACCOUNT TEAM
CREATIVE AND PRODUCTION SERVICES
Creative direction and supervision, brand identity development, design, concept
and layout
- Gerald Tucker, Vice President, Creative Services (5%)
- Alan Taylor, Creative Director (30%)
- Chris Wood, Senior Graphic Designer (30%)
- To Be Assigned, Graphic Designer (30%)
- To Be Assigned, Copywriter (30%)
- Cara Blackwell, Print Production Manager (20%)
- Diane Bell, Graphics Department Director (10%)
- To Be Assigned, Graphic Artist (20%)
- Lori Randel, Presentations Department Manager (5%)
- Robi Polgar, Proofreader (10%)
WEB STRATEGY AND DEVELOPMENT
Web assessment, strategy and implementation plan development, including
high-level design concepts
- Pete Hayes, VP, Interactive Services (5%)
- Jo Betsy Vaught, Executive Producer, Interactive Services (10%)
- Barry Brooks, Senior Technical Developer (5%)
12
<PAGE> 17
PROFESSIONAL FEES
SicolaMartin proposes the following compensation.
A two-part compensation plan, which recognizes that the strategic development,
brand shaping, and the underlying strategies for the initial brand promotion
efforts are front loaded in terms of workload. Thus, we propose an initial fee
of $125,000/month for the first three months (8/15-11/15), and $61,885/month
retainer for the next 9 months, ending 8/31/2000 (in actuality, 9 1/2 months).
The total compensation under this arrangement is $931,965 for a total of 12 1/2
months.
The compensation covers all staff time, for developing all materials detailed
in this proposal. It does not include hard production costs, such as printing
of the brochures) our out-of-pocket expenses for travel. Included in the fee
are the normal expenses required to run the account on a day to day basis, such
as telephone, faxes, deliveries, and normal copies of day to day documents.
13
<PAGE> 18
INDEMNIFICATION
FUTURELINK shall be responsible for the accuracy, completeness and propriety of
information concerning its organization, products, competitors' products and
services which FUTURELINK furnishes to SM in connection with the performance of
this Agreement. Accordingly, FUTURELINK shall indemnify and hold SM harmless
from and against any loss, damage, liability, claim, demand, suit and expense
(including reasonable attorneys' fees) ("Loss") which may be incurred by SM as
the result of any claim, suit or proceeding made or brought against SM based
upon any advertising or other services which SM prepared or performed for
FUTURELINK and which was approved by FUTURELINK.
FUTURELINK shall also similarly indemnify and hold SM harmless in respect of
any Loss which SM may sustain resulting from any claim, demand, suit or
proceeding made or brought against it arising out of the nature or use of any
of FUTURELINK's products or services.
SM will defend and indemnify FUTURELINK from any action, suit or proceeding
(including reasonable attorney's fees) based upon or arising out of any final
judgment for money damages resulting from:
1. Libel, slander, defamation or
2. Any infringement of copyright or of title or slogan, or
3. Piracy, plagiarism, or unfair competition or idea
misappropriation under implied contract, or
4. Any invasion of privacy committed or alleged to have been
committed in any advertisement, publicity article, broadcast or
telecast and arising our of SM's services to FUTURELINK
hereunder, except to the extent that such claims arise from
information or materials provided by or through FUTURELINK.
FUTURELINK agrees to defend and hold SM harmless for
infringement or claim of infringement arising out of SM's
adherence to FUTURELINK's instructions or directions which do
not involve items of SM's origin, design or selection.
Upon the assertion of any claim or the commencement of any suit or proceeding
against an indemnitee by any third party that may give rise to liability of an
indemnitor hereunder, the indemnitee shall promptly notify the indemnitor of the
existence of such claim and shall give the indemnitor reasonable opportunities
to defend and/or settle the claim at its own expense and with counsel of its own
selection. Indemnitee shall at all times have the right to fully participate in
any settlement which it reasonably believes would have an adverse effect on its
business. The indemnitee shall make available to the indemnitor all books and
records relating to the claim, and the parties agree to render to each other
such assistance as may reasonably be requested in order to ensure a proper and
adequate defense. An indemnitee shall not make any settlement of any claims
which might give rise to liability of an indemnitor hereunder without the prior
written consent of the indemnitor.
This paragraph, insofar as it applies to work undertaken while this Agreement
is in effect, shall survive the termination of this Agreement.
CONSTRUCTION
This Agreement shall be construed in accordance with the governed laws of the
State of Texas for contracts made and to be performed entirely in Texas.
ATTORNEY'S FEES
In the event that any action or proceeding is brought in connection with this
Agreement, the prevailing party shall be entitled to recover its costs and
reasonable attorney's fees.
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<PAGE> 19
TERMS & CONDITIONS
The stated fees include all elements as outlined in this proposal. The budget
does not include sales tax.
a) For projects that are outside the scope of work as defined in this
proposal, our terms are 50% of cost upon approval of the estimate or proposal
that is submitted in advance for each project. Once the first billing amount is
incurred, the second half of the proposal or estimate will be billed. Monthly
professional fees are billed in advance at the beginning of each month for that
month of service. Accounts payable are due within 30 days of invoicing.
b) Hard costs incurred on behalf of FutureLink, such as photography, printing,
film, etc., will be billed at a discounted agency markup of 10%. Media placed on
behalf of FutureLink will be billed to include the standard agency fee of 15%
which covers the cost of buying and serving the media program. 100% of the media
cost will be billed upon approved estimate for the month that the media runs.
Copyright of all creative, copywriting and development services performed will
transfer to FutureLink upon payment of final billing. SicolaMartin retains the
right to show names and designs created for our own literature or promotional
purposes.
Agency and client may terminate this relationship at any time upon 60 days
written notice given by either party to the other. In no event may this
agreement be terminated by FutureLink before November 15, 1999.
In the event the relationship is terminated by either party:
a) Both parties shall continue to observe and perform their obligations to the
fullest, pursuant to the terms of this agreement for 60 days from the date of
the notice of termination.
b) If the notice of termination is given by either party during the middle of
a month, the fees payable by the client shall be pro-rated to a daily rate and
will be collectible for 60 days from the date of notice.
c) Once the notice of termination has been given, the Agency shall not procure
any further hard costs on behalf of the client, except those hard costs which
have been previously authorized by the client for projects which have been
initiated by the Agency and which the client desires to have completed.
SicolaMartin agrees to provide its services for FutureLink on an exclusive
basis. During the term of this agreement, SicolaMartin will not perform the same
or substantially the same services for any person or entity which is involved in
the Application Service Provider or Server Based Computing business which may,
directly or indirectly become a competitor of FutureLink. The definition of
whether such person or entity is in fact a direct or indirect competitor to
FutureLink will be determined by agreement between SicolaMartin and FutureLink.
15
<PAGE> 1
EXHIBIT 10.16
Customer No. 1353
MASTER LOAN AND SECURITY AGREEMENT
THIS AGREEMENT dated as of November 3, 1999, is made by
FutureLink Corp., a Delaware corporation having its principal place of business
and chief executive office at 6 Morgan, Suite 100, Irvine, California 92618,
and FutureLink Micro Visions Corp., a Delaware corporation having its principal
place of business and chief executive office at 6 Morgan, Suite 100, Irvine,
California 92618 (jointly and severally the "Borrower") in favor of
Transamerica Business Credit Corporation, a Delaware corporation (the "Lender"),
having its principal office at Riverway II, West Office Tower, 9399 West
Higgins Road, Rosemont, Illinois 60018.
WHEREAS, the Borrower has requested that the Lender make Loans to it
from time to time; and
WHEREAS, the Lender has agreed to make such Loans on the terms and
conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and to induce the
Lender to extend credit, the Borrower hereby agrees with the Lender as follows:
SECTION 1. DEFINITIONS.
As used herein, the following terms shall have the following
meanings, and shall be equally applicable to both the singular and plural forms
of the terms defined:
Agreement shall mean this Master Loan and Security Agreement together with all
schedules and exhibits hereto, as amended, supplemented, or otherwise modified
from time to time.
Applicable Law shall mean the laws of the State of Illinois (or any other
jurisdiction whose laws are mandatorily applicable notwithstanding the parties'
choice of Illinois law) or the laws of the United States of America, whichever
laws allow the greater interest, as such laws now exist or may be changed or
amended or come into effect in the future.
Business Day shall mean any day other than a Saturday, Sunday, or public
holiday or the equivalent for banks in New York City.
Code shall have the meaning specified in Section 8(d).
Collateral shall have the meaning specified in Section 2.
Collateral Access Agreement shall mean any landlord waiver, mortgagee waiver,
bailee letter, or similar acknowledgement of any warehouseman or processor in
possession of any Equipment, in each case substantially in the form of
Exhibit A.
Effective Date shall mean the date on which all of the conditions specified in
Section 3.3 shall have been satisfied.
Equipment shall have the meaning specified in Section 2.
Event of Default shall mean any event specified in Section 7.
Financial Statements shall have the meaning specified in Section 6.1.
GAAP shall mean generally accepted accounting principles in the United States
of America, as in effect from time to time.
<PAGE> 2
Guarantee shall mean the Guaranty dated of even date herewith and executed by
Guarantor (as hereinafter defined) in form and substance acceptable to Lender.
Guarantor shall mean Future_Link Distribution Corp., a wholly owned subsidiary
of Borrower, located in Calgary, Canada.
Loans shall mean the loans and financial accommodations made by the Lender to
the Borrower in accordance with the terms of this Agreement and the Notes.
Loan Documents shall mean, collectively, this Agreement, the Notes, and all
other present and future documents, agreements, certificates, instruments, and
opinions delivered by the Borrower under, in connection with or relating to
this Agreement, or any other present or future instrument or agreement between
Lender and Borrower, as each of the same may be amended, modified, extended,
restated or supplemented from time to time.
Material Adverse Change shall mean, with respect to any Person, a material
adverse change in the business, prospects, operations, results of operations,
assets, liabilities, or condition (financial or otherwise) of such Person taken
as a whole.
Material Adverse Effect shall mean, with respect to any Person, a material
adverse effect on the business, prospects, operations, results of operations,
assets, liabilities, or condition (financial or otherwise) of such Person taken
as a whole.
Note shall mean each Promissory Note made by the Borrower in favor of the
Lender, as amended, supplemented, or otherwise modified from time to time, in
each case substantially in the form of Exhibit B.
Obligations shall mean and include all loans (including the Loans), advances,
debts, liabilities, obligations, covenants and duties owing by Borrower to
Lender of any kind or nature, present or future, whether or not evidenced by the
Note or any note, guaranty or other instrument, whether or not arising under or
in connection with, this Agreement, any other Loan Document or any other present
or future instrument or agreement, whether or not for the payment of money,
whether arising by reason of an extension of credit, opening, guaranteeing or
confirming of a letter of credit, loan, guaranty, indemnification or in any
other manner, whether direct or indirect (including those acquired by
assignment, purchase, discount or otherwise), whether absolute or contingent,
due or to become due, now due or hereafter arising and however acquired
(including without limitation all loans previously made by Lender to Borrower).
The term includes, without limitation, all interest (including interest accruing
on or after a bankruptcy, whether or not an allowed claim), charges, expenses,
commitment, facility, closing and collateral management fees, letter of credit
fees, reasonable attorneys' fees, taxes and any other sum properly chargeable to
Borrower under this Agreement, the other Loan Documents or any other present or
future agreement between Lender and Borrower.
Permitted Liens shall mean such of the following as to which no enforcement,
collection, execution, levy, or foreclosure proceeding shall have been
commenced: (a) liens for taxes, assessments, and other governmental charges or
levies or the claims or demands of landlords, carriers, warehousemen,
mechanics, laborers, materialmen, and other like Persons arising by operation
of law in the ordinary course of business for sums which are not yet due and
payable, or liens which are being contested in good faith by appropriate
proceedings diligently conducted and with respect to which adequate reserves
are maintained to the extent required by GAAP; (b) deposits or pledges to secure
the payment of worker's compensation, unemployment insurance, or other social
security benefits or obligations, public or statutory obligations, surety or
appeal bonds, bid or performance bonds, or other obligations of a like nature
incurred in the ordinary course of business; (c) licenses, restrictions, or
covenants for or on the use of the Equipment which do not materially impair
either the use of the Equipment in the operation of the business of the
Borrower or the value of the Equipment; and (d) attachment or judgment liens
that do not constitute an Event of Default.
Person shall mean any individual, sole proprietorship, partnership, limited
liability partnership, joint venture, trust, unincorporated organization,
association, corporation, limited liability company, institution, entity, party,
or
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government (including any division, agency, or department thereof), and the
successors, heirs, and assigns of each.
Schedule shall mean each Schedule in the form of Schedule A hereto delivered by
the Borrower to the Lender from time to time.
Security Agreement shall mean the agreement dated of even date herewith,
executed by Guarantor in form and substance acceptable to Lender.
Solvent means, with respect to any Person, that as of the date as to which such
Person's solvency is measured:
(a) the fair saleable value of its assets is in excess of the total
amount of its liabilities (including contingent liabilities as valued in
accordance with GAAP) as they become absolute and matured;
(b) it has sufficient capital to conduct its business; and
(c) it is able generally to meet its debts as they mature.
Taxes shall have the meaning specified in Section 5.5.
SECTION 2. CREATION OF SECURITY INTEREST; COLLATERAL. The Borrower
and Guarantor hereby assign and grant to the Lender a continuing general, first
priority lien on, and security interest in, all the Borrower's or Guarantor's
right, title, and interest in and to the collateral, as applicable, described in
the next sentence (the "Collateral") to secure the payment and performance of
all the Obligations. The Collateral consists of all equipment set forth on all
the Schedules delivered from time to time under the terms of this Agreement (the
"Equipment"), together with all present and future additions, parts,
accessories, attachments, substitutions, repairs, improvements, and replacements
thereof or thereto, and any and all proceeds thereof, including, without
limitation, proceeds of insurance and all manuals, blueprints, know-how,
warranties, and records in connection therewith, all rights against suppliers,
warrantors, manufacturers, sellers, or others in connection therewith, and
together with all substitutes for any of the foregoing.
The parties acknowledge that the Borrower may engage in purchase money security
financing with third parties in the future. The equipment financed by such third
parties shall not constitute an attachment to Lender's Collateral for the
purposes of this Agreement if such equipment can be (a) removed from Lender's
Collateral without causing damage thereto; (b) such removal can be completed
without diminishing the value of Lender's Collateral; and (c) such removal does
not affect the marketability of Lender's Collateral.
SECTION 3. THE CREDIT FACILITY.
SECTION 3.1. BORROWINGS. Each Loan shall be in an amount not
less than $50,000, and in no event shall the sum of the aggregate Loans made
exceed the amount of the Lender's written commitment to the Borrower in effect
from time to time. Notwithstanding anything herein to the contrary, the Lender
shall be obligated to make the initial Loan and each other Loan only after the
Lender, in its sole discretion, determines that the applicable conditions for
borrowing contained in Sections 3.3 and 3.4 are satisfied. The timing and
financial scope of Lender's obligation to make Loans hereunder are limited as
set forth in a commitment letter executed by Lender and Borrower, dated as of
September 10, 1999 and attached hereto as Exhibit A (the "Commitment Letter").
SECTION 3.2. APPLICATION OF PROCEEDS. The Borrower shall not
directly or indirectly use any proceeds of the Loans, or cause, assist, suffer,
or permit the use of any proceeds of the Loans, for any purpose other than for
the purchase, acquisition, installation, or upgrading of Equipment or the
reimbursement of the Borrower for its purchase, acquisition, installation, or
upgrading of Equipment.
SECTION 3.3. CONDITIONS TO INITIAL LOAN.
(a) The obligation of the Lender to make the initial Loan is subject
to the Lender's receipt of
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the following, each dated the date of the initial Loan or as of an earlier date
acceptable to the Lender, in form and substance satisfactory to the Lender and
its counsel:
(i) completed requests for information (Form UCC-11) listing
all effective Uniform Commercial Code financing statements naming the Borrower
as debtor and all tax lien, judgment, and litigation searches for the Borrower
as the Lender shall deem necessary or desirable;
(ii) Uniform Commercial Code financing statements (Form UCC-1)
duly executed by the Borrower (naming the Lender as secured party and the
Borrower as debtor and in form acceptable for filing in all jurisdictions that
the Lender deems necessary or desirable to perfect the security interests
granted to it hereunder) and, if applicable, termination statements or other
releases duly filed in all jurisdictions that the Lender deems necessary or
desirable to perfect and protect the priority of the security interests granted
to it hereunder in the Equipment related to such initial Loan;
(iii) Personal Property Security Act financing statements duly
executed by the Guarantor (naming the Lender as secured party and the Guarantor
as debtor and in form acceptable for filing in all jurisdictions that the
Lender deems necessary or desirable to perfect the security interests granted
to it hereunder) and, if applicable, termination statements or other releases
duly filed in all jurisdictions that the Lender deems necessary or desirable to
perfect and protect the priority of the security interests granted to it
hereunder in the Equipment related to such initial Loan;
(iv) a Note duly executed by the Borrower evidencing the amount
of such Loan;
(v) on a best effort basis, a Collateral Access Agreement duly
executed by the lessor or mortgagee, as the case may be, of each premises where
the Equipment is located.
(vi) certificates of insurance required under Section 5.4 of
this Agreement together with loss payee endorsements for all such policies
naming the Lender as lender loss payee and as an additional insured;
(vii) a Security Agreement and appropriate financing statements
executed by Guarantor;
(viii) a Guarantee executed by Guarantor;
(ix) a certificate of the Secretary or an Assistant Secretary
of the Borrower ("Secretary's Certificate") certifying (A) that attached to the
Secretary's Certificate is a true, complete, and accurate copy of the
resolutions of the Board of Directors of the Borrower (or a unanimous consent of
directors in lieu thereof) authorizing the execution, delivery, and performance
of this Agreement, the other Loan Documents, and the transactions contemplated
hereby and thereby, and that such resolutions have not been amended or modified
since the date of such certification and are in full force and effect; (B) the
incumbency, names, and true signatures of the officers of the Borrower
authorized to sign the Loan Documents to which it is a party; (C) that attached
to the Secretary's Certificate is a true and correct copy of the Articles or
Certificate of Incorporation of the Company, as amended, which Articles or
Certificate of Incorporation have not been further modified, repealed or
rescinded and are in full force and effect; (D) that attached to the Secretary's
Certificate of the Borrower is a true and correct copy of the Bylaws, as
amended, which Bylaws of the Company have not been further modified, repealed or
rescinded and are in full force and effect; and (E) that attached to the
Secretary's Certificate is a valid Certificate of Good Standing issued by the
Secretary of the State of the Borrower's state of incorporation; and
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<PAGE> 5
(X) such other agreements and instruments as the Lender deems
necessary in its sole and absolute discretion in connection with the
transactions contemplated hereby.
(b) There shall be no pending or, to the knowledge of the Borrower
after due inquiry, threatened litigation, proceeding, inquiry, or other action
(i) seeking an injunction or other restraining order, damages, or other relief
with respect to the transactions contemplated by this Agreement or the other
Loan Documents or thereby or (ii) which affects or could affect the business,
prospects, operations, assets, liabilities, or condition (financial or
otherwise) of the Borrower, except, in the case of clause (ii), where such
litigation, proceeding, inquiry, or other action could not be expected to have
or a Material Adverse Effect in the judgment of the Lender.
(c) The Borrower shall have paid all fees and expenses required to
be paid by it to the Lender as of such date.
(d) The security interests in the Equipment related to the initial
Loan granted in favor or the Lender under this Agreement shall have been duly
perfected and shall constitute first priority liens.
SECTION 3.4. CONDITIONS PRECEDENT TO EACH LOAN. The obligation
of the Lender to make each Loan is subject to the satisfaction of the following
conditions precedent:
(a) the Lender shall have received the documents, agreements, and
instruments set forth in Section 3.3(a)(i) through (v) applicable to such Loan,
each in form and substance satisfactory to the Lender and its counsel and each
dated the date of such Loan or as of an earlier date acceptable to the Lender;
(b) the Lender shall have received a Schedule of the Equipment
related to such Loan, in form and substance satisfactory to the Lender and its
counsel, and the security interests in such Equipment related to such Loan
granted in favor of the Lender under this Agreement shall have been duly
perfected and shall constitute first priority liens;
(c) all representations and warranties contained in this Agreement
and the other Loan Documents shall be true and correct on and as of the date of
such Loan as if then made, other than representations and warranties that
expressly relate solely to an earlier date, in which case they shall have been
true and correct as of such earlier date;
(d) no Event of Default or event which with the giving of notice or
the passage of time, or both, would constitute an Event of Default shall have
occurred and be continuing or would result from the making of the requested
Loan as of the date of such request; and
(e) the Borrower shall be deemed to have hereby reaffirmed and
ratified all security interests, liens, and other encumbrances heretofore
granted by the Borrower to the Lender.
SECTION 4. THE BORROWER'S REPRESENTATIONS AND WARRANTIES.
SECTION 4.1. GOOD STANDING; QUALIFIED TO DO BUSINESS. The
Borrower (a) is duly organized, validly existing, and in good standing under
the laws of the State of its organization, (b) has the power and authority to
own its properties and assets and to transact the business in which it is
presently, or proposes to be, engaged, and (c) is duly qualified and authorized
to do business and is in good standing in every jurisdiction in which the
failure to be so qualified could have a Material Adverse Effect on (i) the
Borrower, (ii) the Borrower's ability to perform its obligations under the Loan
Documents, or (iii) the rights of the Lender hereunder.
SECTION 4.2. DUE EXECUTION, ETC. The execution, delivery, and
performance by the Borrower of each of the Loan Documents to which it is a
party are within the powers of the Borrower, do not contravene the
organizational documents, if any, of the Borrower, and do not (a) violate any
law or regulation, or any order or decree of any court or governmental
authority, (b) conflict with or result in a breach of, or constitute a
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default under, any material indenture, mortgage, or deed of trust or any
material lease, agreement, or other instrument binding on the Borrower or any of
its properties, or (c) require the consent, authorization by, or approval of or
notice to or filing or registration with any governmental authority or other
Person. This Agreement is, and each of the other Loan Documents to which the
Borrower is or will be a party, when delivered hereunder or thereunder, will
be, the legal, valid, and binding obligation of the Borrower enforceable
against the Borrower in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency, or similar laws affecting creditors'
rights generally and by general principles of equity.
SECTION 4.3. SOLVENCY; NO LIENS. The Borrower is Solvent and will
be Solvent upon the completion of all transactions contemplated to occur
hereunder (including, without limitation, the Loan to be made on the Effective
Date); the security interests granted herein constitute and shall at all times
constitute the first and only liens on the Collateral other than Permitted
Liens; and the Borrower is, or will be at the time additional Collateral is
acquired by it, the absolute owner of the Collateral with full right to pledge,
sell, consign, transfer, and create a security interest therein, free and clear
of any and all claims or liens in favor of any other Person other than
Permitted Liens.
SECTION 4.4. NO JUDGMENTS, LITIGATION. No judgments are
outstanding against the Borrower nor is there now pending or, to the best of
the Borrower's knowledge after diligent inquiry, threatened any litigation,
contested claim, or governmental proceeding by or against the Borrower except
judgments and pending or threatened litigation, contested claims, and
governmental proceedings which would not, in the aggregate, have a Material
Adverse Effect on the Borrower.
SECTION 4.5. NO DEFAULTS. The Borrower is not in default or has
not received a notice of default under any material contract, lease, or
commitment to which it is a party or by which it is bound. The Borrower knows
of no dispute regarding any contract, lease, or commitment which could have a
Material Adverse Effect on the Borrower.
SECTION 4.6. COLLATERAL LOCATIONS. On the date hereof, each item
of the Collateral is located at the place of business specified in the
applicable Schedule.
SECTION 4.7. NO EVENTS OF DEFAULT. No Event of Default has
occurred and is continuing nor has any event occurred which, with the giving of
notice or the passage of time, or both, would constitute an Event of Default.
SECTION 4.8. NO LIMITATION ON LENDER'S RIGHTS. Except as
permitted herein, none of the Collateral is subject to contractual obligations
that may restrict or inhibit the Lender's rights or abilities to sell or
dispose of the Collateral or any part thereof after the occurrence of an Event
of Default.
SECTION 4.9. PERFECTION AND PRIORITY OF SECURITY INTEREST. This
Agreement creates a valid and, upon completion of all required filings of
financing statements, perfected first priority and exclusive security interest
in the Collateral, securing the payment of all the Obligations.
SECTION 4.10. MODEL AND SERIAL NUMBERS. The Schedules set forth
the true and correct model number and serial number of each item of Equipment
that constitutes Collateral.
SECTION 4.11. ACCURACY AND COMPLETENESS OF INFORMATION. All
data, reports, and information heretofore, contemporaneously, or hereafter
furnished by or on behalf of the Borrower in writing to the Lender or for
purposes of or in connection with this Agreement or any other Loan Document, or
any transaction contemplated hereby or thereby, are or will be true and
accurate in all material respects on the date as of which such data, reports,
and information are dated or certified and not incomplete by omitting to state
any material fact necessary to make such data, reports, and information not
misleading at such time. There are no facts now known to the Borrower which
individually or in the aggregate would reasonably be expected to have a Material
Adverse Effect and which have not been specified herein, in the Financial
Statements, or in any certificate, opinion, or other written statement
previously furnished by the Borrower to the Lender.
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SECTION 4.12 PRICE OF EQUIPMENT. The cost of each item of
Equipment does not exceed the fair and usual price for such type of equipment
purchased in like quantity and reflects all discounts, rebates and allowances
for the Equipment (including, without limitation, discounts for advertising,
prompt payment, testing, or other services) given to the Borrower by the
manufacturer, supplier, or any other person.
SECTION 5. COVENANTS OF THE BORROWER.
SECTION 5.1. EXISTENCE, ETC. The Borrower shall: (a) retain its
existence and its current yearly accounting cycle, (b) maintain in full force
and effect all licenses, bonds, franchises, leases, trademarks, patents,
contracts, and other rights necessary or desirable to the profitable conduct of
its business unless the failure to do so could not reasonably be expected to
have a Material Adverse Effect on the Borrower, (c) continue in, and limit its
operations to, the same general lines of business as those presently conducted
by it, and (d) comply with all applicable laws and regulations of any federal,
state, or local governmental authority, except for such laws and regulations the
violations of which would not, in the aggregate, have a Material Adverse Effect
on the Borrower.
SECTION 5.2. NOTICE TO THE LENDER. As soon as possible, and in
any event within five days after the Borrower learns of the following, the
Borrower will give written notice to the Lender of (a) any proceeding
instituted or threatened to be instituted against the Borrower in any federal,
state, local, or foreign court or before any commission or other regulatory body
(federal, state, local, or foreign) involving a sum, together with the sum
involved in all other similar proceedings, in excess of $50,000 in the
aggregate, (b) any contract that is terminated or amended and which has had or
could reasonably be expected to have a Material Adverse Effect on the Borrower,
(c) the occurrence of any Material Adverse Change with respect to the Borrower,
and (d) the occurrence of any Event of Default or event or condition which,
with notice or lapse of time or both, would constitute an Event of Default,
together with a statement of the action which the Borrower has taken or
proposes to take with respect thereto.
SECTION 5.3. MAINTENANCE OF BOOKS AND RECORDS. The Borrower will
maintain books and records pertaining to the Collateral in such detail, form,
and scope as the Lender shall require in its commercially reasonable judgement.
The Borrower agrees that the Lender or its agents may enter upon the Borrower's
premises on reasonable written notice at any time and from time to time during
normal business hours, and at any time upon the occurrence and continuance of
an Event of Default, for the purpose of inspecting the Collateral and any and
all records pertaining thereto.
SECTION 5.4. INSURANCE. The Borrower will maintain insurance on
the Collateral under such policies of insurance, with such insurance companies,
in such amounts, and covering such risks as are at all times satisfactory to
the Lender. All such policies shall be made payable to the Lender, in case of
loss, under a standard non-contributory "lender" or "secured party" clause and
are to contain such other provisions as the Lender may reasonably require to
protect the Lender's interests in the Collateral and to any payments to be made
under such policies. Certificates of insurance policies are to be delivered to
the Lender, premium prepaid, with the loss payable endorsement in the Lender's
favor, and shall provide for not less than thirty days' prior written notice to
the Lender, of any alteration or cancellation of coverage. If the Borrower
fails to maintain such insurance, the Lender may arrange for (at the Borrower's
expense and without any responsibility on the Lender's part for) obtaining the
insurance. Unless the Lender shall otherwise agree with the Borrower in
writing, the Lender shall have the sole right, in the name of the Lender or
the Borrower, to file claims under any insurance policies, to receive and give
acquittance for any payments that may be payable thereunder, and to execute any
endorsements, receipts, releases, assignments, reassignments, or other documents
that may be necessary to effect the collection, compromise, or settlement of any
claims under any such insurance policies.
SECTION 5.5. TAXES. The Borrower will pay, when due, all taxes,
assessments, claims, and other charges ("Taxes") lawfully levied or assessed
against the Borrower or the Collateral other than taxes that are being
diligently contested in good faith by the Borrower by appropriate proceedings
promptly instituted and for which an adequate reserve is being maintained by
the Borrower in accordance with GAAP. If any
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Taxes remain unpaid after the date fixed for the payment thereof, or if any
lien shall be claimed therefor, then, without notice to the Borrower, but on
the Borrower's behalf, the Lender may pay such Taxes, and the amount thereof
shall be included in the Obligations.
SECTION 5.6. BORROWER TO DEFEND COLLATERAL AGAINST CLAIMS; FEES
ON COLLATERAL. The Borrower will defend the Collateral against all claims and
demands of all Persons at any time claiming the same or any interest therein.
The Borrower will not permit any notice creating or otherwise relating to liens
on the Collateral or any portion thereof to exist or be on file in any public
office other than Permitted Liens. The Borrower shall promptly pay, when
payable, all transportation, storage, and warehousing charges and license fees,
registration fees, assessments, charges, permit fees, and taxes (municipal,
state, and federal) which may now or hereafter be imposed upon the ownership,
leasing, renting, possession, sale, or use of the Collateral, other than taxes
on or measured by the Lender's income and fees, assessments, charges, and taxes
which are being contested in good faith by appropriate proceedings diligently
conducted and with respect to which adequate reserves are maintained to the
extent required by GAAP.
SECTION 5.7. NO CHANGE OF LOCATION, STRUCTURE, OR IDENTITY. The
Borrower will not (a) change the location of its chief executive office or
establish any place of business other than those specified herein or (b) move
or permit the movement of any item of Collateral from the location specified in
the applicable Schedule, except that the Borrower may change its chief
executive office and keep Collateral at other locations within the United
States provided that the Borrower has delivered to the Lender (i) prior written
notice thereof and (ii) duly executed financing statements and other agreements
and instruments (all in form and substance satisfactory to the Lender)
necessary or, in the opinion of the Lender, desirable to perfect and maintain
in favor of the Lender a first priority security interest in the Collateral.
Notwithstanding anything to the contrary in the immediately preceding sentence,
the Borrower may keep any Collateral consisting of motor vehicles or rolling
stock at any location in the United States provided that the Lender's security
interest in any such Collateral is conspicuously marked on the certificate of
title thereof and the Borrower has complied with the provisions of Section 5.9.
SECTION 5.8. USE OF COLLATERAL; LICENSES; REPAIR. The Collateral
shall be operated by competent, qualified personnel in connection with the
Borrower's business purposes, for the purpose for which the Collateral was
designed and in accordance with applicable operating instructions, laws, and
government regulations, and the Borrower shall use every reasonable precaution
to prevent loss or damage to the Collateral from fire and other hazards. The
Collateral shall not be used or operated for personal, family, or household
purposes. The Borrower shall procure and maintain in effect all orders,
licenses, certificates, permits, approvals, and consents required by federal,
state, or local laws or by any governmental body, agency, or authority in
connection with the delivery, installation, use, and operation of the
Collateral. The Borrower shall keep all of the Equipment in a satisfactory
state of repair and satisfactory operating condition in accordance with
industry standards, and will make all repairs and replacements when and where
necessary and practical. The Borrower will not waste or destroy the Equipment
or any part thereof, and will not be negligent in the care or use thereof.
SECTION 5.9. FURTHER ASSURANCES. The Borrower will, promptly
upon request by the Lender, execute and deliver or use its best efforts to
obtain any document required by the Lender (including, without limitation,
warehouseman or processor disclaimers, mortgagee waivers, landlord disclaimers,
or subordination agreements with respect to the Obligations and the
Collateral), give any notices, execute and file any financing statements,
mortgages, or other documents (all in form and substance satisfactory to the
Lender), mark any chattel paper, deliver any chattel paper or instruments to
the Lender, and take any other actions that are necessary or, in the opinion of
the Lender, desirable to perfect or continue the perfection and the first
priority of the Lender's security interest in the Collateral, to protect the
Collateral against the rights, claims, or interests of any Persons, or to
effect the purposes of this Agreement. The Borrower hereby authorizes the
Lender to file one or more financing or continuation statements, and amendments
thereto, relating to all or any part of the Collateral without the signature of
the Borrower where permitted by law. A carbon, photographic, or other
reproduction of this Agreement or any financing statement covering the
Collateral or any part thereof shall be sufficient as a financing statement
where permitted by law. To the extent required under this Agreement, the
Borrower will pay all costs incurred in connection with any of the foregoing.
8
<PAGE> 9
SECTION 5.10. NO DISPOSITION OF COLLATERAL. The Borrower will
not in any way hypothecate or create or permit to exist any lien, security
interest, charge, or encumbrance on or other interest in any of the Collateral,
except for the lien and security interest granted hereby and Permitted Liens
which are junior to the lien and security interest of the Lender, and the
Borrower will not sell, transfer, assign, pledge, collaterally assign,
exchange, or otherwise dispose of any of the Collateral. In the event the
Collateral, or any part thereof, is sold, transferred, assigned, exchanged, or
otherwise disposed of in violation of these provisions, the security interest
of the Lender shall continue in such Collateral or part thereof notwithstanding
such sale, transfer, assignment, exchange, or other disposition, and the
Borrower will hold the proceeds thereof in a separate account for the benefit
of the Lender. Following such a sale, the Borrower will transfer such proceeds
to the Lender in kind.
SECTION 5.11. NO LIMITATION ON LENDER'S RIGHTS. The Borrower
will not enter into any contractual obligations which may restrict or inhibit
the Lender's rights or ability to sell or otherwise dispose of the Collateral
or any part thereof.
SECTION 5.12. PROTECTION OF COLLATERAL. Upon reasonable notice
to the Borrower (provided that if an Event of Default has occurred and is
continuing the Lender need not give any notice), the Lender shall have the
right at any time to make any payments and do any other acts the Lender may
deem necessary to protect its security interests in the Collateral, including,
without limitation, the rights to satisfy, purchase, contest, or compromise any
encumbrance, charge, or lien which, in the reasonable judgment of the Lender,
appears to be prior to or superior to the security interests granted hereunder,
and appear in, and defend any action or proceeding purporting to affect its
security interests in, or the value of, any of the Collateral. The Borrower
hereby agrees to reimburse the Lender for all reasonable payments made and
expenses incurred under this Agreement including fees, expenses, and
disbursements of attorneys and paralegals (including the allocated costs of
in-house counsel) acting for the Lender, including any of the foregoing
payments under, or acts taken to protect its security interests in, any of the
Collateral, which amounts shall be secured under this Agreement, and agrees it
shall be bound by any payment made or act taken by the Lender hereunder absent
the Lender's gross negligence or willful misconduct. The Lender shall have no
obligation to make any of the foregoing payments or perform any of the
foregoing acts.
SECTION 5.13. DELIVERY OF ITEMS. The Borrower will (a) promptly
(but in no event later than one Business Day) after its receipt thereof,
deliver to the Lender any documents or certificates of title issued with
respect to any property included in the Collateral, and any promissory notes,
letters of credit or instruments related to or otherwise in connection with any
property included in the Collateral, which in any such case come into the
possession of the Borrower, or shall cause the issuer thereof to deliver any of
the same directly to the Lender, in each case with any necessary endorsements
in favor of the Lender and (b) deliver to the Lender as soon as available
copies of any and all press releases and other similar communications issued by
the Borrower.
SECTION 5.14. SOLVENCY. The Borrower shall be and remain Solvent
at all times.
SECTION 5.15. FUNDAMENTAL CHANGES. The Borrower shall not (a)
amend or modify its name, unless the Borrower delivers to the Lender thirty
days prior to any such proposed amendment or modification written notice of
such amendment or modification and within ten days before such amendment or
modification delivers executed Uniform Commercial Code financing statements (in
form and substance satisfactory to the Lender) or (b) merge or consolidate with
any other entity or make any material change in its capital structure, in each
case without the Lender's prior written consent which shall not be unreasonably
withheld.
SECTION 5.16. ADDITIONAL REQUIREMENTS. The Borrower shall take
all such further actions and execute all such further documents and instruments
as the Lender may reasonably request.
SECTION 6. FINANCIAL STATEMENTS. Until the payment and satisfaction
in full of all Obligations, the Borrower shall deliver to the Lender the
following financial information:
SECTION 6.1. ANNUAL FINANCIAL STATEMENTS. As soon as available,
but not later than 120 days after the end of each fiscal year of the Borrower
and its consolidated subsidiaries, the consolidated balance sheet, income
statement, and statements of cash flows and shareholders equity for the
Borrower and its
9
<PAGE> 10
consolidated subsidiaries (the "Financial Statements") for such year, reported
on by independent certified public accountants without an adverse qualification;
and
SECTION 6.2 QUARTERLY FINANCIAL STATEMENTS. As soon as available,
but not later than 60 days after the end of each of the first three fiscal
quarters in any fiscal year of the Borrower and its consolidated subsidiaries,
the Financial Statements for such fiscal quarter, together with a certification
duly executed by a responsible officer of the Borrower that such Financial
Statements have been prepared in accordance with GAAP and are fairly stated in
all material respects (subject to normal year-end audit adjustments).
SECTION 7. EVENTS OF DEFAULT. The occurrence of any of the following
events shall constitute an Event of Default hereunder:
(a) the Borrower shall fail to pay within five days of when due
any amount required to be paid by the Borrower under or in connection with any
Note, the Guarantee and this Agreement;
(b) any representation or warranty made or deemed made by the
Borrower under or in connection with any Loan Document or any Financial
Statement shall prove to have been false or incorrect in any material respect
when made;
(c) the Borrower shall fail to perform or observe (i) any of the
terms, covenants or agreements contained in Sections 5.4, 5.7, 5.10, 5.14, or
5.15 hereof or (ii) any other term, covenant, or agreement contained in any
Loan Document (other than the other Events of Default specified in this Section
7) and such failure remains unremedied for the earlier of fifteen days from (A)
the date on which the Lender has given the Borrower written notice of such
failure and (B) the date on which the Borrower knew or should have known of
such failure;
(d) any material provision of any Loan Document to which the
Borrower is a party shall for any reason cease to be valid and binding on the
Borrower, or the Borrower shall so state;
(e) dissolution, liquidation, winding up, or cessation of the
Borrower's business, failure of the Borrower generally to pay its debts as they
mature, admission in writing by the Borrower of its inability generally to pay
its debts as they mature, or calling of a meeting of the Borrower's creditors
for purposes of compromising any of the Borrower's debts;
(f) the commencement by or against the Borrower of any
bankruptcy, insolvency, arrangement, reorganization, receivership, or similar
proceedings under any federal or state law and, in the case of any such
involuntary proceeding, such proceeding remains undismissed or unstayed for
sixty days following the commencement thereof, or any action by the Borrower is
taken authorizing any such proceedings;
(g) an assignment for the benefit of creditors is made by the
Borrower, whether voluntary or involuntary (in the case of an involuntary
assignment by Borrower, a cure period of sixty days shall be granted by
Lender), the appointment of a trustee, custodian, receiver, or similar official
for the Borrower or for any substantial property of the Borrower, or any action
by the Borrower authorizing any such proceeding;
(h) the Borrower shall default in (i) the payment of principal
or interest on any indebtedness in excess of $50,000 (other than the
Obligations) beyond the period of grace, if any, provided in the instrument or
agreement under which such indebtedness was created; or (ii) the observance or
performance of any other agreement or condition relating to any such
indebtedness or contained in any instrument or agreement relating thereto, or
any other event shall occur or condition exist, the effect of which default or
other event or condition is to cause, or to permit the holder or holders of
such indebtedness to cause, with the giving of notice if required, such
indebtedness to become due prior to its stated maturity;
(i) the Borrower suffers or sustains a Material Adverse Change;
(j) any tax lien, other than a Permitted Lien, is filed of
record against the Borrower
10
<PAGE> 11
and is not bonded or discharged within thirty Business Days;
(k) any judgment which has had or could reasonably be expected
to have a Material Adverse Effect on the Borrower and such judgment shall not
be stayed, vacated, bonded, or discharged within sixty days;
(l) any material covenant, agreement, or obligation, as
determined in the sole discretion of the Lender, made by the Borrower and
contained in or evidenced by any of the Loan Documents shall cease to be
enforceable, or shall be determined to be unenforceable, in accordance with its
terms; the Borrower shall deny or disaffirm the Obligations under any of the
Loan Documents or any liens granted in connection therewith; or any liens
granted on any of the Collateral in favor of the Lender shall be determined to
be void, voidable, or invalid, or shall not be given the priority contemplated
by this Agreement; or
(m) there is a change, which change results from a single
transaction or series of related transactions, but not from the sale of newly
issued securities to investors, in more than 35% of the ownership of any equity
interests of the Borrower on the date hereof or more than 35% of such interests
become subject to any contractual, judicial, or statutory lien, charge,
security interest, or encumbrance, which is discharged within 30 days.
SECTION 8. REMEDIES. If any Event of Default shall have occurred and
be continuing:
(a) The Lender may, without prejudice to any of its other rights
under any Loan Document or Applicable Law, declare all Obligations to be
immediately due and payable (except with respect to any Event of Default set
forth in Section 7(f) hereof, in which case all Obligations shall automatically
become immediately due and payable without necessity of any declaration)
without presentment, representation, demand of payment, or protest, which are
hereby expressly waived.
(b) The Lender may take possession of the Collateral and, for
that purpose may enter, with the aid and assistance of any person or persons,
any premises where the Collateral or any part hereof is, or may be placed, and
remove the same.
(c) The obligation of the Lender, if any, to make additional
Loans or financial accommodations of any kind to the Borrower shall immediately
terminate.
(d) The Lender may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein (or in any Loan
Document) or otherwise available to it, all the rights and remedies of a
secured party under the applicable Uniform Commercial Code (the "Code")
whether or not the Code applies to the affected Collateral and also may (i)
require the Borrower to, and the Borrower hereby agrees that it will at its
expense and upon request of the Lender forthwith, assemble all or part of the
Collateral as directed by the Lender and make it available to the Lender at a
place to be designated by the Lender that is reasonably convenient to both
parties and (ii) without notice except as specified below, sell the Collateral
or any part thereof in one or more parcels at public or private sale, at any of
the Lender's offices or elsewhere, for cash, on credit, or for future
delivery, and upon such other terms as the Lender may deem commercially
reasonable. The Borrower agrees that, to the extent notice of sale shall be
required by law, at least ten days' notice to the Borrower of the time and
place of any public sale or the time after which any private sale is to be made
shall constitute reasonable notification. The Lender shall not be obligated to
make any sale of Collateral regardless of notice of sale having been given. The
Lender may adjourn any public or private sale from time to time by announcement
at the time and place fixed therefor, and such sale may, without further
notice, be made at the time and place to which it was so adjourned.
(e) All cash proceeds received by the Lender in respect of any
sale of, collection from, or other realization upon all or any part of the
Collateral may, in the discretion of the Lender, be held by the Lender as
collateral for, or then or at any time thereafter applied in whole or in part by
the Lender against, all or any part of the Obligations in such order as the
Lender shall elect. Any surplus of such cash or cash proceeds held by the Lender
and remaining after the full and final payment of all the Obligations shall be
paid over to the Borrower or to such other Person to which the Lender may be
required under applicable law, or directed by a court of
11
<PAGE> 12
competent jurisdiction, to make payment of such surplus.
SECTION 9. MISCELLANEOUS PROVISIONS.
SECTION 9.1. NOTICES. Except as otherwise provided herein, all
notices, approvals, consents, correspondence, or other communications required
or desired to be given hereunder shall be given in writing and shall be
delivered by overnight courier, hand delivery, or certified or registered mail,
postage prepaid, if to the Lender, then to Transamerica Technology Finance
Division, 76 Batterson Park Road, Farmington, Connecticut 06032, Attention:
Assistant Vice President, Lease Administration, with a copy to the Lender at
Riverway II, West Office Tower, 9399 West Higgins Road, Rosemont, Illinois
60018, Attention: Legal Department, and if to the Borrower, then to FutureLink
Distribution Corp, 6 Morgan, Suite 100, Irvine, California 92618, or such other
address as shall be designated by the Borrower or the Lender to the other party
in accordance herewith. All such notices and correspondence shall be effective
when received.
SECTION 9.2. HEADINGS. The headings in this Agreement are for
purposes of reference only and shall not affect the meaning or construction of
any provision of this Agreement.
SECTION 9.3. ASSIGNMENTS. The Borrower shall not have the right
to assign any Note or this Agreement or any interest therein unless the Lender
shall have given the Borrower prior written consent and the Borrower and its
assignee shall have delivered assignment documentation in form and substance
satisfactory to the Lender in its sole discretion. The Lender may assign its
rights and delegate its obligations under any Note or this Agreement.
SECTION 9.4. AMENDMENTS, WAIVERS, AND CONSENTS. Any amendment or
waiver of any provision of this Agreement and any consent to any departure by
the Borrower from any provision of this Agreement shall be effective only by a
writing signed by the Lender and shall bind and benefit the Borrower and the
Lender and their respective successors and assigns, subject, in the case of the
Borrower, to the first sentence of Section 9.3.
SECTION 9.5. INTERPRETATION OF AGREEMENT. Time is of the essence
in each provision of this Agreement of which time is an element. All terms not
defined herein or in a Note shall have the meaning set forth in applicable Code,
except where the context otherwise requires. To the extent a term or provision
of this Agreement conflicts with any Note, or any term or provision thereof, and
is not dealt with herein with more specificity, this Agreement shall control
with respect to the subject matter of such term or provision. Acceptance of or
acquiescence in a course of performance rendered under this Agreement shall not
be relevant in determining the meaning of this Agreement even though the
accepting or acquiescing party had knowledge of the nature of the performance
and opportunity for objection.
SECTION 9.6. CONTINUING SECURITY INTEREST. This Agreement shall
create a continuing security interest in the Collateral and shall (i) remain in
full force and effect until the indefeasible payment in full of the Obligations,
(ii) be binding upon the Borrower and its successors and assigns and (iii)
inure, together with the rights and remedies of the Lender hereunder, to the
benefit of the Lender and its successors, transferees, and assigns.
SECTION 9.7. REINSTATEMENT. To the extent permitted by law, this
Agreement and the rights and powers granted to the Lender hereunder and under
the Loan Documents shall continue to be effective or be reinstated if at any
time any amount received by the Lender in respect of the Obligations is
rescinded or must otherwise be restored or returned by the Lender upon the
insolvency, bankruptcy, dissolution, liquidation, or reorganization of the
Borrower or upon the appointment of any receiver, intervenor, conservator,
trustee, or similar official for the Borrower or any substantial part of its
assets, or otherwise, all as though such payments had not been made.
SECTION 9.8. SURVIVAL OF PROVISIONS. All representations,
warranties, and covenants of the Borrower contained herein shall survive the
execution and delivery of this Agreement, and shall
12
<PAGE> 13
terminate only upon the full and final payment and performance by the Borrower
of the Obligations secured hereby.
SECTION 9.9 INDEMNIFICATION. The Borrower agrees to indemnify and
hold harmless the Lender and its directors, officers, agents, employees, and
counsel from and against any and all costs, expenses, claims, or liability
incurred by the Lender or such Person hereunder and under any other Loan
Document or in connection herewith or therewith, unless such claim or liability
shall be due to willful misconduct or gross negligence on the part of the
Lender or such Person.
SECTION 9.10. COUNTERPARTS; TELECOPIED SIGNATURES. This Agreement may
be executed in counterparts, each of which when so executed and delivered shall
be an original, but both of which shall together constitute one and the same
instrument. This Agreement and each of the other Loan Documents and any notices
given in connection herewith or therewith may be executed and delivered by
telecopier or other facsimile transmission all with the same force and effect as
if the same was a fully executed and delivered original manual counterpart.
SECTION 9.11. SEVERABILITY. In case any provision in or obligation
under this Agreement or any Note or any other Loan Document shall be invalid,
illegal, or unenforceable in any jurisdiction, the validity, legality, and
enforceability of the remaining provisions or obligations, or of such provision
or obligation in any other jurisdiction, shall not in any way be affected or
impaired thereby.
SECTION 9.12. DELAYS; PARTIAL EXERCISE OF REMEDIES. No delay or
omission of the Lender to exercise any right or remedy hereunder, whether
before or after the happening of any Event of Default, shall impair any such
right or shall operate as a waiver thereof or as a waiver of any such Event of
Default. No single or partial exercise by the Lender of any right or remedy
shall preclude any other or further exercise thereof, or preclude any other
right or remedy.
SECTION 9.13. ENTIRE AGREEMENT. The Borrower and the Lender agree
that this Agreement, the Schedule hereto, and the Commitment Letter are the
complete and exclusive statement and agreement between the parties with respect
to the subject matter hereof, superseding all proposals and prior agreements,
oral or written, and all other communications between the parties with respect
to the subject matter hereof. Should there exist any inconsistency between the
terms of the Commitment Letter and this Agreement, the terms of this Agreement
shall prevail.
SECTION 9.14. SETOFF. In addition to and not in limitation of all
rights of offset that the Lender may have under Applicable Law, and whether or
not the Lender has made any demand or the Obligations of the Borrower have
matured, the Lender shall have the right to appropriate and apply to the
payment of the Obligations of the Borrower all deposits and other obligations
then or thereafter owing by the Lender to or for the credit or the account of
the Borrower.
SECTION 9.15. WAIVER OF JURY TRIAL. THE BORROWER AND THE LENDER
IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR
COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN
DOCUMENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
SECTION 9.16. GOVERNING LAW. THE VALIDITY, INTERPRETATION, AND
ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF ILLINOIS WITHOUT GIVING EFFECT TO THE CONFLICT OF
LAW PRINCIPLES THEREOF.
SECTION 9.17. VENUE; SERVICE OF PROCESS. ANY LEGAL ACTION OR
PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE
BROUGHT IN THE COURTS OF THE STATE OF ILLINOIS SITUATED IN COOK COUNTY, OR OF
THE UNITED STATES OF AMERICA FOR THE NORTHERN DISTRICT OF ILLINOIS, AND, BY
EXECUTION AND DELIVERY OF THIS AGREEMENT, THE BORROWER HEREBY ACCEPTS FOR
ITSELF AND IN
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<PAGE> 14
RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE
AFORESAID COURTS. THE BORROWER HEREBY IRREVOCABLY WAIVES, IN CONNECTION WITH
ANY SUCH ACTION OR PROCEEDING, (a) ANY OBJECTION, INCLUDING, WITHOUT
LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF
FORUM NON CONVENIENS, THAT IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY
SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS AND (b) THE RIGHT TO
INTERPOSE ANY NONCOMPULSORY SETOFF, COUNTERCLAIM, OR CROSS-CLAIM. THE BORROWER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED
COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE BORROWER AT THE ADDRESS
FOR IT SPECIFIED IN SECTION 9.1 HEREOF. NOTHING HEREIN SHALL AFFECT THE RIGHT
OF THE LENDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO
COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE BORROWER IN ANY
OTHER JURISDICTION, SUBJECT IN EACH INSTANCE TO THE PROVISIONS HEREOF WITH
RESPECT TO RIGHTS AND REMEDIES.
14
<PAGE> 15
IN WITNESS WHEREOF, the undersigned Borrower has caused this
Agreement to be duly executed and delivered by its proper and duly authorized
officer as of the date first set forth above.
FUTURELINK CORP., AS BORROWER
By:
------------------------------
Name:
Title:
By: /s/ GLEN C. HOLMES
------------------------------
Name: Glen C. Holmes
Title: President & C.O.O.
Federal Tax ID No.:
FUTURELINK MICRO VISIONS CORP., AS
BORROWER
By:
------------------------------
Name:
Title:
Federal Tax ID No.:
ACKNOWLEDGED BY:
FUTURELINK DISTRIBUTION CORP., AS
GUARANTOR
By:
------------------------------
Name:
Title:
Federal Tax ID No.:
Accepted as of the
3rd day of November, 1999
TRANSAMERICA BUSINESS CREDIT CORPORATION
By:
-------------------------------------
Name:
Title:
<PAGE> 16
SCHEDULE A
TO
LOAN AND SECURITY AGREEMENT
A. Other Places of Business and Locations of Collateral (Section 4.16):
1. 300, 250-6th Ave. S.W.
Calgary, AB T2P 3H7
2. Suite 100, 6 Morgan
Irvine, California
92618
3. 3 Corporate Parkway
Irvine, CA 92614
B. Prior Names of Obligor (Section 4.7):
FutureLink Distribution Corp.
FutureLink Micro Visions Acquisition Corp.
Executive LAN Management d.b.a. Micro Visions
C. Prior Trade Names of Obligor (Section 4.7):
FutureLink Distribution Corp.
FutureLink
Micro Visions
D. Existing Trade Names of Obligor (Section 4.7):
FutureLink Corp.
FutureLink Micro Visions Corp.
E. Federal Tax ID (Section 4.7):
FutureLink Corp. 95-4763404
FutureLink Micro Visions Corp. 33-0877444
<PAGE> 1
EXHIBIT 10.17
SECURITY AGREEMENT
This security agreement (this "SECURITY AGREEMENT") dated November 3, 1999,
made by FutureLink Distribution Corp. (the "GUARANTOR"), a Alberta corporation
having its principal place of business and chief executive office at 250 - 6th
Avenue S.W., Suite 300, Calgary, Alberta, T2P 3H7, in favor of Transamerica
Business Credit Corporation, a Delaware corporation (the "LENDER"), having its
principal office at Riverway II, West Office Tower, 9399 West Higgins Road,
Rosemont, Illinois 60018.
WHEREAS, concurrently herewith, the Guarantor is executing a guarantee of
even date herewith (as amended, supplemented or otherwise modified from time to
time, the "GUARANTEE"), in favor of the Lender in respect of the liabilities,
present or future, absolute or contingent, owed by FutureLink Corp., a Delaware
corporation (the"BORROWER").
WHEREAS the Guarantor is the wholly owned subsidiary of the Borrower.
NOW, THEREFORE, in consideration of the premises and to induce the Lender
to extend credit, the Guarantor hereby agrees with the Lender as follows:
SECTION 1 DEFINITIONS.
As used herein, the following terms shall have the following meanings, and
shall be equally applicable to both the singular and plural forms of the terms
defined:
"APPLICABLE LAW" shall mean the laws of the Province of Alberta (or any
other jurisdiction whose laws are mandatorily applicable notwithstanding
the parties' choice of Alberta law) or the laws of the Canada, whichever
laws allow the greater interest, as such laws now exist or may be changed
or amended or come into effect in the future;
"BUSINESS DAY" shall mean any day other than a Saturday, Sunday or public
holiday or the equivalent for banks in Canada;
"EVENT OF DEFAULT" shall mean any event specified in Section 5 of this
Security Agreement;
"GAAP" shall mean generally accepted accounting principles in Canada, as
in effect from time to time;
"LOAN DOCUMENTS" shall mean, collectively, this Security Agreement, the
Guarantee, and each other document, agreement, certificate and instrument
executed by the Guarantor and delivered to the Lender in connection
herewith and therewith, as the same may be modified, extended, restated or
supplemented from time to time;
"MATERIAL ADVERSE CHANGE" shall mean, with respect to any Person, a
material adverse change in the business, prospects, operations, results of
operations, assets,
<PAGE> 2
-2-
liabilities or condition (financial or otherwise) of such Person and its
affiliates, taken as a whole;
"MATERIAL ADVERSE EFFECT" shall mean, with respect to any Person, a
material adverse effect on the business, prospects, operations, results of
operations, assets, liabilities or condition (financial or otherwise) of
such Person and its affiliates, taken as a whole;
"OBLIGATIONS" shall mean all indebtedness, obligations and liabilities of
the Guarantor under the Guarantee and under this Security Agreement,
whether on account of principal, interest, indemnities, fees (including,
without limitation, attorneys' fees, re-marketing fees, origination fees,
collection fees and all other professionals' fees), costs, expenses, taxes
or otherwise; and
"PERSON" shall mean any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
institution, entity, party or government (including any division, agency
or department thereof), and the successors, heirs and assigns of each.
SECTION 2 CREATION OF SECURITY INTEREST; COLLATERAL.
(1) The Guarantor hereby assigns and grants to the Lender a continuing general,
first priority lien on and security interest in, all the Guarantor's right,
title and interest in and to all the following collateral (the
"Collateral"), to secure the payment and performance of all the
Obligations. The Collateral consists of all equipment set forth on Schedule
A hereto (the "Equipment"), together with all present and future additions,
parts, accessories, attachments, substitutions, repairs, improvements and
replacements thereof or thereto, and any and all proceeds thereof,
including, without limitation, proceeds of insurance.
(2) The parties acknowledge that the Borrower may engage in purchase money
security financing with third parties in the future. The equipment financed
by such third parties shall not constitute an attachment to Lender's
Collateral for the purposes of this Agreement if such equipment can be (a)
removed form Lender's Collateral without causing damage thereto; (b) such
removal can be completed without diminishing the value of Lender's
Collateral; and (c) such removal does not affect the marketability of
Lender's Collateral.
(3) The parties acknowledge that the Guarantor has rights in the Collateral,
value has been given and that the security interest has attached.
The Guarantor's Representations and Warranties.
(4) GOOD STANDING; QUALIFIED TO DO BUSINESS. The Guarantor (a) is duly
organized, validly existing and in good standing under the laws of the
Province of Alberta, (b) has the requisite power and authority to own its
properties and assets and to transact the businesses in which it is
presently, or proposes to be, engaged, and (c) is duly qualified and
authorized to do business and is in good standing in every jurisdiction in
<PAGE> 3
-3-
which the failure to be so qualified could have a Material Adverse Effect
on (i) the Guarantor, (ii) the Guarantor's ability to perform its
obligations under the Loan Documents or (iii) the rights of the Lender
hereunder.
(5) DUE EXECUTION, ETC. The execution, delivery and performance by the
Guarantor of each of the Loan Documents to which it is a party are within
the powers of the Guarantor, do not contravene the organizational
documents, if any, of the Guarantor, and do not (a) violate any law or
regulation, or any order or decree of any court or governmental authority,
(b) conflict with or result in a breach of, or constitute a default under,
any material indenture, mortgage or deed of trust or any material lease,
agreement or other instrument binding on the Guarantor or any of its
properties, or (c) require the consent, authorization by or approval of or
notice to or filing or registration with any governmental authority or
other Person. This Security Agreement is, and each of the other Loan
Documents to which the Guarantor is or will be a party, when delivered
hereunder or thereunder, will be the legal, valid and binding obligation of
the Guarantor enforceable against the Guarantor in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency or
similar laws affecting creditors' right, generally and by general
principles of equity.
(6) SOLVENCY, NO LIENS. The Guarantor is solvent, is paying its debts as they
become due and has sufficient capital to conduct its business; the fair
saleable value of the Guarantor's assets is in excess of the total amount
of its liabilities (including contingent liabilities) as they become
absolute and matured; the security interests granted herein constitute and
shall at all times constitute the first and only liens on the Collateral,
except for Permitted Liens; and the Guarantor is, or will be at the time
additional Collateral is acquired by it, the absolute owner of the
Collateral with full right to pledge, sell, consign, transfer and create a
security interest therein, free and clear of any and all claims or liens in
favor of any other Person, except for Permitted Liens.
(7) NO JUDGMENTS, LITIGATION. No judgments are outstanding against the
Guarantor nor is there now pending or, to the best of Guarantor's knowledge
after diligent inquiry, threatened any litigation, contested claim, or
governmental proceeding by or against the Guarantor except judgments and
pending or threatened litigation, contested claims and governmental
proceedings which would not, in the aggregate, have a Material Adverse
Effect on the Guarantor.
(8) NO DEFAULTS. The Guarantor is not in default under any material contract,
lease, or commitment to which it is a party or by which it is bound or the
Guarantor has received duly executed waivers for any of its defaults in
form and substance satisfactory to the Lender. The Guarantor knows of no
dispute regarding any contract, lease, or commitment which could have a
Material Adverse Effect on the Guarantor.
(9) COLLATERAL LOCATIONS. On the date hereof, the Collateral is located at the
place or places of business specified in Schedule A hereto.
<PAGE> 4
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(10) NO EVENTS OF DEFAULT. No Event of Default has occurred and is continuing
nor has any event occurred which, with the giving of notice or the passage
of time, or both, would constitute an Event of Default.
(11) NO LIMITATION ON LENDER'S RIGHTS. Except as permitted herein, none of the
Collateral is subject to contractual obligations that may restrict or
inhibit the Lender's rights or abilities to sell or dispose of the
Collateral or any part thereof after the occurrence of an Event of Default.
(12) Permitted Liens shall mean such of the following as to which no
enforcement, collection, execution, levy, or foreclosure proceeding shall
have been commenced: (a) liens for taxes, assessments, and other
governmental charges or levies or the claims or demands of landlords,
carriers, warehousemen, mechanics, laborers, materialmen, and other like
Persons arising by operation of law in the ordinary course of business for
sums which are not yet due and payable, or liens which are being contested
in good faith by appropriate proceedings diligently conducted and with
respect to which adequate reserves are maintained to the extent required
by GAAP; (b) deposits or pledges to secure the payment of worker's
compensation, unemployment insurance, or other social security benefits or
obligations, public or statutory obligations, surety or appeal bonds, bid
or performance bonds, or other obligations of a like nature incurred in
the ordinary course of business; (c) licenses, restrictions, or covenants
for or on the use of the Equipment which do not materially impair either
the use of the Equipment in the operation of the business of the Guarantor
or the value of the Equipment; and (d) attachment or judgment liens that do
not constitute an Event of Default.
(13) PERFECTION AND PRIORITY OF SECURITY INTEREST. This Security Agreement
creates a valid and, upon completion of all required filings of financing
statements, a perfected and first priority and exclusive security interest
in the Collateral (subject to Permitted Liens), securing the payment of all
the Obligations.
(14) MODEL AND SERIAL NUMBERS. Schedule A hereto sets forth the true and
correct model number and serial number of each item of equipment that
constitutes Collateral.
(15) SHAREHOLDER. The Borrower is the registered owner of all of the issued and
outstanding shares in the capital of the Guarantor.
SECTION 3 COVENANTS OF THE GUARANTOR.
(1) EXISTENCE, ETC. The Guarantor will maintain its existence and its current
yearly accounting cycle; shall maintain in full force and effect all
licenses, bonds, franchises, leases, trademarks, patents, contracts and
other rights necessary or desirable to the profitable conduct of its
business; shall continue in, and limit its operations to, the same general
lines of business as those presently conducted by it; and shall comply with
all applicable laws and regulations of any federal, state or local
governmental authority, except for such laws and regulations the violations
of which would not, in the aggregate, have a Material Adverse Effect on the
Guarantor.
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(2) NOTICE TO THE LENDER. As soon as possible, and in any event within five
days after the Guarantor learns of the following, the Guarantor will give
written notice to the Lender of (a) any proceeding instituted or threatened
to be instituted against the Guarantor in any federal, state, local, or
foreign court or before any commission or other regulatory body (federal,
state, local, or foreign) involving a sum, together with the sum involved
in all other similar proceedings, in excess of $50,000 in the aggregate,
(b) any contract that is terminated or amended and which has had or could
reasonably be expected to have a Material Adverse Effect on the Guarantor,
(c) the occurrence of any Material Adverse Change with respect to the
Guarantor, and (d) the occurrence of any Event of Default or event or
condition which, with notice or lapse of time or both, would constitute an
Event of Default, together with a statement of the action which the
Guarantor has taken or proposes to take with respect thereto.
(3) MAINTENANCE OF BOOKS AND RECORDS. The Guarantor will maintain books and
records pertaining to the Collateral in such detail, form, and scope as the
Lender shall require in its commercially reasonable judgment. The Guarantor
agrees that the Lender or its agents may enter upon the Guarantor's
premises on reasonable written notice at any time and from time to time
during normal business hours, and at any time upon the occurrence and
continuance of an Event of Default, for the purpose of inspecting the
Collateral and any and all records pertaining thereto.
(4) INSURANCE. The Guarantor will maintain insurance on the Collateral under
such policies of insurance, with such insurance companies, in such amounts
and covering such risks as are at all times reasonably satisfactory to the
Lender. All such policies shall be made payable to the Lender, in case of
loss, under a standard non-contributory "LENDER" or "SECURED PARTY" clause
and are to contain such other provisions as the Lender may reasonably
require to protect the Lender's interests in the Collateral and to any
payments to be made under such policies. True copies of all original
insurance policies are to be delivered to the Lender, premium prepaid, with
the loss payable endorsement in the Lender's favor, and shall provide for
not less than thirty days' prior written notice to the Lender, of any
material alteration, as determined in the sole discretion of the Lender, or
cancellation of coverage. If the Guarantor fails to maintain such
insurance, the Lender may arrange for (at the Guarantor's expense and
without any responsibility on the Lender's part for) obtaining the
insurance. Unless the Lender shall otherwise agree with the Guarantor in
writing, the Lender shall have the sole right, in the name of the Lender or
the Guarantor, to file claims under any insurance policies, to receive and
give acquittance for any payments that may be payable thereunder, and to
execute any endorsements, receipts, releases, assignments, reassignments or
other documents that may be necessary to effect the collection, compromise
or settlement of any claims under any such insurance policies.
(5) TAXES. The Guarantor will pay, when due, all taxes, assessments, claims
and other charges (herein "TAXES") lawfully levied or assessed against the
Guarantor or the Collateral other than taxes that are being diligently
contested in good faith by the Guarantor by appropriate proceedings
promptly instituted and for which an adequate reserve is being maintained
by the Guarantor in accordance with GAAP. If any taxes
<PAGE> 6
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remain unpaid after the date fixed for the payment thereof, or if any lien
shall be claimed therefor, and such taxes are not being diligently
contested in good faith by the Guarantor, then, without notice to the
Guarantor, but on the Guarantor's behalf, the Lender may pay such taxes,
and the amount thereof shall be included in the Obligations.
(6) GUARANTOR TO DEFEND COLLATERAL AGAINST CLAIMS; FEES ON COLLATERAL. The
Guarantor will defend the Collateral against all claims and demands of all
Persons at any time claiming the same or any interest therein. Guarantor
will not permit any notice creating or otherwise relating to liens on the
Collateral or any portion thereof to exist or be on file in any public
office except for Permitted Liens. The Guarantor shall promptly pay, when
payable, all transportation, storage, and warehousing charges and license
fees, registration fees, assessments, charges, permit fees, and taxes
(municipal, state, and federal) which may now or hereafter be imposed upon
the ownership, leasing, renting, possession, sale, or use of the
Collateral, other than taxes on or measured by the Lender's income and
fees, assessments, charges, and taxes which are being contested in good
faith by appropriate proceedings diligently conducted and with respect to
which adequate reserves are maintained to the extent required by GAAP.
(7) NO CHANGE OF LOCATION, STRUCTURE OR IDENTITY. The Guarantor will not (a)
change the location of its chief executive office or establish any place of
business other than those specified herein or (b) move or permit the
movement of any Collateral from the location specified in Schedule A
hereto, except that the Guarantor may change its chief executive office and
keep Collateral at other locations within Canada provided that the
Guarantor has delivered to the Lender (i) prior written notice thereof and
(ii) duly executed financing statements and other agreements and
instruments (all in form and substance satisfactory to the Lender)
necessary or, in the opinion of the Lender, desirable to perfect and
maintain in favor of the Lender a first priority security interest in the
Collateral. Notwithstanding anything to the contrary in the immediately
preceding sentence, the Guarantor may keep any Collateral consisting of
motor vehicles or rolling stock at any location in Canada provided that the
Lender's security interest in any such Collateral is conspicuously marked
on the certificate of title thereof and the Guarantor has complied with the
provisions of Section 3(9).
(8) USE OF COLLATERAL; LICENSES. The Collateral shall be operated by
competent, qualified personnel in connection with the Guarantor's business
purposes, for the purpose for which the Collateral was designed and in
accordance with applicable operating instructions, laws and government
regulations, and the Guarantor shall use every reasonably precaution to
prevent loss or damage to the Collateral from fire and other hazards. The
Collateral shall not be used or operated for personal, family or household
purposes. The Guarantor shall procure and maintain in effect all orders,
licenses, certificates, permits, approvals and consents required by
federal, provincial or local laws or by any governmental body, agency or
authority in connection with the delivery, installation, use and operation
of the Collateral.
<PAGE> 7
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(9) FURTHER ASSURANCES. The Guarantor will, promptly upon request by the
Lender, execute and deliver any document required by the Lender (including,
without limitation, warehouseman or processor disclaimers, mortgagee
waivers, landlord disclaimers, or subordination agreements with respect to
the Obligations and the Collateral), give any notices, execute and file any
financing statements, mortgages or other documents (all in form and
substance satisfactory to the Lender), mark any chattel paper, deliver any
chattel paper or instruments to the Lender, and take any other actions that
are necessary or, in the opinion of the Lender, desirable to perfect or
continue the perfection and priority of the Lender's security interest in
the Collateral, to protect the Collateral against the rights, claims, or
interests of any Persons, or to effect the purposes of this Security
Agreement. The Guarantor hereby authorizes the Lender to file one or more
financing or continuation statements, and amendments thereto, relating to
all or any part of the Collateral without the signature of the Guarantor
where permitted by law. A carbon, photographic or other reproduction of
this Security Agreement or any financing statement covering the Collateral
or any part thereof shall be sufficient as a financing statement where
permitted by law. To the extent required under this Security Agreement, the
Guarantor will pay all costs and expenses (including attorneys' fees)
incurred in connection with any of the foregoing.
(10) NO DISPOSITION OF COLLATERAL. The Guarantor will not in any way hypothecate
or create or permit to exist any lien, security interest, charge or
encumbrance on or other interest except for Permitted Liens in any of the
Collateral, except for the lien and security interest granted hereby, and
the Guarantor will not sell, transfer, assign, pledge, collaterally assign,
exchange or otherwise dispose of any of the Collateral without written
notice to and consent of the Lender. In the event the Collateral, or any
part thereof, is sold, transferred, assigned, exchanged, or otherwise
disposed of in violation of these provisions, the security interest of the
Lender shall continue in such Collateral or part thereof notwithstanding
such sale, transfer, assignment, exchange or other disposition, and the
Guarantor will hold the proceeds thereof in a separate account for the
benefit of the Lender. Following such a sale, the Guarantor will transfer
such proceeds to the Lender in kind.
(11) NO LIMITATION ON LENDER'S RIGHTS. The Guarantor will not enter into any
contractual obligations which may restrict or inhibit the Lender's rights
or ability to sell or otherwise dispose of the Collateral or any part
thereof.
(12) PROTECTION OF COLLATERAL. Upon written notice to the Guarantor (provided
that if an Event of Default has occurred and is continuing the Lender need
not give any notice), the Lender shall have the right at any time to make
any payments and do any other acts the Lender may deem necessary to protect
its security interests in the Collateral, including, without limitation,
the rights to satisfy, purchase, contest, or compromise any encumbrance,
charge, or lien which, in the reasonable judgment of the Lender, appears to
be prior to or superior to the security interests granted hereunder, and
appear in, and defend any action or proceeding purporting to affect its
security interests in, or the value of, any of the Collateral. The
Guarantor hereby agrees to reimburse the Lender for all payments made and
reasonable expenses incurred under
<PAGE> 8
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this Agreement including fees, expenses, and disbursements of attorneys and
paralegals (including the allocated costs of in-house counsel) acting for
the Lender, including any of the foregoing payments under, or acts taken to
protect its security interests in, any of the Collateral, which amounts
shall be secured under this Agreement, and agrees it shall be bound by any
payment made or act taken by the Lender hereunder absent the Lender's gross
negligence or willful misconduct. The Lender shall have no obligation to
make any of the foregoing payments or perform any of the foregoing acts.
(13) DELIVERY OF ITEMS. The Guarantor will promptly (but in no event later than
one Business Day) after its receipt thereof, deliver to the Lender any
documents or certificates of title issued with respect to any property
included in the Collateral, and any promissory notes, letters of credit or
instruments related to or otherwise in connection with any property
included in the Collateral, which in any such case come into the possession
of the Guarantor, or shall cause the issuer thereof to deliver any of the
same directly to the Lender, in each case with any necessary endorsements
in favor of the Lender.
(14) FUNDAMENTAL CHANGES. The Guarantor shall not (a) amend or modify its name,
unless the Guarantor delivers to the Lender thirty days prior to any such
proposed amendment or modification written notice of such amendment or
modification and within ten days before such amendment or modification
delivers executed financing statements (in form and substance satisfactory
to the Lender) or (b) merge or consolidate with any other entity or make
any material change in its capital structure, in each case without the
Lender's prior written consent which shall not be unreasonably withheld.
SECTION 4 FINANCIAL STATEMENTS.
Until the payment and satisfaction in full of all Obligations, the
Guarantor shall deliver to the Lender the following financial information:
(a) ANNUAL FINANCIAL STATEMENTS. As soon as available, but not later than
120 days after the end of each fiscal year of the Guarantor and it
consolidated subsidiaries, the consolidated balance sheet, income
statement and statements of cash flows and shareholders equity for the
Guarantor and its consolidated subsidiaries (the "FINANCIAL
STATEMENTS") for such year, reported on by independent certified
public accountants without an adverse qualification; and
(b) QUARTERLY FINANCIAL STATEMENTS. As Soon as available, but not later
than 60 days after the end of each of the first three fiscal quarters
in any fiscal year of the Guarantor and its consolidated subsidiaries,
the Financial Statements for such fiscal quarter, together with a
certification duly executed by a responsible officer of the Guarantor
that such Financial Statements have been prepared in accordance with
GAAP and are fairly stated in all material respects (subject to normal
year-end audit adjustments).
<PAGE> 9
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SECTION 5 EVENTS OF DEFAULT.
The occurrence of any of the following events shall constitute an Event of
Default hereunder:
(a) the Guarantor shall fail to pay within five days of when due any
amount required to be paid by the Guarantor under or in connection with any
Note, the Guarantee and this Agreement;
(b) any representation or warranty made or deemed made by the
Guarantor under or in connection with any Loan Document or any financial
statement shall prove to have been false or incorrect in any material respect
when made;
(c) the Guarantor shall fail to perform or observe (i) any of the
terms, covenants or agreements contained herein or (ii) any other term,
covenant, or agreement contained in any Loan Document (other than the other
Events of Default specified in this Section) and such failure remains
unremedied for the earlier of fifteen days from (A) the date on which the Lender
has given the Guarantor written notice of such failure and (B) the date on which
the Guarantor knew or should have known of such failure;
(d) any material provision of any Loan Document to which the Guarantor
is a party shall for any reason cease to be valid and binding on the Guarantor,
or the Guarantor shall so state;
(e) dissolution, liquidation, winding up, or cessation of the
Guarantor's business, failure of the Guarantor generally to pay its debts as
they mature, admission in writing by the Guarantor of its inability generally to
pay its debts as they mature, or calling of a meeting of the Guarantor's
creditors for purposes of compromising any of the Guarantor's debts;
(f) the commencement by or against the Guarantor of any bankruptcy,
insolvency, arrangement, reorganization, receivership, or similar proceedings
under any federal or state law and, in the case of any such involuntary
proceeding, such proceeding remains undismissed or unstayed for sixty days
following the commencement thereof, or any action by the Guarantor is taken
authorizing any such proceedings;
(g) an assignment for the benefit of creditors is made by the
Guarantor, whether voluntary or involuntary (in the case of an involuntary
assignment by Guarantor, a cure period of sixty days shall be granted by
Lender), the appointment of a trustee, custodian, receiver, or similar official
for the Guarantor or for any substantial property of the Guarantor, or any
action by the Guarantor authorizing any such proceeding;
<PAGE> 10
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(h) the Guarantor shall default in (i) the payment of principal or
interest on any indebtedness in excess of $50,000 (other than the Obligations)
beyond the period of grace, if any, provided in the instrument or agreement
under which such indebtedness was created; or (ii) the observance or
performance of any other agreement or condition relating to any such
indebtedness or contained in any instrument or agreement relating thereto, or
any other event shall occur or condition exist, the effect of which default or
other event or condition is to cause, or to permit the holder or holders of
such indebtedness to cause, with the giving of notice if required, such
indebtedness to become due prior to its stated maturity;
(i) the Guarantor suffers or sustains a Material Adverse Change;
(j) any tax lien, other than a Permitted Lien, is filed of record
against the Guarantor and is not bonded or discharged within thirty Business
Days;
(k) any judgement which has had or could reasonably be expected to
have a Material Adverse Effect on the Guarantor and such judgment shall not be
stayed, vacated, bonded, or discharged within sixty days;
(l) any material covenant, agreement, or obligation, as determined in
the sole discretion of the Lender, made by the Guarantor and contained in or
evidenced by any of the Loan Documents shall cease to be enforceable, or shall
be determined to be unenforceable, in accordance with its terms; the Guarantor
shall deny or disaffirm the Obligations under any of the Loan Documents or any
liens granted in connection therewith; or any liens granted on any of the
Collateral in favor of the Lender shall be determined to be void, voidable, or
invalid, or shall not be given the priority contemplated by this Agreement; or
(m) there is a change, which change results from a single transaction
or series of related transactions, but not from the sale of newly issued
securities to investors, in more than 35% of the ownership of any equity
interests of the Guarantor on the date hereof or more than 35% of such
interests become subject to any contractual, judicial, or statutory lien,
charge, security interest, or encumbrance which is not discharged within 30
days.
SECTION 6. REMEDIES.
If any Event of Default occurs and continues:
<PAGE> 11
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(a) The Lender may, without prejudice to any of its other rights under any Loan
Document or applicable law, declare all Obligations to be immediately due
and payable (except with respect to any Event of Default set forth in
Section 5 hereof, in which case all Obligations shall automatically become
immediately due and payable without necessity of any declaration) without
presentment, representation, demand of payment or protest, which are hereby
expressly waived.
(b) The Lender may take possession of the Collateral and, for that purpose may
enter, with the aid and assistance of any person or persons, any premises
where the Collateral or any part thereof is, or may be placed, and remove
the same.
(c) The obligation of the Lender, if any, to give additional (or to continue)
financial accommodations of any kind to the Guarantor shall immediately
terminate.
(d) The Lender may exercise in respect of the Collateral, in addition to other
rights and remedies provided for herein (or in any other Loan Document) or
otherwise available to it, all the rights and remedies of a secured party
under the Personal Property Security Act (Alberta) (the "Act") whether or
not the Act applies to the affected Collateral and also may (i) require the
Guarantor to, and the Guarantor hereby agrees that it will at its expense
and upon request of the Lender forthwith, assemble all or part of the
Collateral as directed by the Lender and make it available to the Lender at
a place to be designated by the Lender that is reasonably convenient to
both parties and (ii) without notice except as specified below, sell the
Collateral or any part thereof in one or more parcels at public or private
sale, at any of the Lender's offices or elsewhere, for cash, on credit or
for future delivery, and upon such other terms as the Lender may deem
commercially reasonable. The Guarantor agrees that, to the extent notice of
sale shall be required by law, at least ten days' notice to the Guarantor
of the time and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable notification. The
Lender shall not be obligated to make any sale of Collateral regardless of
notice of sale having been given. The Lender may adjourn any public or
private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time
and place to which it was so adjourned. In addition, the Lender may appoint
by instrument in writing a receiver (which term as used in the Security
Agreement includes a received and manager) or agent of the Collateral or
may institute proceedings in any court of competent jurisdiction for the
appointment of a receiver.
(e) All cash proceeds received by the Lender in respect of any sale of,
collection from, or other realization upon all or any part of the
Collateral may, in the discretion of the Lender, be held by the Lender as
collateral for, or then or at any time thereafter applied in whole or in
part by the Lender against, all or
<PAGE> 12
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any part of the Obligations in such order as the Lender shall elect.
Any surplus of such cash or cash proceeds held by the Lender and
remaining after the full and final payment of all the Obligations
shall be promptly paid over to the Guarantor or to such other Person
to which the Lender may be required under applicable law, or directed
by a court of competent jurisdiction, to make payment of such surplus.
(f) Any receiver appointed by the Lender shall be vested with the rights
and remedies which could have been exercised by the Lender or the
Collateral and such other powers and discretions as are granted in the
instrument of appointment and any instrument or instruments
supplemental thereto. The identity of the receiver, any replacement
thereof and any remuneration thereof shall be within the sole and
unfettered discretion of the Lender.
(g) Any receiver appointed by the Lender shall act as agent for Lender for
the purposes of taking possession of the Collateral, but otherwise and
for all other purposes (except as provided below), as agent for the
Guarantor.
(h) The Lender, in appointing or refraining from appointing any receiver
shall not incur liability to the receiver, the Guarantor or otherwise
and shall not be responsible for any misconduct or negligence of such
receiver.
(i) No person dealing with the Lender or its agent or a receiver shall be
required (i) to determine whether the Security Interest has become
enforceable; (ii) to determine whether the powers which the Lender or
its agent is purporting to exercise have become exercisable; (iii) to
determine whether any money remains due to the Lender by the
Guarantor; (iv) to determine the necessity or expediency of the
stipulations and conditions subject to which any sale or lease shall
be made; (v) to determine the propriety or regularity of any sale or
of any other dealing by the Lender with the Collateral; or (vi) to see
the application of any money paid to the Lender.
SECTION 7. MISCELLANEOUS PROVISIONS.
(1) NOTICES. Except as otherwise provided herein, all notices, approvals,
consents, correspondence or other communications required or desired to be
given hereunder shall be given in writing and shall be delivered by
overnight courier, hand delivery or certified or registered mail, postage
prepaid, if to the Lender, then to Technology Finance Division, 76
Batterson Park Road, Farmington, Connecticut 06032, Attention: Assistant
Vice President, Lease Administration, with a copy to the Lender at Riverway
II, West Office Tower, 9399 West Higgin Road, Rosemont, Illinois 60018,
Attention: Legal Department or such other address as shall be designated by
the Lender to the Guarantor in accordance herewith, and if to the
Guarantor, then to 250-6th Avenue S.W., Suite 300, Calgary, Alberta, T2P
3H7, Attention: Legal Department, or such other address as shall be
designated by the Guarantor to the Lender in accordance herewith. All such
notices and correspondence shall be effective when received.
<PAGE> 13
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(2) GUARANTOR REMAINS LIABLE. Anything herein to the contrary notwithstanding,
(a) the Guarantor shall remain liable, under the contracts and agreements
included in the Collateral to the extent set forth therein to perform all
of its duties and obligations thereunder to the same extent as if this
Security Agreement had not been executed, (b) the exercise by the Lender of
any of the rights hereunder shall not release the Guarantor from any if its
duties or obligations under the contracts and agreements included in the
Collateral, and (c) the Lender shall not have any obligation or liability
under the contracts and agreements included in the Collateral by reason of
this Security Agreement, nor shall the Lender be obligated to perform any
of the obligations or duties of the Guarantor thereunder or to take any
action to collect or enforce any claim for payment assigned hereunder.
(3) LENDER APPOINTED ATTORNEY-IN-FACT. The Guarantor hereby irrevocably
appoints the Lender the Guarantor's attorney-in-fact, with full authority
in the place and stead of the Guarantor and in the name of the Guarantor or
otherwise, from time to time in the discretion of the Lender, to take any
action and to execute any instrument which the Lender may deem necessary or
advisable to accomplish the purpose of this Security Agreement, including,
without limitation:
(a) to obtain and adjust insurance required to be paid to the Lender
hereunder;
(b) upon the occurrence and during the continuance of an Event of Default,
to ask, demand, collect, sue for, recover, compromise, receive and
give acquittance and receipts for moneys due and to become due under
or in respect of any of the Collateral;
(c) to receive, endorse and collect any drafts or other instruments,
documents and chattel paper, in connection with clause (a) or (b)
above; and
(d) upon the occurrence and during the continuance of an Event of Default,
to file any claims or take any action or institute any proceedings
which the Lender may deem necessary or desirable for the collection of
any of the Collateral or otherwise to enforce the rights of the Lender
with respect to any of the Collateral.
(4) HEADINGS. The headings in this Security Agreement are for purposes of
reference only and shall not affect the meaning or construction of any
provision of this Security Agreement.
(5) ASSIGNMENTS. The Guarantor shall not have the right to assign the Guarantee
or this Security Agreement or any interest therein. The Lender may assign
its rights and delegate its obligations under the Guarantee or this
Security Agreement.
(6) AMENDMENTS, WAIVERS AND CONSENTS. Any amendment or waiver of any provision
of this Security Agreement and any consent to any departure by the
Guarantor from any provision of this Security Agreement shall be effective
only by a writing signed by the Lender and shall bind and benefit the
Guarantor and the Lender and their
<PAGE> 14
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respective successors and assigns, subject, in the case of the Guarantor,
to the first sentence of Section 5(5).
(7) INTERPRETATION OF AGREEMENT. Time is of the essence in each provision of
this Security Agreement of which time is an element. All terms not defined
herein or in the Guarantee shall have the meaning set forth in the
applicable Act, except where the context otherwise requires. To the extent
a term or provision of this Security Agreement conflicts with the Guarantee
and is not dealt with herein with more specificity, this Security Agreement
shall control with respect to the subject matter of such term or provision.
Acceptance of or acquiescence in a course of performance rendered under
this Security Agreement shall not be relevant in determining the meaning of
this Security Agreement even though the accepting or acquiescing party had
knowledge of the nature of the performance and opportunity for objection.
(8) CONTINUING SECURITY INTEREST. This Security Agreement shall create a
continuing security interest in the Collateral and shall (a) remain in full
force and effect until the indefeasible payment in full of the Obligations,
(b) be binding upon the Guarantor and its successors and assigns and (c)
inure, together with the rights and remedies of the Lender hereunder, to
the benefit of the Lender and its successors, transferees and assigns.
(9) REINSTATEMENT. To the extent permitted by law, this Security Agreement and
the rights and powers granted to the Lender hereunder and under the Loan
Documents shall continue to be effective or be reinstated if at any time
any amount received by the Lender in respect of the Obligations is
rescinded or must otherwise be restored or returned by the Lender upon the
insolvency, bankruptcy, dissolution, liquidation or reorganization of the
Guarantor or upon the appointment of any receiver, intervenor, conservator,
trustee or similar official for the Guarantor or any substantial part of
its assets, or otherwise, all as though such payments had not been made.
(10) SURVIVAL OF PROVISIONS. All representations, warranties and covenants of
the Guarantor contained herein shall survive the execution and delivery of
this Security Agreement, and shall terminate only upon the full and final
payment and performance by the Guarantor of the Obligations secured hereby.
(11) INDEMNIFICATION. The Guarantor agrees to indemnify and hold harmless the
Lender and its directors, officers, agents, employees and counsel from and
against any and all costs, expenses, claims, or liability incurred by the
Lender or such Person hereunder and under any other Loan Document or in
connection herewith or therewith, unless such claim or liability shall be
due to willful misconduct or gross negligence on the part of the Lender or
such Person.
(12) TAXES. Any and all payments to the Lender by the Guarantor hereunder or
under any of the other Loan Documents shall be made free and clear of and
without deduction or withholding for any and all present or future taxes,
levies, imposts, deductions, charges or withholdings, and liabilities with
respect thereto (all such taxes, levies, imposts, deductions, charges,
withholdings and liabilities being hereinafter referred to
<PAGE> 15
-15-
as "TAXES") imposed by Canada, the United States or any other relevant
jurisdiction (or any political subdivision or taxing authority thereof or
therein), unless such Taxes are required by law or the administration
thereof to be deducted or withheld. If the Guarantor shall be required by
law or the administration thereof to deduct or withhold any such Taxes from
or in respect of any sum payable hereunder, (i) the sum payable shall be
increased as may be necessary so that after making all required deductions
or withholdings (including deductions or withholdings applicable to
additional amounts paid under this paragraph), the Lender receives an
amount equal to the sum it would have received if no such deduction or
withholding had been made; (ii) the Guarantor shall make such deductions or
withholdings; and (iii) the Guarantor forthwith shall pay the full amount
deducted or withheld to the relevant taxation or other authority in
accordance with applicable law.
(13) GOVERNING LAW. The validity, interpretation and enforcement of this
Security Agreement shall be governed by and construed by and construed in
accordance with the laws of the Province of Alberta without giving effect
to the conflict of law principles thereof.
(14) DELAYS; PARTIAL EXERCISE OF REMEDIES. No delay or omission of the Lender to
exercise any right or remedy hereunder, whether before or after the
happening of any Event of Default, shall impair any such right or shall
operate as a waiver thereof or as a waiver of any such Event of Default. No
single or partial exercise by the Lender of any right or remedy shall
preclude any other or further exercise thereof, or preclude any other right
or remedy.
(15) ENTIRE AGREEMENT. The Guarantor and the Lender agree that this Security
Agreement and the Schedules hereto are the complete and exclusive statement
and agreement between the parties with respect to the subject matter
hereof, superseding all proposals and prior agreements, oral or written,
and all other communications between the parties with respect to the
subject matter hereof.
<PAGE> 16
-16-
IN WITNESS WHEREOF, the undersigned Guarantor has caused this Security
Agreement to be duly executed and delivered by its proper and duly authorized
officer as of the date first set forth above.
FUTURELINK DISTRIBUTION
CORP., AS GUARANTOR
By: /s/ Raghu Kilambi
------------------------------
Name: Raghu Kilambi
Title: CFO
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By: /s/ GARY P. MORO
------------------------------
Name: Gary P. Moro
Title: Senior Vice President
<PAGE> 1
EXHIBIT 10.18
Master Agreement Number ________
MASTER LEASE AND FINANCING AGREEMENT
This Master Lease and Financing Agreement (together with Exhibits A through E
attached hereto and hereby made a part hereof, this "Master Agreement"), dated
as of _______________, is entered into by and between Compaq Capital
Corporation, a Delaware corporation ("Lessor"), and FutureLink Corp., a Delaware
corporation ("Lessee"). Capitalized terms used in this Master Agreement without
definition have the meanings ascribed to them in Section 31.
1. PURPOSE OF MASTER AGREEMENT. The purpose of this Master Agreement is to
set forth the general terms and conditions upon which (a) Lessor shall lease to
Lessee and Lessee shall lease from Lessor items of Hardware, Software or both
(such Hardware and Software being collectively referred to as "Equipment", and
each such lease of Equipment being referred to as a "Lease"), and (b) Lessor
shall provide financing to Lessee (each such financing transaction being
referred to as a "Financing") for software program license fees, maintenance
fees, fees for other services and other one-time charges ("Financed Items")
Lessee desires to finance hereunder. In connection with its execution of this
Master Agreement, Lessee shall deliver to Lessor an Officer's Certificate in
form and substance acceptable to Lessor, executed by a duly authorized officer
of Lessee and certifying as to, among other things, Lessee's authority to enter
into this Master Agreement and Leases and Financings hereunder and the
authority of Lessee's officers or representatives specified therein to execute
this Master Agreement and all other Fundamental Agreements.
2. ALTERNATIVE COMMENCEMENT PROCEDURES. Subject to the other terms and
conditions contained in this Master Agreement and the applicable Schedule or
Advance Pricing Agreement. Lessee may, at its option, enter into individual
Leases and Financings with Lessor under either or both of the following
procedures:
A. TRADITIONAL PROCEDURE: (a) EXECUTION OF SCHEDULE. Lessor and Lessee
mutually agree to enter into a Lease, a Financing or both by executing a
Schedule in the form of Exhibit A with such changes as Lessor and Lessee shall
have agreed to as conclusively evidenced by their execution thereof. Each such
Schedule shall specifically identify (by serial number or other identifying
characteristics) the items of Equipment to be leased under such Schedule (other
than items of System Software, which shall be deemed to be items of Software
leased under the Schedule pursuant to which the related items of Hardware are
leased), and the Financed Items to be financed under such Schedule. Each
Schedule, when executed by both Lessee and Lessor, together with this Master
Agreement, shall constitute a separate and distinct Lease, a separate and
distinct Financing, or a separate and distinct Lease and a separate and
distinct Financing, as the case may be, enforceable according to its terms. In
the event of any conflict between the terms of this Master Agreement and such
Schedule, the provisions of the Schedule shall govern.
(b) ACCEPTANCE: INITIAL TERM OF LEASES AND TERM OF FINANCINGS. Lessee
shall accept the Equipment subject to a Lease and the Financed Items subject to
a Financing in accordance with section 3. The Initial Term of each Lease and,
if applicable, the Term of any related Financing evidenced by a Schedule
executed pursuant to this Section 2.A shall begin on the Acceptance Date of the
Equipment subject to such Lease and shall continue for the period described in
the applicable Schedule. The Term of each Financing evidenced by a Schedule
executed pursuant to this Section 2.A that is unrelated to any Lease shall
begin on the Acceptance Date for the related Financed Items and shall continue
for the period described in the applicable Schedule.
(c) ADJUSTMENTS TO SCHEDULE. Lessee acknowledges that the Total Cost of
Equipment and Financed Items and the related Rent payments set forth in any
Schedule executed pursuant to this Section 2.A may be estimates, and if the
final invoice from the Seller specifies a Total Cost that is more or less than
the estimated Total Cost set forth in the Schedule. Lessee hereby authorizes
Lessor to adjust the applicable Total Cost and Rent payment on the Schedule to
reflect the final invoice amount (the "Final Invoice Amount"). However, if the
Final Invoice Amount exceeds the estimated Total Cost by more than 5%. Lessor
will notify Lessee and obtain Lessee's prior written approval of the
aforementioned adjustments. If Lessee fails to so approve any such adjustments
within 15 days of Lessor's request, then the affected Schedule shall terminate
without penalty to either Lessor or Lessee and Lessee shall be solely
responsible for all obligations arising under the applicable Purchase
Documents, including, without limitation, the obligation to purchase Equipment
and pay Financed Items. All references in this Master Agreement and any
Schedule to Total Cost and Rent shall mean the amounts thereof specified in the
applicable Schedule, as adjusted pursuant to this paragraph. Lessee also
acknowledges that the Equipment and Financed Items described in a Schedule may
differ from the description of the Equipment and Financed Items set forth in
the related Acceptance Certificate and actually accepted by Lessee. Lessee
hereby authorizes Lessor to conform the description of the Equipment and
Financed Items set forth in any Schedule to the description thereof in the
related Acceptance Certificate. All references in the Master Agreement and any
Schedule to the Equipment subject to a Lease and the Financed Items subject to
a Financing shall mean the Equipment and Financed Items described in the
applicable Schedule, as conformed to the related Acceptance Certificate
pursuant to this paragraph.
B. FUNDING CONSOLIDATION PROCEDURE. (a) EXECUTION OF ADVANCE PRICING
AGREEMENT. Lessor and Lessee mutually agree to enter into one or more Leases,
Financings or both by executing, from time to time, an Advance Pricing
Agreement in the form of Exhibit B with such changes as Lessor and Lessee shall
have agreed to as conclusively evidenced by their execution thereof. Subject to
the following provisions of this Section 2.B, such Advance Pricing Agreement
shall constitute a commitment on the part of Lessor, during the Commitment
Period specified therein (i) to purchase Equipment of the type(s) described
therein and enter into one or more Leases of the same with Lessee at the lease
rates sets forth therein, and (ii) to fund Financed Items of the type(s)
described therein and enter into one or more Financings of the same with Lessee
at the financing rates set forth therein: provided, however, that Lessor shall
under no circumstances be obligated to purchase Equipment or fund Financed
Items if (x) such purchase or funding would require Lessor to expend moneys in
excess of the Amount Available specified in the Advance Pricing Agreement less
the aggregate amount previously paid or committed to be paid by Lessor to
acquire Equipment or fund Financed Items during such Commitment Period, or (y)
and Lessee Default shall have occurred and be continuing under any Lease or
Financing or any event shall have occurred and be continuing under any Lease or
Financing or any event shall have occurred and be continuing which, with the
giving of notice or the passage of time or both, would constitute a Lessee
Default under any Lease or Financing, or (z) Lessee shall have failed to
deliver to Lessor any financial statements in accordance with the provisions of
paragraph (f) below or any material adverse change shall have occurred in
Lessee's financial or operating condition, as determined by Lessor in its sole
discretion, after the date of the last financial statements of Lessee delivered
to Lessor prior to the execution and delivery of such Advance Pricing Agreement.
(b) LESSOR'S PURCHASE OF EQUIPMENT AND FUNDING OF FINANCED ITEMS. Subject
to the provisions of this Section 2.B and the applicable Advance Pricing
Agreement, Lessor shall, at Lessee's request made during the Commitment Period
specified in such Advance Pricing Agreement (i) purchase Equipment of the
type(s) described therein and enter into a Lease of such Equipment with Lessee,
and (ii) fund Financed Items of the type(s) described therein and enter into a
Financing with Lessee relating to such Financed Items. Until such time as
Lessee shall have executed and delivered to Lessor a Consolidating Schedule in
accordance with paragraph (d) below, each such Lease or Financing shall be
governed by the terms of this Master Agreement, the applicable Advance Lessor
by Lessee pursuant to paragraph (c) below. Each such Acceptance Certificate
shall specifically identify (by serial number or other identifying
characteristics) the items of Equipment to be leased thereunder (other than
items of System Software, which shall be deemed to be items of Software leased
together with the related items of Hardware) and the Financed Items to be
financed thereunder. Until Lessee shall have executed and delivered to Lessor a
Consolidating Schedule, each such Acceptance Certificate, when executed and
delivered by Lessee and accepted by Lessor, together with this Master Agreement
and the applicable Advance Pricing Agreement, shall constitute a separate and
distinct Lease, a separate and district Financing, or a separate and distinct
Lease and a separate and distinct Financing, or a separate and distinct Lease
and a separate and distinct Financing, as the case may be enforceable according
to its terms. In the event of any conflict among the terms of such documents,
the provisions of such Acceptance Certificate shall control over conflicting
provisions in such Advance Pricing Agreement or this Master Agreement and the
provisions of such Advance Pricing Agreement shall control over conflicting
provisions in this Master Agreement.
(c) ACCEPTANCE: INITIAL TERM OF LEASES AND TERM OF FINANCINGS. Lessee
shall accept the Equipment subject to a Lease and the Financed Items subject to
a Financing in accordance with Section 3. The Initial Term of each Lease and,
if applicable, the Term of any related Financing evidenced by an Advance
Pricing Agreement and an Acceptance Certificate shall begin on the Acceptance
Date of the Equipment subject to such Lease and shall continue for the period
determined pursuant to such Advance Pricing Agreement. The Term of each
Financing evidenced by an Advance Pricing Agreement and an Acceptance
Certificate that is unrelated to any Lease shall begin on the Acceptance Date
for the related Financed Items and shall continue for the period determined
pursuant to such Advance Pricing Agreement.
<PAGE> 2
(d) Periodic Consolidation of Leases and Financings. All Leases and
Financings commenced during a Consolidation Period (as specified in the
applicable Advance Pricing Agreement) pursuant to this Section 2.B shall be
consolidated into a single Schedule (a "Consolidating Schedule") in the form of
Exhibit C with such changes as Lessor and Lessee shall have agreed to as
conclusively evidenced by their execution thereof. Lessor shall prepare and
deliver to Lessee a Consolidating Schedule as of the close of each applicable
Consolidation Period. Lessee agrees to execute and deliver each Consolidating
Schedule to Lessor within 10 days after its receipt thereof from Lessor. From
and after Lessee's execution and delivery to Lessor of a Consolidating
Schedule, the Consolidating Schedule shall supersede the applicable Acceptance
Certificates and the Advance Pricing Agreement with respect to all Leases and
Financings commenced during the Consolidation Period to which such
Consolidating Schedule relates, and all such Leases shall be deemed to be a
single, separate and distinct Lease and all such Financings shall be deemed to
be a single, separate and distinct Financing, in each case governed by such
Consolidating Schedule and this Master Agreement and enforceable in accordance
with its terms. In the event of any conflict between the terms of this Master
Agreement and such Consolidating Schedule, the provisions of the Consolidating
Schedule shall govern.
(e) Failure of Lessee to Deliver Consolidating Schedule. If Lessee fails
to execute and deliver to Lessor any Consolidating Schedule within 10 days
after its receipt thereof, Lessor may exercise its rights and remedies under
Section 21 and 22 of this Master Agreement arising as a result of such failure,
either immediately or at any time during the Initial Term of the Leases or the
Term of the Financings to which such Consolidating Schedule relates. No delay
in exercising such rights or remedies shall operate as a waiver thereof. Lessee
acknowledges and agrees that Rent with respect to such Leases and Financings
shall be payable in the amounts and at the times determined pursuant to the
applicable Advance Pricing Agreement and Acceptance Certificates, regardless of
whether Lessee shall have received such Consolidating Schedule from Lessor or
executed and delivered the same to Lessor as of the time any such payment is
due.
(f) Financial Statements. Lessee shall, at all times during which any
Advance Pricing Agreement is effective, deliver to Lessor its quarterly and
annual financial statements no later than 45 days after the end of each of
Lessee's fiscal quarters or 90 days after the end of each of Lessee's fiscal
years, as applicable. Such annual financial statements shall be audited and
certified by Lessee's independent certified public accountants.
3. ACCEPTANCE OF EQUIPMENT AND FINANCED ITEMS. (a) General. Lessee shall
unconditionally and irrevocably accept all Equipment under a Lease and, if
applicable, all related Financed Items subject to a Financing as soon as such
Equipment is delivered and inspected by Lessee or, if acceptance requirements
for such Equipment, related Financed Items or both are specified in the
applicable Purchase Documents, as soon as such requirements are met. Lessee
shall evidence such acceptance by executing and delivering to Lessor a properly
completed Acceptance Certificate in substantially the form of (i) Exhibit D if
the Lease or the Lease and the related Financing, as the case may be, is
evidenced by a Schedule executed pursuant to Section 2.A. or (ii) Exhibit E if
the Lease or the Lease and the related Financing, as the case may be, is being
commenced pursuant to an Advance Pricing Agreement executed pursuant to Section
2.B. Lessee agrees (y) to inspect all Equipment as soon as reasonably
practicable after the delivery thereof to Lessee or, if acceptance requirements
for such Equipment or any related Financed Items are specified in the
applicable Purchase Documents, as soon as reasonably practicable after being
advised by the Supplier that such requirements have been met, and (z) to
complete, execute and deliver to Lessor such Acceptance Certificate as soon as
reasonably practicable after its satisfactory completion of such inspection. In
the case of a Financing of Financed Items unrelated to any Equipment subject to
a Lease, Lessee shall unconditionally and irrevocably accept such Financed
Items as soon as it shall have become liable to pay for such Financed Items,
and shall complete, execute and deliver to Lessor an Acceptance Certificate in
substantially the form of Exhibit D or Exhibit E (as applicable) as soon as
reasonably practicable thereafter.
(b) E-mail Acceptance. For its convenience and at its option, Lessee may
accept Equipment and Financed Items by electronic mail in accordance with this
paragraph, in lieu of the execution and physical delivery of Acceptance
Certificates provided for in paragraph (a) above. Subject to the terms and
conditions set forth below, a Valid E-mail Acceptance Certificate shall
constitute an original and authentic written Acceptance Certificate, duly
executed and delivered by an authorized representative of Lessee. A "Valid
E-mail Acceptance Certificate" means an electronic facsimile of an Acceptance
Certificate in substantially the form of Exhibit D or Exhibit E (as applicable)
properly completed and sent by an Authorized Lessee Representative from his or
her Authorized Lessee E-mail Address to an Authorized Lessor E-mail Address by
an electronic mail message confirming Lessee's acceptance of the Equipment or
Financed Items described therein. Upon request, Lessor shall provide to Lessee
electronic file copies of Exhibits D and E for Lessee's use under this
paragraph. The Authorized Lessee Representatives and their corresponding
Authorized Lessee E-mail Addresses and the Lessee Acceptance Confirmation Fax
Number are as specified in Section 29 or as designated by Lessee in a written
notice executed by a duly authorized officer of Lessee and delivered to Lessor
in accordance with Section 29. The Authorized Lessor E-mail Address(es) are
specified in Section 29. Lessee may unilaterally modify any of the Authorized
Lessee Representatives and Authorized Lessee E-mail Addresses and the Lessee
Acceptance Confirmation Fax Number by written notice of the modification
executed by a duly authorized officer of Lessee and delivered to Lessor in
accordance with Section 29. Lessor may unilaterally modify the Authorized
Lessor E-mail Address by written notice of the modification executed by a duly
authorized officer of Lessor and delivered to Lessee in accordance with Section
29. Upon Lessor's receipt of a Valid E-mail Acceptance Certificate from Lessee,
Lessor shall transmit to Lessee by confirmed facsimile transmission to the
Lessee Acceptance Confirmation Fax Number, a notice acknowledging Lessor's
receipt of the Valid E-mail Acceptance Certificate from Lessee. A Valid E-mail
Acceptance Certificate shall become effective and constitute Lessor's
unconditional and irrevocable acceptance of the Equipment or Financed Items
described therein, as of the Acceptance Date specified therein, at the end of
the second business day following the day on which Lessor shall have
transmitted such notice unless Lessee shall have delivered a written notice to
Lessor in accordance with Section 29 revoking such Valid E-mail Acceptance
Certificate prior to the end of such second business day. Lessor's transmission
of such notice shall constitute Lessor's acknowledgement and acceptance of the
Valid E-mail Acceptance Certificate. Lessee expressly waives any claim or
defense that any Valid E-mail Acceptance Certificate which was sent and
became effective in accordance with the above procedures does not constitute an
original and authentic written Acceptance Certificate, duly executed and
delivered by Lessee.
4. LESSEE'S END-OF-LEASE-TERM OPTIONS; AUTOMATIC EXTENSION. Lessee shall have
the following options in respect of each Lease at the end of each of the
Initial Term, any Renewal Term and any optional extension of the Initial Term
or any Renewal Term.
A. PURCHASE OPTION. Lessee may elect, by delivering to Lessor an
End-of-Term Notice at least 90 days prior to the expiration of the Initial Term,
any Renewal Term or any optional extension of the Initial Term or any Renewal
Term, to purchase any or all Units of Equipment then subject to such Lease
(other than items of Software that may not be sold by Lessor under the terms of
any applicable License Agreement) for an amount equal to the Fair Market Value
of such Units of Equipment as of the end of the Then Applicable Term, provided
no Lessee Default shall have occurred and be continuing. In the event of such an
election, Lessee shall pay such amount to Lessor, in immediately available
funds, on or before the last day of the The Applicable Term. If Lessee shall
have so elected to purchase any of the Units of Equipment, shall have so paid
the applicable purchase price and shall have fulfilled the terms and conditions
of this Master Agreement, then on the last day of the Then Applicable Term (i)
the Lessee with respect to such Units of Equipment shall terminate and, except
as provided in Section 27, Lessee shall be relieved of all of its obligations in
favor of Lessor with respect to such Units of Equipment, and (ii) Lessor shall
transfer all of its interest in such Units of Equipment to Lessee "AS IS, WHERE
IS," without any warranty, express or implied, from Lessor, other than the
absence of any liens or claims by or through Lessor. In the event Lessor and
Lessee are unable to agree on the Fair Market Value of any Units of Equipment ,
Lessor shall, at Lessee's expense, select an independent appraiser to
conclusively determine such amount.
B. RENEWAL OPTION. Lessee may elect, by delivering to Lessor an
End-of-Term Notice at least 90 days prior to the expiration of the Initial
Term, any Renewal Term, or any optional extension of the Initial Term or any
Renewal Term, to renew the Lease with respect to any or all Units of Equipment
then subject to such Lease (other than items of Software that may not be
re-released by Lessor under the terms of any applicable License Agreement) for
an amount equal to the Fair Rental Value of such Units of Equipment as of the
end of the Then Applicable Term. In the event of such an election, Lessee
shall enter into a mutually agreeable renewal agreement with Lessor ("Renewal
Agreement") on or before the last day of the Then Applicable Term confirming
the Units of Equipment as to which the Lease is to be renewed, the period for
which the Lease is to be renewed (the "Renewal Term"), and the amount of Rent
and the times at which such Rent is to be payable during the Renewal Term. In
the event Lessor and Lessee are unable to agree on the Fair Rental Value of any
Units of Equipment, Lessor shall, at Lessee's expense, select an independent
appraiser to conclusively determine such amount.
12/98 Rev
2
<PAGE> 3
C. RETURN. Lessee may elect, by delivering to Lessor an End-of-Term
Notice at least 90 days prior to the expiration of the Initial Term, any Renewal
Term or any optional extension of the Initial Term or any Renewal Term, to
return any or all of the Units of Equipment then subject to such Lease in
accordance with Section 9 of this Master Agreement.
D. OPTIONAL EXTENSION. Lessee may elect, by omitting to deliver to Lessor
an End-of-Term Notice at least 90 days prior to the expiration of the Initial
Term or any Renewal Term, to extend the Initial Term or such Renewal Term, as
the case may be. In that event, the Initial Term or such Renewal Term shall,
without any additional notice or documentation, be automatically extended for
successive calendar months with respect to all items of Equipment then subject
to such Lease through the end of the calendar month falling at least 90 days
after the date Lessee shall have delivered to Lessor an End-of-Term Notice
with respect to such Lease. For each calendar month that the Then Applicable
Term of such Lease is so extended, Lessee shall pay to Lessor Rent in an amount
equal to the monthly Rent payment in effect immediately prior to such extension
(or the appropriate pro rata portion of the Rent payment then in effect in the
case of Rent payable other than on a monthly basis), and all other provisions
of this Master Agreement and the applicable Schedule shall continue to apply.
If Lessee shall have delivered to Lessor an End-of-Term Notice with
respect to a Lease, but shall have subsequently failed to comply with its
obligations arising from its elections specified therein (e.g., Lessee shall
have failed, on or before the last day of the Then Applicable Term (i) to pay
Lessor the purchase price for Equipment to be purchased in accordance with
Section 4.A above, (ii) to execute a Renewal Agreement with respect to
Equipment as to which the Lease is to be renewed in accordance with Section 4.B
above, or (iii) to return to Lessor Equipment to be returned in accordance with
Section 4.C above), then the Then Applicable Term of such Lease shall, without
any additional notice or documentation, be automatically extended for
successive calendar months with respect to all items of Equipment as to which
Lessee shall have so failed to comply with its obligations through the end of
the calendar month in which Lessee shall have complied with such obligations.
For each calendar month that the Then Applicable Term of any Lease is so
extended, Lessee shall pay to Lessor Rent in an amount equal to the monthly
Rent payment in effect immediately prior to such extension (or the appropriate
pro rata portion of the Rent payment then in effect in the case of Rent payable
other than on a monthly basis), and all other provisions of this Master
Agreement and the applicable Schedule shall continue to apply. Notwithstanding
any of the provisions of this Section 4 to the contrary, if any Lessee Default
shall have occurred and be continuing at any time during the last 90 days of
the Then Applicable Term of any Lease, Lessor may cancel any Renewal Term or
optional or other automatic extension of the Then Applicable Term immediately
upon written notice to Lessee.
5. RENT; LATE CHARGES; ADVANCE RENT. As rent ("Rent") for the Equipment under
any Lease and the Financed Items under any Financing, Lessee agrees to pay the
amounts specified in the applicable Schedule on the due dates specified in the
applicable Schedule. Lessee agrees to pay Lessor interest on any Rent payment
or other amount due hereunder that is not paid within 10 days of its due date,
at the rate of 1-1/2% per month (or such lesser rate as is the maximum rate
allowable under applicable law). Lessee shall pay to Lessor, with respect to
each Lease or Financing, the Advance Rent specified on the applicable Schedule,
if any. Any payment of Advance Rent shall be credited against the first Rent
payment payable by Lessee under the applicable Schedule and any excess Advance
Rent will be credited against the last Rent payment(s) payable by Lessee with
respect to the Initial Term of the applicable Lease or Financing. Advance Rent
shall be refunded to Lessee without interest only if Lessor declines to sign
the applicable Schedule.
6. LEASES AND FINANCINGS NON-CANCELABLE; NET LEASES; WAIVER OF DEFENSES TO
PAYMENT. IT IS SPECIFICALLY UNDERSTOOD AND AGREED THAT EACH LEASE AND FINANCING
HEREUNDER SHALL BE NON-CANCELABLE, AND THAT EACH LEASE HEREUNDER IS A NET
LEASE. LESSEE AGREES THAT IT HAS AN ABSOLUTE AND UNCONDITIONAL OBLIGATION TO
PAY ALL RENT AND OTHER AMOUNTS WHEN DUE. LESSEE IS NOT ENTITLED TO ABATE OR
REDUCE RENT OR ANY OTHER AMOUNT DUE, OR TO SET OFF ANY CHARGE AGAINST ANY SUCH
AMOUNT. LESSEE HEREBY WAIVES ANY RECOUPMENT, CROSS-CLAIM, COUNTERCLAIM OR ANY
OTHER DEFENSE AT LAW OR IN EQUITY TO ANY RENT PAYMENT OR OTHER AMOUNT DUE WITH
RESPECT TO ANY LEASE OR FINANCING, WHETHER ANY SUCH DEFENSE ARISES OUT OF THIS
MASTER AGREEMENT, ANY SCHEDULE, ANY CLAIM BY LESSEE AGAINST LESSOR, LESSOR'S
ASSIGNEES OR SUPPLIER, OR OTHERWISE. IF THE EQUIPMENT OR ANY FINANCED ITEM IS
NOT PROPERLY INSTALLED, DOES NOT OPERATE OR INTEGRATE AS REPRESENTED OR
WARRANTED BY SUPPLIER OR IS UNSATISFACTORY FOR ANY REASON WHATSOEVER, LESSEE
SHALL MAKE ANY CLAIM ON ACCOUNT THEREOF SOLELY AGAINST SUPPLIER AND SHALL
NEVERTHELESS PAY ALL SUMS DUE WITH RESPECT TO EACH LEASE AND EACH FINANCING.
7. ASSIGNMENT OF PURCHASE DOCUMENTS. Lessee assigns to Lessor all of Lessee's
right, title and interest in and to (a) the Equipment described in each
Schedule, and (b) the Purchase Documents relating to such Equipment. Such
assignment of the Purchase Documents is an assignment of rights only; nothing
in this Master Agreement shall be deemed to have relieved Lessee of any
obligation or liability under any of the Purchase Documents, except that, as
between Lessee and Lessor, Lessor shall pay for the Equipment within 30 days
after Lessee's delivery to Lessor of a properly completed and executed
Acceptance Certificate and all other documentation necessary to establish
Lessee's acceptance of such Equipment under the related Lease. Lessee
represents and warrants that it has reviewed and approved the Purchase
Documents. In addition, if Lessor shall so request, Lessee shall deliver to
Lessor a document acceptable to Lessor whereby Seller acknowledges and provides
any required consent to such assignment. For the avoidance of doubt, Lessee
covenants and agrees that it shall at all times during the Total Term of each
Lease comply in all respects with the terms of any License Agreement relating
to any Equipment leased thereunder. IT IS ALSO SPECIFICALLY UNDERSTOOD AND
AGREED THAT NEITHER SUPPLIER NOR ANY SALESPERSON OF SUPPLIER IS AN AGENT OF
LESSOR, NOR ARE THEY AUTHORIZED TO WAIVE OR ALTER ANY TERMS OF THIS MASTER
AGREEMENT OR ANY SCHEDULE.
8. ASSIGNMENT OF SUPPLIER WARRANTIES. To the extent permitted, Lessor hereby
assigns to Lessee, for the Total Term of any Lease, all Equipment warranties
provided by any Supplier in the applicable Purchase Documents. Lessee shall
have the right to take any action it deems appropriate to enforce such
warranties provided such enforcement is pursued in Lessee's name and at its
expense. In the event Lessee is precluded from enforcing any such warranty in
its name, Lessor shall, upon Lessee's request, take reasonable steps to enforce
such warranty. In such circumstances, Lessee shall, promptly upon demand,
reimburse Lessor for all out-of-pocket expenses incurred by Lessor in enforcing
the Supplier warranty. Any recovery resulting from any such enforcement efforts
shall be divided among Lessor and Lessee as their interests may appear.
9. EQUIPMENT RETURN REQUIREMENTS. On or before the last day of the Total Term
of each Lease (and any other time Lessee is required to return Equipment to
Lessor under the terms of this Master Agreement or any Schedule), Lessee shall
pack the Equipment to the returned to Lessor in accordance with the
manufacturer's guidelines and deliver such Equipment to Lessor at any
destination within the continental United States designated by Lessor. In the
case of any item of Software to be returned to Lessor, Lessee shall also
deliver to Lessor the original Certificate of Authenticity issued by the
licensor of such Software, if any. Alternatively, Lessee may deliver any such
Certificate of Authenticity to Lessor on or at any time after the Acceptance
Date for such Software. All dismantling, packaging, transportation, in-transit
insurance and shipping charges shall be borne by Lessee. All Equipment shall be
returned to Lessor in the same condition and working order as when delivered to
Lessee, reasonable wear and tear excepted, and shall qualify for maintenance
service by the Supplier at its then standard rates for Equipment of that age,
if available. Lessee shall be responsible for, and shall reimburse Lessor
promptly on demand for, any cost incurred by Lessor to qualify the Equipment
for the Supplier's maintenance service or, if not available, to return the
Equipment to good working condition.
10. EQUIPMENT USE AND MAINTENANCE. Lessee is solely responsible for the
selection, installation, operation and maintenance of the Equipment and all
costs related thereto, including shipping charges. Lessee shall at all times
operate and maintain the Equipment in good working order, repair, condition and
appearance, and in accordance with the manufacturer's specifications and
recommendations. On reasonable prior notice to Lessee, Lessor and Lessor's
agents shall have the right, during Lessee's normal business hours, to enter
the premises where the Equipment is located for the purpose of inspecting the
Equipment and observing its use. If Lessor shall have provided to Lessee any
tags or identifying labels, Lessee shall, at its expense, affix and maintain in
a prominent position on each item of Equipment such tags or labels to indicate
Lessor's ownership of the Equipment. Except in the case of PC Equipment and
Software, Lessee shall, at its expense, enter into and maintain and enforce at
all times during the Total Term of each Lease a maintenance
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agreement to service and maintain the related Equipment, upon terms and with a
provider reasonably acceptable to Lessor.
11. EQUIPMENT OWNERSHIP; LIENS; LOCATION. As between Lessor and Lessee, Lessor
is the sole owner of the Equipment and has sole title thereto. Lessee shall not
make any representation to any third-party inconsistent with Lessor's sole
ownership of the Equipment. Lessee covenants that it will not pledge or encumber
the Equipment or Lessor's interest in the Equipment in any manner whatsoever nor
create or permit to exist any levy, lien or encumbrance thereof or thereon
except those created by or through Lessor. The Equipment shall remain Lessor's
personal property whether or not affixed to realty and shall not become a
fixture or be made to become a part of any real property on which it is placed
without Lessor's prior written consent. Lessee shall maintain the Equipment so
that it may be removed from any building in which it is placed without any
damage to the building or the Equipment. Lessee may relocate any Equipment from
the Equipment Location specified in the applicable Schedule to another of its
business locations within the United States upon prior written notice to Lessor
specifying the new Equipment Location, provided Lessee remains in possession and
control of the Equipment.
12. ALTERATIONS AND ADDITIONS TO EQUIPMENT. Lessee shall make no alterations or
additions to the Equipment, except those that (a) will not void any warranty
made by the Supplier of the Equipment, result in the creation of any security
interest, lien or encumbrance on the Equipment or impair the value or use of the
Equipment either at the time made or at the end of the Total Term of the
applicable Lease, and that are readily removable without damage to the Equipment
("Optional Additions"), or (b) are required by any applicable law regulation or
order. All additions to the Equipment or repairs made to the Equipment, except
Optional Additions, become a part thereof and Lessor's property at the time
made; Optional Additions which have not been removed prior to the return of the
Equipment shall become Lessor's property upon such return.
13. INSURANCE. Lessee agrees to keep the Equipment insured at Lessee's expense
against all risks of loss from any cause whatsoever, including without
limitation, theft and damage. Lessee agrees that such insurance shall name
Lessor as a loss payee and cover not less than the Stipulated Loss Value of the
Equipment. Lessee also agrees that it shall carry commercial general liability
insurance in an amount not less than $2,000,000 total liability per occurrence
and cause Lessor and its affiliates to be named additional insureds under such
insurance. Each policy shall provide that the insurance cannot be canceled
without at least 30 days prior written notice to Lessor. Lessee shall provide to
Lessor (a) on or prior to the Acceptance Date for each Lease, and from time to
time thereafter, certificates of insurance evidencing such insurance coverage
throughout the Total Term of each Lease, and (b) upon Lessor's request, copies
of the insurance policies. If Lessee fails to provide Lessor with such evidence,
then Lessor will have the right, but not the obligation, to purchase such
insurance protecting Lessor at Lessee's expense. Lessee's expense shall include
the full premium paid for such insurance and any customary charges, costs or
fees of Lessor. Lessee agrees to pay such amounts in substantially equal
installments allocated to each Rent payment (plus interest on such amounts at
the rate of 1-1/2% per month or such lesser rate as is the maximum rate
allowable under applicable law).
14. RISK OF LOSS. In the event any Casualty Loss shall occur, on the next Rent
payment date Lessee shall, at its option (a) pay Lessor the Stipulated Loss
Value of the Equipment suffering the Casualty Loss, or (b) substitute and
replace each item of Equipment suffering the Casualty Loss with an item of
Substitute Equipment. If Lessee shall elect to pay the Stipulated Loss Value of
the Equipment suffering a Casualty Loss, upon Lessor's receipt in full of such
payment the applicable Lease shall terminate as it relates to such Equipment
and, except as provided in Section 27, Lessee shall be relieved of all
obligations under the applicable Lease as it relates to such Equipment. If
Lessee shall elect to replace Equipment suffering a Casualty Loss with items of
Substitute Equipment (i) the applicable Lease shall continue in full force and
effect without any abatement of Rent with such Substitute Equipment thereafter
being deemed to be Equipment leased thereunder, and (ii) Lessee shall deliver to
Lessor a bill of sale or other documentation, in either case in form and
substance satisfactory to Lessor, in which Lessee shall represent and warrant
that it has transferred to Lessor good and marketable title to all Substitute
Equipment, free and clear of all liens, encumbrances and claims of others. Upon
Lessor's receipt of such payment of Stipulated Loss Value in full, or such bill
of sale or other documentation, as the case may be, Lessor shall transfer to
Lessee all of Lessor's interest in the Equipment suffering the Casualty Loss "AS
IS, WHERE IS," without any warranty, express or implied, from Lessor, other than
the absence of any liens or claims by or through Lessor. In the event of any
repairable damage to any Equipment, the Lease shall continue with respect to
such Equipment without any abatement of Rent and Lessee shall at its expense
promptly cause such Equipment to be repaired to the condition it is required to
be maintained in pursuant to Section 10. Lessee shall notify Lessor of any
Casualty Loss or repairable damage to any Equipment as soon as reasonably
practicable after the date of any such occurrence.
15. TAXES. Lessor shall report and pay all Taxes now or hereafter imposed or
assessed by governmental body, agency or taxing authority upon the purchase,
ownership, delivery, installation, leasing, rental, use or sale of the
Equipment, the Rent or other charges payable hereunder, or otherwise upon or in
connection with any Lease or Financing, whether assessed on Lessor or Lessee,
other than any such Taxes required by law to be reported and paid by Lessee.
Lessee shall promptly reimburse Lessor for all such Taxes paid by Lessor,
together with any penalties or interest in connection therewith attributable to
Lessee's acts or failure to act, excluding (a) Taxes on or measured by the
overall gross or net income or items of tax preference of Lessor, (b) as to any
Lease or the related Equipment. Taxes attributable to the period after the
return of such Equipment to Lessor, and (c) Taxes imposed as a result of a sale
or other transfer by Lessor of any portion of its interest in any Lease or
Financing or in any Equipment except for a sale or other transfer to Lessee or a
sale or other transfer occurring after and during the continuance of any Lessee
Default.
16. GENERAL INDEMNITY. Lessee shall indemnify and hold harmless Lessor, its
employees, officers, directors, agents and assignees and, if requested by
Lessor, defend Lessor, its employees, officers, directors, agents and assignees
from and against any and all Claims arising directly or indirectly out of or in
connection with any matter involving this Master Agreement, the Equipment or any
Lease or Financing, including but not limited to (a) the selection, manufacture,
purchase, acceptance, rejection, ownership, delivery, lease, financing,
possession, maintenance, use, condition, return or operation of any Equipment of
Financed Items or the enforcement of Lessor's rights under any Lease or
Financing; (b) any latent defect or other defect in any Equipment or Financed
Item, whether or not discoverable by Lessor or by Lessee; (c) any patent
trademark or copyright infringement involving any Equipment or Financed Item;
(d) the condition of any Equipment or Financed Item arising or existing at any
time during the Total Term of any Lease or the Term of any Financing; and (e)
any breach by Lessee of any representation, warranty or covenant contained in
any Fundamental Agreement. Notwithstanding the foregoing, Lessee shall have no
obligation to indemnify or defend against any Claim arising solely as a result
of Lessor's gross negligence or willful misconduct.
17. TAX BENEFIT INDEMNITY. Each Lease is entered into on the assumption that
Lessor is the owner of the Equipment for tax purposes and is entitled to certain
federal and state tax benefits available to an owner of Equipment (collectively,
"Tax Benefits"), including without limitation, accelerated cost recovery system
deductions for 5-year property and deductions for interest incurred by Lessor to
finance the purchase of Equipment available under the Code. Lessee represents,
warrants and covenants to Lessor that (a) Lessee is not a tax-exempt entity (as
defined in Section 168(h) of the Code), (b) all Equipment will be used solely
within the United States, and (c) Lessee will take no position inconsistent with
the assumption that Lessor is the owner of the Equipment for federal and state
tax purposes. If, due to any act or omission of Lessee or any party acting
through Lessee, or the breach or inaccuracy of any representation, warranty or
covenant of Lessee contained in any Fundamental Agreement, Lessor reasonably
determines that it cannot claim, is not allowed to claim, loses or must
recapture any or all of the Tax Benefits otherwise available with respect to the
Equipment subject to any Lease (a "Tax Loss"), then Lessee shall, promptly upon
demand, pay to Lessor an amount sufficient to provide Lessor the same after-tax
rate of return and aggregate after-tax cash flow through the end of the Then
Applicable Term of such Lease that Lessor would have realized but for such Tax
Loss.
18. COVENANT OF QUIET ENJOYMENT. So long as no Lessee Default exists, and no
event shall have occurred and be continuing which, with the giving of notice or
the passage of time or both, would constitute a Lessee Default, neither Lessor
nor any party acting or claiming through Lessor, by assignment or otherwise,
will disturb Lessee's quiet enjoyment of the Equipment during the Total Term of
the related Lease.
19. DISCLAIMERS AND LESSEE WAIVERS. LESSEE LEASES THE EQUIPMENT FROM LESSOR
"AS IS, WHERE IS". IT IS SPECIFICALLY UNDERSTOOD AND AGREED THAT (A) EXCEPT AS
EXPRESSLY SET FORTH IN SECTION 18, LESSOR MAKES ABSOLUTELY NO REPRESENTATIONS
OR WARRANTIES
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WHATSOEVER, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, ANY REPRESENTATION
OR WARRANTY WITH RESPECT TO THE DESIGN, COMPLIANCE WITH SPECIFICATIONS, QUALITY,
OPERATION, OR CONDITION OF ANY EQUIPMENT OR FINANCED ITEMS (OR ANY PART
THEREOF), THE MERCHANTABILITY OR FITNESS OF EQUIPMENT OR FINANCED ITEMS FOR A
PARTICULAR PURPOSE, OR ISSUES REGARDING PATENT INFRINGEMENT, TITLE AND THE LIKE;
(B) LESSOR SHALL NOT BE DEEMED TO HAVE MADE, BE BOUND BY OR LIABLE FOR, ANY
REPRESENTATION, WARRANTY OR PROMISE MADE BY THE SUPPLIER OF ANY EQUIPMENT OR
FINANCED ITEMS (EVEN IF LESSOR IS AFFILIATED WITH SUCH SUPPLIER); (C) LESSOR
SHALL NOT BE LIABLE FOR ANY FAILURE OF ANY EQUIPMENT OR FINANCED ITEMS OR ANY
DELAY IN THE DELIVERY OR INSTALLATION THEREOF; (D) LESSEE HAS SELECTED ALL
EQUIPMENT AND FINANCED ITEMS WITHOUT LESSOR'S ASSISTANCE; AND (E) LESSOR IS NOT
A MANUFACTURER OF ANY EQUIPMENT. IT IS FURTHER AGREED THAT LESSOR SHALL HAVE NO
LIABILITY TO LESSEE, LESSEE'S CUSTOMERS, OR ANY THIRD PARTIES FOR ANY
INCIDENTAL, INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THIS
MASTER AGREEMENT OR ANY SCHEDULE OR CONCERNING ANY EQUIPMENT OR FINANCED ITEMS,
OR FOR ANY DAMAGES BASED ON STRICT OR ABSOLUTE TORT LIABILITY OR, EXCEPT TO THE
EXTENT CONSTITUTING A LESSOR DEFAULT, LESSOR'S NEGLIGENCE; PROVIDED, HOWEVER,
THAT NOTHING IN THIS MASTER AGREEMENT SHALL DEPRIVE LESSEE OF ANY RIGHTS IT MAY
HAVE AGAINST ANY PERSON OTHER THAN LESSOR. LESSOR AND LESSEE AGREE THAT THE
LEASES AND THE FINANCINGS SHALL BE GOVERNED BY THE EXPRESS PROVISIONS OF THIS
MASTER AGREEMENT AND THE OTHER FUNDAMENTAL AGREEMENTS AND NOT BY THE CONFLICTING
PROVISIONS OF ANY OTHERWISE APPLICABLE LAW. ACCORDINGLY, TO THE EXTENT PERMITTED
BY APPLICABLE LAW, LESSEE WAIVES ANY RIGHTS AND REMEDIES CONFERRED UPON A LESSEE
BY ARTICLE 2A OF THE UCC (INCLUDING, BUT NOT LIMITED TO, LESSEE'S RIGHTS, CLAIMS
AND DEFENSES UNDER UCC SECTIONS 2A-303 AND 2A-508 THROUGH 2A-522) AND THOSE
RIGHTS NOW OR HEREAFTER CONFERRED BY STATUTE OR OTHERWISE, IN EITHER CASE THAT
ARE INCONSISTENT WITH OR THAT WOULD LIMIT OR MODIFY LESSOR'S RIGHTS SET FORTH IN
THIS MASTER AGREEMENT.
20. LESSEE WARRANTIES. Lessee represents, warrants and covenants to Lessor that:
(a) ALL EQUIPMENT WILL BE USED FOR BUSINESS PURPOSES ONLY AND NOT FOR PERSONAL,
FAMILY OR HOUSEHOLD PURPOSES; (b) Lessee is duly organized, validly existing and
in good standing under applicable law; (c) Lessee has the power and authority to
enter into each of the Fundamental Agreements; (d) all Fundamental Agreements
are enforceable against Lessee in accordance with their terms and do not violate
or create a default under any instrument or agreement binding on Lessee; (e)
there are no pending or threatened actions or proceedings before any court or
administrative agency that could have a material adverse effect on Lessee or any
Fundamental Agreement, unless such actions are disclosed to Lessor and consented
to in writing by Lessor; (f) Lessee shall comply in all material respects with
all laws and regulations the violation of which could have a material adverse
effect upon the Equipment or Lessee's performance of its obligations under any
Fundamental Agreement; (g) each Fundamental Agreement shall be effective against
all creditors of Lessee under applicable law, including fraudulent conveyance
and bulk transfer laws, and shall raise no presumption of fraud; and (h) all
financial statements and other related information furnished by Lessee shall be
prepared in accordance with generally accepted accounting principles and shall
fairly present Lessee's financial position as of the dates given on such
statements.
21. DEFAULT. Any of the following shall constitute a default by Lessee (a
"Lessee Default") under this Master Agreement and all Leases and Financings: (a)
Lessee fails to pay any Rent payment or any other amount payable to Lessor under
this Master Agreement or any Schedule within 10 days after its due date; or (b)
Lessee defaults on or breaches any of the other terms and conditions of any
Material Agreement, and fails to cure such breach within 10 days after written
notice thereof from Lessor; or (c) any representation or warranty made by Lessee
in any Material Agreement proves to be incorrect in any material respect when
made or reaffirmed; or (d) Lessee or Guarantor sells or otherwise disposes of
all or substantially all of its assets, consolidates with or merges with or into
any entity or incurs a substantial amount of indebtedness other than in the
ordinary course of its business (unless consented to in advance by Lessor); or
(e) Lessee or Guarantor dissolves or otherwise terminates its existence, ceases
to do business, or becomes insolvent or fails generally to pay its debts as they
become due; or (f) any Equipment is levied against seized or attached; or (g)
Lessee or Guarantor makes an assignment for the benefit of creditors; or (h) a
proceeding under any bankruptcy, reorganization, arrangement of debt, insolvency
or receivership law is filed by or against Lessee or Guarantor (and, if such
proceeding is involuntary, it is not dismissed within 60 days after the filing
thereof) or Lessee or Guarantor takes any action to authorize any of the
foregoing matters; or (i) any letter of credit or guaranty issued in support of
a Lease or Financing is revoked, breached, cancelled or terminated (unless
consented to in advance by Lessor); or (j) any Guarantor fails to fulfill its
obligations in favor of Lessor pursuant to its guaranty.
Any of the following shall constitute a default by Lessor (a "Lessor
Default") under this Master Agreement and (i) the applicable Lease(s) or
Financing(s) in the case of a Lessor Default described in clauses (w) or (x)
below, or (ii) all Leases and Financings in the case of a Lessor Default
described in clauses (y) or (z) below; (w) Lessor breaches its covenant of quiet
enjoyment set forth in Section 18 and fails or is unable to cure such breach
within 10 days after written notice thereof from Lessee; or (x) Lessor fails to
pay Seller (or in the case of Financed Items, Lessee or such other party as
Lessee or Seller shall have directed in writing) for any Equipment or Financed
Items within 30 days after Lessor's receipt of a properly completed and executed
Acceptance Certificate and all other documentation necessary to establish
Lessee's acceptance of such Equipment or Financed Items under a Lease or
Financing, respectively, and such failure continues for more than 10 days after
written notice thereof from Lessee; or (y) Lessor makes an assignment for the
benefit of creditors; or (z) a proceeding under any bankruptcy, reorganization,
arrangement of debt, insolvency or receivership law is filed by or against
Lessor (and, if such proceeding is involuntary, it is not dismissed within 60
days after the filing thereof).
22. REMEDIES. If a Lessee Default occurs, Lessor may, in its sole discretion,
exercise one or more of the following remedies: (a) declare all amounts due and
to become due under any or all Leases and Financings to be immediately due and
payable; or (b) terminate this Master Agreement or any Lease or Financing; or
(c) take possession of, or render unusable, any Equipment wherever the Equipment
may be located, without demand or notice and without any court order or other
process of law in accordance with Lessee's reasonable security procedures, and
no such action shall constitute a termination of any Lease; or (d) require
Lessee to deliver the Equipment to a location specified by Lessor; or (e)
declare the Stipulated Loss Value for any or all Equipment to be due and payable
as liquidated damages for loss of a bargain and not as a penalty and in lieu of
any further Rent payments under the applicable Lease or Leases; or (f) proceed
by court action to enforce performance by Lessee of any Lease or Financing
and/or to recover all damages and expenses incurred by Lessor by reason of any
Lessee Default; or (g) terminate any other agreement that Lessor may have with
Lessee; or (h) exercise any other right or remedy available to Lessor at law or
in equity. Also, Lessee shall pay Lessor all costs and expenses that Lessor may
incur to maintain, safeguard or preserve the Equipment, and other expenses
incurred by Lessor in enforcing any of the terms, conditions or provisions of
this Master Agreement (including reasonable legal fees and collection agency
costs). Upon repossession or surrender of any Equipment, Lessor shall lease,
sell or otherwise dispose of the Equipment in a commercially reasonable manner,
with or without notice and at public or private sale, and apply the net proceeds
thereof to the amounts owed to Lessor hereunder, but only after deducting (i) in
the case of a sale, the estimated Fair Market Value of the Equipment sold as of
the scheduled expiration of the Then Applicable Term of the related Lease, (ii)
in the case of a lease, the rent due for any period beyond the scheduled
expiration of the Then Applicable Term of the related Lease, and (iii) in either
case, all expenses (including reasonable legal fees and costs) reasonably
incurred by Lessor in connection therewith; provided, however, that Lessee shall
remain liable to Lessor for any deficiency that remains after any sale or lease
of such Equipment. Any proceeds of any sale or lease of such Equipment in excess
of the amounts owed to Lessor hereunder shall be retained by Lessor. Lessee
agrees that with respect to any notice of a sale required by law to be given, 10
days' notice shall constitute reasonable notice. Upon payment of all past due
Rent and the Stipulated Loss Value as provided in clause (e) above, together
with interest at the rate of 1-1/2% per month (or such lesser rate as is the
maximum rate allowable under applicable law) from the date declared due until
paid, Lessor will transfer to Lessee all of Lessor's interest in the Equipment
for which such Rent and Stipulated Loss Value has been paid, which transfer
shall be on an "AS IS, WHERE IS" basis, without any warranty, express or
implied, from Lessor, other than the absence of any liens or claims by or
through Lessor. These remedies are cumulative of
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every other right or remedy given hereunder or now or hereafter existing at law
or in equity or by statute or otherwise, and may be enforced concurrently
therewith or from time to time.
If a Lessor Default occurs, Lessee's sole and exclusive remedy shall be to
recover by appropriate legal proceedings any direct damages suffered by Lessee
as a result of such Lessor Default and any reasonable and necessary expenses
(including, without limitation, court costs and reasonable legal fees) incurred
by Lessee in connection therewith.
23. PERFORMANCE OF LESSEE'S OBLIGATIONS. If Lessee fails to perform any of its
obligations hereunder, Lessor may perform any act or make any payment that
Lessor deems reasonably necessary for the maintenance and preservation of the
Equipment and Lessor's interests therein; provided, however, that the
performance of any act or payment by Lessor shall not be deemed a waiver of, or
release Lessee from, the obligation at issue. All sums so paid by Lessor,
together with expenses (including legal fees and costs) incurred by Lessor in
connection therewith, shall be paid to Lessor by Lessee immediately upon demand.
24. TRUE LEASE; SECURITY INTEREST; MAXIMUM RATE. Each Lease is intended to be a
"Finance Lease" as defined in Article 2A of the UCC, and Lessee hereby
authorizes Lessor to file a financing statement to give public notice of
Lessor's ownership of the Equipment. Lessee, by its execution of each Schedule,
acknowledges that Lessor has informed it that (a) the identity of Seller is set
forth in the applicable Schedule. (b) Lessee is entitled under Article 2A to the
promises and warranties, including those of any third party, provided to Lessor
in connection with, or as a part of, the applicable Purchase Documents, and (c)
Lessee may communicate with Seller and receive an accurate and complete
statement of the promises and warranties, including any disclaimers and
limitations of them or of remedies. If (i) notwithstanding the express intention
of Lessor and Lessee to enter into a true lease, any Lease is ever deemed by a
court of competent jurisdiction to be a lease intended for security, or (ii)
Lessor and Lessee enter into a Lease with the intention that it be treated as a
lease intended as security by so providing in the applicable Schedule, or (iii)
Lessor and Lessee enter into a Financing, then to secure payment and performance
of Lessee's obligations under this Master Agreement and all Leases and
Financings, Lessee hereby grants Lessor a purchase money security interest in
the related Equipment and Financed Items and in all attachments, accessories,
additions, substitutions, products, replacements, rentals and proceeds
(including, without limitation, insurance proceeds) thereto as well as a
security interest in any other equipment financed pursuant to this Master
Agreement or any other agreement between Lessor and Lessee (collectively, the
"Collateral"). In any such event, notwithstanding any provisions contained in
this Master Agreement or in any Schedule, neither Lessor nor any Assignee shall
be entitled to receive, collect or apply as interest any amount in excess of the
maximum rate or amount permitted by applicable law. In the event Lessor or any
Assignee ever receives, collects or applies as interest any amount in excess of
the maximum amount permitted by applicable law, such excess amount shall be
applied to the unpaid principal balance and any remaining excess shall be
refunded to Lessee. In determining whether the interest paid or payable under
any specific contingency exceeds the maximum rate or amount permitted by
applicable law, Lessor and Lessee shall, to the maximum extent permitted under
applicable law, characterize any non-principal payment as an expense or fee
rather than as interest, exclude voluntary prepayments and the effect thereof,
and spread the total amount of interest over the entire term of this Master
Agreement and all Leases and Financings.
25. ASSIGNMENT. Lessor shall have the unqualified right to sell, assign,
pledge, transfer, mortgage or otherwise convey any part of its interest in this
Master Agreement, any Schedule or any Equipment, in whole or in part, without
prior notice to or the consent of Lessee. If any Lease is assigned, Lessee shall
(a) unless otherwise specified by Lessor and the Assignee, pay all amounts due
under the applicable Schedule to such Assignee, notwithstanding any defense,
setoff or counterclaim whatsoever that Lessee may have against Lessor or
Assignee; (b) not permit the applicable Schedule to be amended or the terms
thereof waived without the prior written consent of the Assignee; (c) not
require the Assignee to perform any obligations of Lessor, other than those that
are expressly assumed in writing by such Assignee; and (d) execute such
acknowledgments thereto as may be requested by Lessor or the Assignee. It is
further agreed that (i) each Assignee shall be entitled to all of Lessor's
rights, powers and privileges under the applicable Lease or Financing, to the
extent assigned; (ii) any Assignee may reassign its rights and interests under
the applicable Lease or Financing with the same force and effect as the
assignment described herein; and (iii) any payments received by the Assignee
from Lessee with respect to the assigned portion of the Lease or Financing
shall, to the extent thereof, discharge the obligations of Lessee to Lessor with
respect to the assigned portion of the Lease or Financing. Lessee acknowledges
that any assignment or transfer by Lessor or any Assignee shall not materially
change Lessee's obligations under the assigned Lease or Financing.
Upon Lessor's prior written consent, which shall not be unreasonably
withheld, Lessee may sublet the Equipment to another end user other than another
leasing company or other competitor of Lessor. No such sublease shall relieve
Lessee of its obligations under the Lease and Lessee shall be responsible for
all costs and expenses associated with such sublease, including, without
limitation, additional Taxes or any Tax Loss suffered by Lessor. Lessee may
permit use of the Equipment by its affiliates or independent contractors at the
Equipment Location provided it does not relinquish possession and control of the
Equipment. Lessee may not assign, transfer or otherwise dispose of this Master
Agreement, any Lease or Financing, any Equipment or any interest therein.
26. FURTHER ASSURANCES. Lessee agrees to promptly execute and deliver to Lessor
such further documents and take such further action as Lessor may require in
order to more effectively carry out the intent and purpose of this Master
Agreement and any Schedule. Without limiting the generality of the foregoing,
Lessee agrees (a) to furnish to Lessor from time to time, its certified
financial statements, officer's certificates and appropriate resolutions,
opinions of counsel and such other information and documents as Lessor may
reasonably request, and (b) to execute and timely deliver to Lessor any
financing statements or other documents that Lessor deems necessary to perfect
or protect Lessor's security interest in the Collateral or to evidence Lessor's
interest in the Equipment. If Lessee fails to execute any document referred to
in clause (b) of the preceding sentence, Lessor or Lessor's agent is hereby
authorized to sign and file the same as Lessee's agent. It is also agreed that
Lessor or Lessor's agent may file as a financing statement, any lease document
(or copy thereof, where permitted by law) that Lessor deems appropriate to
perfect or protect Lessor's security interest in the Collateral or to evidence
Lessor's interest in the Equipment. Upon demand, Lessee will promptly reimburse
Lessor for any filing or recordation fees or expenses (including legal fees and
costs) incurred by Lessor in perfecting or protecting its interests in the
Equipment.
27. TERM OF MASTER AGREEMENT; SURVIVAL. This Master Agreement shall commence
and be effective upon the execution hereof by both parties and shall continue in
effect until terminated by either party by 30 days' prior written notice to the
other. However, no termination of this Master Agreement pursuant to the
preceding sentence shall be effective with respect to any Lease or Financing
that commenced prior to such termination until the expiration or termination of
such Lease or Financing and the satisfaction by Lessee of all of its obligations
hereunder with respect thereto. All representations, warranties and covenants
made by Lessee hereunder shall survive the termination of this Master Agreement
and shall remain in full force and effect. All of Lessor's rights, privileges
and indemnities under this Master Agreement or any Lease or Financing, to the
extent they are fairly attributable to events or conditions occurring or
existing on or prior to the expiration or termination of such Lease or
Financing, shall survive such expiration or termination and be enforceable by
Lessor and Lessor's successors and assigns.
28. WAIVER OF JURY TRIAL. LESSEE AND LESSOR HEREBY EXPRESSLY WAIVE ANY RIGHT TO
DEMAND A JURY TRIAL WITH RESPECT TO ANY ACTION OR PROCEEDING INSTITUTED BY
LESSOR OR LESSEE IN CONNECTION WITH THIS MASTER AGREEMENT OR ANY FUNDAMENTAL
AGREEMENT.
29. NOTICES. All notices, requests, demands, waivers and other communications
required or permitted to be given under this Master Agreement or any other
Fundamental Agreement shall be in writing and shall be deemed to have been duly
given if delivered personally or mailed via certified mail or a nationally
recognized overnight courier service, or sent by confirmed facsimile
transmission, addressed as follows (or such other address or fax number as
either party shall so notify the other):
If to Lessor:
Compaq Capital Corporation
100 Woodbridge Center Drive, Suite 202
Woodbridge, New Jersey 07095
Attn: Vice President, Operations and Credit
Fax: (888) 202-4271
Authorized Lessor E-mail Address: [email protected]
12/98 Rev
6
<PAGE> 7
If to Lessee:
_______________________________________
_______________________________________
_______________________________________
Attn __________________________________
Fax: __________________________________
Authorized Lessee Representatives and Authorized Lessee E-mail Addresses:
_________________________________________________________________________
Lessee Acceptance Confirmation Fax Number: ______________________________
30. MISCELLANEOUS.
(a) GOVERNING LAW. THIS MASTER AGREEMENT AND EACH LEASE AND FINANCING SHALL BE
GOVERNED BY THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAW PROVISIONS) OF
THE STATE OF NEW JERSEY.
(b) CONSENT TO JURISDICTION. Lessor and Lessee consent to the jurisdiction of
any local, state or Federal court located within the State of New Jersey, and
waive any objection relating to improper venue or forum non conveniens to the
conduct of any proceeding in any such court.
(c) CREDIT REVIEW. Lessee consents to a reasonable credit review by Lessor for
each Lease and Financing.
(d) CAPTIONS AND REFERENCES. The captions contained in this Master Agreement
and any Schedule are for convenience only and shall not affect the
interpretation of this Master Agreement. All references in this Master Agreement
to Sections and Exhibits refer to Sections hereof and Exhibits hereto unless
otherwise indicated.
(e) ENTIRE AGREEMENT; AMENDMENTS. This Master Agreement and all other
Fundamental Agreements executed by both Lessor and Lessee constitute the entire
agreement between Lessor and Lessee relating to the leasing of the Equipment and
the financing of Financed Items, and supersede all prior agreements relating
thereto, whether written or oral, and may not be amended or modified except in a
writing signed by the parties hereto.
(f) NO WAIVER. Any failure of Lessor to require strict performance by Lessee,
or any written waiver by Lessor of any provision hereof, shall not constitute
consent or waiver of any other breach of the same or any other provision hereof.
(g) LESSOR AFFILIATES. Lessee understands and agrees that Compaq Capital
Corporation or any affiliate or subsidiary thereof may, as lessor, execute
Advance Pricing Agreements and Schedules under this Master Agreement, in which
event the terms and conditions of the applicable Advance Pricing Agreement or
Schedule and this Master Agreement as it relates to the lessor under such
Advance Pricing Agreement or Schedule shall be binding upon and shall inure to
the benefit of such entity executing such Advance Pricing Agreement or Schedule
as lessor, as well as any successors or assigns of such entity.
(h) INVALIDITY. If any provision of this Master Agreement or any Schedule shall
be prohibited by or invalid under law, such provision shall be ineffective only
to the extent of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Master Agreement
or such Schedule.
(i) COUNTERPARTS. This Master Agreement may be executed in counterparts, which
collectively shall constitute one document.
(j) LESSOR RELIANCE. Lessor may act in reliance upon any instruction,
instrument or signature reasonably believed by Lessor in good faith to be
genuine. Lessor may assume that any employee of Lessee who executes any document
or gives any written notice, request or instruction has the authority to do so.
31. DEFINITIONS. All capitalized terms used in this Master Agreement have the
meanings set forth below or in the Sections of this Master Agreement referred to
below:
"ACCEPTANCE DATE" means, as to any Lease or Financing, the date Lessee
shall have accepted the Equipment or Financed Items subject to such Lease or
Financing in accordance with Section 3.
"ADVANCE PRICING AGREEMENT" means an Advance Pricing Agreement executed by
Lessor and Lessee pursuant to Section 2.B.
"ADVANCE RENT" means, as to any Lease, Rent paid by Lessee in advance of
the Acceptance Date for the related Equipment or otherwise intended to be
treated as "Advance Rent" under this Master Agreement and the applicable
Schedule.
"AMOUNT AVAILABLE" has the meaning specified in an Advance Pricing
Agreement.
"ASSIGNEE" means any assignee of all or any portion of Lessor's interest in
this Master Agreement, any Schedule or any Equipment, whether such assignee
received the assignment of such interest from Lessor or a previous assignee of
such interest.
"CASUALTY LOSS" means, with respect to any Equipment, the condemnation,
taking, loss, destruction, theft or damage beyond repair of such Equipment.
"CASUALTY VALUE" means, as to any Equipment, an amount determined as of the
date of the Casualty Loss or Lessee Default in question pursuant to a "Table of
Casualty Values" attached to the applicable Schedule or, if no "Table of
Casualty Values" is attached to the applicable Schedule, an amount equal to the
sum of (i) the present value as of the date of the Casualty Loss or Lessee
Default in question (discounted at 5% per annum, compounded monthly) of all Rent
payments payable after such date through the scheduled date of expiration of the
Then Applicable Term, plus (ii) the present value as of the date of the Casualty
Loss or Lessee Default in question (discounted at 5% per annum, compounded
monthly, from the scheduled date of expiration of the Then Applicable Term) of
an amount determined by multiplying the applicable casualty percentage specified
below by the Total Cost of such Equipment. The applicable casualty percentage
shall be 35% for Equipment having an Initial Term of less than 24 months; 30%
for Equipment having an Initial Term of 24 months or greater, but less than 36
months; 25% for Equipment having an Initial Term of 36 months or greater, but
less than 48 months; and 20% for Equipment having an Initial Term of 48 months
or greater.
"CLAIMS" means all claims, actions, suits, proceedings, costs, expenses
(including, without limitation, court costs, witness fees and attorneys' fees),
damages, obligations, judgments, orders, penalties, fines, injuries, liabilities
and losses, including, without limitation, actions based on Lessor's strict
liability in tort.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COLLATERAL" has the meaning specified in Section 24.
"COMMITMENT PERIOD" means the period during which Lessor will purchase
Equipment and fund Financed Items and enter into a Lease or Financing of the
same with Lessee pursuant to Section 2.B and an Advance Pricing Agreement at the
rates set forth in such Advance Pricing Agreement, which period shall be
specified in such Advance Pricing Agreement.
"CONSOLIDATING SCHEDULE" has the meaning specified in an Section 2.B(d).
"CONSOLIDATION PERIOD" has the meaning specified in an Advance Pricing
Agreement.
"DAILY RENT" means, as to any Lease or Financing, an amount equal to the
per diem Rent payable under the applicable Schedule (calculated on the basis of
a 360 day year and 30 day months).
"END-OF-TERM NOTICE" means, as to any Lease, a written notice delivered by
Lessee to Lessor at least 90 days prior to the end of the Initial Term, any
Renewal Term or any optional extension of the Initial Term or any Renewal Term
setting forth Lessee's elections pursuant to Section 4 with respect to the
Equipment subject to such Lease. Each End-of-Term Notice shall specify with
particularity the Units of Equipment to be purchased by Lessee (if any), as to
which the Lease is to be renewed (if any) and that are to be returned to Lessor
(if any).
"EQUIPMENT LOCATION" means, as to any Equipment, the address at which such
Equipment is located from time to time, as originally specified in the
applicable Schedule and as subsequently specified in a notice delivered to
Lessor pursuant to Section 11. if applicable.
"EQUIPMENT" has the meaning specified in Section 1.
"FAIR MARKET VALUE" means the total price that would be paid for any
specified Equipment in an arm's length transaction between an informed and
willing buyer (other than a used equipment dealer) under no compulsion to buy
and an informed and willing seller under no compulsion to sell. Such total price
shall not be reduced by the costs of removing such Equipment from its current
location or moving it to a new location.
"FAIR RENTAL VALUE" means the amount of periodic rent that would be payable
for any specified Equipment in an arm's length transaction between an informed
and willing lessee and an informed and willing lessor, neither under compulsion
to lease. Such amount shall not be reduced by the costs of removing such
Equipment from its current location or moving it to a new location.
"FINAL INVOICE AMOUNT" has the meaning set forth in Section 2.A(c).
"FINANCED ITEM" has the meaning specified in Section 1.
"FINANCING" has the meaning specified in Section 1.
"FIRST PAYMENT DATE" means, as to any Lease or Financing, the date the
first Rent payment with respect to the Initial Term of such Lease or the Term of
such Financing (as applicable) is due, as determined pursuant to the terms of
the applicable Schedule.
"FUNDAMENTAL AGREEMENTS" means, collectively, this Master Agreement, each
Advance Pricing Agreement, each Schedule and Acceptance Certificate and all
other related instruments and documents.
"FUNDING DATE" means, with respect to any Financed Item, the date Lessor
makes funds available to the Seller of such Financed Item to pay for the same or
to Lessee to reimburse Lessee for its payments of the same.
12/98 Rev
7
<PAGE> 8
EXHIBIT A TO MASTER AGREEMENT
COUNTERPART NO. ____ OF ____. TO THE EXTENT THAT THIS SCHEDULE CONSTITUTES
CHATTEL PAPER (AS DEFINED ON THE UCC), NO SECURITY INTEREST IN THIS SCHEDULE
MAY BE CREATED THROUGH THE TRANSFER OR POSSESSION OF ANY COUNTERPART OTHER THAN
COUNTERPART NO. 1.
[COMPAQ CAPITAL LOGO] MASTER AGREEMENT NUMBER ________
SCHEDULE NUMBER ________
MASTER LEASE AND FINANCING AGREEMENT
SCHEDULE
Compaq Capital Corporation ("Lessor") and _______________ ("Lessee") are
parties to the Master Lease and Financing Agreement identified by the Master
Agreement Number specified above (the "Master Agreement"). This Schedule (which
shall be identified by the Schedule Number specified above) and the Master
Agreement together comprise a separate Lease, a separate Financing or a
separate Lease and a separate Financing, as the case may be, between the
parties. The terms and conditions of the Master Agreement are hereby
incorporated by reference into this Schedule. All capitalized terms used in
this Schedule without definition have the meanings ascribed to them in the
Master Agreement.
1. LEASE.
A. Description of Items of Leased Equipment Total Cost
B. Initial Term: ___ Months (plus the number of days from and including
the Acceptance Date through and including the last day of the
calendar month or quarter (depending on whether Rent is payable
monthly or quarterly as specified in Section 3 below) in which the
Acceptance Date occurs).
2. FINANCING.
A. Description of Financed Items Total Cost
B. Term: ___ Months (plus the number of days from and including the
Acceptance Date through and including the last day of the calendar
month or quarter (depending on whether Rent is payable monthly or
quarterly as specified in Section 3 below) in which the Acceptance
Date occurs).
3. RENT:
For Lease: ________________
For Financing: ____________
Total Rent: _______________
RENT is payable: __ in advance __ in arrears (check one)
__ monthly __ quarterly (check one)
Lessee shall pay Lessor (a) on the first day of each calendar month or
calendar quarter (depending on whether Rent is payable monthly or
quarterly as specified above.) If Rent is payable in advance, or (b) on
the last day of each calendar month or calendar quarter (depending on
whether Rent is payable monthly or quarterly as specified above) if Rent
is payable in arrears, the Rent payment specified above for the length of
the Initial Term in the case of a Lease and for the length of the Term
in the case of a Financing. The First Payment Date shall be the first day
(if Rent is payable in advance) or the last day (if Rent is payable in
arrears) of the month or quarter (as applicable) immediately following
the month or quarter (as applicable) in which the Acceptance Date occurs.
However, if Rent is payable in advance and if the Acceptance Date falls
on the first day of a month or quarter (as applicable), that date shall
be the First Payment Date. In addition, on the First Payment Date Lessee
shall also pay Lessor an amount equal to the Daily Rent multiplied by the
number of days from and including the Acceptance Date (Funding Date in
the case of a Financing) up to but excluding the first day of the month
or quarter (as applicable) in which the First Payment Date occurs.
4. ADVANCE RENT: ____________
5. PRICING EXPIRATION DATE: __________. Lessor's obligation to purchase and
lease the Equipment or fund and finance the Financed items is subject to
the Acceptance Date being on or before the Pricing Expiration Date.
6. EQUIPMENT LOCATION: _____________________________________________________
7. SELLER: _________________________________________________________________
8. ADDITIONAL PROVISIONS: __________________________________________________
_________________________________________________________________________
LESSOR AGREES TO LEASE TO LESSEE AND LESSEE AGREES TO LEASE FROM LESSOR THE
EQUIPMENT DESCRIBED IN SECTION 1.A ABOVE, IF ANY, AND LESSOR AND LESSEE AGREE
TO ENTER INTO A FINANCING OF THE FINANCED ITEMS DESCRIBED IN SECTION 2.A ABOVE,
IF ANY. SUCH LEASE AND/OR FINANCING WILL BE GOVERNED BY THE MASTER AGREEMENT
AND THIS SCHEDULE, INCLUDING THE IMPORTANT ADDITIONAL TERMS AND CONDITIONS SET
FORTH ABOVE. IN THE EVENT OF ANY CONFLICT BETWEEN THE TERMS OF THIS SCHEDULE
AND THE MASTER AGREEMENT, THE TERMS OF THIS SCHEDULE SHALL GOVERN.
LESSEE: LESSOR:
FUTURELINK CORP. COMPAQ CAPITAL CORPORATION
BY: R. KILAMBI BY:
---------------------------- ----------------------------
R. KILAMBI, CFO
---------------------------- ----------------------------
Name and Title Name and Title
November 15, 1999
---------------------------- ----------------------------
Date Date
12/98 Rev
<PAGE> 9
[COMPAQ CAPITAL LOGO]
EXHIBIT B TO MASTER AGREEMENT
MASTER AGREEMENT NUMBER __________
APA NUMBER __________
ADVANCE PRICING AGREEMENT
COMPAQ CAPITAL CORPORATION ("Lessor") and ____________________ ("Lessee")
are parties to the Master Lease and Financing Agreement identified by the
Master Agreement Number specified above (the "Master Agreement"). This Advance
Pricing Agreement (which shall be identified by the APA Number specified
above) is being entered into by Lessor and Lessee for the purpose specified in
Section 2.B of the Master Agreement and supersedes any Advancing Pricing
Agreement previously entered into by Lessor and Lessee pursuant thereto with
respect to Leases and Financings commencing during the Commitment Period
specified in Section 1 below. The terms and conditions of the Master Agreement
are hereby incorporated by reference into this Advance Pricing Agreement. All
capitalized terms used in this Advance Pricing Agreement without definition
have the meanings ascribed to them in the Master Agreement.
1. COMMITMENT PERIOD. Lessee may enter into Leases and Financings with Lessor
pursuant to Section 2.B of the Master Agreement and this Advance Pricing
Agreement during the period beginning on ____________________ and ending on
____________________ (the "Commitment Period").
2. AMOUNT AVAILABLE. The aggregate Total Cost of Equipment to be subject to
such Leases and Financed Items to be subject to such Financings shall not
exceed $__________ ("Amount Available") without Lessor's consent, which consent
shall be evidenced either by a writing executed by Lessor or by Lessor's
funding during the Commitment Period of Leases, Financings, or both in an
aggregate amount exceeding such Amount Available.
3. CONSOLIDATION PERIOD. All Leases and Financings commencing during each
[calendar month] [calendar quarter] or portion thereof ending during the
Commitment Period (a "Consolidation Period") shall be consolidated into a
single Consolidating Schedule in accordance with Section 2.B(d) of the Master
Agreement.
4. LEASES. Set forth below is a description of the type(s) of Equipment that
may be leased pursuant to this Advance Pricing Agreement, the times at which
Rent is payable and the length of the Initial Term of each Lease that is
commenced pursuant hereto, and the Lease rate factor to be multiplied by the
Total Cost of the Equipment subject to each such Lease to determine the
periodic Rent payable with respect thereto:
A. EQUIPMENT TYPE I:
(i) Description of Equipment: ______________________________________
(ii) Rent is payable: ___ in advance ___ in arrears (check one)
___ monthly ___ quarterly (check one)
(iii) Initial Term:_____ Months (plus the number of days from and
including the Acceptance Date through and including the last
day of the Consolidation Period in which the Acceptance Date
occurs).
(iv) Lease rate factor: _____________________________________________
[Add additional sequentially lettered paragraphs in the event of
additional Equipment types]
With respect to each Lease that is commenced pursuant to this Advance
Pricing Agreement, Lessee shall pay Lessor (a) on the first day of each
calendar month or calendar quarter (depending on whether Rent is payable
monthly or quarterly) if Rent is payable in advance, or (b) on the last
day of each calendar month or quarter (depending on whether Rent is
payable monthly or quarterly) if Rent is payable in arrears, the Rent
payment calculated as set forth above in this Section 4 for the length of
the Initial Term of such Lease. The First Payment Date shall be the
first day (if Rent is payable in advance) or the last day (if Rent is
payable in arrears) of the month or quarter (as applicable) immediately
following the end of the Consolidation Period in which the Acceptance Date
occurs. In addition, on the First Payment Date Lessee shall also pay
Lessor with respect to each such Lease an amount equal to the Daily Rent
multiplied by the number of days from and including the Acceptance Date
up to but excluding the first day of the month or quarter (as applicable)
in which the First Payment Date occurs.
5. FINANCINGS. Set forth below is a description of the types of Financed
Items that may be financed pursuant to this Advance Pricing Agreement, the
times at which Rent is payable and the length of the Term of each Financing
that is commenced pursuant hereto, and the Financing rate factor to be
multiplied by the Total Cost of the Financed Items subject to each such
Financing to determine the periodic Rent payable with respect thereto:
A. FINANCED ITEM TYPE 1:
(i) Description of Financed Item: __________________________________
(ii) Rent is payable: ___ in advance ___ in arrears (check one)
___ monthly ___ quarterly (check one)
(iii) Term:_____ Months (plus the number of days from and including
the Acceptance Date through and including the last day of the
Consolidation Period in which the Acceptance Date occurs).
(iv) Financing rate factor: _________________________________________
[Add additional sequentially lettered paragraphs in the event of
additional types of Financed Items]
With respect to each Financing commenced pursuant to this Advance Pricing
Agreement, Lessee shall pay Lessor (a) on the first day of each calendar
month or calendar quarter (depending on whether Rent is payable monthly or
quarterly) if Rent is payable in advance, or (b) on the last day of each
calendar month or quarter (depending on whether Rent is payable monthly or
quarterly) if Rent is payable in arrears, the Rent payment calculated as
set forth above in this Section 5 for the length of the Term of such
Financing. The First Payment Date shall be the first day (if Rent is
payable in advance) or the last day (if Rent is payable in arrears) of the
month or quarter (as applicable) immediately following the end of the
Consolidation Period in which the Acceptance Date occurs. In addition, on
the First Payment Date Lessee shall also pay Lessor with respect to each
such Lease an amount equal to the Daily Rent multiplied by the number of
days from and including the Acceptance Date up to but excluding the first
day of the month or quarter (as applicable) in which the First Payment Date
occurs.
6. ADDITIONAL PROVISIONS: ____________________________________________________
IN WITNESS WHEREOF, LESSOR AND LESSEE HAVE EXECUTED THIS ADVANCE PRICING
AGREEMENT ON THE DATES SPECIFIED BELOW.
LESSEE: LESSOR:
COMPAQ CAPITAL CORPORATION
- ------------------------------------
BY: /s/ R. KILAMBI BY:
-------------------------------- -------------------------------
R. Kilambi, CFO
- ------------------------------------ -----------------------------------
Name and Title Name and Title
November 15, 1999
- ------------------------------------ -----------------------------------
Date Date
<PAGE> 10
[COMPAQ FINANCIAL SERVICES LOGO]
OFFICER'S CERTIFICATE
LESSEE: LESSOR:
FUTURELINK CORP. COMPAQ FINANCIAL SERVICES CORPORATION
Street Address: Address:
6 Morgan, Suite 100 100 Woodbridge Center Drive, Suite 202
Woodbridge, NJ 07095
City, State, Zip Code: Master Lease and Financing Agreement
Irvine, CA 92618 Number: 100746 ("Master Agreement")
I, Philip R. Ladoucew, DO HEREBY CERTIFY that I am the duly qualified and
acting Chief Executive Officer of the Corporation referenced above as Lessee
("Corporation"); that the Corporation is a duly organized corporation, validly
existing and in good standing under the laws of the State of Delaware and
qualified to do business in each jurisdiction where the Equipment (as such term
is defined in the Master Agreement) will be located; that based on an
examination of the aforementioned charter, bylaws and other relevant records, as
of the date set forth below the following persons in the respective capacities
appearing after their names, on behalf of the Corporation with full authority to
bind the Corporation thereto, have been authorized to execute the Master
Agreement and all other agreements, documents and instruments executed and
delivered and to be executed and delivered in connection therewith, including
without limitation, Master Lease and Financing Agreement Schedules, Advance
Pricing Agreements, and Acceptance Certificates (the "Documents"); and that the
signatures after the title of each such person is his or her true and authentic
signature:
<TABLE>
<CAPTION>
Name Title Signature
----- ------ ---------
<S> <C> <C>
Raghu Kilambi CFO
Glen Holmes President and CEO
</TABLE>
The foregoing authority and empowerment of the above-named persons shall
remain in full force and effect, and Lessor shall be entitled to rely upon the
same, until written notice of the modification, rescission or revocation of the
same, in whole or in part, has been delivered to Lessor, but no such
modification, rescission or revocation shall, in any event, be effective with
respect to any Documents executed or actions taken in reliance upon the
foregoing authority and empowerment prior to the delivery to Lessor of said
written notice of the modification, rescission or revocation. The execution and
delivery of the Documents for and on behalf of the Corporation is not prohibited
or in any manner restricted by the terms of the Corporation's Articles of
Incorporation, by-laws, or any loan agreement, indenture or contract.
IN WITNESS WHEREOF, I have set my hand and affixed the seal of the
Corporation this ___ day of ________________, 1999.
By: /s/ PHILIP R. LADOUCEHE
--------------------------------
Name: Philip R. Ladoucehe
--------------------------------
Title: Chief Executive Officer
--------------------------------
(Corporate Seal)
<PAGE> 1
EXHIBIT 10.19
LESSEE
EMC CORPORATION EMC(2) No. 12035
MASTER LEASE AGREEMENT
This MASTER LEASE AGREEMENT (hereinafter called the "Master Agreement") is
entered into by and between EMC Corporation, a Massachusetts corporation
(hereinafter called "Lessor"), having its principal place of business at 171
South Street, Hopkinton, MA 01748, and FUTURELINK CORP. (hereinafter called
"Lessee"), having a principal place of business at 6 Morgan Drive, Suite 100,
Irvine, CA 92618.
I. THE LEASE
1.1 LEASE OF EQUIPMENT. In accordance with the terms and conditions of this
Master Agreement, Lessor agrees to lease to Lessee, and Lessee agrees to
lease from Lessor, the units of personal property (hereinafter
individually called a "Unit" and collectively called "Equipment")
described in supplement(s) which are executed pursuant to and incorporate
the terms of this Master Agreement (each hereinafter, a "Supplement").
Each Supplement shall constitute a separate, distinct, and independent
lease and contractual obligation of Lessee. The term "Lease" as used
hereinafter shall refer to an individual Supplement which incorporates
the terms of this Master Agreement. Lessor or its assignee shall retain
the full legal title to the Equipment, it being expressly agreed by both
parties that this Master Agreement and each Lease shall constitute an
agreement of lease only. Each Lessee shall be binding upon Lessor and
Lessee from the date of acceptance and execution of the applicable
Supplement, by Lessor at its headquarters.
1.2 TERM OF LEASE. The original term of lease for each Unit (hereinafter the
"Original Term") shall commence on the date specified in the applicable
Supplement and, subject to Section 2.5 below, shall terminate as
specified in such Supplement. No Lease may be canceled by Lessee for any
reason whatsoever.
1.3 DISCLAIMERS; WARRANTIES. LESSEE ACKNOWLEDGES AND AGREES THAT LESSOR MAKES
NO EXPRESS OR IMPLIED WARRANTIES ARISING OUT OF OR RELATED TO LESSEE'S
USE OR OPERATION OF THE EQUIPMENT. LESSOR EXPRESSLY DISCLAIMS THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE FOR
THE EQUIPMENT OR OTHER PRODUCTS, DOCUMENTATION AND SERVICES PROVIDED
HEREIN. IN NO EVENT SHALL LESSOR BE LIABLE FOR ANY INDIRECT SPECIAL,
INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR ASSOCIATED WITH THE
EQUIPMENT OR THE LEASE THEREOF EVEN IF ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
1.4 RENTAL PAYMENTS. Lessee shall pay rental to Lessor for the Unit(s) in the
amounts and on the dates specified in the applicable Supplement. If any
rental or other amount due hereunder is not paid within five (5) days of
the due date thereof, Lessee shall pay to Lessor on demand, as additional
rental, interest thereon from the due date until payment at a rate equal
to the lesser of (i) eighteen (18%) per annum, or (ii) the maximum rate
permitted by law. All rental and other amounts payable by Lessee to
Lessor hereunder shall be paid to Lessor at the address specified above,
or at such other place as Lessor may designate in writing to Lessee. Time
is of the essence with respect to all of Lessee's obligations under any
Lease.
1.5 RETURN OF EQUIPMENT. Upon expiration of the Original Term, Lessee will
immediately return the Equipment to Lessor as provided in Section 2.3
below. Should Lessee not return the Equipment at the end of the Original
Term, the Equipment shall continue to be held and leased hereunder, and
the Lease shall thereupon be extended for successive three (3) month
terms, at the same monthly rental, subject to the right of either Lessee
or the Lessor to terminate the Lease upon ninety (90) days written
notice, whereupon the Lessee shall forthwith deliver the Equipment to the
Lessor. If Lessee fails to return the Equipment upon demand therefor by
Lessor, Lessee shall pay Lessor, as the reasonable measure of Lessor's
damages, the value, at replacement cost, of the Equipment so converted.
II. COVENANTS OF LESSEE
2.1 PAYMENT OF RENTAL AND OTHER MONIES. Each lease is a net lease and Lessee
acknowledges and agrees that Lessee's obligation to pay all rental and
other sums payable hereunder, and the rights of Lessor in and to such
payments, shall be absolute and unconditional and shall not be subject to
any abatement, reduction, setoff, counterclaim or other defense for any
reason whatsoever. It being the intent of Lessor, and an inducement to
Lessor, to enter into the Lease, to claim all available tax benefits of
ownership with respect to the Equipment, Lessee acknowledges and agrees
that (i) no right, title or interest in the Equipment has been or is
intended to be passed to Lessee, other than the right to maintain
possession and use of the Equipment for the Original Term, conditioned on
Lessee's performance of the terms and conditions of the Lease, (ii)
Lessee has not taken and will not at any time during the Original Term,
take any action which shall cause Lessor to lose any tax benefits of
ownership, and (iii) the Stipulated Loss Values (defined in the
applicable Lease) agreed to under this Lease are intended to provide
recovery by Lessor of such lost tax benefits of ownership.
2.1.1 ACCEPTANCE OF EQUIPMENT. Lessee's acceptance of the Equipment shall be
conclusively and irrevocably evidenced by Lessee executing the
Certificate of Delivery and Acceptance and upon acceptance the Lessee of
such Equipment shall be noncancellable for the Original Term unless
otherwise agreed to in writing by Lessor.
<PAGE> 2
2.2 USE OF EQUIPMENT. Lessee shall use the Equipment solely in the conduct
of his business, in a manner and for the use contemplated by the
manufacturer thereof, and in compliance with all laws, rules and
regulations of every governmental authority having jurisdiction over the
Equipment and with the provisions of all policies of insurance carried
by Lessee pursuant to Section 2.4 below; provided, however, Lessee shall
have the right to allow third parties, under Lessee's supervision, to
use the Equipment, so long as Lessee shall retain uninterrupted
possession and control of the Equipment. Lessee shall pay all costs,
expenses, fees and charges incurred in conjunction with the use and
operation of the Equipment.
2.3 DELIVERY, INSTALLATION, MAINTENANCE AND REPAIR. Lessee shall be solely
responsible, at its own expense, for the delivery of the Equipment to
Lessor, the packing, rigging and delivery of the Equipment back to
Lessor upon expiration of the Original Term in good repair, condition,
and working order, ordinary wear and tear excepted, at the location(s)
within the continental United States specified by Lessor. Lessor is also
solely responsible for the installation, de-installation, maintenance
and repair of the Equipment. Lessee shall, at its expense, (a) keep the
Equipment in good repair, condition and working order, ordinary wear and
tear excepted, and (b) at the expiration of the Original Term or any
renewal term have the Equipment inspected and certified as acceptable
for maintenance service by the manufacturer. Lessor shall be entitled to
inspect the Equipment at Lessee's location at reasonable times.
2.4 TERMS. Lessee agrees to pay, and to indemnify and hold Lessor harmless
from, all license fees, assessments, and sales, use, property, excise
and other taxes and charges ("Imports") (other than those assessed by
Lessor's ????????? ????????) now or hereafter imposed by any
governmental body or agency upon or with respect to (a) the Equipment or
the possession, ownership, use or operation thereof or (b) this Master
Agreement, any Lease, or the consummation of the transaction herein
contemplated. All required personal property tax returns relating to the
Equipment shall be filed by Lessee unless otherwise provided in writing.
Lessee shall reimburse Lessor promptly upon demand for the amount of any
Imports remitted by Lessor which are required hereunder to be borne by
Lessee.
2.5 LOSS OF EQUIPMENT. Lessee shall bear the entire risk of the Equipment
being lost, destroyed or otherwise rendered permanently unfit or
unavailable for use from any cause whatsoever (hereinafter called an
"Event of Loss") after its delivery to Lessee. If an Event of Loss shall
occur with respect to any Unit, Lessee shall promptly and fully notify
Lessor thereof. On the rental payment date following such notice Lessee
shall pay to Lessor an amount equal to the rental payment or payments
due and payable for such Unit on each date plus a sum equal to the
Stipulated Loss Value (as defined in the applicable Supplement) of such
Units as of the date of such payment set forth in each Supplement. Upon
the making of such payment by Lessee regarding any Unit, the rental
obligation for such Unit shall cease, the Lease as to such Unit shall
terminate and (except in the case of loss, theft or complete
destruction) Lessor shall be entitled to recover possession of such Unit
at Lessor's expense in accordance with the provisions of Section 2.3
above. Provided that Lessor has received the Stipulated Loss Value for
any Unit, Lessee shall be entitled to the proceeds of any recovery in
respect of such Unit from insurance or otherwise.
2.6 INSURANCE. Lessee shall obtain and maintain for the entire term of the
Lease, at its own expense, property damage and liability insurance and
insurance against loss or damage to the Equipment including, without
limitation, loss by fire (including so-called extended coverage), theft
and such other risks of loss as are required on the type of Equipment
leased hereunder and by businesses in which Lessee is engaged in such
amounts in such form and with such insurance as shall be satisfactory to
Lessor, provided however, that such insurance for loss or damage of any
Unit shall always be at a minimum, the amount of the Stipulated Loss
Value of each Unit. Each insurance policy will name Lessee as insured
and Lessor as an additional insured and loss payee thereof as Lessor's
interest may appear and shall provide that it may not be canceled or
altered without at least 30 days prior written notice to Lessor or its
successors and assigns. Lessee shall provide to Lessor a certificate of
insurance as evidence of insurance coverage prior to delivery of any
Unit.
2.7 INDEMNITY. Lessee shall and does hereby indemnify Lessor and its
successors and assigns against, and hold Lessor and its successors and
assigns harmless from, any and all claims, demands, actions and suits,
proceedings, costs, expenses, damages and liabilities, including
reasonable attorneys' fees, hereinafter ("Claims"), arising out of,
connected with or resulting from this Master Agreement, any Lease, or
the Equipment, including, without limitation, the selection, ownership,
control, maintenance, lease, purchase, delivery, possession, condition,
use, operation, or return of the Equipment. Lessee shall give Lessor
immediate notice of any Claim and Lessee shall satisfy, pay and
discharge any and all judgments and fines that may be recovered against
Lessor in connection with any such Claim. Lessor shall give Lessee
written notice of any such Claim of which Lessor has knowledge.
2.8 POSSESSION; ASSIGNMENT; PLEDGE. Without the prior written consent of
Lessor, which such consent as it pertains to subsection (n) and (d),
shall not be unreasonably withheld or delayed, Lessee shall not (a)
sublease the Equipment, or any part thereof, provided, that Lessee may,
without the prior written consent of Lessor, permit any parent or
subsidiary of Lessee to use the Equipment, or any part thereof, in the
ordinary course of its business, (b) assign this Master Agreement or any
Lease or its interest hereunder or thereafter, (c) create or incur any
liens or encumbrance with respect to the equipment, or any part thereof,
(d) move the Equipment, or any part thereof, or permit any of the
Equipment to be moved from the location at which it is first installed,
or (e) permit the Equipment, or any part thereof, to be removed outside
the continental limits of the United States.
2.9 INDEMNIFICATION. At any time during the term of a Lease, Lessor may
require Lessee to legibly mark each Unit subject to such Lease in a
reasonably prominent location with a label, ???? or other marking
stating that the Equipment is owned by Lessor.
2.10 ALTERATIONS OR MODIFICATIONS. Lessee shall not make any alterations of
or additions to the Equipment without the prior written consent of
Lessor. At any time during the Original Term, of any Lease there may be
added to each Lease additional Units of the same type as are rented
thereunder for a term equal to the remaining Original Term and, subject
to the terms and conditions hereof, at the rental rates applicable to
such Equipment and term in effect at the time the order is placed,
provided that the order is in writing and accepted by Lessor. Such
acceptance shall be at the sole discretion of Lessor. All additions,
attachments or accessories to or improvements of the Equipment shall
immediately belong to and become property of the Lessor unless, at the
request of Lessor, such additions, attachments or accessories to or
improvements of the Equipment are removed prior to the return of said
Equipment by Lessee. Lessee shall be responsible for the costs of such
removal and shall restore the Equipment to the same operating conditions
as when it became subject to the Lease.
2.11 EQUIPMENT TO BE PERSONAL PROPERTY. Lessee agrees that the Equipment
shall be and remains personal property notwithstanding the manner in
which it may be attached or affixed to realty, and Lessor shall do all
acts and enter into all agreements necessary to ensure that the
Equipment remains personal property.
<PAGE> 3
2.12 FINANCIAL STATEMENTS. Lessee shall promptly furnish, or cause to be
furnished, to Lessor such financial or other statements respecting the
condition and operations of Lessee or respecting the Equipment as Lessor
may from time to time reasonably request.
2.13 LESSEE REPRESENTATIONS. Lessee hereby represents, warrants and covenants
that with respect to this Master Agreement and each Lease entered into
hereunder:
(a) The execution, delivery and performance thereof by the Lessee have
been duly authorized by all necessary corporate action;
(b) The individual executing such was duly authorized to do so;
(c) This Master Agreement and each Lease constitute the legal, valid
and binding obligations of the Lessee enforceable in accordance
with their respective terms.
III. DEFAULT AND REMEDIES
3.1 EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an Event of Default hereunder; (a) Lessee shall fail to pay
on the due date any rental or other payment due under any lease, (b) any
provision of this Master Agreement or any Lease or any provision in any
document provided by Lessee for this Master Agreement or any Lease, or in
any document furnished pursuant to the provisions hereof or otherwise,
shall prove to have been false or misleading in any material respect as
of the date when it was made, (c) Lessee shall fail to perform any
provision, covenant, condition or agreement made by it under this Master
Agreement or Lease, and such failure shall continue for ten (10) days
after notice thereof from Lessor to Lessee or (d) bankruptcy,
receivership, insolvency, reorganization, dissolution, liquidation, or
other similar proceedings shall be instituted by or against Lessee or all
or any part of its property under the Federal Bankruptcy Code or other
law of the United States or of any state law, and if against Lessee it
shall consent thereto or shall fail to cause the same to be discharged
within twenty (20) days, or (e) Lessee shall default under any agreement
with respect to the purchase or installation of the Equipment, or (f) if
Lessee or any guarantor of Lessee's obligations hereunder shall default
under any other agreement with Lessor.
3.2 REMEDIES. If an Event of Default hereunder shall occur and be continuing,
Lessor may exercise any one or more of the following remedies: (a)
immediately terminate this Master Agreement and any or all Leases and
Lessee's rights hereunder and thereunder, (b) proceed, by appropriate
court action or actions either at law or in equity, to enforce
performance by Lessee of the applicable covenants of the Lease or to
recover damages for the breach thereof, (c) by notice in writing to
Lessee, recover all amounts due on or before the date of the event of
default, plus, as liquidated damages for loss of a bargain and not as a
penalty, accelerate, and declare to be immediately due and payable all
rentals and other sums payable under any or all such Leases, without any
presentment, demand, protest or future notice (all of which hereby are
expressly waived by Lessee), whereupon the same shall be and become
immediately due and payable, and (d) personally, or by its agents take
immediate possession of the Equipment, or any part thereof, from Lessee
and for such purpose, enter upon Lessee's premises where any of the
Equipment is located with or without notice or process of law and free
from all claims by Lessee. The exercise of any of the foregoing remedies
by Lessor shall not constitute a termination of any Lease unless Lessor so
notifies Lessee in writing.
3.3 DISPOSITION OF EQUIPMENT. In the event Lessor repossesses Equipment,
Lessor may (a) lease the Equipment, or any portion thereof, in such a
manner, for such time and upon such term(s) as Lessor may determine or
(b) sell the Equipment, or any portion thereof, at one or more public or
private sales, in such manner, and at such times and upon such terms as
Lessor may determine. In the event that Lessor leases any such Units, any
rentals received by Lessor for the Remaining Lease Term(s) (the period
ending on the date when the Original Term for the Unit(s) would have
expired if an Event of Default had not occurred) for such Units shall be
applied to the payment of (i) all costs and expenses (including
attorneys' fees) incurred by Lessor in retaking possession of, and
removing, storing, repairing, refurbishing and leasing such Units, and
(ii) the rentals for the remainder of the Original Term and all other
sums, including past due rentals, remaining unpaid under the Lease. The
balance of such rentals, if any, shall be applied first to reimburse
Lessee for any sums previously paid by Lessee as liquidated damages, and
any remaining amounts shall be retained by Lessor. All rentals received by
Lessor for the period commencing after the expiration of the Remaining
Lease Term(s) shall be retained by Lessor. Lessee shall remain liable to
Lessor to the extent that the aggregate amount of the sums referred to in
clauses (i) and (ii) above shall exceed the aggregate rentals received by
Lessor under such leases for the respective Remaining Lease Term(s)
applicable to the Units covered by such leases. In the event that Lessor
shall sell or otherwise dispose of (other than pursuant to a lease) any
such Unit, the proceeds thereof shall be applied to the payment of (i)
all costs and expenses (including reasonable attorneys' fees) incurred by
Lessor in retaking possession of, and removing, storing, repairing,
refurbishing and selling or otherwise disposing of such Unit(s), (ii) the
rentals that either did or would have accrued under the Lease but are
unpaid up to the time of such sale or other disposition, (iii) any and
all other sums (other than rentals) then owing to Lessor by Lessee under,
and (iv) the Stipulated Loss Value of such Unit(s) determined as of the
date of such sales or other disposition in accordance with the schedule
set forth in the Lease for such Unit(s). The balance of such proceeds, if
any, shall be applied first to reimburse Lessee for any sums previously
paid by Lessee as liquidated damages, and any remaining amounts shall be
retained by Lessor. Lessee shall remain liable to Lessor to the extent
that the aggregate amount of the sums referred to in clauses (i) through
(iv) above shall exceed the aggregate proceeds received by Lessor in
connection with the sale or disposition of the Equipment (other than
pursuant to a lease).
IV. MISCELLANEOUS
4.1 PERFORMANCE OF LESSEE'S OBLIGATIONS. Upon Lessee's failure to pay any sum
or perform any obligation hereunder when due, Lessor shall have the
option, but shall in no case be obligated, to pay such sum or perform
such obligation, whereupon such sum or the cost of such performance shall
immediately become due and payable as additional rent from Lessee to
Lessor with interest at the highest legal rate from the date payment or
performance was due.
4.2 ASSIGNMENT. No right, obligation or interest of Lessee with respect to
this Master Agreement, any Lease or Equipment shall, without the prior
written consent of Lessor, by assignable by Lessee or by operation of law,
and any such purported assignment, transfer or succession shall be null
and void. Lessor may, at any time, without the consent of Lessee, assign
the Master Agreement and any Lease or any interest herein or therein to
any party. In the event of any assignment of Lessor, the assignee shall
have all of Lessor's rights hereunder, but none of its obligations, and
upon receipt by Lessee of written notice of any such assignment, Lessee
shall make all payments thereafter becoming due under any assigned Lease
to such assignee without regard to any set-off, defense or counter claim
that Lessee may have against Lessor.
<PAGE> 4
4.3 Quiet Enjoyment. So long as Lessee shall not be in default hereunder, and
Lessor continues to receive all rent and other sums payable by Lessee
hereunder in accordance with the terms hereof, neither Lessor nor its
assignee, shall interfere with Lessee's right of quiet enjoyment and use of
the Equipment.
4.4 Further Assurances. Lessee agrees that at any time, and from time to time,
after the execution and delivery of this Lease, it shall, upon the request
of Lessor, execute and deliver such further documents and do such further
acts and things as Lessor may reasonably request in order fully to effect
the purposes of this Lease including without limitation, the filing of
financial and confirmation statements. Lessee authorizes Lessor to file a
financing statement or any confirmation statements signed only by Lessor in
accordance with the Uniform Commercial Code or signed by Lessor as Lessee's
attorney in fact.
4.5 Rights, Remedies, Powers. Each and every right, remedy and power granted to
Lessor hereunder shall be cumulative and in addition to any other right,
remedy or power herein specifically granted or now or hereafter adopting in
equity, at law, by virtue of statutes or otherwise, and may be exercised by
Lessor from time to time concurrently or independently and as often and in
such order as Lessor may deem expedient. And any failure or delay on the
part of Lessor in exercising any such right, remedy or power, or
abandonment or discontinuance of steps to enforce the same, shall not
operate as a waiver thereof or affect Lessor's right thereafter to exercise
the same; and any single or partial exercise of any such right, remedy or
power shall not preclude any other or further exercise thereof or the
exercise of any other right, remedy or power.
4.6 Notices. Any notice, request, demand, consent, approval or other
communication provided or permitted hereunder shall be in writing and shall
be conclusively deemed to have been received by a party hereto on the day
it is delivered to such party at its address set forth above (or at such
other address as such party shall specify to the other party in writing),
or if sent by registered or certified mail, return receipt requested, on
the third business day after the day on which mailed, addressed to such
party at such address.
4.7 Section Headings. Section headings are inserted for convenience only and
shall not affect any construction or interpretation of any Lease.
4.8 Binding Effect. Each Lease, subject to the provisions of Sections 2.8 and
4.3 hereof, shall be binding upon and shall inure to the benefit of the
respective successors and assigns of the Lessee and Lessor.
4.9 Governing Law. Each Lease shall be governed in all respects by the laws of
the Commonwealth of Massachusetts.
4.10 Entire Lease. Each Lease, consisting of the terms and conditions of this
Master Agreement, a Supplement, and any Amendments, Schedules or Riders to
either of them, constitutes the entire agreement between Lessor and Lessee.
No waiver, comment, modification or change of terms of this Lease shall
bind either party unless in writing signed by both parties, and then such
waiver, comment, modification or change shall be effective only in the
specific instance and for the specific purpose given. There are no
understandings, agreements, representations or warranties, express or
implied, not specified therein regarding any Lease or the Equipment leased
thereunder. Any terms and conditions of any purchase order or other
document (with the exception of Supplements) submitted by Lessee in
connection with any Lease which are in addition to or inconsistent with the
terms and conditions of such Lease will not be binding on Lessor and will
not apply to the Lease. LESSEE BY THE SIGNATURE BELOW OF ITS AUTHORIZED
REPRESENTATIVE ACKNOWLEDGES THAT IT HAS READ THIS MASTER AGREEMENT,
UNDERSTANDS IT, AND AGREES TO BE BOUND BY ITS TERMS AND CONDITIONS WITH
RESPECT TO ANY LEASE ENTERED INTO HEREUNDER.
LEASE ACCEPTED BY:
EMC CORPORATION, (Lessor) FUTURELINK CORP. (Lessee)
BY: BY: /s/ Raghu Kilambi
--------------------- -------------------------
TITLE: TITLE: Chief Financial Officer
------------------- -----------------------
<PAGE> 1
EXHIBIT 10.21
ASSIGNMENT OF LEASE AND CONSENT
THIS ASSIGNMENT OF LEASE AND CONSENT ("Assignment") is made as of October
15, 1999, between FUTURELINK CORP., a Delaware Corporation ("Assignor-Lessee")
and FUTURELINK MICRO VISIONS CORP., a Delaware Corporation ("Assignee-Successor
Lessee"), and consented to by KILROY REALTY L.P., a Delaware Limited
Partnership, KILROY REALTY CORPORATION, a Maryland Corporation, General Partner
("Lessor").
RECITALS:
This Assignment of Lease and Consent is made with reference to the following
facts and objectives:
A. Lessor, acting in the capacity of and therein referred to as Lessor,
and FUTURELINK DISTRIBUTION CORPORATION, a Colorado Corporation ("FLDC"),
acting in the capacity of and therein referred to as Lessee, entered into a
lease, dated September 23, 1999 (the "Lease"), a copy of which is attached
hereto as Exhibit "A," in which Lessor leased to FLDC and FLDC leased from
Lessor premises located at 220 Technology Drive, Suite 100, Irvine, California
92618, as more particularly described in Exhibit "A" of the Lease (the
"Premises").
B. FLDC and FUTURELINK CALIFORNIA ACQUISITION CORP., a Delaware
Corporation ("FCAC"), entered into an Agreement and Plan of Merger, dated as
of August 1, 1999, which provided for the statutory merger (the "Merger") of
FLDC with and into FCAC, and FCAC concurrently with the Merger changed its
corporate name to FUTURELINK CORP. Assignor-Lessee herein thereafter assigned
its leasehold interests in and under the Lease and in and to the Premises to
FUTURELINK MICRO VISIONS CORP., a Delaware Corporation, a wholly owned
subsidiary of Assignor (referred to herein as Assignee-Successor Lessee.)
C. The parties hereto desire to acknowledge and confirm the foregoing
matters, and Lessor hereby consent to said assignments.
NOW THEREFORE the parties hereto do hereby agree as follows:
1. CONFIRMATION OF ASSIGNMENTS.
1.1 The parties acknowledge that the Lessee's interest in and under
the Lease and in and to the Premises were assigned by FLDC to Assignor-Lessee
as a result of the statutory merger.
1.2 Assignor-Lessee acknowledges that it subsequently assigned the
Lessee's interests in and under the Lease and in and to the Premises to
Assignee-Successor Lessee.
1.3 Pursuant to the provisions of Paragraph 12.2(a)(i) of the Lease,
each of Assignor-Lessee and Assignee-Successor Lessee became obligated for and
assumed the Lessee's obligation under the Lease. The parties hereto further
acknowledge that Assignee-Successor Lessee is now the Lessee under the Lease.
2. LESSOR'S CONSENT. Lessor consents to the Assignments described above,
without waiver of the restriction in the Lease concerning further assignments,
and with the understanding and agreement that Assignor-Lessee and
Assignee-Successor Lessee are each liable and responsible for the Lessee's
covenants, conditions and obligations under the Lease.
3. MISCELLANEOUS.
3.1 ATTORNEYS' FEES. If any party commences an action against any of
the parties hereto arising out of or in connection with this Assignment, the
prevailing party or parties shall be entitled to recover from the losing party
or parties reasonable attorneys' fees and costs of suit.
3.2 LESSOR HELD HARMLESS. In the event of any dispute between
Assignor-Lessee and Assignee-Successor Lessee, not involving a dispute with
Lessor, both Assignor-Lessee and Assignee-Successor Lessee shall hold Lessor
free and harmless from and indemnified against any loss or damage occasioned
by such dispute between Assignor-Lessee and Assignee-Successor Lessee,
including Lessor's reasonable attorneys' fees.
3.3 NOTICE. Any notice, demand, request, consent, approval or
communication that
1
<PAGE> 2
any party desires or is required to give to another party or any other person
shall be in writing and sent as provided in Paragraph 23 of the Lease.
3.4 SUCCESSORS. This Assignment shall be binding upon and inure to
the benefit of the parties and their heirs, personal representatives and
permitted successors and assigns.
3.5 INTERPRETATION AND CONFIRMATION. Words used herein which are
defined in the Lease shall have the same meaning when used in this Assignment.
As herein assigned, the Lease is hereby ratified, affirmed and approved, and is
hereby acknowledged to be in full force and effect. Lessor and Successor Lessee
both acknowledge and agree that to their best information and belief no default
exists, no event has occurred and no condition exists which, with the giving of
notice or the lapse of time or both, will constitute a default under the Lease
by either party.
IN WITNESS WHEREOF, the parties hereto have executed this Assignment as of
the date first herein above written.
ADDRESS FOR NOTICES
FutureLink Corp. FUTURELINK CORP.
300, 250 6th Ave. S.W. A Delaware Corporation
Calgary, Alberta T3P 3H7
Attn: Corporate Secretary By: /s/ illegible
____________________
Title: Chairman & CEO
By: /s/ illegible
_____________________
Title: President & CEO
"ASSIGNOR-LESSEE"
FutureLink Micro Visions Corp. FUTURELINK MICRO VISIONS
100 6 Morgan CORP.,
Irvine, California 92618 A Delaware Corporation
Att'n: Scott Hauck By: /s/ illegible
_____________________
with a copy to:
Title: President
Paul Hastings Janofsky & Walker
695 Town Center Drive, Suite 1700
Costa Mesa, California 92626-1924 By: /s/ illegible
Att'n: Ralph Winter _____________________
2250 E. Imperial Highway, Suite 1200 Title: Chief Financial Officer
El Segundo, California 90245
"ASSIGNEE-SUCCESSOR LESSEE"
With a copy to: KILROY REALTY, L.P.,
A Delaware Limited Partnership
McDaniel & McDaniel
Marshall L. McDaniel By: KILROY REALTY CORPORATION,
2250 E. Imperial Highway, Suite 1200 A Maryland Corporation,
El Segundo, California 90245 General Partner
By: /s/ Jeffrey C. Hawken
_____________________
Title: Executive Vice President
Chief Operating Officer
By: /s/ John T. Fucci
_____________________
Title: Sr. Vice President
Asset Management
<PAGE> 3
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE -- MODIFIED NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[LOGO]
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only,
September 23, 1999, is made by and between KILROY REALTY, L.P., a Delaware
Limited Partnership KILROY REALTY CORPORATION, a Maryland Corporation, General
Partner ("LESSOR") and FUTURELINK DISTRIBUTION CORPORATION, a Colorado
Corporation ("LESSEE"), (collectively the "PARTIES," or individually a "PARTY").
1.2(a) PREMISES: That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of 220 Technology Drive, Suite 100, located
in the City of Irvine, County of Orange, State of California, with zip code
92618, as outlined on Exhibit "A" attached hereto ("PREMISES"). The "BUILDING"
is that certain building containing the Premises and generally described as
(describe briefly the nature of the Building): a two-story office building
containing approximately 30,043 rentable square feet, a plot plan of which is
attached hereto as Exhibit "B", comprising a portion of the Kilroy Technology
Center containing ten (10) buildings and a total of approximately 159,034
rentable square feet, a plot plan of which is attached hereto as Exhibit "C".
The Premises contain approximately 6,954 rentable square feet. In addition to
Lessee's rights to use and occupy the Premises as hereinafter specified, Lessee
shall have non-exclusive rights to the Common Areas (as defined in Paragraph 2.7
below) as hereinafter specified, but shall not have any rights to the roof,
exterior walls or utility raceways of the Building or to any other buildings in
the Industrial Center. The Premises, the Building, the Common Areas, the land
upon which they are located, along with all other buildings and improvements
thereon, are herein collectively referred to as the "INDUSTRIAL CENTER." (Also
see Paragraph 2.)
1.2(b) PARKING: twenty-one (21) unreserved vehicle parking spaces
("UNRESERVED PARKING SPACES"); and -0- reserved vehicle parking
spaces ("RESERVED PARKING SPACES"). (Also see Paragraph 2.6.)
1.3 TERM: one (1) years and -0- months ("ORIGINAL TERM") commencing October
1, 1999 ("COMMENCEMENT DATE") and ending September 30, 2000 ("EXPIRATION DATE").
(Also see Paragraph 3.)
1.4 EARLY POSSESSION: N/A ("EARLY POSSESSION DATE"). (Also see Paragraphs
3.2 and 3.3.)
1.5 BASE RENT: $10,778.70 per month ("BASE RENT"), payable on the first day
of each month commencing October 1, 1999 (Also see Paragraph 4.)
[ ] If this box is checked, this Lease provides for the Base Rent to be
adjusted per Addendum _______, attached hereto.
1.6(a) BASE RENT PAID UPON EXECUTION: $10,778.70 as Base Rent for the month
of October, 1999.
1.6(b) LESSEE'S SHARE OF COMMON AREA OPERATING EXPENSES: four and 37/100
percent (4.37%) ("LESSEE'S SHARE") as determined by [ ] prorata square footage
of the Premises as compared to the total square footage of the Industrial Center
or [X] other criteria as described in Addendum 49.
1.7 SECURITY DEPOSIT: $32,336.10; see Addendum paragraph 51 ("SECURITY
DEPOSIT"). (Also see Paragraph 5.)
1.8 PERMITTED USE: General office for a Computer Solutions Group
("PERMITTED USE") (Also see Paragraph 6.)
1.9 INSURING PARTY. Lessor is the "INSURING PARTY." (Also see Paragraph 8.)
1.10(a) REAL ESTATE BROKERS. The following real estate broker(s)
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
[X] Prudential RB Allen Commercial (Ken Kovaleski) represents Lessor exclusively
("LESSOR'S BROKER");
[X] Lee and Associates (Ted Rommel) represents Lessee exclusively ("LESSEE'S
BROKER"); or
[ ] _____________________ represents both Lessor and Lessee ("DUAL AGENCY").
(Also see Paragraph 15.)
1.10(b) PAYMENT TO BROKERS. Upon the execution of this Lease by both
Parties, Lessor shall pay to said Broker(s) jointly, or in such separate shares
as they may mutually designate in writing, a fee as set forth in a separate
written agreement between Lessor and said Broker.
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by N/A ("GUARANTOR"). (Also see Paragraph 37.)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 49 through 55, and Exhibits "A" through "E", all of
which constitute a part of this Lease.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that may
have been used in calculating rental and/or Common Area Operating Expenses, is
an approximation which Lessor and Lessee agree is reasonable and the rental and
Lessee's Share (as defined in Paragraph 1.6(b)) based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, electrical systems, fire sprinkler system, lighting, air conditioning
and heating systems, and loading doors, if any, in the Premises, other than
those constructed by Lessee, shall be in good operating condition on the
Commencement Date. If a non-compliance with said warranty exists as of the
Commencement Date, Lessor shall, except as otherwise provided in this Lease,
promptly after receipt of written notice from Lessee setting forth with
specificity the nature and extent of such non-compliance, rectify same at
Lessor's expense. If Lessee does not give Lessor written notice of a
non-compliance with this warranty within thirty (30) days after the Commencement
Date, correction of that non-compliance shall be the obligation of Lessee at
Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants that any improvements (other than those constructed by Lessee or at
Lessee's direction) on or in the Premises which have been constructed or
installed by Lessor or with Lessor's consent or at Lessor's direction shall
comply with all applicable covenants or restrictions of record and applicable
building codes, regulations and ordinances in effect on the Commencement Date.
Lessor further warrants to Lessee that Lessor has no knowledge of any claim
having been made by any governmental agency that a violation or violations of
applicable building codes, regulations, or ordinances exist with regard to the
Premises as of the Commencement Date. Said warranties shall not apply to any
Alterations or Utility Installations (defined in Paragraph 7.3(a)) made or to be
made by Lessee. If the Premises do not comply with said
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warranties, Lessor shall, except as otherwise provided in this Lease, promptly
after receipt of written notice from Lessee given within six (6) months
following the Commencement Date and setting forth with specificity the nature
and extent of such non-compliance, take such action, at Lessor's expense, as may
be reasonable or appropriate to rectify the non-compliance. Lessor makes no
warranty that the Permitted Use in Paragraph 1.8 is permitted for the Premises
under Applicable Laws (as defined in Paragraph 2.4).
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has
been advised by the Broker(s) to satisfy itself with respect to the condition of
the Premises (including, but not limited to, the electrical and fire sprinkler
systems, security, environmental aspects, seismic and earthquake requirements,
and compliance with the Americans with Disabilities Act and applicable zoning,
municipal, county, state and federal laws, ordinances and regulations, and any
covenants or restrictions of record (collectively, "APPLICABLE LAWS") and the
present and future suitability of the Premises for Lessee's intended use; (b)
that Lessee has made such investigation as it deems necessary with reference to
such matters, is satisfied with reference thereto, and assumes all
responsibility therefore as the same relate to Lessee's occupancy of the
Premises and/or the terms of this Lease; and (c) that neither Lessor, nor any of
Lessor's agents, has made any oral or written representations or warranties with
respect to said matters other than as set forth in this Lease.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such
event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
2.6 VEHICLE PARKING. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking. Lessee shall not use more parking spaces than said number.
Said parking spaces shall be used for parking by vehicles no larger than
full-size passenger automobiles or pick-up trucks, herein called "PERMITTED SIZE
VEHICLES." Vehicles other than Permitted Size Vehicles shall be parked and
loaded or unloaded as directed by Lessor in the Rules and Regulations (as
defined in Paragraph 40) issued by Lessor. (Also see Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that belong to
or are controlled by Lessee or Lessee's employees, suppliers, shippers,
customers, contractors or invitees to be loaded, unloaded, or parked in areas
other than those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited activities
described in this Paragraph 2.6, then Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Date of this Lease provide
the parking facilities required by Applicable Law.
2.7 COMMON AREAS -- DEFINITION. The term "COMMON AREAS" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center and interior utility raceways within the Premises that
are provided and designated by the Lessor from time to time for the general
nonexclusive use of Lessor, Lessee and other lessees of the Industrial Center
and their respective employees, suppliers, shippers, customers, contractors and
invitees, including parking areas, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, driveways and landscaped areas.
2.8 COMMON AREAS -- LESSEE'S RIGHTS. Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, contractors,
customers and invitees, during the term of this Lease, the non-exclusive right
to use, in common with others entitled to such use, the Common Areas as they
exist from time to time, subject to any rights, powers, and privileges reserved
by Lessor under the terms hereof or under the terms of any rules and regulations
or restrictions governing the use of the Industrial Center. Under no
circumstances shall the right herein granted to use the Common Areas be deemed
to include the right to store any property, temporarily or permanently, in the
Common Areas. Any such storage shall be permitted only by the prior written
consent of Lessor or Lessor's designated agent, which consent may be revoked at
any time. In the event that any unauthorized storage shall occur then Lessor
shall have the right, without notice, in addition to such other rights and
remedies that it may have, to remove the property and charge the cost to Lessee,
which cost shall be immediately payable upon demand by Lessor.
2.9 COMMON AREAS -- RULES AND REGULATIONS. Lessor or such other person(s)
as Lessor may appoint shall have the exclusive control and management of the
Common Areas and shall have the right, from time to time, to establish, modify,
amend and enforce reasonable Rules and Regulations with respect thereto in
accordance with Paragraph 40. Lessee agrees to abide by and conform to all such
Rules and Regulations, and to cause its employees, suppliers, shippers,
customers, contractors and invitees to so abide and conform. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees of the Industrial Center.
2.10 COMMON AREAS -- CHANGES. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas, walkways and utility raceways;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land outside the boundaries of the
Industrial Center to be a part of the Common Areas;
(d) To add additional buildings and improvements to the Common
Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any portion
thereof; and
(f) To do and perform such other acts and make such other changes
in, to or with respect to the Common Areas and Industrial Center as Lessor may,
in the exercise of sound business judgment, deem to be appropriate.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If an Early Possession Date is specified in Paragraph
1.4 and if Lessee totally or partially occupies the Premises after the Early
Possession Date but prior to the Commencement Date, the obligation to pay Base
Rent shall be abated for the period of such early occupancy. All other terms of
this Lease, however, (including, but not limited to, the obligations to pay
Lessee's Share of Common Area Operating Expenses and to carry the insurance
required by Paragraph 8) shall be in effect during such period. Any such early
possession shall not affect nor advance the Expiration Date of the Original
Term.
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver possession
of the Premises to Lessee by the Early Possession Date, if one is specified in
Paragraph 1.4, or if no Early Possession Date is specified, by the Commencement
Date, Lessor shall not be subject to any liability therefor, nor shall such
failure affect the validity of this Lease, or the obligations of Lessee
hereunder, or extend the term hereof, but in such case, Lessee shall not, except
as otherwise provided herein, be obligated to pay rent or perform any other
obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Date, Lessee
may, at its option, by notice in writing to Lessor within ten (10) days after
the end of said sixty (60) day period, cancel this Lease, in which event the
Parties shall be discharged from all obligations hereunder; provided further,
however, that if such written notice of Lessee is not received by Lessor within
said ten (10) day period, Lessee's right to cancel this Lease hereunder shall
terminate and be of no further force or effect. Except as may be otherwise
provided, and regardless of when the Original Term actually commences, if
possession is not tendered to Lessee when required by this Lease and Lessee does
not terminate this Lease, as aforesaid, the period free of the obligation to pay
Base Rent, if any, that Lessee would otherwise have enjoyed shall run from the
date of delivery of possession and continue for a period equal to the period
during which the Lessee would have otherwise enjoyed under the terms hereof, but
minus any days of delay caused by the acts, changes or omissions of Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall pay Base Rent and other rent or charges, as the
same may be adjusted from time to time, to Lessor in lawful money of the United
States, without offset or deduction, on or before the day on which it is due
under the terms of this Lease. Base Rent and all other rent and charges for any
period during the term hereof which is for less than one full month shall be
prorated based upon the actual number of days of the month involved. Payment of
Base Rent and other charges shall be made to Lessor at its address stated herein
or to such other persons or at such other addresses as Lessor may from time to
time designate in writing to Lessee.
4.2 COMMON AREA OPERATING EXPENSES. Lessee shall pay to Lessor during the
term hereof, in addition to the Base Rent, Lessee's Share (as specified in
Paragraph 1.6(b)) of all Common Area Operating Expenses, as hereinafter defined,
during each calendar year of the term of this Lease, in accordance with the
following provisions:
(a) "COMMON AREA OPERATING EXPENSES" are defined, for purposes of
this Lease, as all costs incurred by Lessor relating to the ownership and
operation of the Industrial Center, including, but not limited to, the
following:
(i) The operation, repair and maintenance, in neat, clean,
good order and condition, of the following:
(aa) The Common Areas, including parking areas, loading
and unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
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<PAGE> 5
driveways, landscaped areas, striping, bumpers, irrigation systems, Common Area
lighting facilities, fences and gates, elevators and roof.
(bb) Exterior signs and any tenant directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and telephone to
service the Common Areas.
(iii) Trash disposal, property management and security
services and the costs of any environmental inspections.
(iv) Reserves set aside for maintenance and repair of Common
Areas.
(v) Real Property Taxes (as defined in Paragraph 10.2) to be
paid by Lessor for the Building and the Common Areas under Paragraph 10 hereof.
(vi) The costs of the premiums for the insurance policies
maintained by Lessor under Paragraph 8 hereof.
(vii) Any deductible portion of an insured loss concerning
the Building or the Common Areas.
(viii) Any other services to be provided by Lessor that are
stated elsewhere in this Lease to be a Common Area Operating Expense.
(b) Any Common Area Operating Expenses and Real Property Taxes
that are specifically attributable to the Building or to any other building in
the Industrial Center or to the operation, repair and maintenance thereof, shall
be allocated entirely to the Building or to such other building. However, any
Common Area Operating Expenses and Real Property Taxes that are not specifically
attributable to the Building or to any other building or to the operation,
repair and maintenance thereof, shall be equitably allocated by Lessor to all
buildings in the Industrial Center.
(c) The inclusion of the improvements, facilities and services set
forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation upon
Lessor to either have said improvements or facilities or to provide those
services unless the Industrial Center already has the same, Lessor already
provides the services, or Lessor has agreed elsewhere in this Lease to provide
the same or some of them.
(d) Lessee's Share of Common Area Operating Expenses shall be
payable by Lessee within ten (10) days after a reasonably detailed statement of
actual expenses is presented to Lessee by Lessor. At Lessor's option, however,
an amount may be estimated by Lessor from time to time of Lessee's Share of
annual Common Area Operating Expenses and the same shall be payable monthly or
quarterly, as Lessor shall designate, during each 12-month period of the Lease
term, on the same day as the Base Rent is due hereunder. Lessor shall deliver to
Lessee within sixty (60) days after the expiration of each calendar year a
reasonably detailed statement showing Lessee's Share of the actual Common Area
Operating Expenses incurred during the preceding year. If Lessee's payments
under this Paragraph 4.2(d) during said preceding year exceed Lessee's Share as
indicated on said statement, Lessee shall be credited the amount of such
overpayment against Lessee's Share of Common Area Operating Expenses next
becoming due. If Lessee's payments under this Paragraph 4.2(d) during said
preceding year were less than Lessee's Share as indicated on said statement,
Lessee shall pay to Lessor the amount of the deficiency within ten (10) days
after delivery by Lessor to Lessee of said statement.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon Lessee's execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefore
deposit monies with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Any time the Base Rent increases during the
term of this Lease, Lessee shall, upon written request from Lessor, deposit
additional monies with Lessor as an addition to the Security Deposit so that the
total amount of the Security Deposit shall at all times bear the same proportion
to the then current Base Rent as the initial Security Deposit bears to the
initial Base Rent set forth in Paragraph 1.5. Lessor shall not be required to
keep all or any part of the Security Deposit separate from its general accounts.
Lessor shall, at the expiration or earlier termination of the term hereof and
after Lessee has vacated the Premises, return to Lessee (or, at Lessor's option,
to the last assignee, if any, of Lessee's interest herein), that portion of the
Security Deposit not used or applied by Lessor. Unless otherwise expressly
agreed in writing by Lessor, no part of the Security Deposit shall be considered
to be held in trust, to bear interest or other increment for its use, or to be
prepayment for any monies to be paid by Lessee under this Lease.
6. USE.
6.1 PERMITTED USE.
(a) Lessee shall use and occupy the Premises only for the
Permitted Use set forth in Paragraph 1.8, or any other legal use which is
reasonably comparable thereto, and for no other purpose. Lessee shall not use or
permit the use of the Premises in a manner that is unlawful, creates waste or a
nuisance, or that disturbs owners and/or occupants of, or causes damage to the
Premises or neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or delay its
consent to any written request by Lessee, Lessee's assignees or subtenants, and
by prospective assignees and subtenants of Lessee, its assignees and subtenants,
for a modification of said Permitted Use, so long as the same will not impair
the structural integrity of the improvements on the Premises or in the Building
or the mechanical or electrical systems therein, does not conflict with uses by
other lessees, is not significantly more burdensome to the Premises or the
Building and the improvements thereon, and is otherwise permissible pursuant to
this Paragraph 6. If Lessor elects to withhold such consent, Lessor shall within
five (5) business days after such request give a written notification of same,
which notice shall include an explanation of Lessor's reasonable objections to
the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS
SUBSTANCE" as used in this Lease shall mean any product, substance, chemical,
material or waste whose presence, nature, quantity and/or intensity of
existence, use, manufacture, disposal, transportation, spill, release or effect,
either by itself or in combination with other materials expected to be on the
Premises, is either: (i) potentially injurious to the public health, safety or
welfare, the environment, or the Premises; (ii) regulated or monitored by any
governmental authority; or (iii) a basis for potential liability of Lessor to
any governmental agency or third party under any applicable statute or common
law theory. Hazardous Substance shall include, but not be limited to,
hydrocarbons, petroleum, gasoline, crude oil or any products or by-products
thereof. Lessee shall not engage in any activity in or about the Premises which
constitutes a Reportable Use (as hereinafter defined) of Hazardous Substances
without the express prior written consent of Lessor and compliance in a timely
manner (at Lessee's sole cost and expense) with all Applicable Requirements (as
defined in Paragraph 6.3). "REPORTABLE USE" shall mean (i) the installation or
use of any above or below ground storage tank; (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice, registration or
business plan is required to be filed with, any governmental authority; and
(iii) the presence in, on or about the Premises of a Hazardous Substance with
respect to which any Applicable Laws require that a notice be given to persons
entering or occupying the Premises or neighboring properties. Notwithstanding
the foregoing, Lessee may, without Lessor's prior consent, but upon notice to
Lessor and in compliance with all Applicable Requirements, use any ordinary and
customary materials reasonably required to be used by Lessee in the normal
course of the Permitted Use, so long as such use is not a Reportable Use and
does not expose the Premises or neighboring properties to any meaningful risk of
contamination or damage or expose Lessor to any liability therefor. In addition,
Lessor may (but without any obligation to do so) condition its consent to any
Reportable Use of any Hazardous Substance by Lessee upon Lessee's giving Lessor
such additional assurances as Lessor, in its reasonable discretion, deems
necessary to protect itself, the public, the Premises and the environment
against damage, contamination or injury and/or liability therefor, including,
but not limited to, the installation (and, at Lessor's option, removal on or
before Lease expiration or earlier termination) of reasonably necessary
protective modifications to the Premises (such as concrete encasements) and/or
the deposit of an additional Security Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance has come to be located in, on,
under or about the Premises or the Building, other than as previously consented
to by Lessor, Lessee shall immediately give Lessor written notice thereof,
together with a copy of any statement, report, notice, registration,
application, permit, business plan, license, claim, action, or proceeding given
to, or received from, any governmental authority or private party concerning the
presence, spill, release, discharge of, or exposure to, such Hazardous Substance
including, but not limited to, all such documents as may be involved in any
Reportable Use involving the Premises. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under or about the
Premises (including, without limitation, through the plumbing or sanitary sewer
system).
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all damages, liabilities, judgments,
costs, claims, liens, expenses, penalties, loss of permits and attorneys' and
consultants' fees arising out of or involving any Hazardous Substance brought
onto the Premises by or for Lessee or by anyone under Lessee's control. Lessee's
obligations under this Paragraph 6.2(c) shall include, but not be limited to,
the effects of any contamination or injury to person, property or the
environment created or suffered by Lessee, and the cost of investigation
(including consultants' and attorneys' fees and testing), removal, remediation,
restoration and/or abatement thereof, or of any contamination therein involved,
and shall survive the expiration or earlier termination of this Lease. No
termination, cancellation or release agreement entered into by Lessor and Lessee
shall release Lessee from its obligations under this Lease with respect to
Hazardous Substances, unless specifically so agreed by Lessor in writing at the
time of such agreement.
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6.3 LESSEE'S COMPLIANCE WITH REQUIREMENTS. Lessee shall, at Lessee's sole
cost and expense, fully, diligently and in a timely manner, comply with all
"APPLICABLE REQUIREMENTS," which term is used in this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to the Premises (including,
but not limited to, matters pertaining to (i) industrial hygiene; (ii)
environmental conditions on, in, under or about the Premises, including soil and
groundwater conditions; and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill, or release
of any Hazardous Substance), now in effect or which may hereafter come into
effect. Lessee shall, within five (5) days after receipt of Lessor's written
request, provide Lessor with copies of all documents and information, including,
but not limited to, permits, registrations, manifests, applications, reports and
certificates, evidencing Lessee's compliance with any Applicable Requirements
specified by Lessor, and shall immediately upon receipt, notify Lessor in
writing (with copies of any documents involved) of any threatened or actual
claim, notice, citation, warning, complaint or report pertaining to or involving
failure by Lessee or the Premises to comply with any Applicable Requirements.
6.4 INSPECTION; COMPLIANCE WITH LAW. Lessor, Lessor's agents, employees,
contractors and designated representatives, and the holders of any mortgages,
deeds of trust or ground leases on the Premises ("LENDERS") shall have the right
to enter the Premises at any time in the case of an emergency, and otherwise at
reasonable times, for the purpose of inspecting the condition of the Premises
and for verifying compliance by Lessee with this Lease and all Applicable
Requirements (as defined in Paragraph 6.3), and Lessor shall be entitled to
employ experts and/or consultants in connection therewith to advise Lessor with
respect to Lessee's activities, including but not limited to Lessee's
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance on or from the Premises. The costs and expenses of any such
inspections shall be paid by the party requesting same, unless a Default or
Breach of this Lease by Lessee or a violation of Applicable Requirements or a
contamination, caused or materially contributed to by Lessee, is found to exist
or to be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In such case, Lessee shall upon request reimburse Lessor or
Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. MAINTENANCE, REPAIRS, UTILITY INSTALLATIONS, TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3
(Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's
Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at
Lessee's sole cost and expense and at all times, keep the Premises and every
part thereof in good order, condition and repair (whether or not such portion of
the Premises requiring repair, or the means of repairing the same, are
reasonably or readily accessible to Lessee, and whether or not the need for such
repairs occurs as a result of Lessee's use, any prior use, the elements or the
age of such portion of the Premises), including, without limiting the generality
of the foregoing, all equipment or facilities specifically serving the Premises,
such as plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire hose connections if
within the Premises, fixtures, interior walls, interior surfaces of exterior
walls, ceilings, floors, windows, doors, plate glass, and skylights, but
excluding any items which are the responsibility of Lessor pursuant to Paragraph
7.2 below. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain a contract, with copies to Lessor, in customary form and substance for
and with a contractor specializing and experienced in the inspection,
maintenance and service of the heating, air conditioning and ventilation system
for the Premises. However, Lessor reserves the right, upon notice to Lessee, to
procure and maintain the contract for the heating, air conditioning and
ventilating systems, and if Lessor so elects, Lessee shall reimburse Lessor,
upon demand, for the cost thereof.
(c) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days' prior
written notice to Lessee (except in the case of an emergency, in which case no
notice shall be required), perform such obligations on Lessee's behalf, and put
the Premises in good order, condition and repair, in accordance with Paragraph
13.2 below.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement
pursuant to Paragraph 4.2, shall keep in good order, condition and repair the
foundations, exterior walls, structural condition of interior bearing walls,
exterior roof, fire sprinkler and/or standpipe and hose (if located in the
Common Areas) or other automatic fire extinguishing system including fire alarm
and/or smoke detection systems and equipment, fire hydrants, parking lots,
walkways, parkways, driveways, landscaping, fences, signs and utility systems
serving the Common Areas and all parts thereof, as well as providing the
services for which there is a Common Area Operating Expense pursuant to
Paragraph 4.2. Lessor shall not be obligated to paint the exterior or interior
surfaces of exterior walls nor shall Lessor be obligated to maintain, repair or
replace windows, doors or plate glass of the Premises. Lessee expressly waives
the benefit of any statute now or hereafter in effect which would otherwise
afford Lessee the right to make repairs at Lessor's expense or to terminate this
Lease because of Lessor's failure to keep the Building, Industrial Center or
Common Areas in good order, condition and repair.
7.3 UTILITY INSTALLATIONS, TRADE FIXTURES, ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY
INSTALLATIONS" is used in this Lease to refer to all air lines, power panels,
electrical distribution, security, fire protection systems, communications
systems, lighting fixtures, heating, ventilating and air conditioning equipment,
plumbing, and fencing in, on or about the Premises. The term "TRADE FIXTURES"
shall mean Lessee's machinery and equipment which can be removed without doing
material damage to the Premises. The term "ALTERATIONS" shall mean any
modification of the improvements on the Premises which are provided by Lessor
under the terms of this Lease, other than Utility Installations or Trade
Fixtures. "LESSEE-OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make nor cause to be
made any Alterations or Utility Installations in, on, under or about the
Premises without Lessor's prior written consent. Lessee may, however, make
non-structural Utility Installations to the interior of the Premises (excluding
the roof) without Lessor's consent but upon notice to Lessor, so long as they
are not visible from the outside of the Premises, do not involve puncturing,
relocating or removing the roof or any existing walls, or changing or
interfering with the fire sprinkler or fire detection systems and the cumulative
cost thereof during the term of this Lease as extended does not exceed
$2,500.00.
(b) CONSENT. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent,
shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities; (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon; and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and be in compliance with all Applicable
Requirements. Lessee shall promptly upon completion thereof furnish Lessor with
as-built plans and specifications therefor. Lessor may (but without obligation
to do so) condition its consent to any requested Alteration or Utility
Installation that costs $2,500.00 or more upon Lessee's providing Lessor with a
lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation.
(c) LIEN PROTECTION. Lessee shall pay when due all claims for
labor or materials furnished or alleged to have been furnished to or for Lessee
at or for use on the Premises, which claims are or may be secured by any
mechanic's or materialmen's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in, on, or about the Premises, and Lessor shall have
the right to post notices of non-responsibility in or on the Premises as
provided by law. If Lessee shall, in good faith, contest the validity of any
such lien, claim or demand, then Lessee shall, at its sole expense, defend and
protect itself, Lessor and the Premises against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Lessor or the Premises. If Lessor shall require,
Lessee shall furnish to Lessor a surety bond satisfactory to Lessor, in an
amount equal to one and one-half times the amount of such contested lien claim
or demand, indemnifying Lessor against liability for the same, as required by
law for the holding of the Premises free from the effect of such lien or claim.
In addition, Lessor may require Lessee to pay Lessor's attorneys' fees and costs
in participating in such action if Lessor shall decide it is to its best
interest to do so.
7.4 OWNERSHIP, REMOVAL, SURRENDER, AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal
and to cause Lessee to become the owner thereof as hereinafter provided in this
Paragraph 7.4, all Alterations and Utility Installations made to the Premises by
Lessee shall be the property of and owned by Lessee, but considered a part of
the Premises. Lessor may, at any time and at its option, elect in writing to
Lessee to be the owner of all or any specified part of the Lessee-Owned
Alterations and Utility Installations. Unless otherwise instructed per
Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and Utility
Installations shall, at the expiration or earlier termination of this Lease,
become the property of Lessor and remain upon the Premises and be surrendered
with the Premises by Lessee.
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(b) REMOVAL. Unless otherwise agreed in writing, Lessor may
require that any or all Lessee-Owned Alterations or Utility Installations be
removed by the expiration or earlier termination of this Lease, notwithstanding
that their installation may have been consented to by Lessor. Lessor may require
the removal at any time of all or any part of any Alterations or Utility
Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by
the end of the last day of the Lease term or any earlier termination date, clean
and free of debris and in good operating order, condition and state of repair,
ordinary wear and tear excepted. Ordinary wear and tear shall not include any
damage or deterioration that would have been prevented by good maintenance
practice or by Lessee performing all of its obligations under this Lease. Except
as otherwise agreed or specified herein, the Premises, as surrendered, shall
include the Alterations and Utility Installations. The obligation of Lessee
shall include the repair of any damage occasioned by the installation,
maintenance or removal of Lessee's Trade Fixtures, furnishings, equipment, and
Lessee-Owned Alterations and Utility Installations, as well as the removal of
any storage tank installed by or for Lessee, and the removal, replacement, or
remediation of any soil, material or ground water contaminated by Lessee, all as
may then be required by Applicable Requirements and/or good practice. Lessee's
Trade Fixtures shall remain the property of Lessee and shall be removed by
Lessee subject to its obligation to repair and restore the Premises per this
Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUMS. The cost of the premiums for the insurance
policies maintained by Lessor under this Paragraph 8 shall be a Common Area
Operating Expense pursuant to Paragraph 4.2 hereof. Premiums for policy periods
commencing prior to, or extending beyond, the term of this Lease shall be
prorated to coincide with the corresponding Commencement Date or Expiration
Date.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force
during the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee, Lessor and any Lender(s) whose names have been provided to
Lessee in writing (as additional insureds) against claims for bodily injury,
personal injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $1,000,000 per occurrence with
an "Additional Insured-Managers or Lessors of Premises" endorsement and contain
the "Amendment of the Pollution Exclusion" endorsement for damage caused by
heat, smoke or fumes from a hostile fire. The policy shall not contain any
intra-insured exclusions as between insured persons or organizations, but shall
include coverage for liability assumed under this Lease as an "INSURED CONTRACT"
for the performance of Lessee's indemnity obligations under this Lease. The
limits of said insurance required by this Lease or as carried by Lessee shall
not, however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only.
(b) CARRIED BY LESSOR. Lessor shall also maintain liability
insurance described in Paragraph 8.2(a) above, in addition to and not in lieu
of, the insurance required to be maintained by Lessee. Lessee shall not be named
as an additional insured therein.
8.3 PROPERTY INSURANCE - BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. Lessor shall obtain and keep in
force during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and to any Lender(s), insuring against loss or
damage to the Premises. Such insurance shall be for full replacement cost, as
the same shall exist from time to time, or the amount required by any Lender(s),
but in no event more than the commercially reasonable and available insurable
value thereof if, by reason of the unique nature or age of the improvements
involved, such latter amount is less than full replacement cost. Lessee-Owned
Alterations and Utility Installations, Trade Fixtures and Lessee's personal
property shall be insured by Lessee pursuant to Paragraph 8.4. If the coverage
is available and commercially appropriate, Lessor's policy or policies shall
insure against all risks of direct physical loss or damage (except the perils of
flood and/or earthquake unless required by a Lender), including coverage for any
additional costs resulting from debris removal and reasonable amounts of
coverage for the enforcement of any ordinance or law regulating the
reconstruction or replacement of any undamaged sections of the Building required
to be demolished or removed by reason of the enforcement of any building,
zoning, safety or land use laws as the result of a covered loss, but not
including plate glass insurance. Said policy or policies shall also contain an
agreed valuation provision in lieu of any co-insurance clause, waiver of
subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located.
(b) RENTAL VALUE. Lessor shall also obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and any Lender(s), insuring the loss of the full rental
and other charges payable by all lessees of the Building to Lessor for one year
(including all Real Property Taxes, insurance costs, all Common Area Operating
Expenses and any scheduled rental increases). Said insurance may provide that in
the event the Lease is terminated by reason of an insured loss, the period of
indemnity for such coverage shall be extended beyond the date of the completion
of repairs or replacement of the Premises, to provide for one full year's loss
of rental revenues from the date of any such loss. Said insurance shall contain
an agreed valuation provision in lieu of any co-insurance clause, and the amount
of coverage shall be adjusted annually to reflect the projected rental income,
Real Property Taxes, insurance premium costs and other expenses, if any,
otherwise payable, for the next 12-month period. Common Area Operating Expenses
shall include any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. Lessee shall pay for any increase in the
premiums for the property insurance of the Building and for the Common Areas or
other buildings in the Industrial Center if said increase is caused by Lessee's
acts, omissions, use or occupancy of the Premises.
(d) LESSEE'S IMPROVEMENTS. Since Lessor is the Insuring Party,
Lessor shall not be required to insure Lessee-Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Trade Fixtures and Lessee-Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to that
carried by Lessor as the Insuring Party under Paragraph 8.3(a). Such insurance
shall be full replacement cost coverage with a deductible not to exceed $1,000
per occurrence. The proceeds from any such insurance shall be used by Lessee for
the replacement of personal property and the restoration of Trade Fixtures and
Lessee-Owned Alterations and Utility Installations. Upon request from Lessor,
Lessee shall provide Lessor with written evidence that such insurance is in
force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Policyholders Rating" of at
least B+, V, or such other rating as may be required by a Lender, as set forth
in the most current issue of "Best's Insurance Guide." Lessee shall not do or
permit to be done anything which shall invalidate the insurance policies
referred to in this Paragraph 8. Lessee shall cause to be delivered to Lessor,
within seven (7) days after the earlier of the Early Possession Date or the
Commencement Date, certified copies of, or certificates evidencing the existence
and amounts of, the insurance required under Paragraph 8.2(a) and 8.4. No such
policy shall be cancelable or subject to modification except after thirty (30)
days' prior written notice to Lessor. Lessee shall, at least thirty (30) days
prior to the expiration of such policies, furnish Lessor with evidence of
renewals or "insurance binders" evidencing renewal thereof, or Lessor may order
such insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee to Lessor upon demand.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies,
Lessee and Lessor each hereby release and relieve the other, and waive their
entire right to recover damages (whether in contract or in tort) against the
other, for loss or damage to their property arising out of or incident to the
perils required to be insured against under Paragraph 8. The effect of such
releases and waivers of the right to recover damages shall not be limited by the
amount of insurance carried or required, or by any deductibles applicable
thereto. Lessor and Lessee agree to have their respective insurance companies
issuing property damage insurance waive any right to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as the
insurance is not invalidated thereby.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, loss of permits, attorneys' and consultants'
fees, expenses and/or liabilities arising out of, involving, or in connection
with, the occupancy of the Premises by Lessee, the conduct of Lessee's business,
any act, omission or neglect of Lessee, its agents, contractors, employees or
invitees, and out of any Default or Breach by Lessee in the performance in a
timely manner of any obligation on Lessee's part to be performed under this
Lease. The foregoing shall include, but not be limited to, the defense or
pursuit of any claim or any action or proceeding involved therein, and whether
or not (in the case of claims made against Lessor) litigated and/or reduced to
judgment. In case any action or proceeding be brought against Lessor by reason
of any of the foregoing matters, Lessee, upon notice from Lessor, shall defend
the same at Lessee's expense by counsel reasonably satisfactory to Lessor and
Lessor shall cooperate with Lessee in such defense. Lessor need not have first
paid any such claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other
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property of Lessee, Lessee's employees, contractors, invitees, customers, or any
other person in or about the Premises, whether such damage or injury is caused
by or results from fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing, air conditioning or lighting fixtures, or from any
other cause, whether said injury or damage results from conditions arising upon
the Premises or upon other portions of the Building of which the Premises are a
part, from other sources or places, and regardless of whether the cause of such
damage or injury or the means of repairing the same is accessible or not. Lessor
shall not be liable for any damages arising from any act or neglect of any other
lessee of Lessor nor from the failure by Lessor to enforce the provisions of any
other lease in the Industrial Center. Notwithstanding Lessor's negligence or
breach of this Lease, Lessor shall under no circumstances be liable for injury
to Lessee's business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to
the Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is less than fifty percent (50%) of
the then Replacement Cost (as defined in Paragraph 9.1(d)) of the Premises
(excluding Lessee-Owned Alterations and Utility Installations and Trade
Fixtures) immediately prior to such damage or destruction.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction
to the Premises, other than Lessee-Owned Alterations and Utility Installations,
the repair cost of which damage or destruction is fifty percent (50%) or more of
the then Replacement Cost of the Premises (excluding Lessee-Owned Alterations
and Utility Installations and Trade Fixtures) immediately prior to such damage
or destruction. In addition, damage or destruction to the Building, other than
Lessee-Owned Alterations and Utility Installations and Trade Fixtures of any
lessees of the Building, the cost of which damage or destruction is fifty
percent (50%) or more of the then Replacement Cost (excluding Lessee-Owned
Alterations and Utility Installations and Trade Fixtures of any lessees of the
Building) of the Building shall, at the option of Lessor, be deemed to be
Premises Total Destruction.
(c) "INSURED LOSS" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations and
Trade Fixtures, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a) irrespective of any deductible amounts
or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild
the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of applicable building codes,
ordinances or laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PREMISES PARTIAL DAMAGE - INSURED LOSS. If Premises Partial Damage
that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect. In the event, however, that there is a
shortage of insurance proceeds and such shortage is due to the fact that, by
reason of the unique nature of the improvements in the Premises, full
replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance thereof,
within ten (10) days following receipt of written notice of such shortage and
request therefor. If Lessor receives said funds or adequate assurance thereof
within said ten (10) day period, Lessor shall complete them as soon as
reasonably possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If Lessor does not receive such funds or assurance within such
ten (10) day period, and if Lessor does not so elect to restore and repair, then
this Lease shall terminate sixty (60) days following the occurrence of the
damage or destruction. Unless otherwise agreed, Lessee shall in no event have
any right to reimbursement from Lessor for any funds contributed by Lessee to
repair any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net proceeds
of any such insurance shall be made available for the repairs if made by either
Party.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. If Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect), Lessor may, at Lessor's
option, either (i) repair such damage as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after receipt by
Lessor of knowledge of the occurrence of such damage of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the repair of such damage totally at Lessee's expense and without
reimbursement from Lessor. Lessee shall provide Lessor with the required funds
or satisfactory assurance thereof within thirty (30) days following such
commitment from Lessee. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such repairs as soon as reasonably
possible after the required funds are available. If Lessee does not give such
notice and provide the funds or assurance thereof within the times specified
above, this Lease shall terminate as of the date specified in Lessor's notice of
termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months
of the term of this Lease there is damage for which the cost to repair exceeds
one month's Base Rent, whether or not an Insured Loss, Lessor may, at Lessor's
option, terminate this Lease effective sixty (60) days following the date of
occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by (a) exercising such option, and (b) providing Lessor with any shortage
in insurance proceeds (or adequate assurance thereof) needed to make the repairs
on or before the earlier of (i) the date which is ten (10) days after Lessee's
receipt of Lessor's written notice purporting to terminate this Lease, or (ii)
the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with funds (or
adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor
shall, at Lessor's expense, repair such damage as soon as reasonably possible
and this Lease shall continue in full force and effect. If Lessee fails to
exercise such option and provide such funds or assurance during such period,
then this Lease shall terminate as of the date set forth in the first sentence
of this Paragraph 9.5.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of (i) Premises Partial Damage or (ii) Hazardous
Substance Condition for which Lessee is not legally responsible, the Base Rent,
Common Area Operating Expenses and other charges, if any, payable by Lessee
hereunder for the period during which such damage or condition, its repair,
remediation or restoration continues, shall be abated in proportion to the
degree to which Lessee's use of the Premises is impaired, but not in excess of
proceeds from insurance required to be carried under Paragraph 8.3(b). Except
for abatement of Base Rent, Common Area Operating Expenses and other charges, if
any, as aforesaid, all other obligations of Lessee hereunder shall be performed
by Lessee, and Lessee shall have no claim against Lessor for any damage suffered
by reason of any such damage, destruction, repair, remediation or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after the receipt of such notice, this Lease
shall continue in full force and effect. "COMMENCE" as used in this Paragraph
9.6 shall mean either the unconditional authorization of the preparation of the
required plans, or the beginning of the actual work on the Premises, whichever
occurs first.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Requirements and this Lease shall continue in full force and effect, but subject
to Lessor's rights under Paragraph 6.2(c) and Paragraph 13), Lessor may, at
Lessor's option, either (i) investigate and remediate such Hazardous
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Substance Condition, if required, as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) if the estimated cost to investigate and remediate such condition exceeds
twelve (12) times the then monthly Base Rent or $100,000, whichever is greater,
give written notice to Lessee within thirty (30) days after receipt by Lessor of
knowledge of the occurrence of such Hazardous Substance Condition of Lessor's
desire to terminate this Lease as of the date sixty (60) days following the date
of such notice. In the event Lessor elects to give such notice of Lessor's
intention to terminate this Lease, Lessee shall have the right within ten (10)
days after the receipt of such notice to give written notice to Lessor of
Lessee's commitment to pay for the excess costs of (a) investigation and
remediation of such Hazardous Substance Condition to the extent required by
Applicable Requirements, over (b) an amount equal to twelve (12) times the then
monthly Base Rent or $100,000, whichever is greater. Lessee shall provide Lessor
with the funds required of Lessee or satisfactory assurance thereof within
thirty (30) days following said commitment by Lessee. In such event this Lease
shall continue in full force and effect, and Lessor shall proceed to make such
investigation and remediation as soon as reasonably possible after the required
funds are available. If Lessee does not give such notice and provide the
required funds or assurance thereof within the time period specified above, this
Lease shall terminate as of the date specified in Lessor's notice of
termination.
9.8 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease pursuant
to this Paragraph 9, Lessor shall return to Lessee any advance payment made by
Lessee to Lessor and so much of Lessee's Security Deposit as has not been, or is
not then required to be, used by Lessor under the terms of this Lease.
9.9 WAIVER OF STATUTES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
and the Building with respect to the termination of this Lease and hereby waive
the provisions of any present or future statute to the extent it is inconsistent
herewith.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as defined
in Paragraph 10.2, applicable to the Industrial Center, and except as otherwise
provided in Paragraph 10.3, any such amounts shall be included in the
calculation of Common Area Operating Expenses in accordance with the provisions
of Paragraph 4.2.
10.2 REAL PROPERTY TAX DEFINITION. As used herein, the term "REAL PROPERTY
TAXES" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed upon the Industrial Center by any authority having the
direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage, or
other improvement district thereof, levied against any legal or equitable
interest of Lessor in the Industrial Center or any portion thereof, Lessor's
right to rent or other income therefrom, and/or Lessor's business of leasing the
Premises. The term "REAL PROPERTY TAXES" shall also include any tax, fee, levy,
assessment or charge, or any increase therein, imposed by reason of events
occurring, or changes in Applicable Law taking effect, during the term of this
Lease, including, but not limited to, a change in the ownership of the
Industrial Center or in the improvements thereon, the execution of this Lease,
or any modification, amendment or transfer thereof, and whether or not
contemplated by the Parties. In calculating Real Property Taxes for any calendar
year, the Real Property Taxes for any real estate tax year shall be included in
the calculation of Real Property Taxes for such calendar year based upon the
number of days which such calendar year and tax year have in common.
10.3 ADDITIONAL IMPROVEMENTS. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Industrial
Center by other lessees or by Lessor for the exclusive enjoyment of such other
lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to
Lessor at the time Common Area Operating Expenses are payable under Paragraph
4.2, the entirety of any increase in Real Property Taxes if assessed solely by
reason of Alterations, Trade Fixtures or Utility Installations placed upon the
Premises by Lessee or at Lessee's request.
10.4 JOINT ASSESSMENT. If the Building is not separately assessed, Real
Property Taxes allocated to the Building shall be an equitable proportion of the
Real Property Taxes for all of the land and improvements included within the tax
parcel assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available. Lessor's reasonable determination thereof, in good
faith, shall be conclusive.
10.5 LESSEE'S PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center. When
possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. UTILITIES. Lessee shall pay directly for all utilities and services supplied
to the Premises, including, but not limited to, electricity, telephone,
security, gas and cleaning of the Premises, together with any taxes thereon. If
any such utilities or services are not separately metered to the Premises or
separately billed to the Premises, Lessee shall pay to Lessor a reasonable
proportion to be determined by Lessor of all such charges jointly metered or
billed with other premises in the Building, in the manner and within the time
periods set forth in Paragraph 4.2(d).
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively, "assign") or
sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent given under and subject to the terms of
Paragraph 36.
(b) A change in the control of Lessee shall constitute an
assignment requiring Lessor's consent. The transfer, on a cumulative basis, of
twenty-five percent (25%) or more of the voting control of Lessee shall
constitute a change in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of full
execution and delivery of this Lease or at the time of the most recent
assignment to which Lessor has consented, or as it exists immediately prior to
said transaction or transactions constituting such reduction, at whichever time
said Net Worth of Lessee was or is greater, shall be considered an assignment of
this Lease by Lessee to which Lessor may reasonably withhold its consent. "NET
WORTH OF LESSEE" for purposes of this Lease shall be the net worth of Lessee
(excluding any Guarantors) established under generally accepted accounting
principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1, or a non-curable Breach without
the necessity of any notice and grace period. If Lessor elects to treat such
unconsented to assignment or subletting as a non-curable Breach, Lessor shall
have the right to either: (i) terminate this Lease, or (ii) upon thirty (30)
days' written notice ("LESSOR'S NOTICE"), increase the monthly Base Rent for the
Premises to the greater of the then fair market rental value of the Premises, as
reasonably determined by Lessor, or one hundred ten percent (110%) of the Base
Rent then in effect. Pending determination of the new fair market rental value,
if disputed by Lessee, Lessee shall pay the amount set forth in Lessor's Notice,
with any overpayment credited against the next installment(s) of Base Rent
coming due, and any underpayment for the period retroactively to the effective
date of the adjustment being due and payable immediately upon the determination
thereof. Further, in the event of such Breach and rental adjustment, (i) the
purchase price of any option to purchase the Premises held by Lessee shall be
subject to similar adjustment to the then fair market value as reasonably
determined by Lessor (without the Lease being considered an encumbrance or any
deduction for depreciation or obsolescence, and considering the Premises at its
highest and best use and in good condition) or one hundred ten percent (110%) of
the price previously in effect, (ii) any index-oriented rental or price
adjustment formulas contained in this Lease shall be adjusted to require that
the base index be determined with reference to the index applicable to the time
of such adjustment, and (iii) any fixed rental adjustments scheduled during the
remainder of the Lease term shall be increased in the same ratio as the new
rental bears to the Base Rent in effect immediately prior the adjustment
specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by
Lessor shall be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, nor (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
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(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent for performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall
not constitute a consent to any subsequent assignment or subletting by Lessee or
to any subsequent or successive assignment or subletting by the assignee or
sublessee. However, Lessor may consent to subsequent sublettings and assignments
of the sublease or any amendments or modifications thereto without notifying
Lessee or anyone else liable under this Lease or the sublease and without
obtaining their consent, and such action shall not relieve such persons from
liability under this Lease or the sublease.
(d) In the event of any Default or Breach of Lessee's obligation
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
anyone else responsible for the performance of the Lessee's obligations under
this Lease, including any sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor.
(e) Each request for consent to an assignment or subletting shall
be in writing, accompanied by information relevant to Lessor's determination as
to the financial and operational responsibility and appropriateness of the
proposed assignee or sublessee, including, but not limited to, the intended use
and/or required modification of the Premises, if any, together with a
non-refundable deposit of $1,000 or ten percent (10%) of the monthly Base Rent
applicable to the portion of the Premises which is the subject of the proposed
assignment or sublease, whichever is greater, as reasonable consideration for
Lessor's considering and processing the request for consent. Lessee agrees to
provide Lessor with such other or additional information and/or documentation as
may be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be deemed,
for the benefit of Lessor, to have assumed and agreed to conform and comply with
each and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.2(c)
shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased by an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
Security Deposit increase a condition to Lessor's consent to such transaction.
(h) Lessor, as a condition to giving its consent to any assignment
or subletting, may require that the amount and adjustment schedule of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment schedule for property similar to the Premises as then constituted, as
determined by Lessor.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of the foregoing
provision or any other assignment of such sublease to Lessor, nor by reason of
the collection of the rents from a sublessee, be deemed liable to the sublessee
for any failure of Lessee to perform and comply with any of Lessee's obligations
to such sublessee under such Sublease. Lessee hereby irrevocably authorizes and
directs any such sublessee, upon receipt of a written notice from Lessor stating
that a Breach exists in the performance of Lessee's obligations under this
Lease, to pay to Lessor the rents and other charges due and to become due under
the sublease. Sublessee shall rely upon any such statement and request from
Lessor and shall pay such rents and other charges to Lessor without any
obligation or right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against such sublessee, or, until the Breach has
been cured, against Lessor, for any such rents and other charges so paid by said
sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior defaults
or breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor
under a sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall further
assign or sublet all or any part of the Premises without Lessor's prior written
consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach
by Lessee to the sublessee, who shall have the right to cure the Default of
Lessee within the grace period, if any, specified in such notice. The sublessee
shall have a right of reimbursement and offset from and against Lessee for any
such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said default. A "DEFAULT" by Lessee is
defined as a failure by Lessee to observe, comply with or perform any of the
terms, covenants, conditions or rules applicable to Lessee under this Lease. A
"BREACH" by Lessee is defined as the occurrence of any one or more of the
following Defaults, and, where a grace period for cure after notice is specified
herein, the failure by Lessee to cure such Default prior to the expiration of
the applicable grace period, and shall entitle Lessor to pursue the remedies set
forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent, Lessee's Share of Common
Area Operating Expenses, or any other monetary payment required to be made by
Lessee hereunder as and when due, the failure by Lessee to provide Lessor with
reasonable evidence of insurance or surety bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which endangers
or threatens life or property, where such failure continues for a period of
three (3) days following written notice thereof by or on behalf of Lessor to
Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with Applicable
Requirements per Paragraph 6.3, (ii) the inspection, maintenance and service
contracts required under Paragraph 7.1(b), (iii) the rescission of an
unauthorized assignment or subletting per Paragraph 12.1, (iv) a Tenancy
Statement per Paragraphs 16 or 37, (v) the subordination or non-subordination of
this Lease per Paragraph 30, (vi) the guaranty of the performance of Lessee's
obligations under this Lease if required under Paragraphs 1.11 and 37, (vii) the
execution of any document requested under Paragraph 42 (easements), or (viii)
any other documentation or information which Lessor may reasonably require of
Lessee under the terms of this Lease, where any such failure continues for a
period of ten (10) days following written notice by or on behalf of Lessor to
Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof that
are to be observed, complied with or performed by Lessee, other than those
described in Subparagraphs 13.1(a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or on
behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's
Default is such that more than thirty (30) days are reasonably required for its
cure, then it shall not be deemed to be a Breach of this Lease by Lessee if
Lessee commences such cure within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making
by Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where
possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this Subparagraph 13.1(e) is contrary to any
applicable law, such provision shall be of no force or effect, and shall not
affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement of Lessee
or of any Guarantor, given to Lessor by Lessee or any Guarantor, was materially
false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor's
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liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a Guarantor's refusal to honor the guaranty, or (v) a
Guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurances of security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the Guarantors that existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including, but not limited to, the obtaining of reasonably required
bonds, insurance policies, or governmental licenses, permits or approvals. The
costs and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its own
option, may require all future payments to be made under this Lease by Lessee to
be made only by cashier's check. In the event of a Breach of this Lease by
Lessee (as defined in Paragraph 13.1), with or without further notice or demand,
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee: (i) the worth at the time
of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including, but not limited to, the cost of
recovering possession of the Premises, expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys' fees,
and that portion of any leasing commission paid by Lessor in connection with
this Lease applicable to the unexpired term of this Lease. The worth at the time
of award of the amount referred to in provision (iii) of the immediately
preceding sentence shall be computed by discounting such amount at the discount
rate of the Federal Reserve Bank of San Francisco or the Federal Reserve Bank
District in which the Premises are located at the time of award plus one percent
(1%). Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach
of this Lease shall not waive Lessor's right to recover damages under this
Paragraph 13.2. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such
proceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve the right to recover all or any part thereof in a separate suit for such
rent and/or damages. If a notice and grace period required under Subparagraphs
13.1(b), (c) or (d) was not previously given, a notice to pay rent or quit, or
to perform or quit, as the case may be, given to Lessee under any statute
authorizing the forfeiture of leases for unlawful detainer shall also constitute
the applicable notice for grace period purposes required by Subparagraph
13.1(b), (c) or (d). In such case, the applicable grace period under the
unlawful detainer statute shall run concurrently after the one such statutory
notice, and the failure of Lessee to cure the Default within the greater of the
two (2) such grace periods shall constitute both an unlawful detainer and a
Breach of this Lease entitling Lessor to the remedies provided for in this Lease
and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect
(in California under California Civil Code Section 1951.4) after Lessee's Breach
and recover the rent as it becomes due, provided Lessee has the right to sublet
or assign, subject only to reasonable limitations. Lessor and Lessee agree that
the limitations on assignment and subletting in this Lease are reasonable. Acts
of maintenance or preservation, efforts to relet the Premises, or the
appointment of a receiver to protect the Lessor's interest under this Lease,
shall not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "INDUCEMENT PROVISIONS" shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach (as defined in Paragraph 13.1) of this Lease by Lessee, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor, as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions of this
Paragraph 13.3 unless specifically so stated in writing by Lessor at the time of
such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or deed of trust covering the Premises.
Accordingly, if any installment of rent or other sum due from Lessee shall not
be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The Parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by any Lender(s) whose name and address shall have been furnished to Lessee
in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after such
notice are reasonably required for its performance, then Lessor shall not be in
breach of this Lease if performance is commenced within such thirty (30) day
period and thereafter diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the portion of
the Common Areas designated for Lessee's parking, is taken by condemnation,
Lessee may, at Lessee's option, to be exercised in writing within ten (10) days
after Lessor shall have given Lessee written notice of such taking (or in the
absence of such notice, within ten (10) days after the condemning authority
shall have taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the Base Rent shall be
reduced in the same proportion as the rentable floor area of the Premises taken
bears to the total rentable floor area of the Premises. No reduction of Base
Rent shall occur if the condemnation does not apply to any portion of the
Premises. Any award for the taking of all or any part of the Premises under the
power of eminent domain or any payment made under threat of the exercise of such
power shall be the property of Lessor, whether such award shall be made as
compensation for diminution of value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any compensation, separately awarded to Lessee for Lessee's relocation
expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease is
not terminated by reason of such condemnation, Lessor shall to the extent of its
net severance damages received, over and above Lessee's share of the legal and
other expenses incurred by Lessor in the condemnation matter, repair any damage
to the Premises caused by such condemnation authority. Lessee shall be
responsible for the payment of any amount in excess of such net severance
damages required to complete such repair.
15. BROKERS' FEES
15.1 PROCURING CAUSE. The Broker(s) named in Paragraph 1.10 is/are the
procuring cause of this Lease.
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15.3 ASSUMPTION OF OBLIGATIONS. Any buyer or transferee of Lessor's
interest in this Lease, whether such transfer is by agreement or by operation of
law, shall be deemed to have assumed Lessor's obligation under this Paragraph
15. Each Broker shall be an intended third party beneficiary of the provisions
of Paragraph 1.10 and of this Paragraph 15 to the extent of its interest in any
commission arising from this Lease and may enforce that right directly against
Lessor and its successors.
15.4 REPRESENTATIONS AND WARRANTIES. Lessee and Lessor each represent and
warrant to the other that it has had no dealings with any person, firm, broker
or finder other than as named in Paragraph 1.10(a) in connection with the
negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker or other person, firm or entity other
than said named Broker(s) is entitled to any commission or finder's fee in
connection with said transaction. Lessee and Lessor do each hereby agree to
indemnify, protect, defend and hold the other harmless from and against
liability for compensation or charges which may be claimed by any such unnamed
broker, finder or other similar party by reason of any dealings or actions of
the indemnifying Party, including any costs, expenses, and/or attorneys' fees
reasonably incurred with respect thereto.
16. TENANCY AND FINANCIAL STATEMENTS.
16.1 TENANCY STATEMENT. Each Party (as "RESPONDING PARTY") shall within ten
(10) days after written notice from the other Party (the "REQUESTING PARTY")
execute, acknowledge and deliver to the Requesting Party a statement in writing
in a form similar to the then most current "TENANCY STATEMENT" form published by
the American Industrial Real Estate Association, plus such additional
information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.
16.2 FINANCIAL STATEMENT. If Lessor desires to finance, refinance, or sell
the Premises or the Building, or any part thereof, Lessee and all Guarantors
shall deliver to any potential lender or purchaser designated by Lessor such
financial statements of Lessee and such Guarantors as may be reasonably required
by such lender or purchaser, including, but not limited to, Lessee's financial
statements for the past three (3) years. All such financial statements shall be
received by Lessor and such lender or purchaser in confidence and shall be used
only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the owner or
owners at the time in question of the fee title to the Premises. In the event of
a transfer of Lessor's title or interest in the Premises or in this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15.3, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relieved of all liability with respect to the obligations and/or
covenants under this Lease thereafter to be performed by the Lessor. Subject to
the foregoing, the obligations and/or covenants in this Lease to be performed by
the Lessor shall be binding only upon the Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within ten (10) days following
the date on which it was due, shall bear interest from the date due at the prime
rate charged by the largest state chartered bank in the state in which the
Premises are located plus four percent (4%) per annum, but not exceeding the
maximum rate allowed by law, in addition to the potential late charge provided
for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. Each Broker shall be an intended third party beneficiary
of the provisions of this Paragraph 22.
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this Lease
shall be in writing and may be delivered in person (by hand or by messenger or
courier service) or may be sent by regular, certified or registered mail or U.S.
Postal Service Express Mail, with postage prepaid, or by facsimile transmission
during normal business hours, and shall be deemed sufficiently given if served
in a manner specified in this Paragraph 23. The addresses noted adjacent to a
Party's signature on this Lease shall be that Party's address for delivery or
mailing of notice purposes. Either Party may by written notice to the other
specify a different address for notice purposes, except that upon Lessee's
taking possession of the Premises, the Premises shall constitute Lessee's
address for the purpose of mailing or delivering notices to Lessee. A copy of
all notices required or permitted to be given to Lessor hereunder shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by written notice to Lessee.
23.2 DATE OF NOTICE. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If sent
by regular mail, the notice shall be deemed given forty-eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantees next day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the United States Postal Service or courier. If any
notice is transmitted by facsimile transmission or similar means, the same shall
be deemed served or delivered upon telephone or facsimile confirmation of
receipt of the transmission thereof, provided a copy is also delivered via
delivery or mail. If notice is received on a Saturday or a Sunday or a legal
holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any such act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any Default or Breach by Lessee of
any provision hereof. Any payment given Lessor by Lessee may be accepted by
Lessor on account of monies or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this Paragraph
26 then the Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be increased to two hundred percent
(200%) of the Base Rent applicable during the month immediately preceding such
expiration or earlier termination. Nothing contained herein shall be construed
as a consent by Lessor to any holding over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the Parties,
their personal representatives, successors and assigns and be governed by the
laws of the state in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "SECURITY DEVICE"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
PAGE 10 OF 13
<PAGE> 13
furnished Lessee in writing for such purpose notice of Lessor's default pursuant
to Paragraph 13.5. If any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall give
written notice thereof to Lessee, this Lease and such Options shall be deemed
prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however,
that upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) in any such proceeding, action, or appeal thereon, shall be
entitled to reasonable attorneys' fees. Such fees may be awarded in the same
suit or recovered in a separate suit, whether or not such action or proceeding
is pursued to decision or judgment. The term "PREVAILING PARTY" shall include,
without limitation, a Party or Broker who substantially obtains or defeats the
relief sought, as the case may be, whether by compromise, settlement, judgment,
or the abandonment by the other Party or Broker of its claim or defense. The
attorneys' fee award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorneys' fees reasonably
incurred. Lessor shall be entitled to attorneys' fees, costs and expenses
incurred in preparation and service of notices of Default and consultations in
connection therewith, whether or not a legal action is subsequently commenced in
connection with such Default or resulting Breach. Broker(s) shall be intended
third party beneficiaries of this Paragraph 31.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an emergency,
and otherwise at reasonable times for the purpose of showing the same to
prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the Building, as Lessor
may reasonably deem necessary. Lessor may at any time place on or about the
Premises or Building any ordinary "For Sale" signs and Lessor may at any time
during the last one hundred eighty (180) days of the term hereof place on or
about the Premises any ordinary "For Lease" signs. All such activities of Lessor
shall be without abatement of Rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the exterior of the Premises or
the Building, except that Lessee may, with Lessor's prior written consent,
install (but not on the roof) such signs as are reasonably required to advertise
Lessee's own business so long as such signs are in a location designated by
Lessor and comply with Applicable Requirements and the signage criteria
established for the Industrial Center by Lessor. The installation of any sign on
the Premises by or for Lessee shall be subject to the provisions of Paragraph 7
(Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations).
Unless otherwise expressly agreed herein, Lessor reserves all rights to the use
of the roof of the Building, and the right to install advertising signs on the
Building, including the roof, which do not unreasonably interfere with the
conduct of Lessee's business; Lessor shall be entitled to all revenues from such
advertising signs.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise
provided herein, wherever in this Lease the consent of a Party is required to an
act by or for the other Party, such consent shall not be unreasonably withheld
or delayed. Lessor's actual reasonable costs and expenses (including, but not
limited to, architects', attorneys', engineers' and other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including, but not
limited to, consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. In addition to the deposit
described in Paragraph 12.2(e), Lessor may, as a condition to considering any
such request by Lessee, require that Lessee deposit with Lessor an amount of
money (in addition to the Security Deposit held under Paragraph 5) reasonably
calculated by Lessor to represent the cost Lessor will incur in considering and
responding to Lessee's request. Any unused portion of said deposit shall be
refunded to Lessee without interest. Lessor's consent to any act, assignment of
this Lease or subletting of the Premises by Lessee shall not constitute an
acknowledgment that no Default or Breach by Lessee of this Lease exists, nor
shall such consent be deemed a waiver of any then existing Default or Breach,
except as may be otherwise specifically stated in writing by Lessor at the time
of such consent.
(b) All conditions to Lessor's consent authorized by this Lease
are acknowledged by Lessee as being reasonable. The failure to specify herein
any particular condition to Lessor's consent shall not preclude the impositions
by Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. GUARANTOR.
37.1 FORM OF GUARANTY. If there are to be any Guarantors of this Lease per
Paragraph 1.11, the form of the guaranty to be executed by each such Guarantor
shall be in the form most recently published by the American Industrial Real
Estate Association, and each such Guarantor shall have the same obligations as
Lessee under this Lease, including, but not limited to, the obligation to
provide the Tenancy Statement and information required in Paragraph 16.
37.2 ADDITIONAL OBLIGATIONS OF GUARANTOR. It shall constitute a Default of
the Lessee under this Lease if any such Guarantor fails or refuses, upon
reasonable request by Lessor to give: (a) evidence of the due execution of the
guaranty called for by this Lease, including the authority of the Guarantor (and
of the party signing on Guarantor's behalf) to obligate such Guarantor on said
guaranty, and resolution of its board of directors authorizing the making of
such guaranty, together with a certificate of incumbency showing the signatures
of the persons authorized to sign on its behalf, (b) current financial
statements of Guarantor as may from time to time be requested by Lessor, (c) a
Tenancy Statement, or (d) written confirmation that the guaranty is still in
effect.
38. QUIET POSSESSION. Upon payment by Lessee of the Rent for the Premises and
the performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Lease, the word "OPTION" has the following
meaning: (a) the right to extend the term of this Lease or to renew this Lease
or to extend or renew any lease that Lessee has on other property of Lessor; (b)
the right of first refusal to lease the Premises or the right of first offer to
lease the Premises or the right of first refusal to lease other property of
Lessor or the right of first offer to lease other property of Lessor; (c) the
right to purchase the Premises, or the right of first refusal to purchase the
Premises, or the right of first offer to purchase the Premises, or the right to
purchase other property of Lessor, or the right of first refusal to purchase
other property of Lessor, or the right of first offer to purchase other property
of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee is in full and
actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options to
extend or renew this Lease, a later option cannot be exercised unless the prior
Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (i) during
the period commencing with the giving of any notice of Default under Paragraph
13.1 and continuing until the noticed Default is cured, or (ii) during the
period of time
PAGE 11 OF 13
<PAGE> 14
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee is in
Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three
(3) or more notices of separate Default under Paragraph 13.1 during the twelve
(12) month period immediately preceding the exercise of the Option, whether or
not the Defaults are cured.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of separate Defaults under Paragraph 13.1
during any twelve (12) month period, whether or not the Defaults are cured, or
(iii) if Lessee commits a Breach of this Lease.
40. RULES AND REGULATIONS. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("RULES AND REGULATIONS") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants or
tenants of the Building and the Industrial Center and their invitees.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way, utility
raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, maps and restrictions do not reasonably
interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to effectuate any such easement rights,
dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. OFFER. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
Attached hereto and Incorporated herewith are the following:
Addendum paragraphs 49 through 55
Exhibits "A" through "E"
PAGE 12 OF 13
<PAGE> 15
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR ATTORNEY'S
REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE
CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF ASBESTOS,
UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKERS OR THEIR CONTRACTORS, AGENTS OR EMPLOYEES AS
TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE
OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON
THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF
THIS LEASE. IF THE SUBJECT PROPERTY IS IN A STATE OTHER THAN CALIFORNIA, AN
ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The Parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at: El Segundo CA Executed at:
-------------------------- --------------------------
on: November 30, 1999 on:
---------------------------------- ----------------------------------
BY LESSOR: BY LESSEE:
KILROY REALTY, L.P., FUTURELINK DISTRIBUTION CORPORATION
A Delaware Limited Partnership A Colorado Corporation
By: KILROY REALTY CORPORATION,
A Maryland Corporation
General Partner
By: /s/ JOHN T. FUCCI By: /s/
----------------------------------- -----------------------------------
Name Printed: JOHN T. FUCCI Name Printed:
------------------------- -------------------------
Title: SR. VICE PRESIDENT ASSET Title: CHIEF STRATEGY OFFICER
MANAGEMENT --------------------------------
--------------------------------
By: /s/ JEFFREY C. HAWKEN By:
----------------------------------- -----------------------------------
Name Printed: JEFFREY C. HAWKEN Name Printed:
------------------------- -------------------------
Title: EXECUTIVE VICE PRESIDENT CHIEF Title:
OPERATING OFFICER --------------------------------
--------------------------------
Address: 2250 E. Imperial Highway, Address:
------------------------------ ------------------------------
Suite 360 El Segundo, California 90245
- -------------------------------------- --------------------------------------
Telephone: (310) 563-5500 Telephone: ( )
---------------------------- ----------------------------
Facsimile: (310) 416-9113 Facsimile: ( )
--------------------------- ---------------------------
BROKER: BROKER:
Executed at: Executed at:
-------------------------- --------------------------
on: on:
----------------------------------- -----------------------------------
By: By:
----------------------------------- -----------------------------------
Name Printed: Name Printed:
------------------------- -------------------------
Title: Title:
-------------------------------- --------------------------------
Address: Address:
------------------------------ ------------------------------
- -------------------------------------- --------------------------------------
Telephone: ( ) Telephone: ( )
---------------------------- ----------------------------
Facsimile: ( ) Facsimile: ( )
--------------------------- ---------------------------
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing
the most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700
South Flower Street, Suite 600, Los Angeles, California 90017. (213)
687-8777.
PAGE 13 OF 13
<PAGE> 16
EXHIBIT A
PREMISES
Lessor and Lessee acknowledge that this plot plan is for general information
purposes only. Lessor shall not be liable and makes no representation or
warranty whatsoever concerning the existence or further existence or accuracy
of description or location, any buildings or improvements whatsoever depicted
herein shall be subject to correction modification or change at any time
without notice at Lessor's sole discretion. The parties hereby acknowledge that
the actual Demised Premises may vary as to size, dimensions and/or location
from the description of same herein above set forth. The aforesaid description
of the Demised Premises represents an approximation only and Lessor makes no
representation or warranty concerning the accuracy thereof in any respect.
Lessee hereby waives any and all claims, damages and/or right of recovery
against Lessor, it's officers, agents, representatives, and employees, arising
on account or by reason of the description of the Demised Premises herein above
set forth.
[FLOOR PLAN]
220 TECHNOLOGY, SUITE 100
<PAGE> 17
EXHIBIT B
BUILDING
Lessor and Lessee acknowledge that this plot plan is for general information
purposes only. Lessor shall not be liable and makes no representation or
warranty whatsoever concerning the existence or further existence or accuracy of
description or location, any buildings or improvements whatsoever depicted
herein shall be subject to correction modification or change at any time without
notice at Lessor's sole discretion. The parties hereby acknowledge that the
actual Building may vary as to size, dimensions and/or location from the
description of same herein above set forth. The aforesaid description of the
Building represents an approximation only and Lessor makes no representation or
warranty concerning the accuracy thereof in any respect. Lessee hereby waives
any and all claims, damages and/or right of recovery against Lessor, it's
officers, agents, representatives, and employees arising on account or by reason
of the description of the Building herein above set forth.
[MAP of TECHNOLOGY DRIVE]
220 TECHNOLOGY DRIVE
<PAGE> 18
EXHIBIT C
INDUSTRIAL CENTER
Lessor and Lessee acknowledge that this plot plan is for general information
purposes only. Lessor shall not be liable and makes no representation or
warranty whatsoever concerning the existence or further existence or accuracy of
description or location, any buildings or improvements whatsoever depicted
herein shall be subject to correction modification or change at any time without
notice at Lessor's sole discretion. The parties hereby acknowledge that the
actual Industrial Center may vary as to size, dimensions and/or location from
the description of same herein above set forth. The aforesaid description of the
Industrial Center represents an approximation only and Lessor makes no
representation or warranty concerning the accuracy thereof in any respect.
Lessee hereby waives any and all claims, damages and/or right of recovery
against Lessor, it's officers, agents, representatives, and employees, arising
on account or by reason of the description of the Industrial Center herein above
set forth.
[MAP]
<PAGE> 19
EXHIBIT D
RULES AND REGULATIONS
GENERAL RULES
1. Lessee shall not suffer or permit the obstruction of any Common Areas,
including but not limited to driveways, walkways and stairways.
2. Lessor reserves the right to refuse access to any persons Lessor in good
faith judges to be a threat to the safety, reputation, or property of the
Project and its occupants.
3. Lessee shall not make or permit any noise or odors that annoy or interfere
with other Lessees or persons having business within the Project.
4. Lessee shall not keep animals or birds within the premises, and shall not
bring bicycles, motorcycles or other vehicles into areas not designated as
authorized for same.
5. Lessee shall not make, suffer or permit litter except in appropriate
receptacles for that purpose.
6. Lessee shall not alter any lock or install new or additional locks or
bolts without prior authorization from Lessor.
7. Lessee shall be responsible for the inappropriate use of any toilet rooms,
plumbing or other utilities. No foreign substances of any kind are to be
inserted therein.
8. Lessee shall not deface the walls, partitions, or other surfaces of the
premises or Project.
9. Lessee shall not suffer or permit anything in or around the premises or
Building(s) that causes excessive vibration or floor loading in any part
of the Project.
10. Lessee shall not employ any service or contractor for services or work to
be performed within the premises, except as approved by the Lessor.
11. Lessor reserves the right to close and lock the Project on Saturdays,
Sundays, and legal holidays, and on other days between the hours of 6 P.M.
and 8 A.M. of the following day. If Lessee uses the Premises during such
periods, Lessee shall be responsible for securely locking any doors it may
have opened for entry.
12. Lessee shall return all keys at the termination of its tenancy and shall
be responsible for the costs of replacing any keys that are lost.
13. No Lessee, employee or invitee shall go upon the roof of the Building(s).
14. Lessee shall not suffer or permit smoking or carrying of lighted cigars or
cigarettes in areas reasonably designated by Lessor or by applicable
governmental agencies as non-smoking areas.
15. Lessee shall not use any method of heating or air conditioning other than
as provided by Lessor.
16. Lessee shall not install, maintain or operate any vending machines on the
premises without Lessor's written consent.
17. The Premises shall not be used for lodging.
18. Lessee shall comply with all safety, fire protection and evacuation
regulations established by Lessor or any governmental agency.
19. Lessor reserves the right to waive any one of these rules or regulations,
and/or as to any particular Lessee, and any such waiver shall not
constitute a waiver of any other rule or regulation or any subsequent
application thereof to such Lessee.
20. Lessee assumes all risks from theft or vandalism and agrees to keep its
Premises locked as may be required.
21. Lessee to perform all work and activities within the premises.
22. Lessor reserves the right to make such other reasonable rules and
regulations as it may from time to time deem necessary for the appropriate
operation and safety of the Project and its occupants. Lessee agrees to
abide by these and such rules and regulations.
PARKING RULES
1. Parking areas shall be used only for parking by vehicles no longer than
full size passenger automobiles or pick up trucks, herein called
"Permitted Size Vehicles".
2. Lessee shall not permit or allow any vehicles that belong to or are
controlled by Lessee or Lessee's employees, suppliers, shippers,
customers, or invitees to be loaded, unloaded, or parked in areas other
than those designated by Lessor for such activities.
3. Lessor reserves the right to relocate all or a part of parking spaces from
floor to floor within one floor, and/or to reasonable adjacent off site
location(s), and to reasonably allocate them between compact and standard
size space, as long as the same complies with applicable laws, ordinances,
and regulations.
4. Users of the parking area will obey all posted signs and park only in the
areas designated for vehicle parking.
5. Unless otherwise instructed, every person using the parking area is
required to park and lock his own vehicle. Lessor will not be responsible
for any damage to vehicles, injury to persons, or loss of property, all of
which risks are assumed by the party using the parking area.
6. The maintenance, washing, waxing or cleaning of vehicles in the parking
area(s) or Common Area is prohibited.
7. Lessee shall be responsible for seeing that all of its employees, agents,
and invitees comply with the applicable parking rules, regulations, laws
and agreements.
8. Lessor reserves the right to modify these rules and/or adopt such other
reasonable and non-discriminatory rules and regulations, laws and
agreements.
9. Such parking use as is herein provided is intended merely as a license
only and no bailment is intended or shall be created hereby.
<PAGE> 20
EXHIBIT E
AIRCRAFT NOTIFICATION IRVINE SPECTRUM 3
CITY OF IRVINE COMMUNITY DEVELOPMENT DEPARTMENT APPROVED AIRCRAFT
NOTIFICATION STATEMENT: PARCEL MAP NO 83-615 AS RECORDED IN BOOK 195 OF PARCEL
MAPS, PAGES 15 TO 34 INCLUSIVE, IN THE OFFICE OF THE ORANGE COUNTY RECORDER,
WITHIN THE CITY OF IRVINE, FILED BY THE IRVINE COMPANY, DBA IRVINE INDUSTRIAL
RESEARCH AND DEVELOPMENT COMPANY.
The United States Marine Corp. Air Bases, Western Area, El Toro, California
(MCAS El Toro) advises that the Irvine Technology Center (the "property") lies
within the MCAS El Toro Air Installation Compatible Use Zone (AICUZ) study
area. It abuts the Runways 25 and 34 which are approximately 1400 feet and 1250
feet respectively from the boundary of the property. Also, the property extends
into a clear zone and an accident potential zone.
A review of the traffic patterns from MCAS El Toro discloses that the subject
property is directly affected by conventional and jet aircraft operations from
Runway 25 and Runway 34 and one frequently occurring ground operation and a
helicopter route. They are summarized in the AICUZ for MCAS El Toro as follows:
a. Departing aircraft from MCAS EL Toro Runway 25 climb straight ahead,
then turn 1st (southward) two miles or less from the air station pursuant
to standard instrument or coded departures. When wind or other safety
factors dictate, fighter/attack aircraft and aerial refuelers must use
this runway due to take-off weight and terrain considerations. These
aircraft climb out directly over the northerly tip of the property at high
power settings.
b. Field Mirror Lending Practice (FMLP) is used to train pilots in field
landing techniques. FMLP's are conducted at an altitude of 600 feet Above
Ground Level (AGL), utilizing Runway 34L. Jet aircraft using this pattern
will overfly the extremities of the property at high power settings. Also,
this pattern surrounds the property on all sides. Consequently, the
property will be subject to high noise levels when FMLP operations are
conducted.
c. Regular traffic pattern Runway 34 is the most often utilized landing
conducting strait in full stop landings and "Touch and Go" operations may
overfly the southerly edge of the property. Additionally, aircraft in the
Touch and Go Pattern will occasionally overfly the northern tip of the
property. The "Touch and Go" pattern, flown at 1,000 feet AGL, surrounds
the site on all sides. Because of the property's location it will be
subject to high noise levels.
d. Depending upon wind direction and atmospheric conditions, the
property is also impacted at times, by jet engine turn-ups on Runway 7,
which is located approximately 1400 feet from the boundary of the
property. This is a ground safety check for all types of aircraft prior to
and during every departure to ensure that the power plant and various
systems of the aircraft are operating properly. Jet aircraft thus
departing Runway 7 (which is the primary take-off runway and the exact
opposite of Runway 25) will have their engine tail pipes directed towards
the property during their high power run ups just prior to take-off in the
easterly direction.
According to the MCAS El Toro Installation Compatible Use Zone (AICUZ)
study, the property lies within the 70 CMEL contour with a small segment
extending into the 75 CMEL contour. In this area actual noise level may
equal or exceed the 75 CMEL level.
The property lies adjacent to or in the vicinity of the Freeway, Raceway
and Window helicopter routs as identified in the MCAS Tustin Air
Installation Compatible Use Zone (AICUZ) study area. These routes are
egress/ingress routes approximately 1/4 mile wide. Helicopters in these
routs fly at elevations of up to 2500' Above Sea Level.
As a consequence of the above, an owner can expect to frequently hear and
see arriving and departing aircraft during the following hours:
MCAS El Toro has the following normal hours of operation:
Monday through Friday: 7:00 a.m. to 10:00 p.m.
Saturday and Sunday: 9:00 a.m. to 6:00 p.m.
MCAS (II) Tustin has the following normal hours of operation:
Monday: 11:00 a.m. to 9:00 p.m.
Tuesday through Thursday: 8:00 a.m. to 10:00 p.m.
Friday: 8:00 a.m. to 5:00 p.m.
The forecasted hours of normal operations for both facilities have been
imposed due to fiscal and manpower constraints, as well as being designed
to reduce the noise impact of operations of the surrounding community. It
should be noted that MCAS El Toro is a designated master jet base which
can operate 24 hours per seven day week as can MCAS (II) Tustin. The
command adheres to the above stated normal hours of operation whenever
possible. However, it should be emphasized that special conditions may
arise which could cause an extension of the facility's normal operational
requirements.
According to the MCAS El Toro AICUZ, portions of the subject property lie
within a Clear Zone and Accident Potential Zone I. These areas are subject
to restrictions upon development which are outlined in greater detail in
the MCAS El Toro AICUZ.
<PAGE> 21
ADDENDUM TO THAT CERTAIN LEASE
DATED SEPTEMBER 23, 1999
BY AND BETWEEN
KILROY REALTY, L.P.,
A DELAWARE LIMITED PARTNERSHIP
KILROY REALTY CORPORATION,
A MARYLAND CORPORATION,
GENERAL PARTNER
("LESSOR")
- AND -
FUTURELINK DISTRIBUTION CORPORATION
A COLORADO CORPORATION
("LESSEE")
FOR THE PREMISES LOCATED AT:
220 TECHNOLOGY DRIVE, SUITE 100, IRVINE, CALIFORNIA 92618
49. COMMON AREA OPERATING EXPENSES. Lessee shall pay its pro rata share of all
operating expenses, as described in paragraph 1.6(b) and 4.2 of the Lease.
Lessee's Share of 4.37% has been determined based upon the square footage
of the Premises as compared to the square footage of the Kilroy Technology
Center. Lessor at its discretion reserves the right and option in the
future to establish two or more separate "Lessee's Share," one to be based
upon the square footage of the Premises as compared to the square footage
of the Kilroy Technology Center, and the other to be based upon the square
footage of the Premises as compared to the square footage of the Building.
In either event such determination of Lessee's Share shall be determined
and allocated in a manner that is fair and reasonable to apportion to all
lessees the Common Area Operating Expenses at the Kilroy Technology
Center. Said costs are approximately $0.26 per square foot, per month
($1,808.04 per month).
50. CONDITION OF PREMISES. Lessee acknowledges that Lessee has inspected the
Premises and Lessee has and shall accept the Premises in the present "as
is" condition thereof at the Commencement Date of the Term of the Lease,
except that Lessor shall make the following improvements to the Premises
using Lessor's Building Standard Materials and construction standards:
50.1 PAINT OFFICE AREA.
51. SECURITY DEPOSIT; ADVANCE RENT. Upon Lease execution, Lessee shall pay a
security deposit in the amount of $32,336.10 (three-months rent), advance
rent in the amount of $10,778.70 and one month of estimated Common Area
Operating Expenses in the amount of $1,808.04, for a total of $44,922.84.
52. PARKING. The Unreserved Parking Spaces set forth in paragraph 1.2(b) of
the Lease have been established on the basis of three (3) unreserved
parking permits per 1,000 usable square feet leased, which shall be
undesignated and unreserved. Such parking shall be free of charge during
the initial term of the Lease.
53. SIGNAGE.
53.1 During the Lease Term, Lessee shall be entitled to display its name
on one (1) sign affixed to the exterior of the Building ("Lessee's
Sign"). Lessee's Sign must:
53.1.1 Comply with all applicable government laws, statutes,
regulations, rules, codes, ordinances and, the planned sign
program for Warren Technology Center, Spectrum 3 (project
#0322), approved on October 31, 1991 by the City of Irvine;
53.1.2 Comply with the provisions of this Lease;
53.1.3 Have been approved in advance by all appropriate government
agencies;
-1-
<PAGE> 22
53.1.4 Have been approved in advance by Lessor as to design, location
and manner of attachment to the Building;
53.1.5 Comply with all instruments recorded against the Industrial
Center of which the Premises are a part;
53.1.6 Be subject to and conditional upon the rights and privileges of
all preexisisting sign rights of other lessees.
53.1.7 Lessee shall bear all expenses relating to Lessee's Sign,
including:
53.1.7.1 The cost of Lessee's Sign;
53.1.7.2 The cost of obtaining permits and approvals;
53.1.7.3 The cost of installing, maintaining, repairing and
replacing Lessee's Sign;
53.1.7.4 The cost of any electrical consumption
illuminating Lessee's Sign; and
53.1.7.5 Costs associated with the removal of Lessee's
Sign, repair of any damage caused by such removal,
and restoration of the site of Lessee's Sign on
the Building to the condition in which those
portions of the Building existed before the
installation of Lessee's Sign. Lessee shall pay to
Lessor, within thirty (30) days after receipt of
Lessor's demand, all expenses incurred by Lessor
except for those payable directly by Lessee to any
third party. Lessee's payment obligation under
this paragraph 53 shall survive the expiration or
earlier termination of the Lease Term.
54. ESTOPPEL CERTIFICATE. The Tenancy Statement referred to in paragraph 16.1
and the "further writings" referred to in line 3 of paragraph 30.4 of the
Lease each shall be, at the option of the Lessor or a lender or purchaser
from Lessor, in the customary form of the requesting lender or a purchaser
of all or a portion of the Building.
55. NOTICE. In addition to any notice to be given to Lessor as set forth in
paragraph 23.1 of the Lease, requiring notices to be sent to the address
set forth in the Lessor's signature block on page 13 of the Lease, a copy
of any such notice to Lessor also shall be given to:
Kilroy Realty, L.P.
184 Technology Drive, Suite 200
Irvine, California 92618
Tel. No. (949) 790-0840
Fax No. (949) 790-0884
With a copy to Lessor's attorney as follows:
Marshall L. McDaniel
McDaniel & McDaniel
2250 E. Imperial Highway, Suite 1200
El Segundo, California 90245
Tel. No. (310) 640-1960
Fax No. (310) 322-8790
-2-
<PAGE> 1
EXHIBIT 10.23
MICROSOFT WILL COMPLETE:
Agreement Number [ ]
MICROSOFT APPLICATION SERVICES AGREEMENT
This Microsoft Application Services Agreement (this "Agreement") is by and
between the Application Service Provider which has executed this Agreement below
("Company") and MSLI, LLC ("Microsoft"), a Nevada limited liability company and
wholly-owned subsidiary of Microsoft Corporation.
INTRODUCTION. The purpose of this Agreement is to establish a procurement
framework whereby Company may obtain and license various Microsoft products to
use in connection with Company's application service offerings. This Agreement
must be read in conjunction with separate Microsoft license agreements which
detail the rights pursuant to which Company may utilize specified Microsoft
products and a Microsoft price list setting forth the fees for such license
rights. Subject to the limitations in this Agreement, Microsoft may revise the
license agreements and price list to address changes in and new releases of the
Microsoft products made available to Company during the term of this Agreement.
NOW THEREFORE, the parties agree as follows:
1. DEFINITIONS. Unless otherwise defined, all capitalized terms used in this
Agreement shall have the meanings provided below:
"AFFILIATE" shall mean a company or legal entity which owns or controls, is
owned or controlled by, or is under common ownership or control with, the
Company or Microsoft as applicable.
"APPLICATION SERVICES LICENSE AGREEMENT" OR "ASLA" shall mean the document
which contains the specific terms and conditions pursuant to which use of a
particular Hosted Product is subject.
"APPLICATION SERVICE PROVIDER" shall mean an individual or entity that
provides Application Services to a Third Party.
"APPLICATION SERVICES" shall mean software services provided to a Third
Party such that the Third Party need not acquire its own Licenses.
Application Services do not include services provided to Company's
Affiliates for their own internal use. Examples of Application Services
include (but are not limited to):
- Services provided as part of an Internet access service for Third
Parties, such as providing online services or Internet access for
consumers or businesses;
- Hosting communications services for Third Parties, such as virtual
private network, voice over IP, video conferences;
- Hosting an E-Commerce, Internet, Intranet and/or Extranet web site(s)
on behalf of a Third Party through either shared or dedicated servers;
- Hosting application services on behalf of a Third Party by providing
file and print, database, messaging or E-Commerce capabilities;
- Hosting software applications on behalf of a Third Party which
includes asset management, software distribution and management,
network management and performance tuning; and
- Hosting Independent Software Vendor applications where Third Parties'
applications are built on top of Microsoft technology.
"EFFECTIVE DATE" shall mean the date this Agreement is signed by Microsoft.
"HOSTED PRODUCTS" shall mean the Microsoft software products Microsoft
makes available for Application Services to Application Service Providers
and which may be reproduced pursuant to this Agreement. The term "Hosted
Products" shall include all upgrades to such Microsoft Software products
released during the Term of this Agreement and any extension thereof for
particular Company customer agreements as described in Section 7.a.
"MICROSOFT FULFILLMENT" shall mean a Microsoft-authorized distributor of
media containing Hosted Products ??? printed materials.
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<PAGE> 2
"LICENSE" shall mean a right granted by Microsoft to use or access a copy of a
Hosted Product (e.g., a Hosted Server License) subject to this Agreement and the
ASLA for such Hosted Product.
"TERM" shall have the meaning assigned to such term in Section 7.a.
"THIRD PARTY" shall mean an individual, company or legal entity ("person") other
than (i) an Affiliate, (ii) Company employees and third party contractors
performing temporary services on behalf of Company, (iii) persons providing
goods or services to the Company (e.g., a supplier) or (iv) persons providing
goods or services on behalf of the Company (e.g., a distributor or reseller).
2. LICENSES.
a. HOSTED PRODUCTS. Subject to its obligation to order and pay for the
appropriate number of Licenses in a timely fashion as set forth in
Section 3.a., Company may, during the Term, make and use copies of,
and provide access to, the Hosted Products strictly in accordance with
the license grants, terms, conditions, limitations and restrictions
contained in the applicable ASLA in effect from time to time.
Microsoft shall make the then current ASLA available to Company by
publication on the World Wide Web at a site identified by Microsoft to
Company or made available to Company by some other reasonable means
prior to the placement of any orders. Microsoft may amend the ASLA
upon thirty (30) days prior written notice; provided, however, no such
changes will retroactively alter the terms under which Company may use
a copy of a Hosted Product previously licensed to Company. Notice of
changes to the ASLA may be provided to Company via e-mail or other
reasonable means determined by Microsoft. If the requirements of the
preceding sentences have been complied with, the revised ASLA shall
take the place of the existing version as of the effective date
identified in the notice, and each copy of a Hosted Product made on or
after that date shall be subject to terms thereof, as amended. By
signing this Agreement, Company acknowledges that it and its
Affiliates have access to the World Wide Web.
b. PRINTED MATERIALS. Company may not copy any Microsoft guides, manuals
or other printed materials describing or explaining any of the Hosted
Products. The Company may acquire copies of any such guides, manuals
or other printed materials from Microsoft Fulfillment in quantities
that do not exceed, with respect to a Hosted Product, the number of
Licenses of such Hosted Product the Company has acquired.
3. ORDERING OF LICENSES.
a. PURCHASE ORDER AND THIRD PARTY INFORMATION. The Company shall submit
to Microsoft an order for a License for each copy (or access right) of
a Hosted Product it has made (or provided) during the immediately
preceding calendar month. Each order shall specify the country of
usage of each copy made (or access right provided) and shall provide
other information relative to Licenses acquired on behalf of Third
Parties. In addition, the order shall contain information on newly
formed contracts between Company and Third Parties for Application
Services utilizing Hosted Products. This order shall be in the form
attached as Addendum A, as such form may be modified by Microsoft from
time to time. The order must be delivered to Microsoft electronically
to the e-mail address noted on the sample order form attached as
Addendum A. This order must be submitted to Microsoft each month,
within fifteen (15) days following the end of the calendar month,
whether or not any copies were made or access rights provided in the
preceding month. A Company's failure to submit an order within the
required time frame shall be grounds for termination of this
Agreement, and license rights shall not exist for any copies made by
the Company pursuant to this Agreement for which the Company has not
ordered and paid in accordance with this Agreement. Upon receipt of
Company's order(s) pursuant to this Section 3.a., Microsoft will issue
an invoice indicating the number and type of Licenses for Hosted
Products acquired by the Company and reported to Microsoft during a
specified month. Such invoice, together with proof/record of payment,
shall constitute the confirmation for such Licenses. Any information
provided in Microsoft pursuant to this order shall be used solely for
revenue calculation, internal revenue allocation, and billing purposes
and shall not be used to directly target or otherwise contact Third
Party customers of Company without Company's prior approval.
b. PRICING. The fees for Licenses shall be set by Microsoft from time to
time and shall be set forth on a Hosted Product Price List which
shall be issued by Microsoft on a monthly basis. Price changes shall
require a minimum of thirty (30) days notice prior to being
effective. Microsoft may provide such notice to Company by posting
the changes on the World Wide Web. By signing this Agreement, Company
acknowledges that it and its Affiliates have access to the World Wide
Web. Notwithstanding changes to the Hosted Product Price List, if
Company has contracted with a Third Party customer to provide
Application Services and has acquired Licenses for Hosted
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<PAGE> 3
Products for the benefit of such Third Party customer, Microsoft
shall not increase the fees for the Licenses acquired for the benefit
of such Third Party customer during (i) the period of the existing
contract between Company and such Third Party customer or (ii)
twenty-four (24) months, whichever is shorter.
c. PAYMENT TERMS. All amounts are due and owing net thirty (30) days
after date of invoice from Microsoft. All payments not received by
Microsoft from Company within the required time frame may be assessed a
finance charge of two percent (2%) of the invoice amount per month or
the legal maximum, whichever is less. Payment by the Company to
Microsoft is not contingent on payment by a Third Party customer to the
Company. All payments to Microsoft by Company shall be in the form of
bank wire transfer or electronic funds transfer through an Automated
Clearing House ("ACH") with electronic remittance detail attached.
Payment shall be remitted to:
WIRE TRANSFERS*;
Microsoft Services #844510
Attn: Volume Licensing
Account # 3750825354
ABA #11100001-2
Nations Bank of Texas NA
Dallas, TX
*Remittance detail must be sent by: Fax: (425) 936-7329
Attention: Special
Agreements Payments
E-mail: [email protected]
d. FULFILLMENT. Company may obtain the media for Hosted Products from
Microsoft Fulfillment or from any reseller of full package product.
All orders through Microsoft Fulfillment will require prepayment; no
credit terms will be extended. Contact information for Microsoft
Fulfillment will be provided at the time this Agreement is executed by
Microsoft or as determined by Microsoft from time to time.
4. SCOPE OF DISTRIBUTION; FEEDBACK. This Agreement has been made available to
Company as part of a limited-duration Microsoft pilot program. During this
period, Microsoft intents to evaluate the impact of the pilot program on end
user satisfaction and other Microsoft channels. Accordingly, Company agrees
to:
a. Notify Microsoft via e-mail to [email protected] and obtain
Microsoft's approval prior to offering Hosted Products as part of
Company's Application Services to any Third Party with greater than
2,500 desktops and/or which has a current Enterprise Agreement or
Select Agreement in effect with Microsoft;
b. Limit agreements for Company's Application Services which include
Hosted Products to no more than ten (10) Third Parties and 25,000
desktops, each limitation in the aggregate, during the Term;
c. Discuss with Microsoft the evolution of the Applications Services
market and Company's role in such market (e.g., the discussions may
take the form of conference calls or on-site visits by Microsoft
representatives during which a senior Company marketing and/or
technical manager is made available);
d. Report the following statistics to Microsoft on a monthly basis
utilizing the report form attached as Addendum B:
i. the number of Application Services customers lost each month
divided by the total cumulative number of customers being
serviced;
ii. the average length of customer engagement; and
iii. peak usage per month per server in each server product category;
e. Within sixty (60) days of the Effective Date or once Company has
signed five (5) agreements with Third Parties for Application
Services, whichever occurs first, facilitate discussions with at least
five (5) representatives of such Third Parties (or potential Third
Party customers) who can provide business and technical insight
regarding their decision to acquire Application Services (e.g., the
discussions may take the form of jointly-funded anonymous focus
groups); and
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<PAGE> 4
f. Within thirty (30) days of the Effective Date and thereafter by the
end of each calendar quarter during the Term, have five to ten
customers on an anonymous basis complete a Microsoft-provided survey
regarding their use of Application Services and Hosted Products.
5. SUPPORT. This Agreement does not include technical or integration support
by Microsoft to Company or Company's Third Party customers. Company agrees
to provide commercially reasonable telephone support to Third Party
customers and, in connection therewith, must either (i) obtain and
continuously maintain a Microsoft Premier support services agreement, or
(ii) obtain support services through the Microsoft Professional support
program with prepayment for at least ten (10) incidents (or obtain similar
support for Hosted Products from another support services provider).
6. FACILITATING COMPLIANCE.
a. NOTICE TO USERS. The Company shall use reasonable efforts to make its
employees, agents and other individuals using the Hosted Products under
this Agreement aware that the Hosted Products (i) are licensed by
Microsoft, (ii) may only be used subject to the terms and conditions
contained in this Agreement and the applicable ASLA, and (iii) may not
be copied, transferred or otherwise used in violation of such terms and
conditions. Upon request, Microsoft shall provide Company a form of
notice which may be used to satisfy this requirement with respect to
use of or access to Hosted Products by Company customers and their end
users.
b. AUDIT. During the Term and for two (2) years thereafter. Company
agrees to keep all usual and proper records relating to its
reproduction and use of the Hosted Products. Notwithstanding the
provisions of the applicable ASLA, in order to verify Company's
compliance with the terms of this Agreement, during the Term and for
two (2) years thereafter, Microsoft may cause (i) an audit to be made
of Company's books and records and/or (ii) an inspection to be made of
Company's facilities and procedures. Microsoft may cause an audit to be
made only one time per twelve (12) month period so long as no material
unlicensed use of Hosted Products is found to exist. Should any
material unlicensed use of Hosted Products be found during an audit,
then Microsoft may perform another audit within the same twelve (12)
month period. Any audit and/or inspection shall be conducted during
regular business hours at Company's facilities, with at least three (3)
days' notice, and in such a manner as not to interfere unreasonably
with the operations of the Company. Any audit shall be conducted by an
independent certified public accountant selected by Microsoft (other
than on a contingent fee basis). Prior to an audit, Micrsoft will enter
into a non-disclosure agreement with the independent public accountant
performing the audit that will obligate such independent public
accountant to hold in confidence any of Company's or Company
affiliates' confidential information, including any unrelated
financial, business and technical information observed in the course of
the audit. Company agrees to provide Microsoft's designated audit or
inspection team access to the relevant Company records and facilities.
Company shall promptly acquire sufficient Licenses to cover all usage
disclosed by any such audit. In addition, if any such audit discloses
material unlicensed use of Hosted Products, Company shall pay to
Microsoft an amount equal to: (i) the reasonable expenses incurred in
conducting such audit; plus (ii) an additional License fee of twenty
percent (20%) of the price established by Microsoft (as set forth on
the then current Hosted Product Price List) of the Licenses required to
be acquired pursuant to the preceding sentence. For purposes of this
section, "material unlicensed use of Hosted Products" shall exist if,
upon audit, it is determined that, with respect to any Hosted Product
the Company has Licenses for fewer than ninety-five percent (95%) of
the copies made or access rights provided which are disclosed by the
audit. Microsoft shall use the information obtained or observed in the
audit solely for the purposes of (x) determining whether the Company
has sufficient Licenses for the Hosted Products it is using and has
otherwise complied with the terms of this Agreement, (y) enforcing its
rights under this Agreement and any applicable laws, and (z)
determining if Company has accurately reported Third Party contract
information to Microsoft. Microsoft will hold all such information in
confidence.
7. TERM; TERMINATION.
a. TERM. Company may obtain Licenses for Hosted Products under the terms
of this Agreement following the Effective Date through June 30, 2000
(the "Term") unless this Agreement is otherwise terminated as provided
below. Notwithstanding the foregoing, if this Agreement has not been
terminated by Microsoft as a result of Company's breach and if Company
has contracted with a Third Party customer to provide Application
Services, the Term shall be extended solely for the purpose of enabling
Company to continue offering the Licenses required to support such
Third Party customer for the existing contract period between Company
and its Third Party customer or twenty-four (24) months, whichever is
shorter.
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b. TERMINATION. Either party may terminate this Agreement for cause, as a
result of a breach by the other party of any of the terms and
conditions of this Agreement, upon thirty (30) days' prior written
notice advising the breaching party of the nature of the breach,
provided such breach is not thereafter cured within such thirty (30)
day period. In the event Company fails to (i) obtain within sixty (60)
days of the Effective Date and thereafter maintain Microsoft Certified
Solution Provider "partner" status; (ii) at all times during the Term
to employ at least two Microsoft Certified Solution Engineers, one
Microsoft Certified Database Administrator and one Microsoft Certified
Solutions Developer; or (iii) complete a Microsoft Data Center and
Service Readiness Assessment within ninety (90) days of the Effective
Date for existing data centers and prior to completion for new data
centers, Microsoft may terminate this Agreement upon thirty (30) days'
prior written notice, provided such requirements are not thereafter
met within such thirty (30) day period. Notwithstanding the foregoing,
a breach by Company of Section 8 or a breach in a material respect of
any provision of the ASLA shall constitute grounds for immediate
termination of this Agreement, upon written notice and without an
opportunity to cure.
c. OBLIGATIONS ON TERMINATION OR EXPIRATION. Except as provided in
Section 7.a., termination or expiration of this Agreement shall
automatically terminate the rights of Company under it, including the
right to make and use additional copies of Hosted Products pursuant to
the terms of the ASLA. Upon termination or expiration of this
Agreement, Company shall immediately submit an order for any Licenses
based on actual usage to the date of such termination or expiration
which have not been previously ordered and which by the terms of the
ASLA are required to be ordered after the month of actual usage, such
as Hosted Subscriber Access Licenses. Licenses ordered by Company and
for which Company has paid prior to the termination or expiration of
this Agreement shall continue, and expire if appropriate, according to
their terms notwithstanding the termination or expiration of this
Agreement. Notwithstanding the foregoing, upon termination or
expiration of this Agreement or at the end of any extension provided
in Section 7.a. with respect to a particular Third Party customer),
Company shall deliver to Microsoft, or at Microsoft's direction,
destroy (and have all Third Party customers destroy, if applicable),
all units of Hosted Products which were installed or copied pursuant
to this Agreement. There shall be no refund of amounts paid for Hosted
Products which have been so returned or destroyed.
8. PROHIBITION ON ASSIGNMENT. This Agreement, and any rights or obligations
hereunder, shall not be assigned, sublicensed or otherwise transferred by
Company, whether by contract, merger, operation of law, or otherwise,
without the prior written approval of Microsoft, which approval shall not
be unreasonably withheld. Microsoft may transfer its respective rights and
obligations hereunder to any Affiliate without the prior written approval
of Company; provided that Microsoft shall remain liable, in accordance with
this Agreement, for all Licenses it has provided or was obligated to have
provided prior to the date of transfer. Any prohibited assignment is null
and void.
9. WARRANTIES.
a. YEAR 2000 WARRANTY. For purposes of this section, "Year 2000 Warranted
Product" means the specific version of each Hosted Product identified
in the Product Guide on the Effective Date, by version number and
language, as "compliant" or "compliant with minor issues", and any new
products (including new versions of Hosted Products) commercially
released after the Effective Date; and "Product Guide" means the
Microsoft Year 2000 Product Guide located on the Microsoft Year 2000
Resource Center web page (http://microsoft.com/year2000/). Microsoft
warrants that each Year 2000 Warranted Product, when run with accurate
date data and in accordance with its documentation and the
recommendations and exceptions set forth in the Product Guide, will
recognize the year 2000 as a leap year and will not produce material
errors processing date data in connection with the year change from
1999 to 2000, as long as, and only to the extent that, all other
information technology used in combination with such Year 2000
Warranted Product (e.g., software, firmware, hardware) properly
exchanges date data with it. This warranty does not extend or apply to
user customizable features or Third Party add-on features or products,
including items such as macros and custom programming or formatting
features. If Company reports to Microsoft on or before June 1, 2000
that a Year 2000 Warranted Product does not meet this warranty,
Microsoft will: (i) exercise reasonable efforts to correct any
material non-compliance which is generally reported by other users;
and (ii) provide any resulting correction to Company, without charge,
when it is available for distribution. This is Company's exclusive
remedy for any failure of a product to function as described in this
Section 9, or for any other Year 2000-related failure of a Hosted
Product.
b. ACCEPTANCE AND LIMITED WARRANTY. Microsoft warrants that each of the
Hosted Products conforms substantially to the Hosted Product end user
documentation.
i. If any Hosted Product fails to conform substantially to the
Hosted Product documentation, then within thirty (30) days after
Microsoft's delivery to Company of each release of a Hosted
Product licensed hereunder,
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Company may report such deviations from the documentation
("Deviations") to Microsoft in writing. If Company reports
any Deviations prior to acceptance, then Microsoft shall have
sixty (60) days to correct such Deviations. Upon delivery of a
corrected release of the Hosted Product to Company, Company
shall have thirty (30) days in which to reject the Hosted
Product for failure to meet Hosted Product end user
documentation. If Company does not so reject, it shall be
deemed to have accepted the Hosted Product.
ii. If Company does not report Deviations within the applicable
thirty (30) day period described in Section 9.b.i., or if
Company uses the Hosted Product in connection with a customer
for revenue, Company shall be deemed to have accepted the
Hosted Product. If Microsoft fails to correct Deviations prior
to acceptance, then as Company's sole remedy Company may
terminate this Agreement with respect to such release of a
Hosted Product.
iii. If following acceptance of a Hosted Product, but during the
term of this Agreement, Company reports any significant
Deviations, and such Deviations have been already reported, or,
after Company's report, are reported commonly by other
Microsoft licensee's and are acknowledged by Microsoft, then as
Company's sole remedy, Microsoft agrees to use commercially
reasonable efforts to correct such Deviations and provide
corrections to Company at such time as Microsoft makes such
corrections generally available to other Microsoft licensees.
c. DISCLAIMER OF WARRANTIES. EXCEPT AS PROVIDED IN SECTIONS 9.a. AND
9.b., TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, MICROSOFT
AND ITS SUPPLIERS HEREBY DISCLAIM ALL WARRANTIES AND CONDITIONS,
EITHER EXPRESS, IMPLIED OR STATUTORY, INCLUDING, BUT NOT LIMITED TO,
ANY (IF ANY) IMPLIED WARRANTIES OR CONDITIONS OF MERCHANTABILITY, OF
FITNESS FOR A PARTICULAR PURPOSE, OF LACK OF VIRUSES, OF ACCURACY OR
COMPLETENESS OF RESPONSES, OF RESULTS, AND OF LACK OF NEGLIGENCE OR
LACK OF WORKMANLIKE EFFORT, ALL WITH REGARD TO THE HOSTED PRODUCTS.
ALSO, THERE IS NO WARRANTY OR CONDITION OF TITLE, QUIET ENJOYMENT,
QUIET POSSESSION, CORRESPONDENCE TO DESCRIPTION OR NON-INFRINGEMENT
WITH REGARD TO THE HOSTED PRODUCTS. THE ENTIRE RISK AS TO THE
QUALITY OF OR ARISING OUT OF USE OR PERFORMANCE OF THE SOFTWARE, IF
ANY, REMAINS WITH COMPANY.
10. DEFENSE OF COPYRIGHT INFRINGEMENT CLAIM.
a. Microsoft will defend Company and any Company Affiliate against a
claim by an unaffiliated third party that any Hosted Product
infringes its copyright and pay the amount of any resulting adverse
final judgment (or settlement to which Microsoft consents):
provided Company notifies Microsoft promptly in writing of the
claim and gives Microsoft sole control over its defense or
settlement. Company agrees to provide Microsoft with reasonable
assistance in defending the claim.
b. Microsoft will not be liable for any copyright infringement claim
to the extent that the claim is based on Company's (i) running of
the Hosted Product after Microsoft notifies Company to discontinue
running due to such a claim; or (ii) combining the Hosted Product
with a non-Microsoft product, program or data if such claim would
not have arisen but for such combination; or (iii) altering the
Hosted Product if such claim would not have arisen but for such
alteration. Company will reimburse Microsoft for any costs or
damages that result from these actions.
c. If Microsoft receives information concerning a copyright
infringement claim related to a Hosted Product, Microsoft may, at
its expense and without obligation to do so, either (i) procure for
Company the right to continue to run the allegedly infringing Hosted
Product, or (ii) replace or modify the Hosted Product to make it
non-infringing, in which case, Company must stop running the
allegedly infringing Hosted Product immediately.
d. If any other third party claim is brought against Company or any of
Company's Affiliates regarding intellectual property of Microsoft,
Company must notify Microsoft promptly. Microsoft may, at its
option, choose to treat these claims in the same way as Microsoft
treats a copyright infringement claim.
11. EXCLUSION OF INCIDENTAL, CONSEQUENTIAL AND CERTAIN OTHER DAMAGES. To the
maximum extent permitted by applicable law, in no event shall either party
or its suppliers be liable for any special, incidental, indirect, or
consequential damages whatsoever (including, but not limited to, damages
for loss of profits or confidential or other information, for business
interruption, for personal injury, for loss of privacy, for failure to
meet any duty including of good faith or of reasonable care, for
negligence, and for any other pecuniary or other loss whatsoever) arising
out of or in any way related to the use of or inability to use the Hosted
Products, or otherwise under or in connection with any provision of this
Agreement, even in the event of the fault, tort (including negligence),
strict liability, breach of contract
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or breach of warranty of Microsoft or any supplier, and even if the injured
party or any supplier has been advised of the possibility of such damages;
provided however that the exclusion of consequential damages shall not apply
with regard to the extent of Section 10.
12. LIMITATION OF LIABILITY AND REMEDIES. Notwithstanding any damages that
Company might incur for any reason whatsoever (including, without
limitation, all damages referenced above and all direct or general
damages), the entire liability of Microsoft and any of its suppliers
under any provision of this Agreement and Company's exclusive remedy
for all of the foregoing (except for any remedy of repair or replacement
elected by Microsoft with respect to any breach of the Limited Warranty)
shall be limited to the greater of the amount actually paid by Company
for the Hosted Products or U.S. $250,000. The foregoing limitations,
exclusions and disclaimers (including Sections 9.c. and 11 and this
Section 12) shall apply to the maximum extent permitted by applicable
law, even if any remedy fails its essential purpose.
13. MISCELLANEOUS.
a. ENTIRE AGREEMENT. This Agreement, including any Addenda attached
hereto and the ASLA and the Hosted Product Price List in effect from
time to time and Licenses obtained hereunder, once accepted by
Microsoft as evidenced by Microsoft's signature and the issuance of an
Agreement Number, constitutes the entire agreement between Microsoft
and the Company concerning the subject matter hereof and merges all
prior and contemporaneous communications with respect to such subject
matter. The terms and conditions of these documents shall control over
any provisions in any purchase order. To the extent that there is any
direct inconsistency between the terms contained in this Agreement and
the ASLA, the terms of this Agreement shall control. For the avoidance
of doubt, in the event that a subject or a particular use is addressed
in a provision in the ASLA and not in the Agreement, such provision in
the ASLA shall control. Except for the Hosted Product Price List and
ASLA, any representations, promises or conditions in connection with
this Agreement not in writing signed by all affected parties shall not
be binding. This Agreement, other than the Hosted Product Price List,
ASLA, may only be changed by a written instrument signed by both
parties. The ASLA may be amended by Microsoft as provided in Section
2.b. and the Hosted Product Price List may be amended by Microsoft as
provided in Section 3.b.
b. NOTICES. All notices, authorizations and requests in connection with
this Agreement shall be deemed given on the day they are (i)
deposited in the mail, postage prepaid, certified or registered,
return receipt requested; (ii) sent by air express courier (e.g.,
DHL, Federal Express, Airborne), charges prepaid, confirmation
requested; and addressed as provided beneath the parties' respective
signatures below; or (iii) sent via e-mail to the e-mail address for
Company provided below in the case of changes to the ASLA; or
(iv) posted on the World Wide Web in the case of changes to the
Hosted Product Price List.
c. TAXES.
i. The amounts to be paid by Company to Microsoft herein do
not include any foreign, U.S. federal, state, local, municipal or
other governmental taxes, duties, levies, fees, excises or tariffs,
arising as a result of or in connection with the transactions
contemplated under this Agreement including, without limitation, any
state or local sales or use taxes on any value added tax or business
transfer tax now or hereafter imposed on the provision of goods and
services to Company by Microsoft under this Agreement, regardless of
whether the same are separately stated by Microsoft. All such taxes
(and any penalties, interest, or other additions to any such taxes),
with the exception of taxes imposed on Microsoft's net income or
with respect to Microsoft's property ownership, shall be the
financial responsibility of Company. Company agrees to indemnify,
defend and hold Microsoft harmless from any such taxes or claims,
causes of action, costs (including, without limitation, reasonable
attorneys' fees) and any other liabilities of any nature whatsoever
related to such taxes.
ii. Company will pay all applicable value added, sales and use
taxes and other taxes levied on it by a duly constituted and
authorized taxing authority on the software or other products
provided under this Agreement or any transaction related thereto in
each country in which the services and/or property are being provided
or in which the transactions contemplated hereunder are otherwise
subject to tax, regardless of the method of delivery. Any taxes that
(i) are owed by Company as a result of entering into this Agreement
and the payment of the fees hereunder, (ii) are required or permitted
to be collected from Company by Microsoft under applicable laws, and
(iii) are based upon the amounts payable under this Agreement (such
taxes described in (i), (ii), and (iii) above the "Collected Taxes"),
shall be remitted by Company to Microsoft, whereupon, upon request,
Microsoft shall provide to Company tax receipts or other evidence
indicating that such Collected Taxes have been collected by Microsoft
and remitted to the appropriate taxing authority. Company may provide
to Microsoft an exemption certificate acceptable to Microsoft and to
the relevant taxing authority (including without limitation a resale
certificate) in which case, after the date
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<PAGE> 8
upon which such certificate is received in proper form. Microsoft shall not
collect the taxes covered by such certificate.
iii. If, after a determination by foreign tax authorities, any taxes
are required to be withheld, on payments made by Company to Microsoft,
Company may deduct such taxes from the amount owed Microsoft and pay them
to the appropriate taxing authority; provided however, that Company shall
promptly secure and deliver to Microsoft an official receipt for any such
taxes withheld or other documents necessary to enable Microsoft to claim a
U.S. Foreign Tax Credit. Company will make certain that any taxes withheld
are minimized to the extent possible under applicable law.
iv. This tax section shall govern the treatment of all taxes arising
as a result of, or in connection with, this Agreement notwithstanding any
other section of this Agreement.
d. GOVERNING LAW. This Agreement shall be construed and controlled by the
laws of the State of Washington.
e. SURVIVAL. Provisions of Sections 3.c., 6, 7.a. and c., 9.c., 11, 12 and 13
of this Agreement and the applicable ASLA for any fully-paid up Licenses
shall survive the termination or expiration of this Agreement.
f. ATTORNEYS FEES. If either party employs attorneys to enforce any rights
arising out of or relating to this Agreement, the prevailing party shall be
entitled to recover its reasonable attorneys' fees, costs and other
expenses.
g. CONFIDENTIALITY. The terms and conditions of this Agreement are
confidential. Neither party shall disclose such terms and conditions, nor
the substance of any discussions that led to them, to any Third Party other
than an Affiliate or agent, or financial or legal advisors who have a need
to know such information and who have been instructed that all such
information is to be handled in strict confidence.
i. PUBLIC ANNOUNCEMENTS. Company shall not make any public announcement about
this Agreement without the written consent of Microsoft, which consent
shall not be unreasonably withheld or delayed. The foregoing, however,
shall not limit Company in describing its Application Services offerings to
Third Parties. Company may at any time make announcements which are
required by applicable law, regulatory bodies, or stock exchange or stock
association rules, so long as the party so required to make the
announcement, promptly upon learning of such requirement, notifies
Microsoft of such requirement and discusses with Microsoft in good faith
the exact wording of any such announcement.
The undersigned Company represents and warrants that it will be providing
Application Services as defined above and therefore qualifies as a Application
Service Provider, and agrees to the terms and conditions of this Agreement.
This Agreement does not constitute an offer by Microsoft and is not legally
binding until executed by each party. ALL FIELDS MUST BE COMPLETED BY COMPANY
IN ORDER FOR MICROSOFT TO ACCEPT AND EXECUTE THIS AGREEMENT.
Name of Company:
FutureLink Corporation MSLI, LLC
- --------------------------------- ------------------------------------
By: /s/ BARRY ARONOFF By:
------------------------------ ---------------------------------
(signature) (signature)
Name: Barry Aronoff Name:
---------------------------- -------------------------------
(printed) (printed)
Title: Vice President- Title:
Business Alliance ------------------------------
-------------------------- (printed)
(printed)
Date: 12/23/99 Date:
---------------------------- -------------------------------
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<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
This Agreement and attached documents MSLI, LLC Telephone Number (area code - phone number):
should be sent to the following address for 6200 Neil Road (775) 823-5600
processing and approval: Suite 210
Reno, NV 89511-1137 Facsimile Number (area code - phone number):
Attention: (775) 826-7287
Dept. 551, Volume Licensing
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
As provided in section 9.b., notices required or permitted under this Agreement
should be addressed to the contact and locations outlined below. If the
information below changes during the Term, each party will notify the other
party in writing on company letterhead:
<TABLE>
<CAPTION>
COMPANY INFORMATION MICROSOFT INFORMATION
<S> <C>
Application Service Provider Name
FutureLink MSLI, LLC
- ------------------------------------------------------------------------------------------------
Street address and/or post office box Street address and/or post office box
6 Morgan, Ste. 100 6100 Neil Road, Suite 210
- ------------------------------------------------------------------------------------------------
City and State/Province City and State/Province
Irvine, CA Reno, NV
- ------------------------------------------------------------------------------------------------
Country and Postal Code Postal Code
USA 92618 89511-1137
- ------------------------------------------------------------------------------------------------
Contact Name and Title Attention
Barry Aronoff - Vice President/ Volume Licensing, Dept. 551
Business Alliance
- ------------------------------------------------------------------------------------------------
Phone Number Phone Number
974-837-8252 (775) 823-5600
- ------------------------------------------------------------------------------------------------
Fax Number Fax Number
974-837-8387 (775) 826-7287
- ------------------------------------------------------------------------------------------------
E-Mail Address
[email protected]
- ------------------------------------------------------------------------------------------------
ALL NOTICES should have Copy To:
Microsoft Corporation
Law and Corporate Affairs
One Microsoft Way
Redmond, Washington USA 98052
Attention: Product Development & Marketing
-------------------------------------------------
And to:
-------------------------------------------------
Microsoft Account Manager Name
-------------------------------------------------
Office Location
-------------------------------------------------
E-mail Address (if applicable)
-------------------------------------------------
</TABLE>
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ADDENDUM A -- SAMPLE ORDER FORM
-- S A M P L E --
<TABLE>
<CAPTION>
HOSTED PRODUCTS LICENSE ORDER
- --------------------------------------------------------------------------------------------------------------------------------
COMPANY NAME:
--------------------
AGREEMENT NUMBER:
--------------------
REPORT FOR THE MONTH ENDING:
--------------------
- --------------------------------------------------------------------------------------------------------------------------------
THIRD PARTY
NAME/ADDRESS THIRD
(STREET, CITY, PARTY THIRD THIRD
STATE/PROVINCE, AGREEMENT PARTY PARTY
MICROSOFT PRODUCT USAGE UNIT EXTENDED POSTAL CODE, NUMBER AGREEMENT AGREEMENT
LINE PART NUMBER DESCRIPTION COUNTRY QUANTITY PRICE AMOUNT COUNTRY) W/CO. START DATE END DATE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1
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2
- --------------------------------------------------------------------------------------------------------------------------------
3
- --------------------------------------------------------------------------------------------------------------------------------
4
- --------------------------------------------------------------------------------------------------------------------------------
5
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6
- --------------------------------------------------------------------------------------------------------------------------------
7
- --------------------------------------------------------------------------------------------------------------------------------
8
- --------------------------------------------------------------------------------------------------------------------------------
9
- --------------------------------------------------------------------------------------------------------------------------------
10
- --------------------------------------------------------------------------------------------------------------------------------
11
- --------------------------------------------------------------------------------------------------------------------------------
12
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13
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</TABLE>
The undersigned hereby certifies that to the best of his/her knowledge that
this Hosted Products License Order for the Application Services Agreement
between Microsoft and Company is true and accurate.
SIGNATURE THIS REPORT SHOULD BE SENT TO THE
- ------------------ FOLLOWING:
PRINTED NAME
- ------------------ E-mail: [email protected]
TITLE
- ------------------
DATE
- ------------------
TELEPHONE NUMBER
- ------------------
E-MAIL ADDRESS
- ------------------
Page 10
<PAGE> 1
EXHIBIT 10.25
[MICROSOFT CORPORATION LETTERHEAD]
MICROSOFT(R) DIRECT COMMERCIAL SERVICE LICENSE AGREEMENT
AGREEMENT NUMBER 40000707
EFFECTIVE START DATE MAY 21, 1999
EFFECTIVE END DATE JUNE 30, 2001
MICROSOFT ACCT. MGR. MIKE VANDERIES
DAVID BOLINK
FUTURELINK DISTRIBUTION CORPORATION
#300, 250-6TH AVE SW
CALGARY, ALBERTA T2P 3H7
CANADA
May 24, 1999
Welcome
This letter confirms that Microsoft has received and processed your Direct
Commercial Service License Agreement and that you may now obtain media from
Microsoft World Wide Fulfillment ("WWF") for the Commercial Use Products. Below
is the information on how you may obtain the media by Region. You may also
purchase full packaged product from any reseller. All orders fulfilled through
WWF must be prepaid, no credit terms will be extended.
OBTAINING MICROSOFT PRODUCTS FOR COMMERCIAL USE - SECTION 2(d)
<TABLE>
<CAPTION>
REGION PHONE FAX EMAIL
- -------------------- -------------- -------------- -----------------------------
<S> <C> <C> <C>
UNITED STATES (800) 248-0655 (800) 554-8261 [email protected]
CANADA, LATAM, NA NA [email protected]
SE ASIA, FAR EAST,
SOUTH PACIFIC
EUROPE, AFRICA, (353) 1-803-7210 (353) 1-803-7216 English: [email protected]
MIDDLE EAST French: [email protected]
German: [email protected]
Italian: [email protected]
Swedish/Finnish/Norwegian/Danish:
[email protected]
Spanish: [email protected]
Portuguese: [email protected]
</TABLE>
If you have any questions regarding the Microsoft Direct Commercial Service
Agreement, please contact your Microsoft Account Manager.
Sincerely,
Microsoft Special Agreements
(c) 1999 Microsoft Corporation. All rights reserved. Microsoft is a registered
trademark of Microsoft Corporation in the United States and/or other countries.
<PAGE> 2
MICROSOFT WILL COMPLETE:
Direct Commercial Agreement Number 40000707
MICROSOFT DIRECT COMMERCIAL SERVICE LICENSE AGREEMENT
This Microsoft Direct Commercial Service License Agreement (this
"Agreement") is by and between the Commercial Service Provider which has
executed this Agreement below ("Company") and Microsoft Corporation, a
Washington corporation ("Microsoft").
OVERVIEW - Microsoft Direct Commercial Service licensing is a program that
allows a Commercial Service Provider to copy, and obtain Licenses to use,
Microsoft software products for Commercial Services. A Commercial Service
Provider is responsible for obtaining the necessary media for each Commercial
Use Product it wishes to copy and use. Media may be obtained directly from
Microsoft World Wide Fulfillment or through any reseller as full package
product. A Commercial Service Provider is then permitted to make one or more
copies of each such product pursuant to the terms contained in this Agreement,
subject to an obligation to order one or more Licenses from Microsoft for each
copy. For each License ordered, the Commercial Service Provider will pay
Microsoft the fees outlined in the Microsoft Direct Commercial Price List in
effect at the time the relevant order is submitted to Microsoft. A Commercial
Service Provider is permitted to acquire Licenses for Commercial Services only
and may not acquire Licenses under this Agreement for its internal use or for
the internal use of its Affiliates.
1. DEFINITIONS. Unless otherwise defined, all capitalized terms used in this
Agreement shall have the meanings provided below:
"AGREEMENT" shall mean this Direct Commercial Service License Agreement
and any Addenda attached hereto.
"AFFILIATE" shall mean a company or legal entity which owns or controls,
is owned or controlled by, or is under common ownership or control with,
the Company or Microsoft as applicable.
"COMMERCIAL SERVICE PROVIDER" shall mean an individual or entity that
provides Commercial Services to a Third Party. Examples of Commercial
Services are set forth below.
"COMMERCIAL SERVICES" shall mean software services provided to Third
Parties such that the Third Party does not have to acquire the Licenses itself.
Commercial Services does not include services provided to Company's Affiliates
for their own internal use. Examples of Commercial Services include (but are not
limited to):
o Services provided as part of an Internet access service for Third Parties,
such as providing online services or Internet access for consumers or
businesses;
o Hosting communications services for Third Parties, such as virtual private
network, voice over IP, video conferences, etc.;
o Hosting an E-Commerce, Internet, Intranet and/or Extranet web site(s) on
behalf of a Third Party through either shared or dedicated servers;
o Hosting application services on behalf of a Third Party by providing file
and print, database, messaging or E-Commerce capabilities;
o Hosting software applications on behalf of a Third Party which includes
asset management, software distribution and management, network
management and performance tuning, etc.; and
o Hosting Independent Software Vendor applications where Third Parties'
applications are built on top of Microsoft technology.
"COMMERCIAL USE PRODUCTS" shall mean the Microsoft software products which
Microsoft makes available for Commercial Services to Commercial Service
Providers and which may be reproduced pursuant to this Agreement. The Direct
Commercial Price List will contain the entire list of available Commercial Use
Products. Microsoft may change the list of available Commercial Use Products at
any time, and from time to time, to add or remove products.
"COMMERCIAL USE LICENSE AGREEMENT" or "CULA" shall mean the document which
contains the specific terms and conditions pursuant to which use of a
particular Commercial Use Product is subject. This document will be provided to
Direct Commercial Service License Agreement
(Version 1.0 - 4/23/99) Page 1 of 10
<PAGE> 3
Company by Microsoft or made available to Company by publication on the World
Wide Web at a site identified by Microsoft to Company or made available to
Company by some other means prior to the placement of any orders.
"EFFECTIVE DATE" shall mean the date this Agreement is signed by Microsoft.
"LICENSE" shall mean a right granted by Microsoft to use or access a copy of
a Commercial Use Product (e.g., a Commercial Service Server License) subject
to this Agreement, the CULA(s) for such Commercial Use Product and the
Product List.
"PRODUCT LIST" shall mean the Direct Commercial Service Licensing Product
List, or any subsequent version thereof, which is made available to the
Company by or on behalf of Microsoft from time to time and identifies
specific terms and conditions (in addition to those provided in the CULA(s)
and this Agreement) for particular Commercial Use Products.
"THIRD PARTY" shall mean an individual, company or legal entity ("person")
other than (i) an Affiliate, (ii) persons employed by the Company (as an
employee, contractor or in any other capacity), (iii) persons providing goods
or services to the Company (for example, a supplier) or (iv) persons
providing goods or services on behalf of the Company (for example a
distributor or reseller).
2. ORDERING OF LICENSES.
a. PURCHASE ORDER AND THIRD PARTY INFORMATION. The Company shall submit to
Microsoft an order for a License for each copy (or access right) of a
Commercial Use Product it has made (or provided) during the immediately
preceding calendar month. Each order shall specify the country of usage of
each copy made (or access right provided) and shall provide other
information relative to Licenses acquired on behalf of Third Parties. In
addition, the order shall contain information on newly formed contracts
between Company and Third Parties for Commercial Services utilizing
Microsoft Commercial Use Products. This order shall be in the form
attached as Addendum A, as such form may be modified by Microsoft from
time to time. The order must be delivered to Microsoft, on a calendar
monthly basis, no later than the 15th day of the month, whether or not any
copies were made or access rights provided in the preceding month. A
Company's failure to submit an order within the required time frame shall
be grounds for termination of this Agreement, and use rights shall expire
for any copies made by the Company pursuant to this Agreement for which
the Company has not ordered and paid. Upon receipt of Company's order(s)
pursuant to this Section 2.a., Microsoft will issue an invoice indicating
the number and type of Licenses to Commercial Use Products acquired by the
Company and reported to Microsoft during a specified month. Such invoice,
together with proof/record of payment, shall constitute the confirmation
for such Licenses. Any information provided to Microsoft pursuant to this
order shall be used solely for revenue calculation, internal revenue
allocation, and billing purposes and shall not be used to directly target
or otherwise contact Third Party customers of Company without Company's
prior approval.
b. PRICING. The fees for Licenses shall be set by Microsoft from time to time
and shall be set forth on a Direct Commercial Price List which shall be
issued by Microsoft on a monthly basis. Microsoft shall determine the
method of delivery of such Direct Commercial Price List to Company.
Notwithstanding changes to the Direct Commercial Price List, if Company
has contracted with a Third Party customer to provide Commercial Services
and has acquired Licenses for Commercial Use Products for the benefit of
such Third Party customer, Microsoft shall not increase the fees for the
Licenses acquired for the benefit of such Third Party customer during (i)
the period of the existing contract between Company and such Third Party
customer or (ii) twenty-four (24) months, whichever is shorter.
c. PAYMENT TERMS. All amounts are due and owing net thirty (30) days after
date of invoice from Microsoft. All payments not received by Microsoft
from Company within the required time frame may be assessed a finance
charge of two percent (2%) of the invoice amount per month or the legal
maximum, whichever is less. Payment by the Company to Microsoft is not
contingent on payment by a Third Party customer to the Company. All
payments to Microsoft by Company shall be in the form of bank wire
transfer or electronic funds transfer through an Automated Clearing House
("ACH") with electronic remittance detail attached.
Direct Commercial Service License Agreement
(Version 1.0 - 4/23/99) Page 2 of 10
<PAGE> 4
Payment shall be remitted to:
WIRE TRANSFERS*:
Microsoft Services #844510
Attn: Special Agreement Payments
Account #3750825354
ABA #11100001-2
Nations Bank of Texas NA
Dallas, TX
* Remittance detail must be sent by: Fax: (425)936-7329,
Attention: Special Agreement Payments
Email: [email protected]
d. FULFILLMENT. Company may obtain the media for Commercial Use Products from
Microsoft World Wide Fulfillment ("WWF") or from any reseller of full
package product. All orders through WWF will require prepayment; no credit
terms will be extended. Contact information for WWF will be provided at
the time this Agreement is executed by Microsoft or as determined by
Microsoft from time to time.
3. LICENSE GRANTS.
a. LICENSE TO MAKE AND USE COPIES. Subject to its obligation to order and pay
for the appropriate number of Licenses in a timely fashion as set forth in
Section 2.a. above, at any time during the term hereof, the Company may
make and use copies of, and provide access to, the Commercial Use
Products. Any such copy may be made only from legally acquired media as
outlined in Section 2.d. above. All copies of Commercial Use Products made
pursuant to this Section must be true and complete copies, and must
include all copyright and trademark notices.
b. USE TERMS. Each copy made, or access right provided, pursuant to the right
granted in Section 3.a. above may be used only to provide Commercial
Services to Third Parties subject to and strictly in accordance with the
license grants, terms, conditions, limitations and restrictions contained
in this Agreement and the provisions of the then most recently released
version of the applicable CULA and Product List. Microsoft may amend any
CULA and/or the Product List at any time, and from time to time; provided,
however, that no such change will ever retroactively alter the terms under
which Company may use a copy of a Commercial Use Product previously
licensed to Company. If the requirements of the preceding sentence have
been complied with, the revised CULA(s) and/or Product List shall take the
place of the existing version(s) as of the effective date identified in
the notice, and each copy of a Commercial Use Product made on or after
that date shall be subject to the terms thereof, as amended. By signing
this Agreement, Company acknowledges that it and its Affiliates have
access to the World Wide Web.
c. PRINTED MATERIALS. Company may not copy any Microsoft guides, manuals or
other printed materials describing or explaining any of the Commercial Use
Products. The Company may acquire copies of any such guides, manuals or
other printed materials from WWF or from a Microsoft approved fulfillment
source in quantities that do not exceed, with respect to a Commercial Use
Product, the number of Licenses of such Commercial Use Product the Company
has acquired.
4. EVALUATION AND TESTING LICENSE. Microsoft hereby grants to Company a License
for up to sixty (60) days after the Effective Date to evaluate and test the
Commercial Use Products on the terms and conditions set forth below and for
no other purpose. Copies of Commercial Use Products for this purpose shall be
obtained as set forth above in Section 2.d. No License fee shall be due and
payable for such evaluation and testing License.
a. LICENSE GRANT. Company may reproduce, install and use an unlimited number
of copies of the Commercial Use Products within its own facilities solely
to evaluate the Commercial Use Products, subject to the rights and
limitations of Section 4.b. below. The Commercial Use Products may be
connected at any point in time to an unlimited number of workstations or
computers operating on one or more internal Company networks.
b. OTHER RIGHTS AND LIMITATIONS. Company may not reverse engineer, decompile,
or disassemble the Commercial Use Products, except and only to the extent
that such activity is expressly permitted by applicable law
notwithstanding this limitation. Company may not otherwise rent, lease, or
transfer the Commercial Use Products. Microsoft reserves all rights not
expressly granted herein.
Direct Commercial Service License Agreement
(Version 1.0 - 4/23/99) Page 3 of 10
<PAGE> 5
c. NO WARRANTIES. FOR PURPOSES OF THE EVALUATION AND TESTING LICENSE, THE
COMMERCIAL USE PRODUCTS AND ANY RELATED DOCUMENTATION ARE PROVIDED "AS IS"
WITHOUT WARRANTY OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING,
WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR
A PARTICULAR PURPOSE, OR INFRINGEMENT. THE ENTIRE RISK ARISING OUT OF USE
OR PERFORMANCE OF THE COMMERCIAL USE PRODUCTS REMAINS WITH COMPANY.
d. NO LIABILITY FOR DAMAGES. IN NO EVENT SHALL MICROSOFT OR ITS SUPPLIERS BE
LIABLE FOR ANY DAMAGES WHATSOEVER (INCLUDING, WITHOUT LIMITATION, DAMAGES
FOR LOSS OF BUSINESS PROFIT, BUSINESS INTERRUPTION, LOSS OF BUSINESS
INFORMATION, OR ANY OTHER PECUNIARY LOSS) ARISING OUT OF THE USE OF OR
INABILITY TO USE THE COMMERCIAL USE PRODUCTS, EVEN IF MICROSOFT HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
5. FACILITATING COMPLIANCE.
a. NOTICE TO USERS. The Company shall use reasonable efforts to make its
employees, agents and other individuals using the Commercial Use Products
under this Agreement aware that the Commercial Use Products (i) are
licensed by Microsoft, (ii) may only be used subject to the terms and
conditions contained in this Agreement and the applicable CULA(s) and
Product List, and (iii) may not be copied, transferred or otherwise used
in violation of such terms and conditions.
b. AUDIT. During the term of this Agreement and for two (2) years thereafter,
Company agrees to keep all usual and proper records relating to its
reproduction and use of the Commercial Use Products. Notwithstanding the
provisions of any particular CULA(s) and the Product List, in order to
verify Company's compliance with the terms of this Agreement, during the
term of this Agreement and for two (2) years thereafter, Microsoft may
cause (i) an audit to be made of Company's books and records and/or (ii)
an inspection to be made of Company's facilities and procedures. Any audit
and/or inspection shall be conducted during regular business hours at
Company's facilities, with at least three (3) days' notice, and in such a
manner as not to interfere unreasonably with the operations of the
Company. Any audit shall be conducted by an independent certified public
accountant selected by Microsoft (other than on a contingent fee basis).
Company agrees to provided Microsoft's designated audit or inspection team
access to the relevent Company records and facilities. In any event, the
Company shall promptly acquire sufficient Licenses to permit all usage
disclosed by any such audit. In addition, if any such audit discloses
material unlicensed use of Commercial Use Products, Company shall pay to
Microsoft an amount equal to: (i) the reasonable expenses incurred in
conducting such audit; plus (ii) an additional License fee of twenty
percent (20%) of the estimated retail price established by Microsoft of
the Licenses required to be acquired pursuant to the preceding sentence.
For purposes of this section, "material unlicensed use of Commercial Use
Product" shall exist if, upon audit, it is determined that, with respect
to any Commercial Use Product the Company has Licenses for fewer than
ninety-five percent (95%) of the copies disclosed by the audit. Microsoft
shall use the information obtained or observed in the audit solely for the
purposes of (x) determining whether the Company has sufficient Licenses
for the Commercial Use Products it is using and has otherwise complied
with the terms of this Agreement, (y) enforcing its rights under this
Agreement and any applicable laws, and (z) determining if customer has
accurately reported Third Party contract information to Microsoft.
Microsoft will hold all such information in confidence.
6. SUPPORT. This Agreement does not include technical or integration support by
Microsoft to Company or Company's Third Party customers. Company is strongly
encouraged to sign a Microsoft Consulting Services Agreement to address the
technical requirements needed to provide Commercial Services using Microsoft
technology. Company agrees to provide commercially reasonable telephone
support to Third Party customers and, in connection therewith, is required to
obtain technical support by means of a separate agreement with Microsoft, a
Microsoft Affiliate, a Microsoft Authorized Support Center, or a Microsoft
Solution Provider. Nothing in this provision shall be deemed to obligate
Microsoft or a Microsoft Affiliate to provide such technical support. Company
must indicate its intentions with regard to technical support on the Company
Information section provided beneath the parties' respective signatures
below.
7. TERM; TERMINATION.
a. TERM. Company may obtain Licenses for Commercial Use Products under the
terms of this Agreement following the Effective Date through June 30, 2001
(the "Term") unless this Agreement is otherwise terminated as provided
below. Notwithstanding the Term, if this Agreement has not been terminated
by Microsoft as a result of Company's breach and if Company has contracted
with a Third Party customer to provide Commercial Services, Microsoft
shall
Direct Commercial Service License Agreement
(Version 1.0 - 4/23/99) Page 4 of 10
<PAGE> 6
extend to Company the right to continue offering the Licenses required
to support such Third Party customer for the existing contract period
between Company and its Third Party customer or twenty-four (24)
months, whichever is shorter.
b. TERMINATION. Either party may terminate this Agreement for cause, as a
result of a breach by the other party of any of the terms and
conditions of this Agreement, upon thirty (30) days' prior written
notice advising the breaching party of the nature of the breach,
provided that such breach is not thereafter cured within such thirty
(30) day period. Notwithstanding the foregoing, a breach by Company of
Section 3.b., 8 or 9.c. of this Agreement or a breach in a material
respect of any provision of the CULA(s) and/or Product List shall
constitute grounds for immediate termination of this Agreement, upon
written notice and without an opportunity to cure.
c. OBLIGATIONS ON TERMINATION OR EXPIRATION. Except as provided in
Section 7.a., termination or expiration of this Agreement shall
automatically terminate the rights of Company under it, including the
right to make and use additional copies of Commercial Use Products
pursuant to the terms of this Agreement. Upon termination or
expiration of this Agreement, Company shall immediately submit an
order for any Licenses based on actual usage to the date of such
termination or expiration which have not been previously ordered and
which by the terms of the CULA(s) and/or Product List are required to
be ordered after the month of actual usage, such as Commercial Service
Access Licenses. Licenses ordered by Company and for which Company has
paid prior to the termination or expiration of this Agreement shall
continue, and expire if appropriate, according to their terms
notwithstanding the termination or expiration of this Agreement.
Notwithstanding the foregoing, upon termination of this Agreement as a
result of the Company's breach (and not as a result of any other
termination or expiration), Company shall deliver to Microsoft, or at
Microsoft's direction, destroy (and have all Third Party customers
destroy, if applicable), all units of Commercial Use Products for
which Licenses were acquired pursuant to this Agreement. There shall
be no refund of amounts paid for Commercial Use Products which have
been so returned or destroyed.
8. PROHIBITION ON ASSIGNMENT. Except as provided in Section 9.c., this
Agreement, and any rights or obligations hereunder, shall not be assigned,
sublicensed or otherwise transferred by Company, whether by contract,
merger, operation of law, or otherwise, without the prior written approval
of Microsoft. Microsoft may transfer its respective rights and obligations
hereunder to any Affiliate without the prior written approval of Company;
provided that Microsoft shall remain liable, in accordance with this
Agreement, for all Licenses it has provided or was obligated to have
provided prior to the date of transfer. Any prohibited assignment is null
and void.
9. MISCELLANEOUS.
a. ENTIRE AGREEMENT. This Agreement, including any Addenda attached
hereto and the CULA(s), the Product List and the Direct Commercial
Price List in effect from time to time and Licenses obtained
hereunder, once accepted by Microsoft as evidenced by Microsoft's
signature and the issuance of a Direct Commercial License Agreement
Number, constitutes the entire agreement between Microsoft and the
Company concerning the subject matter hereof and merges all prior and
contemporaneous communications with respect to such subject matter.
The terms and conditions of these documents shall control over any
provisions in any purchase order. To the extent that there is any
direct inconsistency between the terms contained in this Agreement and
the CULA(s) and/or Product List, the terms of this Agreement shall
control. Similarly, to the extent that there is any direct
inconsistency between the terms contained in the Product List and the
CULA, the terms of the Product List shall control. For the avoidance
of doubt, in the event that a subject or a particular use is addressed
in a provision in the CULA or the Product List and not in the
Agreement, such provision in the CULA or Product List, as applicable,
shall control. Except for the Direct Commercial Price List, CULA(s)
and Product List, any representations, promises or conditions in
connection with this Agreement not in writing signed by all affected
parties shall not be binding. This Agreement, other than the Direct
Commercial Price List, CULA(s) and Product List, may only be changed
by a written instrument signed by both parties. The CULA(s) and
Product List may be amended by Microsoft as provided in Section 3.b.
above and the Direct Commercial Price List may be amended by Microsoft
as provided in Section 2.b. above.
b. NOTICES. All notices, authorizations and requests in connection with
this Agreement shall be deemed given on the day they are (i) deposited
in the mail, postage prepaid, certified or registered, return receipt
requested; or (ii) sent by air express courier (e.g., DHL, Federal
Express, Airborne), charges prepaid, confirmation requested; and
addressed as provided beneath the parties' respective signatures
below.
Direct Commercial Service License Agreement
(Version 1.0 - 4/23/99) Page 5 of 10
<PAGE> 7
c. SUBLICENSE, TRANSFER OR ASSIGNMENT OF LICENSES.
i. APPLICABILITY. The rights set forth in this Section 9.c.
apply only with respect to Licenses which are perpetual; that is,
acquired by means of a one-time License fee as opposed to a monthly or
other periodic License fee.
ii. TO AFFILIATES. Subject to the requirements identified in
Section 9.c.v. below, Company may sublicense, transfer or assign
Licenses acquired under this Agreement to an Affiliate, but not to any
person or entity other than an Affiliate. The Company shall be
responsible for all acts and omissions of the Affiliates to which it
sublicenses, transfers or assigns Licenses. The Company shall require
any Affiliate to whom Company has sublicensed, transferred or assigned
Licenses to notify the local Microsoft subsidiary in the country where
such Affiliate will be using the Commercial Use Products that such
sublicense, transfer or assignment has occurred, or begun to occur.
iii. PURSUANT TO A MERGER, CONSOLIDATION OR DIVESTITURE. Subject
to the requirements identified in Section 9.c.v. below, the Company
(with respect to its validly-acquired Licenses) or any Affiliate to
which the Company has sublicensed, transferred or assigned
validly-acquired Licenses pursuant to the preceding paragraph, may
transfer such Licenses to any Third Party pursuant to a merger,
consolidation or other corporate/organizational divestiture or
acquisition, without the written consent of Microsoft.
iv. WITH CONSENT. Except as provided in Sections 9.c.ii. and
iii. above, Company may not sublicense, transfer or assign any
Licenses without the prior written consent of Microsoft, and any such
sublicense, transfer or assignment shall be null and void.
v. LIMITATIONS AND REQUIREMENTS. Company may not sublicense,
transfer or assign a License to any party unless (x) it transfers all
of the licensed Commercial Use Product (including all component
parts, the media and printed materials, any upgrades, the invoice from
Microsoft evidencing the rights being transferred, the proof/record of
payment and, if applicable, the Certificate of Authenticity); (y) the
recipient agrees in writing to the terms of the applicable CULA(s) and
Product List and of Sections 5 and 9 of this Agreement (in which event
such recipient shall be bound by all limitations and restrictions to
the same extent as if it was the "Company"); and (z) the recipient
certifies that it will use such Commercial Use Products for Commercial
Services and not for internal use. If the Company sublicenses,
transfers or assigns its rights in one or more Licenses identified on
any invoice to one or more of its Affiliates, then it shall provide a
copy of such invoice and proof/record of payment, to each such
Affiliate, identifying the number and type of Licenses which have been
sublicensed, transferred or assigned. If the Commercial Use Product is
an upgrade, any sublicense, transfer or assignment must include all
prior versions of the Commercial Use Product. A Company or Affiliate
may not sublicense, transfer or assign Licenses on a short-term basis.
d. TAXES.
i. The amounts to be paid by Company to Microsoft herein do not
include any foreign, U.S. federal, state, local, municipal or other
governmental taxes, duties, levies, fees, excises or tariffs, arising
as a result of or in connection with the transactions contemplated
under this Agreement including, without limitation, any state or local
sales or use taxes or any value added tax or business transfer tax now
or hereafter imposed on the provision of goods and services to Company
by Microsoft under this Agreement, regardless of whether the same are
separately stated by Microsoft. All such taxes (and any penalties,
interest, or other additions to any such taxes), with the exception of
taxes imposed on Microsoft's net income or with respect to Microsoft's
property ownership, shall be the financial responsibility of Company.
Company agrees to indemnify, defend and hold Microsoft harmless from
any such taxes or claims, causes of action, costs (including, without
limitation, reasonable attorneys' fees) and any other liabilities of
any nature whatsoever related to such taxes.
ii. Company will pay all applicable value added, sales and use
taxes and other taxes levied on it by a duly constituted and
authorized taxing authority on the software or other products provided
under this Agreement or any transaction related thereto in each
country in which the services and/or property are being provided or in
which the transactions contemplated hereunder are otherwise subject to
tax, regardless of the method of delivery. Any taxes that (i) are owed
by Company as a result of entering into this Agreement and the
payment of the fees hereunder, (ii) are required or permitted to be
collected from Company by Microsoft under applicable law, and (iii)
are based upon the amounts payable under this Agreement (such taxes
described in (i), (ii), and (iii) above the "Collected Taxes"), shall
be remitted by Company to Microsoft, whereupon, upon request,
Microsoft shall provide to Company tax receipts or other evidence
indicating that such Collected Taxes have been collected by Microsoft
and remitted to the
Direct Commercial Service License Agreement
(Version 1.0 - 4/23/99) Page 6 of 10
<PAGE> 8
appropriate taxing authority. Company may provide to Microsoft an
exemption certificate acceptable to Microsoft and to the relevant
taxing authority (including without limitation a resale certificate)
in which case, after the date upon which such certificate is received
in proper form, Microsoft shall not collect the taxes covered by such
certificate.
iii. Notwithstanding any provision herein to the contrary,
Customer agrees that each payment to be made to Microsoft hereunder
shall be free of all withholding taxes imposed by any jurisdiction,
and if any such withholding is required, Customer shall pay an
additional amount such that after deduction of all amounts required to
be withheld, the net amount of the payment will equal, on an after tax
basis, the amount of the payment that would be due absent such
withholding.
iv. This tax section shall govern the treatment of all taxes
arising as a result of, or in connection with, this Agreement
notwithstanding any other section of this Agreement.
e. GOVERNING LAW. This Agreement shall be construed and controlled by
the laws of the State of Washington.
f. SURVIVAL. Provisions of Sections 2.c., 3.b., 4.b., c. and d., 5., 7.a.
and c. and 9 of this Agreement, the applicable CULA(s) and Product
List for any fully-paid up Licenses, and warranty, limitation on
liability and indemnification provisions in the CULA(s) and Product
List for Licenses acquired pursuant to this Agreement, shall survive
the termination or expiration of this Agreement.
g. ATTORNEYS FEES. If either party employs attorneys to enforce any
rights arising out of or relating to this Agreement, the prevailing
party shall be entitled to recover its reasonable attorneys' fees,
costs and other expenses.
h. CONFIDENTIALITY. The terms and conditions of this Agreement are
confidential. Neither party shall disclose such terms and conditions,
nor the substance of any discussions that led to them, to any Third
Party or other than an Affiliate or agent, or financial or legal
advisors who have a need to know such information and who have been
instructed that all such information is to be handled in strict
confidence.
Direct Commercial Service License Agreement
(Version 1.0 - 4/23/99) Page 7 of 10
<PAGE> 9
The undersigned Company represents and warrants that it will be providing
Commercial Services as defined above and therefore qualifies as a Commercial
Service Provider, and agrees to the terms and conditions of this Agreement.
This Agreement does not constitute an offer by Microsoft and is not legally
binding until executed by each party. All fields must be completed by Company
in order for Microsoft to accept and execute this Agreement.
- -------------------------------------------------------------------------------
Name of Company: Name of Microsoft:
Futurelink Corporation Microsoft Corporation
- ----------------------------------- ----------------------------------
By: /s/ DAVID BOLINK By: /s/ RICHARD KERBS
-------------------------------- -------------------------------
(signature) (signature)
Name: David Bolink Name: Richard Kerbs
------------------------------ -----------------------------
(printed) (printed)
Title: Manager-Business Development Title: Group Manager
----------------------------- ----------------------------
(printed) (printed)
Date: May 20, 1999 Date: May 21, 1999
-------------- --------------
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
This Agreement and attached Microsoft Corporation Telephone Number (area code-phone number):
documents should be sent to One Microsoft Way (425) 882-8080
the following address for Redmond, WA 98052-6399
processing and approval: Attention: Facsimile Number (area code-phone number):
Special Agreements, Dept. 551 (425) 936-7329
</TABLE>
Direct Commercial Service License Agreement
(Version 1.0 - 4/23/99) Page 8 of 10
<PAGE> 10
As provided in Section 9.b above, notices required or permitted under this
Agreement should be addressed to the contact and locations outlined below. If
the information below changes during the term of the Direct Commercial Service
License Agreement, each party will notify the other party in writing on
company letterhead:
<TABLE>
COMPANY INFORMATION MICROSOFT INFORMATION
- --------------------------------------------------------------------------------------
<S> <C>
Commercial Service Provider Name
Futurelink Distribution Corporation MICROSOFT CORPORATION
- ---------------------------------------------------------------------------------------
Street Address and/or post office box Street Address and/or post office box
#300, 250 - 6th Ave S.W. ONE MICROSOFT WAY
- ---------------------------------------------------------------------------------------
City and State/Province City and State/Province
Calgary, Alberta REDMOND, WA
- ---------------------------------------------------------------------------------------
Country and Postal Code Postal Code
Canada T2P 3H7 98052-6399
- ---------------------------------------------------------------------------------------
Contact Name and title Attention
David Bolink - Manager Business Div. SPECIAL AGREEMENTS, DEPT 551
- ---------------------------------------------------------------------------------------
Phone Number Phone Number
(403) 509-5006 (425) 882-8080
- ---------------------------------------------------------------------------------------
Fax Number Fax Number
(403) 216-6050 (425) 936-7329
- ---------------------------------------------------------------------------------------
E-Mail Address
[email protected]
- ---------------------------------------------------------------------------------------
All NOTICES should have Copy To:
Microsoft Corporation
Law and Corporate Affairs
One Microsoft Way
Redmond, Washington USA 98052
Attention: U.S. Legal
- ---------------------------------------------------------------------------------------
And to:
- ---------------------------------------------------------------------------------------
Microsoft Account Manager Name
Mike Vanderlee
- ---------------------------------------------------------------------------------------
Office Location
Mississauga, Ont.
- ---------------------------------------------------------------------------------------
E-mail Address (if applicable)
[email protected])
- ---------------------------------------------------------------------------------------
</TABLE>
COMPANY INFORMATION REGARDING TECHNICAL SUPPORT (CHECK ONE OR MORE BOXES):
- --------------------------------------------------
[x] Company intends to sign a Microsoft Consulting
Services Agreement with Microsoft
- --------------------------------------------------
[ ] Company intends to sign a Premier Support
Agreement with Microsoft, or equivalent
offering from Microsoft
- --------------------------------------------------
[ ] Company intends to sign a service/support
agreement with a Microsoft Solution Provider
or Authorized Support Center
- --------------------------------------------------
Direct Commercial Service License Agreement
(Version 1.0 - 4/23/99) Page 9 of 10
<PAGE> 11
DIRECT COMMERCIAL SERVICE LICENSE ORDER
- -------------------------------------------------------------------------------
Company Name:
--------------------------
Agreement Number:
--------------------------
Report for the Month Ending:
---------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Microsoft Usage Third Party Third Party Third Party
Line Part Number Product Country Quantity Unit Price Extended Third Party Agreement Agreement Agreement
Description Price Name/Address Illegible Start Date End Date
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
1
- -----------------------------------------------------------------------------------------------------------------------------------
2
- -----------------------------------------------------------------------------------------------------------------------------------
3
- -----------------------------------------------------------------------------------------------------------------------------------
4
- -----------------------------------------------------------------------------------------------------------------------------------
6
- -----------------------------------------------------------------------------------------------------------------------------------
9
- -----------------------------------------------------------------------------------------------------------------------------------
10
- -----------------------------------------------------------------------------------------------------------------------------------
11
- -----------------------------------------------------------------------------------------------------------------------------------
12
- -----------------------------------------------------------------------------------------------------------------------------------
13
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The undersigned hereby certifies that to the best of his/her knowledge that this
Direct Commercial Service License Order for the Direct Commercial Service
License Agreement between Microsoft and Company is true and accurate.
<TABLE>
<S> <C>
Signature This report should be sent to one of the following:
- ----------------------------- Address:
Printed Name Microsoft Corporation
- ----------------------------- Attention: Special Agreement Reporting - Dept. 551
Title One Microsoft Way
- ----------------------------- Redmond, WA 98052-6399
Date
- ----------------------------- Fax #: (425) 936-7329
Telephone Number
- ----------------------------- E-mail: [email protected]
Email address
- ----------------------------
</TABLE>
Direct Commercial Service License Agreement
(Version 1.0 - 4/23/99) Page 10 of 10
<PAGE> 12
MICROSOFT(R) DIRECT COMMERCIAL SERVICE
LICENSING PRODUCT LIST
This Direct Commercial Service Licensing Product List is a supporting document
for the Direct Commercial Service License Agreement ("Agreement"). It outlines
additional terms and conditions for the available products which are not
addressed in the Agreement or the applicable Commercial Use License Agreements
("CULA(s)") for each product. Specific terms not defined in this document are
defined in either the CULA(s) or the Agreement.
MICROSOFT(R) GENERAL SERVER LICENSE CONDITIONS
1. LICENSE ORDER REQUIREMENTS - The number of access licenses acquired by a
Commercial Service Provider ("CSP") for access rights provided to a
particular Third Party customer who receives services using Microsoft
software cannot decrease with respect to such third Party customer for the
term of that Third Party customer's contract with the CSP. The CSP will be
required to pay ongoing fees for highest number of any access rights provided
to a particular Third Party customer. This means the number of Commercial
Service Access Licenses ("CSAL(s)") or Commercial Service Internet Connectors
cannot decrease once such licenses or access rights are provided to a Third
Party customer. For example, a Third Party customer with 1,000 employees
signs up with a CSP to provide Exchange e-mail services. In the first month
of service, the Third Party customer sets up a mailbox for each employee. The
CSP will be required to place a monthly order to Microsoft for at least 1,000
Exchange CSAL(s) for the duration of the contract with the Third Party
customer. The order number may not decrease with respect to this Third Party
customer.
2. "PER SERVER" MODE REQUIREMENT - For any servers which can be licensed in "per
server" mode, the CSP must place orders for Commercial Service Access
Licenses based on the server limit which is set on the server, rather than
the actual number of users during the month. The server limit may be
increased at any time, but may not be lowered to reduce the required number
of licenses owed to Microsoft.
AVAILABLE SERVER LICENSES:
MICROSOFT(R) BACKOFFICE(R)
MICROSOFT(R) EXCHANGE
PRODUCT CONDITION NOTES
1. "UPGRADING A MICROSOFT EXCHANGE SERVER WITHIN A CSP'S "EXCHANGE ORGANIZATION"
- Once a single Microsoft Exchange Server within a CSP's "Exchange
organization" is upgraded, resulting in a Microsoft Exchange Enterprise
environment, every other Microsoft Exchange Server within the CSP's "Exchange
organization" must be upgraded. An "Exchange organization" is defined as the
group of all Microsoft Exchange Servers providing Commercial Services.
MICROSOFT(R) PROXY SERVER
MICROSOFT(R) SNA SERVER FOR WINDOWS NT(R)
MICROSOFT(R) SQL SERVER(TM)
PRODUCT CONDITION NOTES
1. SQL SERVER 7.0 COMMERCIAL SERVICE INTERNET CONNECTOR ("CSIC") USAGE
RESTRICTIONS - SQL Server 7.0 CSIC licenses provide unlimited usage for the
Internet only. To use a SQL Server 7.0 CSIC with SQL Server 7.0 on the
Internet, a CSP must acquire a SQL Server 7.0 CSIC license for each Third
Party customer receiving the services of a server that is running SQL Server
7.0 or SQL Server 7.0, Enterprise Edition. SQL Server Commercial Service
Access Licenses must be acquired when the SQL Server 7.0 CSIC is utilized for
Intranet access (whether using a browser or not).
MICROSOFT(R) SYSTEMS MANAGEMENT SERVER
MICROSOFT(R) WINDOWS NT(R) SERVER
Direct Commercial Service Product List - May 1999 Page 1 of 1
<PAGE> 1
EXHIBIT 10.28
[ONYX LOGO]
HOSTING SERVICES DISTRIBUTOR AGREEMENT
BETWEEN
ONYX SOFTWARE CORPORATION
&
FUTURELINK DISTRIBUTION CORPORATION
EXHIBIT B
<PAGE> 2
HOSTING SERVICES DISTRIBUTOR AGREEMENT
This Hosting Services Distributor Agreement ("Agreement") executed by and
between ONYX Software Corporation ("ONYX"), a Washington Corporation with its
principal office at 330 - 120th Avenue NE, Bellevue, Washington 98005, USA, and
FutureLink Distribution Corp., with its principal office at 550-603 7 Ave SW,
Calgary, Alberta T2P 2T5, Canada ("Distributor").
WITNESSETH:
WHEREAS, Distributor has developed skills and expertise in the technology
and the use of ONYX Product(s); and
WHEREAS Distributor provides Hosting Services and wishes to market,
distribute, and support ONYX Product(s) to its Hosting Services customers;
NOW, THEREFORE, in consideration of the following terms and conditions, the
sufficiency of which the parties acknowledge, the parties agree as follows:
SECTION 1 DEFINITIONS. The following terms are incorporated herein by reference:
1.1 END-USER - An entity (customer) to whom Distributor provides ONYX
Product(s) for use solely through its Hosting Services, such use being
in the regular course of such customer's business, but specifically
not for the purpose of sublicensing.
1.2 END-USER LICENSE AGREEMENT - The form of ONYX's agreement under which
ONYX directly grants an End-User the right and license to use the
Product(s), and establishes the terms for such use.
1.3 ENHANCEMENT(S) - Computer program modifications or additions, other
than Maintenance modifications, that may be integrated with the
Product(s), and alter or upgrade the functionality of the Product(s).
ONYX, at its sole discretion, shall determine what constitutes an
Enhancement, and such Enhancements may be offered separately by ONYX
for an additional fee.
1.4 HOSTING SERVICES - Those business-to-business IT outsourcing services
advertised, marketed and sold by Distributor to its customers.
1.5 MAINTENANCE - The telephone and facsimile support, remote diagnostics,
and updates and upgrades to the Product(s), which are provided to the
End-User for an annual subscription fee.
1.6 PRODUCT(S) - License(s) for the use of one or more ONYX software
product(s) listed in Exhibit D, which may be updated periodically, as
well as the associated ONYX created documentation for use with said
Product(s) such as reference guides, user manuals, and on-line help.
Product(s) shall also include all updates, upgrades, and modifications
to those items listed in Exhibit D, as well as future products which
ONYX chooses to make available to Distributor.
1.7 PAYMENTS - Monies due to ONYX from Distributor.
1.8 PROPRIETARY INFORMATION - Any written information marked as
confidential at the time of disclosure, or any other information of
either party which, under the circumstances, reasonably ought to be
considered confidential and proprietary. Proprietary information shall
not include information which (i) is lawfully in the other party's
possession prior to the disclosure; (ii) is lawfully disclosed to such
party by a third party without restrictions on its disclosure; (iii)
is independently developed by such party; or (iv) became known to such
party from a source other than the other party other than by the
breach of an obligation of confidentiality owed to the other party.
EXHIBIT B
<PAGE> 3
1.9 TERRITORY -- is defined in Exhibit A, as either the region,
regions, country or countries, in which the Distributor has been
granted the right by ONYX to distribute ONYX Product(s) to
End-Users pursuant to the terms of this Agreement.
SECTION 2 GRANT OF RELICENSING AND OWNERSHIP
2.1 GRANT OF DISTRIBUTION: Subject to the terms and conditions of this
Agreement, ONYX hereby grants, appoints and authorizes Distributor,
on a non-transferable and non-exclusive basis, to market and
distribute the Product(s) (in their unmodified form) to End-Users
in the Territory. Distributor may not distribute the Product(s)
outside of the relevant Territory without ONYX's prior written
permission. This paragraph shall in no way limit ONYX's ability to
market, license, and support the Product(s), either directly or
indirectly, in the Territory.
2.2 OWNERSHIP: All right, title, and interest in and to the Product(s)
and Enhancements and all copyrights, patents, trademarks, or other
intellectual property or proprietary rights shall remain
exclusively with ONYX. This paragraph 2.2 shall survive termination
of this Agreement.
2.3 USE OF PRODUCT(S) BY DISTRIBUTOR: During the term of this
Agreement, Distributor may use the Product(s) solely for its own
business use and to the extent required to fulfill its marketing,
support, and Maintenance responsibilities under this Agreement.
Distributor agrees to pay ONYX the license fees for the Product(s)
and the standard annual Maintenance fees for the period which
Distributor utilizes the ONYX Product(s). Such license and
Maintenance fees will be addressed under a separate, standard ONYX
End-User License Agreement.
2.4 INTERFACES: Distributor agrees that ONYX may independently
develop, use, and distribute interfaces and products which may be
similar to the ideas, interfaces, or products of Distributor.
Distributor irrevocably waives any claims in connection with such
development, use, or distribution. The terms of this paragraph 2.4
shall survive termination of this Agreement.
SECTION 3 ORDER/PRODUCT(S) PROCEDURES
3.1 DEMONSTRATION COPIES: ONYX shall promptly provide Distributor,
copy(ies) of each Product(s) accompanied by demonstration
instructions, for Distributor's use in marketing, demonstration,
training, Maintenance, and support. Distributor shall pay ONYX an
amount equal to ONYX's reasonable cost of supply for producing &
shipping any Product(s) or documentation. Distributor shall not
make any additional copies of Product(s), other than provided for
in this Agreement, without the prior written permission of ONYX.
3.2 ORDER PROCEDURE: Distributor shall submit written purchase orders
to ONYX. ONYX shall be deemed to have accepted these purchase
orders upon either ONYX's written acceptance of the order or by
ONYX's shipment of the Product(s) to Distributor. Any purchase
order must include as a minimum, name of Product(s), installation
environment (hardware platform, operating system version, number of
users), number of copies of the Product(s) licensed, delivery point
and fees. End-User name and billing address, and other information
which ONYX may request from time to time. Distributor must also
submit to ONYX a signed End-User License Agreement in the form
attached hereto as Exhibit B, signifying End-User agrees to be
bound by ONYX's terms and conditions for the use of the Product(s).
3.3 UPDATED VERSIONS: ONYX shall delivery master copies of any updated
versions of the Product(s), including fixes, enhancements, and new
releases, promptly upon their availability, in the same form as
Distributor received the prior version. ONYX shall also deliver to
Distributor any other materials necessary for Distributor to
incorporate such updates in existing Product(s) or to supersede
prior versions. Distributor shall reimburse ONYX for all reasonable
costs of supply.
3.4 DISCONTINUANCE: ONYX reserves the right to discontinue developing,
producing, licensing, or distributing any of the ONYX Product(s)
and to modify, replace or add to the ONYX Product(s), at its sole
discretion, at any time.
Exhibit B
<PAGE> 4
SECTION 4 OBLIGATIONS OF THE DISTRIBUTOR AND ONYX
4.1 DISTRIBUTOR OBLIGATIONS
4.1.1 Distributor shall use its best efforts to market, advertise and
otherwise promote the Product(s) in the authorized Territory to
achieve the agreed revenue targets specified in Exhibit C.
4.1.2 Distributor shall use its best efforts to ensure that the ONYX
Product(s) marketed to End-Users are appropriate for the End-User's
requirements. ONYX retains the right to refuse the licensing of ONYX
Product(s) to any End-Users for which ONYX feels, in its sole
judgment, that there is not a high likelihood of success of the
End-User using the ONYX Product(s).
4.1.3 Distributor agrees to acquire and maintain throughout the term of
this Agreement, at its own expense, all permissions, consents and
licenses necessary to enable Distributor to distribute, market, and
support the Product(s) in the Territory and necessary for the full and
legal operation of this Agreement. Distributor agrees indemnify and
hold ONYX harmless from any and all claims and resulting damages
resulting from Distributor's failure to fulfill its obligations under
this paragraph. This paragraph 4.1.3 shall survive termination of this
Agreement.
4.1.4 Distributor shall comply with all applicable local laws and
regulations of the Territory relating to the marketing, distribution,
and support of the ONYX Product(s), including any export regulations
of the United States of America. Distributor shall indemnify and hold
ONYX harmless from any claims and damages resulting from Distributor's
failure to comply with the provisions of this paragraph. This
paragraph 4.1.4 shall survive termination of this Agreement.
4.1.5 Distributor may distribute the Product(s) to End-Users only after
ONYX has received the standard ONYX End-User License Agreement which
has been signed by the End-User. ONYX reserves the right to change the
terms of its standard End-User License Agreement upon thirty (30) days
written notice to Distributor. Updates, upgrades, and Enhancements to
Product(s) may require additional licensing terms not detailed in the
ONYX End-User License Agreement. Distributor may distribute the
Product(s) in object code form only. Distributor may not distribute
ONYX Product(s) for purposes of evaluation unless ONYX has previously
authorized such distribution in writing.
4.1.6 Distributor may offer End-Users installation services with regard to
the Product(s). Distributor shall negotiate the terms and conditions
of any such arrangement directly with the End-User.
4.1.7 Distributor shall offer Maintenance for the Product(s) to End-Users,
such services offered to be substantially in the form of the standard
maintenance and product support agreement, attached hereto as Exhibit
E. Distributor may charge End-Users a fee for Maintenance and Updates
at a mutually agreed-upon rate. Distributor will be responsible for
first and second tier support as well as establishing and maintaining
an adequate support team. If Distributor is unable to fulfill its
Maintenance obligations to End-Users, it shall immediately notify ONYX
of this fact. ONYX may then elect to provide these Maintenance
services to End-Users, and will charge Distributor for the cost of any
services provided. Distributor further agrees to comply with ONYX's
reasonable requests regarding both initial and ongoing training for
Distributor regarding the provision of Maintenance services to
End-Users.
4.1.8 Distributor shall not make any changes whatsoever to the ONYX
End-User License Agreement, or give any representation or assurance
that exceeds or differs from any provision of the End-User License
Agreement, including but not limited to the provisions detailing
ONYX's written limited warranty, disclaimers, and limitations of
liability. Distributor shall indemnify ONYX for all consequences of
any unauthorized representations, warranties, or guarantees so made.
Any such authorizations for additional representations, warranties, or
guarantees must be given in writing by a duly authorized ONYX employee
with authority to bind ONYX. The terms of this paragraph 4.1.8 shall
survive termination of this Agreement.
EXHIBIT B
<PAGE> 5
4.1.9 Distributor agrees not to make available to any parties, without
prior written consent from a duly authorized ONYX representative,
source code for the ONYX Product(s). Distributor will not make, or
attempt to make, any Enhancement of the Product(s) without ONYX's
prior written consent nor shall Distributor attempt to disassemble,
de-compile, or reverse engineer the ONYX Product(s) object code,
except as otherwise permitted under applicable law.
4.1.10 Any documentation created or distributed by Distributor, which
describes features of the Product(s) components, requires the prior
written approval of ONYX and may, at ONYX's discretion, require
copyright or other protection of ONYX's proprietary rights.
4.1.11 Distributor agrees to execute any and all documents necessary to
protect ONYX's Proprietary Information, as defined in Section 8 of
this Agreement, prior to providing such Proprietary Information to any
third party.
4.1.12 Distributor is obligated to implement any reasonable procedure to
restrict the use of the Product(s), as instructed by ONYX, and agrees
to notify ONYX if it discovers any unauthorized use of the Product(s).
4.1.13 Distributor may not distribute ONYX Product(s) to any third party
where Distributor knows that the third party is licensing the ONYX
Product(s) for resale or relicensing or where the third party is
reasonably considered to be a competitor of ONYX. Distributor may not
use agents for resale or relicensing of ONYX Product(s) without the
written and explicit permission of ONYX.
4.1.14 In the event of End-User default under the End-User License
Agreement, Distributor shall use its best efforts to assist ONYX in
retrieving the Product(s) from said End-User.
4.1.15 Distributor must have the capability to communicate with ONYX
utilizing the Internet (MAPI compliant) and must allow ONYX open and
unimpeded access to its servers which host the ONYX Product(s).
Distributor further agrees that it will establish open and unimpeded
access to the servers of all End-Users to provide for remote telephone
diagnostic evaluations wherever commercially practical to do so.
4.1.16 Distributor agrees that in the event that either the End-User
requests for ONYX to become involved with the implementation of the
ONYX Product(s) or that it is determined by ONYX that the Distributor
does not have the required skills to implement the ONYX Product(s),
then ONYX may elect to assume a direct role during the implementation
process.
4.1.17 Distributor shall not register, or attempt to register, in any
country in the world, any trademarks of ONYX, or any other marks
deemed by ONYX, at its sole discretion, to be confusingly similar to
existing ONYX trademarks. Distributor further agrees to cooperate and
assist ONYX (at ONYX's request and expense) with any trademark
registration efforts. The provisions of this paragraph 4.1.17 shall
survive termination of this Agreement.
4.1.18 The failure of Distributor to comply with the provisions of Section
4.1 shall constitute a material breach of this Agreement.
4.2 ONYX OBLIGATIONS
4.2.1 Upon written request by Distributor, ONYX may elect to assist in the
implementation of the Product(s) for End-Users. Payment for such
services shall be paid to ONYX by Distributor at rates which ONYX
generally charges its End-User for on site technical support services.
4.2.2 Any Maintenance or other support services for the Product(s) provided
by ONYX to Distributor shall be performed in conjunction with the
provisions of Exhibit C attached hereto. Any such services shall be
provided by ONYX only if the Product(s) are installed in a hardware
and software environment that ONYX then currently supports for its
End-Users.
EXHIBIT B
<PAGE> 6
4.2.3 ONYX shall use reasonable efforts to provide Distributor with
analysis, problem investigation and correction of errors pertaining to
the Product(s), in accord with the terms and conditions of this
Agreement.
4.2.4 ONYX shall make available to Distributor a copy of the Product(s) for
development, demonstration and support purposes. Distributor shall pay
ONYX an amount equal to ONYX's reasonable cost of supply for producing
and shipping any Product(s) and/or documentation.
4.2.5 ONYX will provide the technical personnel of the Distributor with
technical training regarding installation, use, and support of the
Product(s). Such training shall take place at the Bellevue,
Washington, USA world headquarters of ONYX, or such other location
deemed suitable by ONYX. Distributor shall pay all of its travel and
out-of-pocket expenses incurred in relation to said training and
Distributor shall reimburse ONYX for the cost of training if such
training takes place in any location other than ONYX's world
headquarters.
4.2.6 ONYX will from time to time supply Distributor at no charge 5 copies
of ONYX's current advertising and marketing materials for use by
Distributor in marketing the Product(s). Any additional copies of
marketing materials will be charged to the Distributor at the
published rate.
4.2.7 Distributor shall be entitled to Maintenance fees of 9% of
then-current ONYX list price for Product(s) licenses purchased for
Distributor's use in its normal course of business, provided
Distributor performs all upgrades and ongoing support for such
Product(s).
SECTION 5 PRODUCT SHIPMENT, PAYMENT, AND INVOICE TERMS
5.1 PRODUCT SHIPMENT. After receiving Distributor's order for the
Product(s) in accord with Section 3.2 of this Agreement, ONYX shall
ship to Distributor the Product(s).
5.2 PAYMENTS TO ONYX. Upon shipment of the Product(s) to Distributor under
the provisions of paragraph 5.1 above, ONYX shall invoice Distributor
for all license and Maintenance fees due to ONYX by Distributor under
the provisions of Exhibit C attached hereto. All such moneys owed to
ONYX by Distributor shall be due 30 days after receipt of invoice by
Distributor. ONYX shall not be subject to any payment terms offered to
End-User by Distributor, and Distributor shall pay ONYX for all orders
submitted to and accepted by ONYX regardless of whether Distributor
receives payment from End-User.
5.3 END-USER PAYMENT. Distributor shall have responsibility for
establishing prices and collecting fees from End-Users for Product(s)
licensed under any End-User License Agreement.
5.4 DELINQUENT PAYMENTS. If any payment due ONYX hereunder shall remain
unpaid for thirty (30) days following the date due, ONYX may impose
interest thereon at 1.0% per month (12% APR), or at the maximum rate
allowed by law, if lower, until paid.
5.5 TENDER AND PAYMENT. All amounts to be paid under this Agreement are
payable in U.S. Dollars currency and all payments due hereunder shall
be made payable to ONYX and forwarded to ONYX at its world headquarters
or other location designated by ONYX, ATTN.: CHIEF FINANCIAL OFFICER.
ONYX reserves the right to halt shipment of any of the Product(s), in
whole or in part, in the event of any delinquency in Payment for any
prior order or shipment.
5.6 PRICE ADJUSTMENTS. ONYX reserves the right to adjust the pricing of its
Product(s) and Maintenance services upon written notification to
Distributor, provided that such notification is at least thirty (30)
days prior to any such changes. Distributor will make Payments based on
a revised ONYX list price for any licenses of the Product(s)
subsequently distributed to End-Users in Distributor's Territory.
5.7 TAXES. Distributor shall collect, report, and pay to the relevant
taxing authority, any property, customs excise, sales and/or use, or
similar taxes (other than taxes on ONYX's income generally) that arise
under
EXHIBIT B
<PAGE> 7
this Agreement. Distributor agrees to indemnify and hold ONYX harmless
from any claims or damages resulting from Distributor's failure to comply
with this paragraph. This paragraph 5.7 shall survive termination of this
Agreement.
SECTION 6 MARKETING
6.1 PUBLICITY AND ADVERTISEMENT. The parties may elect to issue a joint press
release announcing their relationship under this Agreement. No such
announcements or advertising will be made by either party without the
consent of the other.
6.2 TRADEMARKS. Each party may, free of charge, utilize the other's trademark
in marketing of the Product(s) upon written mutual agreement and in accord
with the provisions of paragraph 14.11.
SECTION 7 REPORTING AND AUDITING REQUIREMENTS
7.1 For each month in which Distributor distributes at least one copy of one
Product, Distributor shall, with respect to each new license, provide
ONYX: (i) name, address, and contact of the End-User; (ii) operating
environments(s), projected installation date, and effective date of
Product(s) Maintenance; and (iii) amount of license or Maintenance
payments due from End-User to Distributor. Regardless of the number of
licenses granted, Distributor shall provide ONYX a written summary of
Product(s) sold for each quarter of Distributor's fiscal year. Such
summary shall include year-to-date Payments and additional fees remitted
to ONYX, taxes remitted to ONYX or the appropriate taxing authority which
are associated with each End-User License Agreement, as well as the
monthly totals of such payments, fees and taxes remitted by Distributor
for that quarter.
7.2 Upon prior notice, ONYX or its independent accountants may examine, during
normal Distributor business hours, Distributor's books and records to
verify any amounts due, payable, and/or paid under this Agreement. If
Distributor undergoes a certified audit, such audit shall, at ONYX's option
and expense, verify the respective Payments and other fees and taxes due,
payable and/or paid hereunder. Failure by Distributor to notify ONYX in a
timely manner of the acquisition of additional licenses by an End-User
shall constitute a breach of Distributor's material obligations under this
Agreement.
SECTION 8 CONFIDENTIALITY
8.1 AGREEMENT. Distributor shall not disclose the terms of this Agreement to
anyone other than (i) its employees who reasonably acquire such knowledge
in the ordinary course and scope of their employment; (ii) its agents or
representatives whose assigned duties reasonably require such disclosure:
or (iii) End-Users, to the extent necessary to distribute the Product(s).
Distributor shall take all reasonable steps to ensure that the terms of
this Agreement are not disclosed further by its employees, agents or
representatives or by any End-User, its employees, agents or
representatives.
8.2 PRODUCT(S). Distributor agrees that the Product(s), together with all
materials and knowledge related thereto, obtained by Distributor pursuant
to this agreement shall be held in confidence and shall not be made
available in any form for the use or benefit of any person or entity other
than Distributor and/or End-Users without the prior written consent of
ONYX. Notwithstanding the foregoing, ONYX agrees that Distributor and/or
End-Users shall be permitted to disclose relevant aspects of the
Product(s) to their employees and agents to the extent reasonably
necessary for Distributor or End-Users use of Product(s); provided that
Distributor and/or End-User shall take all reasonable steps to ensure that
Product(s) are not further disclosed or duplicated. Neither Distributor
nor End-Users shall allow any attachment, levy, or execution upon or
against the Product(s), and each shall immediately notify ONYX in writing
regarding any such attempt.
8.3 OTHER ONYX INFORMATION. Distributor agrees to hold materials and knowledge
regarding other ONYX Product(s) it is evaluating or reviewing for
inclusion in this Agreement, or for general knowledge, as well as all
other ONYX Proprietary Information, confidential to the same degree as
Product(s), ONYX
EXHIBIT B
<PAGE> 8
reserves the right to designate in writing which of its Proprietary
Information may be disclosed by Distributor under the provisions of
this Agreement.
8.4 DISTRIBUTOR INFORMATION. ONYX and its employees, agents or
representatives shall not use, duplicate or disclose to any third party
such Proprietary Information of Distributor without Distributor's prior
written consent, except to the extent reasonably necessary for the
performance of ONYX obligations under this Agreement. ONYX shall take
all reasonable steps to ensure Distributor's Proprietary Information
hereunder is not used, duplicated, or disclosed in contravention of
this Agreement.
8.5 DISCLOSURE REQUIRED BY LAW. Nothing in this Section shall restrict
disclosure by either party required by any applicable law, or
regulation, or the order of any court or administrative agency having
jurisdiction regarding such matters. However, either party shall
promptly upon receiving notice of any required disclosure, notify the
other in writing, providing all information and assistance for such
party to defend its rights hereunder.
8.6 INJUNCTIVE RELIEF. In the event of a breach of the provisions of this
Section 8, ONYX shall be entitled to obtain injunctive relief or other
equitable relief from a court of competent jurisdiction to restrain
the use or disclosure of its Proprietary Information. Such remedy
shall be in addition to, and not in lieu of, any other remedies
provided for in this Agreement.
8.7 MATERIAL BREACH. Failure to adhere to the provisions of this Section 8
shall be considered a material breach of the Agreement.
8.8 SURVIVAL. The confidentiality obligations of this Agreement shall
survive its termination.
SECTION 9 WARRANTIES
9.1 EXPRESS WARRANTY. ONYX warrants, solely to Distributor, that the
Product(s) will perform in substantial compliance with the Product(s)
documentation for ninety (90) days from ONYX's delivery of Product(s)
to Distributor. ONYX's sole responsibility, and Distributor's sole
remedy under such warranty, shall be, at ONYX's option, to repair,
replace, or correct any defect in the Product(s) or their related
documentation or refund to Distributor the amount paid by Distributor
to ONYX for the Product(s) which gave rise to such claim. The warranty
contained in this Paragraph 9.1 is contingent upon proper use of the
Product(s), and shall not apply if the Product(s) are modified,
altered or changed, or if the Product(s) are used in a hardware or
software environment which ONYX does not support at the time of such
use. ONYX does not warrant that the Product(s) will meet either
Distributor's requirements, or that the operation or use of any of the
Product(s) will be uninterrupted or error free.
9.2 DISCLAIMER OF WARRANTIES. DISTRIBUTOR EXPRESSLY AGREES AND ACKNOWLEDGES
THAT THE FOREGOING WARRANTY IN PARAGRAPH 9.1 IS IN LIEU OF ANY AND ALL
OTHER ONYX WARRANTIES, EXPRESS OR IMPLIED. ONYX, ON BEHALF OF ITSELF
AND ITS SUPPLIERS, DISCLAIMS ANY AND ALL OTHER REPRESENTATIONS OR
WARRANTIES OF ANY KIND WHATSOEVER, EITHER EXPRESS OR IMPLIED,
INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTY OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE. DISTRIBUTOR AGREES THAT THE
DISCLAIMER IS REASONABLE AND THAT DISTRIBUTOR HAS HAD ADEQUATE PRIOR
OPPORTUNITY TO ASSESS FULLY THE OPERATION AND PERFORMANCE OF THE
LICENSED SOFTWARE AND ANY UPDATE AND UPGRADE. DISTRIBUTOR SHALL NOT
TAKE ANY CONTRARY OR INCONSISTENT POSITION.
9.3 The terms of this Section 9 shall survive termination of this
Agreement.
SECTION 10 REMEDIES/LIMITATION OF LIABILITY
EXHIBIT B
<PAGE> 9
10.1 LIMITATION OF ONYX LIABILITY. DISTRIBUTOR AGREES THAT THE
CUMULATIVE LIABILITY OF ONYX AND ITS SUPPLIERS FOR ANY DAMAGES
ARISING FROM OR RELATED TO THIS AGREEMENT, INCLUDING BUT NOT
LIMITED TO CLAIMS FOR BREACH OF CONTRACT, BREACH OF WARRANTY,
NEGLIGENCE, OR TORT, SHALL NOT EXCEED ANY AMOUNT PAID BY
DISTRIBUTOR TO ONYX FOR THE PRODUCT(S) WHICH GAVE RISE TO SAID
CLAIM.
10.2 LIABILITY DISCLAIMER. ONYX, ON BEHALF OF ITSELF AND ITS
SUPPLIERS, DISCLAIMS ANY AND ALL LIABILITY FOR SPECIAL, INCIDENTAL
OR CONSEQUENTIAL DAMAGES (INCLUDING LOSS OF PROFITS) ARISING FROM
OR RELATED TO THIS AGREEMENT OR WITH RESPECT TO THE INSTALLATION,
IMPLEMENTATION, CUSTOMIZATION, USE, OPERATION OR SUPPORT OF THE
PRODUCT(S) EVEN IF ONYX OR ITS SUPPLIERS HAVE BEEN APPRISED OF THE
POSSIBILITY OF SUCH DAMAGES.
10.3 TIME LIMITATION. Any legal proceeding based upon this Agreement
must be instituted within two (2) years of the date the cause of
action first accrued.
10.4 ALLOCATION OF RISK. Both parties acknowledge that the allocation
of risk contained in this Section 10 is reflected in the price for
the Product(s) and is also a reasonable recognition of the fact
that the Product(s) cannot be tested in every possible combination
and it is not within ONYX's control how and for what purpose the
Product(s) are used by Distributor or End-Users.
10.5 SURVIVAL. The terms of this Section 10 shall survive termination
of this Agreement.
SECTION 11 TERM/TERMINATION
11.1 TERM. The initial term of this Agreement shall be fourteen (14)
months, commencing November 1, 1998, unless earlier terminated
pursuant to this Section 11, or by the mutual written agreement
of the parties. At the end of the initial term, this Agreement
shall renew for one additional year if (i) Distributor has met the
agreed upon annual revenue targets as detailed in Exhibit C
attached hereto: and (ii) both Distributor and ONYX mutually agree
to such an extension. Any expiration or termination of the term
will be final and absolute. Distributor waives any right, either
express or implied by applicable law or otherwise, to renewal of
this Agreement or to any damages or compensation for the
expiration or termination of the term in accordance with this
Section 11. Each of the parties has considered the possibility of
such expiration or termination and the possibility of loss and
damage resulting therefrom in making expenditures pursuant to the
performance of this Agreement. It is the express intent and
agreement of the parties that neither will liable to the other for
damages or otherwise by reason of the expiration or termination of
the term as provided for herein.
11.2 INSOLVENCY, BANKRUPTCY, ETC. If either party becomes insolvent,
fails to pay, or admits in writing its inability to pay, debts as
they become due; or if either party applies for, consents to, or
acquiesces in the appointment of a trustee, receiver or other
custodian for such party or for a substantial part of such party's
property; or makes a general assignment for the benefit of
creditors; or, if a trustee, receiver or other custodian is
appointed for such party or for a substantial part of such party's
property and is not discharged within sixty (60) days; or if any
bankruptcy, reorganization, debt arrangement or other proceeding
under any bankruptcy law, or any dissolution or liquidation
proceeding is commenced by, consented to, or acquiesced in by
such party and remains for sixty (60) days undismissed; or, if
either party ceases to conduct its business in the normal course,
this Agreement may be terminated by the other party immediately
upon written notice without penalty of any kind.
11.3 BREACH OF AGREEMENT. In the event either party fails to perform
any of its material obligations hereunder, the other may notify
the non-complying party in writing of the breach. If the
non-complying party fails to remedy the breach within thirty (30)
days from receipt of such notice, or, if the breach is not
remediable within such period and the party in breach has not
undertaken and thereafter diligently and successfully pursued
significant efforts to cured the breach, the non-breaching party
may immediately terminate this Agreement upon written notice to
the non-complying party. This right to terminate shall be
Exhibit B
<PAGE> 10
in addition to, and shall in no way limit the non-breaching party from
pursuing other relief, except as otherwise limited herein.
11.4 EFFECT OF TERMINATION. Termination of this Agreement for any reason
shall immediately terminate Distributor's rights under this Agreement
and Distributor shall return to ONYX all proprietary materials, and
other materials developed by or belonging to ONYX which have been
received by Distributor pursuant to this Agreement. Any End-User
License Agreements shall survive termination of this Agreement. Upon
termination of this Agreement, Distributor shall continue providing
Maintenance to all End-Users until alternate Maintenance services are
arranged for End-Users. Termination of this Agreement shall not
relieve Distributor of its obligations to make immediate and full
payment to ONYX for any amounts then due and/or payable.
SECTION 12 INDEMNIFICATION
12.1 INDEMNIFICATION OF DISTRIBUTOR. ONYX will defend or settle, at its own
expense but under its sole direction and contingent on Distributor's
total cooperation, any claim alleging that any Product in its
unmodified form infringes any patent, trademark or copyright. If any
ONYX Product(s) becomes the subject of such a claim, ONYX reserves the
right, at its sole option, to either 1) modify or replace the affected
parts so the ONYX Product(s) become non-infringing, 2) obtain for
Distributor and any End-Users the right to continue to use the
Product(s), or 3) terminate this Agreement immediately if options 1
and 2 listed above are commercially impracticable. In no event shall
Distributor settle any such claim, lawsuit, or proceeding without
ONYX's prior approval, and ONYX shall have no liability for any such
unapproved settlement so made. This paragraph states the entire
liability of ONYX for any infringement involving the ONYX Product(s).
12.2 INDEMNIFICATION OF ONYX. Distributor, on behalf of itself and its
agents, will indemnify and hold harmless any award of costs and
damages brought against ONYX to the extent that it is (i) based on a
claim regarding the installation or configuration of Product(s) by
Distributor or its agents; or (ii) based on a claim regarding
modification, translation, customization or localization to the
Product(s) by Distributor or its agents. Distributor shall have the
right to control the defense of all such claims, lawsuits, and other
proceedings. In no event shall ONYX settle any such claim, or
proceeding without Distributor's prior approval, and Distributor
shall have no liability for any such unapproved settlement so made.
12.3 SURVIVAL. The provisions of this Section 12 shall survive termination
of the Agreement for any reason.
SECTION 13 DISPUTE RESOLUTION/ARBITRATION
13.1 DISPUTE RESOLUTION/ARBITRATION PROCEDURES. Any controversy arising
from or relating to this Agreement, shall be determined by arbitration
in Washington State, United States of America, in accordance with
then-prevailing Commercial Arbitration Rules. Such arbitration shall
be conducted in the English language, and all documents submitted in
conjunction with the arbitration shall be in English. The parties
shall agree upon one commercial arbitrator knowledgeable in the
subject matter hereof. Absent agreement, such arbitrator shall be
appointed by the Commercial Arbitration Association. The award
rendered by the arbitrator shall be final and conclusive. The
prevailing party shall be entitled as part of the arbitration award,
to the reasonable costs and expenses (including attorneys' fees) of
investigating, preparing and pursuing an arbitration claim as may be
awarded by the arbitrator; and the party enforcing any award shall be
entitled to reasonable costs and expenses (including attorneys' fees)
expended or incurred in connection with such effort. Any award to
either party as a result of arbitration shall be subject to the
limitations detailed in Section 9 and Section 10 of this Agreement,
and in no event shall either party be awarded punitive damages under
said arbitration. Notwithstanding the foregoing, either party may seek
preliminary, Interim, or permanent injunctive relief or seek to
enforce an arbitration award under this Agreement from any court
having jurisdiction over the matter in dispute. This Section 13 shall
survive termination of this Agreement.
EXHIBIT B
<PAGE> 11
SECTION 14 MISCELLANEOUS GENERAL PROVISIONS
14.1 PERSONNEL. Personnel of ONYX and Distributor are not, nor shall they be
deemed to be, employees of the other. Each party shall be and remain an
independent contractor and nothing herein shall be deemed to constitute the
parties as partners. Neither party shall have any authority to act, or
attempt to act, or represent itself directly or by implication, as an agent
or in any manner assume or create any obligation on behalf of or in the
name of the other, nor shall either be deemed the agent or employee of the
other. Distributor shall have no authority to appoint any other dealer or
re-marketer of the ONYX Product(s). Each party will be solely responsible
for payment of all compensation, employment-related taxes, and insurance
regarding its respective personnel. Each party shall be solely liable for
any claims made by its personnel for injuries to persons or property damage
during the performance of services hereunder.
14.2 DIRECT REPRESENTATION. Distributor agrees that ONYX will have the right at
any time in the future to set up ONYX direct operations in distributor
Territory(s) to offer solutions and sales support to End-Users.
14.3 FORCE MAJEURE. Except for payments due ONYX from Distributor pursuant to
this Agreement, neither party shall be liable for delays in its performance
hereunder due to causes beyond its reasonable control, including but not
limited to, Acts of God, acts of public enemy, acts of government or courts
of law or equity, civil war, insurrection or riots, fires, floods,
explosions, earthquakes or other casualties, strikes or other labor
troubles.
14.4 NOTICE. All notices given to either party, shall be by certified mail or by
regular overnight delivery service, addressed as follows:
FOR DISTRIBUTOR:
Futurelink Distribution Corporation ONYX Software Corporation,
550-603 7 Ave SW 330 - 120th Avenue N.E.
Calgary, AB T2P2T5, CANADA Bellevue, WA 98006, USA
Attn.: Chief Executive Officer Attn.: Chief Executive Officer
14.5 SUCCESSORS. No assignment or transfer of this Agreement or any right or
privilege granted hereunder, including any assignment by operation of law
pursuant to a merger, liquidation, foreclosure, or involuntary sale in
bankruptcy, shall be permitted of Distributor or shall be effective or
binding on ONYX without ONYX's prior written consent. Subject to the
foregoing limitation, this Agreement shall inure to the benefit of and be
binding upon the parties hereto, their successors, and assigns.
14.6 VALIDITY OF AGREEMENT. If any provision of this Agreement shall be held
illegal, unenforceable, or in conflict with any law of a federal, state, or
local government having jurisdiction over this Agreement, the validity of
the remaining portions or provisions hereof shall not be affected thereby.
14.7 GOVERNING LAW. This Agreement shall be construed in accordance with and by
governed by laws of the State of Washington, United State of America,
excluding conflict of laws interpretations. The United Nations Convention
on Contracts for the International Sale of Goods shall not apply.
14.8 AMENDMENTS IN WRITING. No amendment, modification, or waiver of any
provision of this Agreement shall be effective unless it is set forth in a
writing that refers to this Agreement (must include Agreement Number) and
the provisions so affected and is executed by an authorized representative
of both parties. No failure or delay by either party in exercising any
right, power, or remedy will operate as a waiver of any such right, power,
or remedy.
14.9 EXPIRATION. This Agreement shall be valid only if executed by both parties
within thirty (30) days of first execution.
EXHIBIT B
<PAGE> 12
14.10 ENTIRE AGREEMENT. This Agreement and its attached Exhibits
constitute the entire agreement between the parties regarding the
subject matter; superseding all previous communications,
representations or agreements, either written or oral, with
respect to the subject matter.
14.11 USE OF ONYX TRADEMARKS. ONYX grants to Distributor the limited
permission to use both ONYX's trademarks and registered
trademarks solely to identify ONYX Product(s) acquired from ONYX
under this agreement. Distributor shall use ONYX's trademarks and
registered trademarks only for purposes of advertisement,
promotion, and distribution of the corresponding ONYX Product(s)
and for no other purposes. Distributor shall use such trademarks
and registered trademarks in accord with the guidelines
established by ONYX from time to time and shall not use such
marks in any manner likely to confuse or mislead the public, or
to be adverse to the best interests of ONYX.
14.12 RE-EXPORT OF ONYX PRODUCT(S). Distributor shall not export or
re-export any ONYX Product(s) or technology to any country
specified as a prohibited destination in applicable U.S. laws,
regulations, or ordinances. Distributor further agrees to comply
with any similar laws in any nation where Distributor is
representing ONYX. Distributor agrees to defend, indemnify and
hold harmless ONYX from any claim, loss liability, expense or
damage (including fines or legal fees) incurred by ONYX to
Distributor's violation of the terms of this provision.
14.13 SURVIVAL. The terms of this Section 14 shall survive
termination of this Agreement.
SECTION 15 EXHIBITS
15.1 The following Exhibits are incorporated by reference:
EXHIBIT A Territory Authorization
EXHIBIT B ONYX Software License Agreement
EXHIBIT C Pricing to Distributor/Revenue Targets
EXHIBIT D ONYX Product(s) and Maintenance Price List
EXHIBIT E Maintenance and Product Support
IT WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date below.
DISTRIBUTOR: ONYX:
BY: /s/ Cameron Chell BY:
------------------------------- ---------------------------------
NAME: Cameron Chell NAME:
----------------------------- -------------------------------
TITLE: CEO, Chairman TITLE:
---------------------------- ------------------------------
DATE: November 12, 1998 DATE:
----------------------------- -------------------------------
Exhibit B
<PAGE> 13
EXHIBIT A
TERRITORY AUTHORIZATION
GEOGRAPHIC TERRITORY: Subject to the terms and conditions of this Agreement,
Distributor is granted the non-exclusive right to distribute ONYX Product(s) in
the following territory: North America.
VERTICAL MARKET SEGMENTS: Without limiting ONYX's other rights to appoint
Distributors and/or resellers in the Territory, ONYX expressly reserves the
right to appoint vertical value added resellers, from time to time, which may
have the right to market and sell the ONYX Product(s) in conjunction with their
own solutions, on a global, regional or country basis. ONYX agrees to inform
Distributor of subsequent appointments.
PROSPECTS/PIPELINE: Distributor shall inform ONYX of all potential prospective
End-Users by (i) notifying their ONYX Channel Manager of such prospects in a
timely fashion; and (ii) completing all reasonably necessary reports as may be
requested from time to time. If ONYX requests Distributor to withdraw from any
End-User account owing to potential conflict or if in ONYX's opinion the ONYX
Product(s) appears not to be a suitable solution for the prospect, Distributor
will accept ONYX's decision and immediately comply with the request.
DISPUTES/ARBITRATION: With regard to any territorial disputes between
Distributor and vertical value added resellers involving End-Users, prospects,
or territory definitions, ONYX shall be the sole source of dispute resolution.
Distributor agrees that all decisions made by ONYX with regard to Territories
will be binding and that Distributor will comply with all decisions.
Distributor irrevocably waives any claims it may have against ONYX in this
regard.
Exhibit A
<PAGE> 14
EXHIBIT B
ONYX SOFTWARE LICENSE AGREEMENT
Exhibit B
<PAGE> 15
EXHIBIT C
PRICING TO DISTRIBUTOR/REVENUE TARGETS
PRODUCT(S) PRICING:
During the term of this Agreement Distributor may order Product(s) from ONYX in
accord with the terms and conditions of this Agreement at ONYX's then-current
list price, as established by ONYX from time to time, reduced by the Discount
Rate listed in the table below. The Tier 1 Discount Rate shall apply to Product
license fees until such time as license fees paid by Distributor to ONYX during
any calendar year exceed the amount listed in Tier 1 in the table below.
Distributor may then order additional Product(s) from ONYX during that calendar
year at the Tier 2 Discount Rate. After such time as license fees paid by
Distributor to ONYX during that same calendar year exceed the amount listed in
Tier 2 in the table below, Distributor may order additional Product(s) from ONYX
during that calendar year at the Tier 3 Discount Rate.
<TABLE>
<CAPTION>
??? ???? ?????
- ---------------------------------------------------------
<C> <C> <C>
1 20% $0 to $500,000
- ---------------------------------------------------------
2 25% $501,000 to $750,000
- ---------------------------------------------------------
3 30% $751,000+
- ---------------------------------------------------------
</TABLE>
MAINTENANCE PRICING:
For each End-User to whom Distributor provides Maintenance services,
Distributor shall pay to ONYX 18% of the then-current US Product license fees
for the Product(s) provided to the End-User. In the event that Distributor
issues a purchase order for Product(s) exceeding $199,999 in license fees for
one End-User, Maintenance fees associated with that order shall be entitled to
the Discount Rate applied to that license. In exchange for the fees detailed
herein, Distributor shall receive the following services from ONYX:
o Rollout support. ONYX shall provide direct support to End-Users for
sixty (60) days after execution of the ONYX Software License Agreement.
o Third level support. ONYX shall provide Distributor with telephone support
from 9am to 5pm Pacific time, assisting Distributor in its attempts to
service its End-Users. Such assistance by ONYX shall be in the English
language. In the event ONYX determines, in its sole discretion, that
Distributor's is excessively requesting such telephone support, ONYX
reserves the right to charge Distributor for such additional services.
o Updates and upgrades to the Product(s). ONYX shall provide to Distributor
all commercially released updates and upgrades to the Product(s) for each
of Distributor's End-Users who are participants in Distributor's maintenance
and product support program. ONYX reserves the right to charge Distributor
for any reasonable documented third party costs associated with any such
upgrades to the Product(s). ONYX reserves the right to determine, at its
sole discretion, what constitutes an update or an upgrade to the Product(s).
Physical installation of any such updates or upgrades is the responsibility
of the Distributor.
o Training. ONYX shall provide training for two (2) members of Distributor's
support team.
EXHIBIT C
<PAGE> 16
Distributor will receive support services as listed in this Exhibit C for the
current release of the Product(s) and all other releases whose version number
begins with either the same number, or the previous number. For example, if the
current release is version 4.5, ONYX will support only those versions between
3.0 and the current release.
REVENUE TARGETS:
The annual revenue targets for Distributor shall be as follows:
<TABLE>
<CAPTION>
???? ???? ????
<S> <C> <C>
Year 1 $400,000 $72,000
Year 2 $1,000,000 $180,000
</TABLE>
The above figures represent net revenues paid to ONYX in US Dollars, and shall
be broken down into mutually agreeable quarterly targets.
Distributor's failure to meet the revenue targets detailed above shall
constitute a material breach of this Agreement.
EXHIBIT C
<PAGE> 17
EXHIBIT D
ONYX SOFTWARE PRODUCTS AND MAINTENANCE
PRODUCT LIST:
ONYX Customer Center
ONYX Customer Center-Unplugged
ONYX Customer Center Server
ONYX Insight
ONYX Web Wizards for Sales
ONYX Web Wizards for Support
ONYX Channel Connect
Please consult your ONYX representative for the current US price list. This
list will be adjusted and updated periodically.
MAINTENANCE PRICE LIST:
ONYX's standard rate for Maintenance services is 18% of the retail
(non-discounted) price of the Product(s). Maintenance fees for any Product(s)
acquired during an existing Maintenance Period are prorated so as to be
co-terminus with the then existing Maintenance period. Maintenance for the
first year for any End-User is mandatory.
EXHIBIT D
<PAGE> 18
EXHIBIT E
MAINTENANCE AND PRODUCT SUPPORT
I MAINTENANCE SERVICES
Upon payment of annual Maintenance fees by End-User, Distributor will use
commercially reasonable efforts to provide the following Maintenance
services for the Product(s).
A. Telephone Support
End-User will receive technical support for the Product(s).
Distributor shall make available technical staff to assist with
questions about the Product(s) and to assist End-User in solving
problems with the Product(s). The hours of operation for technical
support are 9:00AM to 5:00PM, local time, during normal business
hours (Monday through Friday), excluding holidays. Distributor shall
designate a specific technical support representative as End-User's
key contact. Distributor will provide a response, but not
necessarily a solution, within four (4) normal business hours, as
defined in this Agreement, upon notification by End-User to
Distributor of problems or defects with the Product(s).
B. Support of Previous Versions of Product(s)
End-User will receive support services as listed in this Schedule 1
for the current release of the Product(s) and all other releases
whose version number begins with either the same number, or the
previous number. For example, if the current release is version 4.5,
Distributor will support only those versions between 3.0 and the
current release. If End-User desires support for earlier versions of
Product(s), such support will be treated as a consulting project,
and End-User will be billed according to prevailing consulting
rates.
C. Product(s) and Documentation Updates and Upgrades:
End-User will receive all modifications to the Product(s) designated
as error corrections, bug fixes, patches, and updates, as well as
updates to the Product(s) and ONYX created documentation. End-User
will receive, without additional charge, all commercially released
updates and upgrades to the Product(s), provided that End-User is a
participant in Distributor's maintenance and product support program
at the time of the release of the update or upgrade. Notwithstanding
the foregoing, End-User may be charged for any documented third
party costs associated with any commercially released upgrade.
II END-USER RESPONSIBILITIES
A. Remote Diagnostics
End-User shall provide Distributor and its suppliers with the
necessary remote access to the End-User's designated CPU so that
Distributor may provide remote dial-in support services as needed by
End-User.
B. End-User's Designated Contact
End-User shall appoint one individual within End-User's organization
to serve as a primary contact and to receive support through the
telephone support center.
C. End-User's Dedicated Resource to the Product(s)
End-User shall appoint at least one individual within its
organization who is familiar with all modifications, customizations
or extensions to the Product(s), and has access to any and all
source code related to same. Such individual shall act as the
primary contact for any support calls involving such modifications,
customizations or extensions to the Product(s).
III LIMITATIONS
A. Support of Customizations, Modifications or Extensions to Product(s)
Distributor will use commercially reasonable efforts to assist
End-User in its attempts to remedy any problems with the Product(s)
resulting from any customizations, modifications, or extensions to
the Product(s), regardless of by who such customizations,
modifications, or extensions were performed. If End-User is unable
to remedy said problems, Distributor will, upon End-User's request,
treat such problems as consulting projects and shall bill for its
services at its then current professional services rates.
IV MAINTENANCE TERMS
A. In no event shall Distributor be responsible for providing
Maintenance services for a period during which Maintenance coverage
lapsed.
B. If End-User elects to resume Maintenance after a lapse of coverage,
End-User shall pay for the period of time in which Maintenance
coverage lapsed. End-User's payment for the lapsed period shall be
the then current annual Maintenance fee, prorated for the number of
months that coverage lapsed. To resume Maintenance after a lapse of
coverage, End-User must purchase a minimum of one full year's
Maintenance beyond the lapsed period. If End-User resumes coverage
after a lapse of coverage, the Maintenance renewal date shall be
changed to the date on which End-User paid all Maintenance fees for
the lapsed period and a minimum of one additional year of
Maintenance.
C. The term of the maintenance and product support program is for one
year. Any revisions or changes in the terms of the maintenance and
product support program shall occur only at the end of End-User's
then current Maintenance term, and End-User shall receive no less
than 30 (thirty) days written notice prior to such change.
Exhibit E
<PAGE> 1
EXHIBIT 10.29
ONYX VAR VERSION 2
ONYX SOFTWARE LICENSE AGREEMENT
The License Agreement (the "Agreement") is made between ONYX Software
Corporation, a Washington corporation with its principal place of business at
330 120th Avenue NE, Bellvue, Washington 98005 ("ONYX"), and FUTURELINK
DISTRIBUTION CORP. ("Licensee"). This Agreement establishes the terms under
which ONYX will license its software to Licensee.
1. DEFINITIONS.
"Authorized User(s)": Any employee of Licensee, together with authorized agents
or subcontractors of Licensee who use the Licensed Software solely in
connection with the business activities of the Licensee.
"Concurrent User License": A license permitting a specified number of
Authorized Users to log on to ONYX Customer Center simultaneously or be
connected to the ONYX Customer Center Server simultaneously ("Concurrent
Users").
"Confidential Information": All information designated in writing as
confidential by each party, or which under the circumstances of disclosure
reasonably ought to be treated as confidential. Confidential Information shall
also include the Licensed Software, including all source and object code,
Documentation related to such software, and the terms and pricing under this
Agreement.
"Client License": A license to install and use ONYX Customer Center Unplugged
on one self-contained micro computing unit ("Client") which is owned or leased
by Licensee for the exclusive use of Licensee's Authorized Users.
"Documentation": The ONYX created and supplied (i) user and system
administrator guides and manuals; and (ii) on line help for use by Licensee and
Authorized Users in connection with the Licensed Software.
"Licensed Software": The series of computer software programs commercially
licensed by ONYX, as well as any Updates or Upgrades to such programs.
"Named User License": A license permitting one individual (as identified by a
specific user identification number) to log on to the ONYX Customer Center
Database, or otherwise be connected to the ONYX Customer Center Database, at a
given moment. Named User Licenses are applicable for products which may be
released from time to time.
"Network": Multiple, interactive Clients connected to a single-processing or
multi-processing file-Server and/or database Server, in which two or more users
have common access to software or data.
"Server License": A license to install and use ONYX's Licensed Software on one
production database located on one personal computer which is accessed through
a Network ("Server"). ONYX Insight and the ONYX Customer Center Server, if
licensed, each require individual Server Licenses.
"SQL Server Running": The limited functionality version of Microsoft's SQL
Server product, with which, if acquired by Licensee, the Licensed Software may
operate.
"Updates": Periodically released versions of the Licensed Software and
Documentation which include updates, modifications, and corrections to the
Licensed Software.
"Upgrades": Periodically released versions of the Licensed Software and
Documentation which include significant function and feature enhancements to
the Licensed Software.
2. LICENSE GRANT.
Subject to the terms of this Agreement, ONYX grants to Licensee, non-exclusive
and non-transferable Concurrent User Licenses, Client Licenses, Named User
Licenses and Server Licenses as defined above, and in the quantity as paid for
by Licensee to: (1) install and use the Licensed Software on one Network in
support of the Business Activities of Licensee; and (ii) use the Documentation
in conjunction with the use of the Licensed Software. This license shall be a
license to use the machine-readable object code only, excluding any source
code. The term of this license grant shall be from the execution date of this
Agreement until terminated by either party as provided herein.
3. INSTALLATION AND ADDITIONAL SERVICES.
(a) Licensee is responsible for the purchase or licensing of all additional
equipment and software necessary to install and properly operate the Licensed
Software as detailed in the then current Documentation. Future versions of the
Licensed Software and new ONYX products may require additional equipment and/or
software, as well as updated versions of the equipment and software. Purchase
or licensing of these items, if required, is solely the responsibility of
Licensee.
(b) Licensee is responsible for the installation of the Licensed Software.
4. UPDATES, UPGRADES, AND SUPPLEMENTS.
(a) Licensee shall receive any Updates and/or Upgrades to the Licensed Software
in accord with the provisions of the maintenance agreements it has entered into
with the relevant ONYX distributor who provides such services.
(b) From time to time, ONYX may make available computer programs which are
compatible with and supplement the Licensed Software, but which (i) contain
material new features, (ii) may be priced and offered separately as optional
additions to the Licensed Software and (iii) are not made generally available
to Licensee's similarly situated customers without separate charges
("Supplements" herein). ONYX shall determine, at its sole discretion, what
constitutes a Supplement. SUPPLEMENTS MAY INCLUDE LICENSE AND MAINTENANCE TERMS
ADDITIONAL TO THOSE OF THIS AGREEMENT.
5. OWNERSHIP; COPIES.
(a) All rights, title and interest in and to the Licensed Software and
Documentation and all copyrights, patents, trademarks, service marks or other
intellectual property or property rights relating thereto, and the media on
which same are furnished to Licensee, belong exclusively to ONYX or their
respective suppliers. Licensee acknowledges that no such right, title or
interest in these items is granted under this Agreement, except as specifically
provided for in this Agreement.
(b) Except as provided in Section 13(e) below, Licensee is prohibited from
distributing, transferring possession of, or otherwise making available the
Licensed Software or Documentation to any person other than Authorized Users
under the terms of this Agreement.
(c) If Licensee creates interfaces to the Licensed Software which increases the
number of Concurrent User Licenses, Client Licenses, Named User Licenses or
Server Licenses above the number paid for by Licensee, Licensee must acquire
additional licenses. ONYX reserves the right to independently develop, use and
distribute interfaces and products even if such products or interfaces may be
similar to products or interfaces created by Licensee or its agents. Licensee
irrevocably waives any claims it may have in connection with such development,
use or distribution. Licensee accepts that such a waiver is reasonable under
the circumstances and will not take any contrary or inconsistent position.
<PAGE> 2
(d) Licensee shall be allowed to make copies of the Documentation for each
Authorized User for internal use only. Licensee may also make two (2) copies of
the Licensed Software for back-up, testing or archival purposes. All authorized
copies of the Licensed Software shall contain all copyright notices or
proprietary legends specified by ONYX.
6. CONFIDENTIALITY.
(a) Each party agrees to use commercially reasonable efforts to prevent any
unauthorized copying, use, distribution, installation or transfer of possession
of Confidential Information. At a minimum, each party shall maintain at least
the same procedures regarding the other party's Confidential Information that
it maintains with respect to its own. A party's Confidential Information shall
not include any information which (i) becomes part of the public domain through
no act or omission of the other party; (ii) is lawfully acquired by the other
party from a third party without any breach of confidentiality; (iii) is
disclosed by a party to a third party without any obligation of
confidentiality; (iv) is independently developed; or (v) is disclosed in
accordance with judicial or other governmental order, provided that receiving
party shall give disclosing party reasonable notice prior to such disclosure.
Without limiting the generality of the foregoing, Licensee shall take reasonable
steps to prevent any personnel or Authorized User from removing any proprietary
or other legend or restrictive notice contained or included in any material
provided by ONYX.
(b) Both parties acknowledge that any use or disclosure of the other party's
Confidential Information in a manner inconsistent with the provisions of this
Agreement may cause the non-disclosing party irreparable damage for which
remedies other than injunctive relief may be inadequate. Both parties further
agree that the non-disclosing party shall be entitled to attempt to receive
from a court of competent jurisdiction injunctive or other equitable relief to
restrain such use or disclosure in addition to other appropriate remedies.
(c) License and/or its Authorized Users shall not reverse engineer the
Licensed Software, or disassemble, decompile, or apply any procedure or
process to the Licensed Software in order to ascertain, derive, and/or
appropriate for any reason or purpose, the source code or source listings for
the Licensed Software or any trade secret information or process contained in
the Licensed Software, except as explicitly permitted by the national
legislation implementing the EC Council Directive of 14 May 1991 on the legal
protection of computer programs. In particular, Licensee agrees that Licensee
shall not be entitled for any purpose to transmit the Licensed Software or to
display the Licensed Software's object code on any computer screen or to make
any hard copy memory dumps of the Licensed Software object code. If Licensee
believes that Licensee requires information related to the interoperability of
the Licensed Software with other programs, Licensee shall not decompile the
program to obtain such information and Licensee agrees to request such
information from ONYX. Upon receiving such a request from Licensee, ONYX shall
determine whether Licensee requires such information for a legitimate purpose,
and if so, ONYX will either produce such information to Licensee within a
reasonable time and on reasonable conditions or itself implement such
interoperability information as part of its maintenance obligations, if
applicable.
(d) The obligations under this Section 6 shall apply to the authorized
subcontractors and agents of each party.
7. WARRANTIES.
(a) ONYX warrants that it is the lawful owner or licensee of the Licensed
Software and has the full right and authority to grant the licenses hereunder.
(b) ONYX warrants that for a period of ninety (90) days from the date it is
delivered, the media on which the Licensed Software is furnished will be free
from any material defect in workmanship and material.
(c) ONYX warrants that the Licensed Software will perform substantially in
accordance with the specifications set forth in the Documentation for a period
of ninety (90) days from the date it is delivered. This warranty does not
cover, however, any copy of the Licensed Software which has been altered or
changed in any way by the Licensee or any Authorized User, provided such
alteration or change gave rise to the breach of warranty claim.
(d) ONYX does not warrant that the functions contained in the Licensed
Software will meet the requirements of Licensee or Authorized Users or that the
operation of the Licensed Software, Updates or Upgrades will be uninterrupted
or error-free. ONYX is not responsible for problems caused by changes in, or
modifications to, the operating characteristics of any computer hardware or
operating system for which the Licensed Software is procured, nor is ONYX
responsible for problems which result from the use of the Licensed Software in
conjunction with software of third parties or with hardware which is
incompatible with the operating system for which the Licensed Software is being
procured.
(e) Only an authorized officer of ONYX may grant additional warranties which
may be binding on ONYX. Such additional warranties must be in writing.
8. WARRANTY DISCLAIMER.
ONYX, ON BEHALF OF ITSELF, ITS SUPPLIERS, AND ITS REPRESENTATIVES EXPRESSLY
DISCLAIMS ALL WARRANTIES OTHER THAN THOSE LISTED IN SECTION 7 OF THIS AGREEMENT,
EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. LICENSEE ACCEPTS THAT
THIS DISCLAIMER IS REASONABLE AND THAT LICENSEE HAS HAD ADEQUATE PRIOR
OPPORTUNITY TO ASSESS FULLY THE OPERATION AND PERFORMANCE OF THE LICENSED
SOFTWARE. LICENSEE SHALL NOT TAKE ANY CONTRARY OR INCONSISTENT POSITION.
9. LIMITATION OF REMEDIES.
(a) The entire liability of ONYX, its suppliers, and its representatives, and
Licensee's sole and exclusive remedy for the breach of the warranty obligations
in Section 7 shall be the following: ONYX or its representatives shall, at
their option, use commercially reasonable efforts to provide maintenance
modifications or fixes with respect to any error in the Licensed Software in a
timely manner, replace the Licensed Software or refund to Licensee the amount
it paid in license fees for the Licensed Software which gave rise to such
claim. ONYX and its representatives, however, shall not be obligated to
correct, cure or otherwise remedy any error or defect in the Licensed Software
resulting from any (i) modification of the Licensed Software made by Licensee
or Authorized Users, (ii) misuse or damage of the Licensed Software by Licensee
or Authorized Users, (iii) failure of Licensee to notify ONYX or its
representatives of the existence and nature of such nonconformity or defect
promptly upon its discovery; or (iv) use of Licensed Software in an operating
environment not compatible with the requirements listed in the Documentation.
(b) TO THE MAXIMUM EXTENT PERMISSIBLE UNDER APPLICABLE LAW, ONYX, ON BEHALF OF
ITSELF, ITS SUPPLIERS, AND ITS REPRESENTATIVES DISCLAIMS ANY AND ALL LIABILITY
FOR SPECIAL INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING LOSS OF PROFITS)
RELATED TO OR ARISING OUT OF THIS AGREEMENT, OR WITH RESPECT TO THE
INSTALLATION, IMPLEMENTATION, CUSTOMIZATION, USE, OPERATION OR SUPPORT OF THE
LICENSED SOFTWARE, EVEN IF ONYX, ITS SUPPLIERS, OR ITS REPRESENTATIVES HAVE
BEEN APPRISED OF THE POSSIBILITY OF SUCH DAMAGES.
<PAGE> 3
(c) To the maximum extent permissible under applicable law, Licensee agrees
that any liability on the part of ONYX, its suppliers, and its representatives,
related to or arising out of this Agreement, or with respect with the
installation, implementation, customization, use, operation or support of the
Licensed Software based upon any legal theory, including but not limited to
breach of warranty, breach of contract, negligence, other tort claims or strict
liability shall not exceed the amount paid by Licensee in license fees for the
Licensed Software which gave rise to such claim.
(d) No action, regardless of form, arising out of this Agreement may be brought
by either party more than two years after the cause of action has arisen.
(e) Licensee has carefully considered the risk and rewards associated with the
entirety of this Agreement, accepts the limitations and disclaimers of this
Section 9 and will not take any contrary position.
10. TAXES AND TARIFFS.
Licensee shall, besides other amounts payable under this Agreement, pay all
local, state, federal, national, use, excise, and value added taxes (except for
taxes imposed on ONYX's income generally), as well as customs duties or tariffs,
levied or imposed by reason of the transactions contemplated in this Agreement,
including any new taxes introduced during the term of this Agreement. Licensee
shall promptly pay to ONYX any such taxes actually paid or required to be
collected or paid by ONYX.
11. TERM, DEFAULT AND TERMINATION.
(a) This Agreement is effective from the date of its execution until terminated
by either party as provided below. In the event either party defaults in any
material obligation in this Agreement, the other party shall give written
notice of such default, and, if the party in default has not cured the default
within thirty (30) days of the notice (or as soon thereafter as commercially
practicable if the default cannot be cured within thirty (30) days), the other
party shall have the right to terminate this Agreement.
(b) Upon termination of this Agreement, regardless of the cause, the license
granted under this Agreement is immediately revoked. Within ten (10) business
days after the termination of this Agreement, Licensee shall return to ONYX all
copies of the Licensed Software and Documentation in Licensee's possession.
TERMINATION SHALL NOT RELIEVE EITHER PARTY OF THEIR CONFIDENTIALITY OBLIGATIONS
UNDER THIS AGREEMENT. In the event of termination as a result of Licensee's
failure to comply with any of its obligations under this Agreement, Licensee
shall continue to be obligated for any payments due as of the date of
termination. Termination of the Agreement shall be in addition to, and not in
lieu of, any other remedies available to either party.
12. INFRINGEMENT INDEMNITY.
ONYX, at its own expense, will indemnify, defend, and hold harmless any claim or
award of costs and damages brought against Licensee to the extent that it is
based on a claim that the Licensed Software used within the scope of this
Agreement infringes any patent, copyright, trademark, or other intellectual
property right in any country where ONYX has authorized the distribution of the
Licensed Software, provided that ONYX is promptly notified in writing of such
claim. ONYX shall have the right to control the defense of all such claims,
lawsuits and other proceedings. In no event shall Licensee settle any such
claim, lawsuit, or proceeding without ONYX's prior written approval, and ONYX
shall have no liability for any settlement or compromise made without its
consent. ONYX shall have no liability for any claim under this section if said
infringement claim is based on the use of a superseded or altered version of the
Licensed Software or in the event such claim is based upon any modification or
enhancement to the Licensed Software made by Licensee or Authorized Users. In
the event a third party infringement claim is sustained in a final judgment from
which no further appeal is taken or possible, or if Licensee's use of the
Licensed Software is enjoined by a court, then ONYX shall, in its sole election
and at its expense either (i) procure for Licensee the right to continue to use
the Licensed Software pursuant to this Agreement; (ii) replace or modify the
Licensed Software to make it non-infringing, provided that such replacement or
modification does not materially decrease the functionality of the Licensed
software; or (iii) terminate this Agreement and refund to Licensee the amount
paid by Licensee in license fees for the Licensed Software which gave rise to
such claim. ONYX agrees to use option (iii) above only in the event that options
(i) and (ii) are commercially impracticable. ONYX shall have no other liability
or obligation to Licensee except as expressly set forth above.
13. MISCELLANEOUS.
(a) Each party acknowledges that it has read and understands this Agreement and
the attached schedules, and further agrees that it is the complete and exclusive
statement of the agreement between the parties which supersedes and merges all
prior proposals, understandings, and all other agreements, oral and written,
between the parties relating to the subject matter of this Agreement. This
Agreement may not be modified or altered except by written instrument duly
executed by both parties.
(b) Any notice or other communication required or permitted in this Agreement
shall be in writing and shall be deemed to have been duly given on the day of
service if served personally or by facsimile transmission with confirmation, or
three (3) days after mailing if mailed by registered or certified mail and
addressed to the respective parties at their respective corporate headquarters.
(c) This Agreement and performance under this Agreement shall be governed by
the laws of the State of Washington. Jurisdiction and venue under this Agreement
shall lie in the State of Washington. Subject to Section 13(j), the parties
irrevocably submit to the jurisdiction of the courts of the State of Washington
and waive any objection to proceedings in any such court on the ground of venue
or on the ground that the proceedings have been brought in an inconvenient
forum. The United Nations Convention on Contracts for the International Sale of
Goods shall not apply.
(d) If any provision of this Agreement is invalid under any applicable statute
or rule of law, it is to that extent to be deemed omitted. The remainder of the
Agreement shall be valid and enforceable to the maximum extent possible.
(e) Licensee may not assign or sub-license, without the prior written consent
of ONYX, its rights, duties, or obligations under this Agreement to any person
or entity, in whole or in part, provided however, that this Agreement may be
assigned by Licensee without the consent of ONYX to a purchaser of all or
substantially all of the assets or outstanding capital stock of Licensee,
whether by merger, consolidation or otherwise. Any authorized transferee or
assignee of the Licensed Software or this Agreement shall be bound by and
subject to all of the terms and provisions of this Agreement.
(f) The waiver or failure of either party to exercise in any respect any right
provided for in this Agreement shall not be deemed a waiver of any further right
under this Agreement.
(g) Both parties agree to comply with all export and re-export restrictions
and regulations ("Export Restrictions") imposed by the government of the United
States, as well as any similar regulations imposed in any nation where Licensee
uses Licensed Software.
(h) Nothing in this Agreement shall be construed to create an agency, joint
venture, partnership, or other relationship between the parties. No agent,
employee, or representative of either party has the authority to bind the other
party in any manner. The parties are independent contractors with respect to
each other under this Agreement.
(i) Neither party shall be responsible for failure to perform in a timely
manner under this Agreement when its failure results from
<PAGE> 4
any of the following causes; Acts of God or public enemies, civil war,
insurrection or riot, fire, flood, explosion, earthquake or serious accident,
strike, labor trouble or work interruption or any cause beyond its reasonable
control.
(j) Any claim between the parties, under this agreement or otherwise, shall be
determined by arbitration in the State of Washington under the American
Arbitration Association (AAA) Commercial Arbitration Rules with Expedited
Procedures in effect on the date hereof, as modified by this Agreement.
Arbitration shall be conducted in the English language. Any issue about whether
a claim is covered by this Agreement shall be determined by the arbitrator.
There shall be no substantive motions or discovery, except the arbitrator shall
authorize such discovery as may be necessary to ensure a fair private hearing,
which shall be held within one hundred twenty (120) days of the demand and
concluded within three (3) days. These time limits are not jurisdictional. The
arbitrator shall apply substantive law and may award injunctive relief or any
other remedy available from a judge, including reasonable attorney fees and
costs to the prevailing party, but shall not have the power to award punitive
damages. In addition, any award shall be subject to the limitations of
warranties and remedies set forth in Sections 8 & 9. Notwithstanding the
foregoing, either party may seek preliminary, interim, or permanent injunctive
relief from any court having jurisdiction in the event of a breach of this
Agreement, or may seek to enforce an arbitration award under this Agreement
from same.
(k) On ONYX's request, no more frequently than annually, Licensee shall
furnish ONYX with a signed certification (i) verifying that the Licensed
Software is being used pursuant to the terms of this Agreement, including any
user limitations and (ii) listing the locations where the Licensed Software is
being used. Licensee agrees to grant ONYX reasonable access to Licensee's site,
upon prior notice during normal business hours, to audit the use of the
Licensed Software.
(l) This Agreement may be executed in two or more counterparts, each of which
shall be deemed to be an original, and each of which together shall constitute
a single instrument.
(m) Except to the extent otherwise prohibited by applicable law, the terms of
Sections 1, 5, 6, 7, 8, 9, 10, 12 and 13 shall survive termination of this
Agreement by whatever reason.
Each party has caused this Agreement to be executed by its duly authorized
representative.
ONYX: LICENSEE:
By: /s/ JAMES BRECHT By:
---------------------------- ------------------------------
Name: James Brecht Name:
---------------------------- ------------------------------
Title: Controller Title:
---------------------------- ------------------------------
Executed as of: November 12, 1998 Executed as of:
------------------ ------------------
<PAGE> 1
EXHIBIT 10.30
GREAT PLAINS(R)
SOFTWARE ALLIANCE PARTNER AGREEMENT FOR HOSTING SERVICES
This Agreement is made by and between FUTURELINK DISTRIBUTION CORPORATION
_________________ ("Hosting Alliance Partner") and Great Plains Software O.C.,
Inc. ("Great Plains") as of the date set forth below.
________________________________________________________________________________
HOSTING ALLIANCE PARTNER BUSINESS ADDRESS
________________________________________________________________________________
__#550, 603-7 AVENUE S.W._______________________________________________________
Street
__CALGARY________________________ALBERTA______________________T2P 2T5___________
City State/Province ZIP/Postal code
__403-543-5511____________403-543-551___________________________________________
Telephone Fax Employer ID/State Tax Number
__COLIN CURWEN_____________________MANAGER-HOSTED SERVICES______________________
Contact Title/Position
__DAVE BOLINK______________________EXECUTIVE ASSOCIATE__________________________
Additional Title/Position
[email protected]___________www.futurelink.net___________________________
Email Address Home Page Address
Hosting Alliance Partner billing address (if different from above):
________________________________________________________________________________
Street
________________________________________________________________________________
City State/Province ZIP/Postal code
________________________________________________________________________________
Telephone Fax
________________________________________________________________________________
Contact Title/Position
Whereas, Great Plains is the developer, owner and licensor of the Great Plains
Dynamics Hosting Software (the "Software"); and
Whereas, Hosting Alliance Partner desires to use the Software to provided
hosting services to customers directly or through independent resellers.
Now Therefore, the parties agree as follows.
________________________________________________________________________________
1. GENERAL TERMS AND CONDITIONS
________________________________________________________________________________
A. Definitions. "Services" shall mean granting Customers of Hosting Alliance
Partner access to the Software under the terms and conditions of the Customer
License Agreement attached as Appendix A. "Customer" shall mean any entity in
the Territory using the Services and Software for their own internal
purposes. "Reseller" shall mean an entity authorized by Great Plains or
Hosting Alliance Partner (see Section 2(D) to resell Services to Customers.
B. License From Great Plains. Great Plains hereby grants Hosting Alliance
Partner the license to install the Software on an unlimited number of
computers in the United States and Canada (the "Territory") for Customers
that are registered with Great Plains and to use the Software to provide
Services to Customers in the Territory during the term of this Agreement
either directly or through independent Resellers.
C. Mutual Appointment
a. Hosting Alliance Partner Appointment. Hosting Alliance Partner will
jointly work with Great Plains to promote and market the Services,
directly or through Resellers, to Customers in the Territory during the
term of this Agreement. Joint marketing efforts must be mutually agreed
upon by the Hosting Alliance Partner and Great Plains.
b. Great Plains Appointment. Great Plains hereby appoints Hosting Alliance
Partner to provide the Services and to promote and market the Services,
directly or through Great Plains or Resellers, to Customers in the
Territory during the terms of this Agreement.
D. Responsibility Matrix. The parties agree that the Responsibility Matrix
attached as Appendix B to this Agreement sets forth the expected division of
responsibilities regarding the Services. Each party agrees to use
<PAGE> 2
its commercially best efforts to fulfill its obligations under the
Responsibility Matrix either directly or through appropriate third parties.
E. Non-Exclusivity/Territory. Hosting Alliance Partner's appointment shall be
nonexclusive and only for the Services. Such appointment does not constitute
a grant of any specific territory or geographical area. Great Plains may
increase or decrease the number of Great Plains business associates in the
vicinity of Hosting Alliance Partner's location at any time without notice to
Hosting Alliance Partner. HOSTING ALLIANCE PARTNER EXPRESSLY AGREES NOT TO
EXERCISE ANY OF THE RIGHTS GRANTED IN THIS AGREEMENT FOR ANY PARTY OUTSIDE
THE TERRITORY, INCLUDING PARTIES WHICH ARE SUBSIDIARIES OR BRANCHES OF
PARTIES LOCATED IN THE TERRITORY. ANY SALES OUTSIDE THE TERRITORY MUST BE
APPROVED BY GREAT PLAINS AND MUST BE CONDUCTED BY HOSTING ALLIANCE PARTNER IN
ACCORDANCE WITH GREAT PLAINS' MULTINATIONAL SALES POLICY.
F. Independent Entities. Hosting Alliance Partner is an independent contractor
and shall at no time have the power [1] to bind Great Plains; [2] to vary any
terms, conditions, warranties or covenants made by Great Plains; or [3] to
create in favor of any person any rights which Great Plains has not
previously authorized in writing. The relationship under this Agreement shall
not create any legal partnership, franchise relationship, agency or other
form of legal association between the parties which would impose a liability
of one party upon the other.
________________________________________________________________________________
2. HOSTING ALLIANCE PARTNER RESPONSIBILITIES
________________________________________________________________________________
A. Rights. Great Plains grants to Hosting Alliance Partner the non-exclusive and
non-transferable license to offer the Services to Customers in the Territory
either directly or through Resellers. All Software licensed by Hosting
Alliance Partner shall be transferred solely through the terms of the
appropriate Software License Agreement between the customer and Great Plains
as attached as Appendix A and changed by Great Plains from time to time.
B. Naming. Hosting Alliance Partner shall offer the Services under the name:
FUTURELINK HOSTED SERVICES.
C. Pricing/Fees. Hosting Alliance Partner shall in its discretion establish a
reasonable license fee for the use of the Software and shall pay Great Plains
the then current fees as charged by Great Plains to Hosting Alliance Partner.
For existing contracts the Hosting Alliance Partner has with its customers,
in no case can Great Plains Fees be increased more than Consumer Price Index
as defined by United States Department of Labor, Bureau of Labor Statistics.
Hosting Alliance Partner will pay Great Plains an initial partner fee as
outlined in Appendix D ("Pricing and Fees") upon execution of this Agreement.
On each anniversary date of this Agreement, Hosting Alliance Partner will pay
an annual renewal fee as outlined in Appendix D, payable upon receipt of
invoice from Great Plains. Non-payment of the partner fee will automatically
terminate this Agreement. Hosting Alliance Partner shall pay Great Plains an
initial fee of US$50,000 as follows: US$10,000 within 30 calendar days of
execution of this Agreement; US$20,000 within 60 calendar days of execution
of this Agreement and US$20,000 within 90 days of execution of this
Agreement.
D. Reseller Agreements. Hosting Alliance Partner agrees to have Reseller execute
the Reseller Agreement between Great Plains and Reseller attached hereto as
Appendix C (the "Reseller Agreement"). Hosting Alliance Partner shall
promptly forward two copies of the signed Reseller Agreements to Great Plains
for signature. Hosting Alliance Partner may not establish Resellers in any
other manner except as otherwise permitted by Great Plains.
E. Customer Agreements. Hosting Alliance Partner agrees to have each Customer
execute the Agreement between Great Plains and a Customer attached hereto as
Appendix A (the "Customer Agreement"). Hosting Alliance Partner shall
promptly forward two copies of the signed Customer Agreements to Great Plains
for signature. Hosting Alliance Partner will not license the Services to a
Customer prior to execution of the Customer Agreement by Great Plains and
such Customer.
F. Ordering/Payment
a. Ordering. The parties will separately agree on the ordering procedure for
Services.
b. Payment.
i) All services and Software will be billed by Great Plains and paid in
full in advance by Hosting Alliance Partner on a monthly subscription
basis.
ii) If after 30 days, there are amounts still owed to Great Plains and
the Hosting Alliance Partner notified Great Plains that some amounts
are in dispute, then the disputed amounts must be paid into an escrow
account. Upon 15 days after the first 30 days, if the dispute is not
resolved, both parties will immediately seek arbitration. If amounts
are owed past 30 days and the Hosting Alliance Partner has not
notified Great Plains of any disputes, Great Plains will notify the
Hosting Alliance Partner that they will begin to notify the Hosting
Alliance Partner's customers of potential termination of service. At
the end of the 15 day period, if amounts remain unpaid, the Hosting
Alliance Partner must discontinue providing services to such
Customers.
iii) At the end of the 45 day delinquency Great Plains shall have the
option to transfer such Customers to another partner or provide
services itself, upon Customer approval. Hosting
<PAGE> 3
Alliance Partner shall transfer to Great Plains any and all
data relating to Great Plains products and documents
relating to such Customers.
G. Promotion. Hosting Alliance Partner shall use its best efforts to promote
and license the use of the Software. Hosting Alliance Partner shall
promptly report and follow up all sales leads.
H. Records. Hosting Alliance Partner shall, during this Agreement, and for a
period of one year after the termination of the last customer agreement
entered into by Hosting Alliance Partner, maintain records relating to the
contracts, invoices, accounts, complaints, and other transactions relating
to the Software. Great Plains may directly, or through its agent, at any
time during normal business hours and for any reason inspect such records
and other financial information. The Customer owns its data. Great Plains
owns the Software.
I. Corrupt Practices. Hosting Alliance Partner represents that it will not
make any payment or transfer anything of value, directly or indirectly, to
any government official or employee; to any officer, director, employee, or
representative, or agent of any actual or potential customer; or to any
other person or entity if such payments would violate applicable laws.
J. Hosting Alliance Partner Program. Hosting Alliance Partner agrees to comply
with the current standard program requirements in the applicable GREAT
PLAINS HOSTING ALLIANCE PARTNER PROGRAM, as developed by Great Plains and
changed by Great Plains from time to time. These requirements may be
changed by Great Plains upon thirty (30) days written notice. Hosting
Alliance Partner may request a copy of the current requirements at any
time.
K. Conduct. Hosting Alliance Partner shall undertake no acts injurious to the
business or goodwill of Great Plains.
L. Insurance. Hosting Alliance Partner shall maintain during the term of this
Agreement: [1] all required workers' compensation or similar insurance; and
[2] comprehensive general liability insurance. Hosting Alliance Partner
shall promptly supply Great Plains with proof of such insurance upon
request.
M. Taxes and Fees. Hosting Alliance Partner warrants that it shall be solely
responsible for the payment of any taxes, excises, duties, or charges which
may arise by virtue of the transactions contemplated hereunder, or shall
comply with necessary procedures to claim exemption.
N. Communications. Hosting Alliance Partner must sign on to Great Plains'
electronic communication system and execute the online ELECTRONIC DATABASE
ACCESS AND LICENSE AGREEMENT prior to using the system.
O. Non-Continuance. In the event a Customer decides not to continue its
relationship with Hosting Alliance Partner, Hosting Alliance Partner will
notify Great Plains of such non-continuance. Upon non-continuance by the
Customer and notification by the Hosting Alliance Partner, no further fees
are owed by the Hosting Alliance Partner to Great Plains, based upon the
agreed termination date.
P. Support. Hosting Alliance Partner will provide technical support to its
Resellers and Customers. Great Plains will provide support only directly to
Hosting Alliance Partner under the terms and conditions of the Great Plains
Hosting Alliance Partner Program, as amended. Great Plains currently
provides the following: Services of a Great Plains Technical Account
Manager which will provide:
(i) An introductory 3 day site visit to provide the
following:
1. Project Team member introduction and contact
information
2. Hosting Center support methodologies discussion
3. Support requirements
4. Software/Hardware configuration planning for which
the Technical Account Manager will provide detailed
documentation.
(ii) Proactive calls to address questions and upcoming
challenges.
(iii) Ongoing System Assessments for additional
recommendations and updates.
(iv) Product updates and upgrades planning to assist in
keeping Customers current on Dynamic releases.
(b) Status Updates on service requests, problem reports and
enhancement requests.
(c) Unlimited toll-free technical support provided by a defined
group of C/S+ Hosting Support Engineers.
(d) Two assigned Support Engineers.
(e) Three hour guaranteed response (during regular office hours)
for calls not able to be addressed immediately.
(f) Priority status for all incoming support calls.
(g) Guaranteed availability of additional fee-based support
options.
(b) All travel and accomodation expenses for on-site time spent by the
Technical Account Manager and other consultants will be charged to
the Housing Alliance Partner. On-site consulting will be billed at
regular time and materials rates to be outlined prior to the
performance of the work.
- --------------------------------------------------------------------------------
3. WARRANTY AND LIMITATIONS
- --------------------------------------------------------------------------------
A. General Warranties. Great Plains represents and warrants to Hosting
Alliance Partner that [1] it has sufficient right, title and interest in
and to the Software to enter into this Agreement; and [2] that all
Software distributed to Hosting Alliance Partner is free and clear of all
liens.
B. Limitation of Warranties
<PAGE> 4
THE ABOVE WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES OF ANY KIND,
EXPRESS OR IMPLIED, REGARDING THE SOFTWARE AND DOCUMENTATION AND ANY
SERVICES PROVIDED BY GREAT PLAINS INCLUDING WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.
IN NO EVENT SHALL GREAT PLAINS BE LIABLE FOR INDIRECT, CONSEQUENTIAL, OR
INCIDENTAL DAMAGES (INCLUDING DAMAGES FOR LOSS OF BUSINESS PROFITS, BUSINESS
INTERRUPTION, LOSS OF BUSINESS INFORMATION, AND THE LIKE) ARISING OUT OF THE
RELATIONSHIP BETWEEN GREAT PLAINS AND HOSTING ALLIANCE PARTNER EVEN IF IT
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
GREAT PLAINS' CUMULATIVE LIABILITY UNDER THIS AGREEMENT, INCLUDING ANY CAUSE
OF ACTION IN CONTRACT, TORT OR STRICT LIABILITY, SHALL BE LIMITED TO THE
HOSTING ALLIANCE PARTNER FEES PAID BY HOSTING ALLIANCE PARTNER DURING THE 12
MONTHS PRIOR TO SUCH EVENT. GREAT PLAINS' LIMITATION OF LIABILITY IS
CUMULATIVE WITH ALL GREAT PLAINS EXPENDITURES TO ADDRESS LIABILITY BEING
AGGREGATED TO DETERMINE SATISFACTION OF THE LIMIT. HOSTING ALLIANCE PARTNER
RELEASES GREAT PLAINS FROM ALL OBLIGATIONS, LIABILITIES, CLAIMS OR DEMANDS
IN EXCESS OF THE LIMITATION. THE PARTIES ACKNOWLEDGE THAT OTHER PARTS OF
THIS AGREEMENT RELY UPON THE INCLUSION OF THIS SECTION AND THE RESULTING
ALLOCATION OF RISKS.
C. Hosting Alliance Partner Actions. Great Plains shall have no obligation to
any party under any warranty given by Hosting Alliance partner, its agents
or employees. Hosting Alliance Partner shall not make any representation or
warranty with respect to the Great Plains products other than those stated
by Great Plains in its written warranty, documentation and literature.
D. Hosting Alliance Partner Indemnification. Hosting Alliance Partner agrees
to indemnify Great Plains and to hold it harmless from and against any loss,
damage, claims or demands whatsoever arising out of Hosting Alliance
Partner's activities.
E. Complaints. Hosting Alliance Partner shall make all reasonable efforts to
handle all incidents of customer complains or demands regarding the Software
and shall report promptly to Great Plains all such incidents. Hosting
Alliance Partner shall make no warranty repairs on the Software and shall
instruct customers to contact Great Plains.
4. CONFIDENTIALITY
Hosting Alliance Partner agrees not to disclose any confidential information
received from Great Plains in any form to any employees who do not have a
specific need to use such information or to any outside party (including
contractors) without Great plains' prior written consent. All employees or
contractors who receive such Great Plains confidential information must be
bound by written agreement not to disclose such information to any other
party. Hosting Alliance Partner acknowledges that the unauthorized
disclosure or use of Great Plains confidential information would cause
irreparable harm and significant injury to Great Plains that may be
difficult to compensate. Accordingly, Hosting Alliance Partner agrees that
Great Plains will have the right to seek and obtain temporary and permanent
injunctive relief in addition to any other rights and remedies it may have.
The obligations of confidentiality shall not apply to information which (1)
is in public domain at the time of disclosure, (2) has been released by
Great Plains without restrictions, (3) has been lawfully obtained by Hosting
Alliance Partner from a third party under no obligation of confidentiality,
or (4) is independently developed by employees of Hosting Alliance Partner
without access to the confidential information.
5. TRADEMARKS
A. Definition. "GPS Trademarks" means any and all current or future company
names, product names, marks, logos, designs and other designations or brands
used by Great Plains in connection with its products and services and all
marks similar thereto.
B. License. Great Plains grants Hosting Alliance Partner the right to use the
GPS Trademarks solely for the purpose of distributing and marketing the
software, provided that Hosting Alliance Partner: (1) uses the appropriate
GPS Trademarks for the corresponding Software; (2) identifies all GPS
Trademarks are registered trademarks of Great Plains Software, Inc.; (3)
take reasonable steps to modify all objectionable uses of the GPS
Trademarks; and (4) complies with the then CURRENT GPS TRADEMARK AND LOGO
POLICIES. Great Plains reserves the right to revoke or limit the use of GPS
Trademarks at any time upon reasonable notice.
C. Ownership. Hosting Alliance Partner acknowledges that Great Plains is the
sole owner of the GPS Trademarks and nothing herein shall grant to Hosting
Alliance Partner any right or interest in the GPS
<PAGE> 5
Trademarks. Hosting Alliance Partner shall not register, or attempt to
register, any GPS Trademarks or any marks confusingly similar thereto in any
jurisdiction.
D. Limitations. Except as stated above, Hosting Alliance Partner is granted no
right, title, license or interest in the GPS Trademarks. Hosting Alliance
Partner acknowledges Great Plains' rights in the GPS Trademarks and agrees
that any and all use of the GPS Trademarks by Hosting Alliance Partner shall
inure to the sole benefit of Great Plains. Hosting Alliance Partner agrees
that it shall take no action inconsistent with Great Plains' ownership of
the GPS Trademarks and agrees not to challenge Great Plains' rights in or
attempt to register any of the GPS Trademarks, or any other name or mark
owned or used by Great Plains or any mark confusingly similar thereto. If at
any time Hosting Alliance Partner acquires any rights in, or any
registration or application for, any of the GPS Trademarks by operation of
law or otherwise, it will immediately, upon request by Great Plains and at
no expense to Great Plains, assign such rights, registration, or
applications to Great Plains, along with any and all associated goodwill.
E. Notification. Hosting Alliance Partner shall promptly notify Great Plains of
any use by any third party of GPS Trademarks or any use by such third
parties of similar marks which may constitute an infringement or passing off
of GPS Trademarks. Great Plains reserves the right, in its sole discretion,
to institute any proceedings against such third party infringers and Hosting
Alliance Partner shall refrain from doing so itself. Hosting Alliance
Partner agrees to cooperate fully with Great Plains in any action taken by
Great Plains against such third parties, provided that all expenses of such
action shall be borne by Great Plains and all damages which may be awarded
or agreed upon in settlement of such action shall accrue to Great Plains.
6. PROPRIETARY RIGHTS
A. Ownership. Hosting Alliance Partner understands and agrees that Hosting
Alliance Partner takes title only to the media on which the Software is
provided. Title in and ownership of all copies of Great Plains' products and
documentation, GPS Trademarks and all property rights therein, shall remain
at all times vested in Great Plains. Hosting Alliance Partner acknowledges
that the Software is protected by domestic and international copyright and
other forms of proprietary rights and agrees not to copy or otherwise
reproduce, modify, adapt, translate, reverse engineer, decompile,
disassemble or create derivative works based on the Software or the
documentation.
B. No Right Granted. No provision in this Agreement shall be interpreted as an
assignment or grant to Hosting Alliance Partner of any right, title or
interest in the Software, documentation or GPS Trademarks.
C. Protection. Hosting Alliance Partner agrees to take any reasonable step
necessary to protect the proprietary rights of Great Plains and its
suppliers or licensors, including, but not limited to, the proper display of
copyright, trademark, trade secret and other proprietary notices on any
copies of the Tools. Hosting Alliance Partner must reproduce and include any
such notices, other legends and logos on any backup copies.
D. Copyright Notice. Hosting Alliance Partner agrees not to remove and shall
reproduce and include all copyright notices or confidential or proprietary
legends in and on all copies of Great Plains products or documentation. Any
printed reference to Great Plains' products must include the following
notice (or such notice as required by Great Plains) with [YEAR] being the
then current year:
(COPYRIGHT)GREAT PLAINS SOFTWARE, INC. [YEAR]. ALL RIGHTS RESERVED.
E. Breach. Hosting Alliance Partner understands and agrees that the protection
of Great Plains' rights in and to the Software, documentation and GPS
Trademarks and the prevention of any unauthorized copying, reproduction,
modification, adaptation, translation, reverse engineering, decompilation,
disassembly and creation of derivative works, is of the essence of this
Agreement and that any failure on its part, however minor, to discharge its
obligations shall constitute a material breach of this Agreement.
7. TERM AND TERMINATION
A. Term. This Agreement shall enter into effect on the date it is signed by
both parties.
B. Termination. This Agreement shall terminate [1] automatically in the event
Hosting Alliance Partner breaches any provision of this Agreement or fails
to comply with the provisions of the Great Plains Hosting Alliance Partner
Program, or [2] automatically in the event that Hosting Alliance Partner is
the subject of a proceeding in bankruptcy, is placed in receivership, or
enters into an arrangement for the benefit of its creditors; or [3] for any
reason, upon one hundred and eighty (180) day notice by either party to the
other party. Except as otherwise provided in this agreement, upon
termination the Hosting Alliance Partner can maintain its existing customers
under the terms of this agreement, but in no case shall this term exceed 36
months from the date of termination of this agreement. New customers can not
be acquired.
C. Rights. Upon termination or expiration of this Agreement, all rights granted
to Hosting Alliance Partner shall immediately cease and Hosting Alliance
Partner shall immediately return to Great Plains all confidential
information provided by Great Plains. Upon request by a Customer, Hosting
Alliance Partner shall transfer to Great Plains any and all data and
documents relating to such Customer.
D. No Compensation. Neither party shall be liable to the other for damages,
losses, or expenses of any kind or character on account of the termination
of this Agreement, whether such damage, loss, or expense may arise
<PAGE> 6
from the loss of prospective customers of Hosting Alliance Partner, or
expenses incurred or investments made in connection with the establishment,
development, or maintenance of Hosting Alliance Partner's business.
Termination or expiration shall not affect any claim, demand, or liability
of any party created or arising hereunder prior to such time.
- --------------------------------------------------------------------------------
8. FORCE MAJEURE
- --------------------------------------------------------------------------------
A. Definition. "Force Majeure" shall mean any event or condition not reasonably
within the control of either party, which prevents in whole or in material
part the performance by one of the parties of its obligations hereunder or
which renders the performance of such obligations so difficult or costly as
to make such performance commercially unreasonable.
B. Notice. Upon giving notice to the other party, a party affected by an event
of Force Majeure shall be released without any liability on its part from
the performance of its obligations under this Agreement, except for the
obligation to pay any amounts due and owing hereunder, but only to the
extent and only for the period that its performance of such obligations is
prevented by the event of Force Majeure. The other party may likewise
suspend the performance of all or part of its obligations hereunder to the
extent that such suspension is commercially reasonable.
- --------------------------------------------------------------------------------
9. NOT FOR RESALE SOFTWARE
- --------------------------------------------------------------------------------
A. NFR Software. Hosting Alliance Partner may acquire Software to be used for
internal accounting and demonstration purposes in Hosting Alliance Partner's
direct business as it relates to software. Such "Not For Resale Software"
shall be for Hosting Alliance Partner's internal use only and shall not be
relicensed or transferred or made available to any other party by any means
under any condition.
B. Limitation. Hosting Alliance Partner may not make any copies of the NFR
Software or install or transfer the NFR Software to any party or allow any
third party to use the NFR Software.
C. No Credit. Hosting Alliance Partner agrees there are no return for credit
privileges on Not For Resale Software modules.
- --------------------------------------------------------------------------------
10. ASSIGNMENT
- --------------------------------------------------------------------------------
This Agreement is not assignable by Hosting Alliance Partner without prior
written consent by Great Plains. In the event Hosting Alliance Partner
changes its legal structure or undergoes a substantial change in ownership
of its stock or other ownership interest, Great Plains shall have the right
to approve of the new entity. Such approval will not be unreasonably
withheld. Great Plains may assign this Agreement and its interest in the
Software to any party without the consent of Hosting Alliance Partner. This
Agreement shall inure to the benefit of any successor of Great Plains and
shall not be affected by any change in the ownership or control of Great
Plains. Hosting Alliance Partner shall re-apply for a new Hosting Alliance
Partner agreement in the event Hosting Alliance Partner changes its legal
structure or name.
- --------------------------------------------------------------------------------
11. MISCELLANEOUS
- --------------------------------------------------------------------------------
A. Complete Agreement. THIS AGREEMENT AND THE PROVISIONS OF THE CURRENT HOSTING
ALLIANCE PARTNER PROGRAM, AS AMENDED FROM TIME TO TIME, CONSTITUTE THE
ENTIRE AGREEMENT OF THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF
AND SUPERSEDE ALL PREVIOUS AGREEMENTS BY AND BETWEEN GREAT PLAINS AND
HOSTING ALLIANCE PARTNER AS WELL AS ALL PROPOSALS, ORAL OR WRITTEN AND ALL
PRIOR NEGOTIATIONS, CONVERSATIONS OR DISCUSSIONS BETWEEN THE PARTIES RELATED
TO THIS AGREEMENT. HOSTING ALLIANCE PARTNER ACKNOWLEDGES THAT IT HAS NOT
BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY ANY REPRESENTATIONS OR
STATEMENTS, ORAL OR WRITTEN, NOT EXPRESSLY CONTAINED HEREIN.
B. Amendment. This Agreement shall not be deemed or construed to be modified,
amended, rescinded, canceled or waived, in whole or in part, except by
written amendment signed by the parties hereto.
C. Unenforceability. If any provision of this Agreement is held to be invalid,
illegal or unenforceable, such provision shall be considered severable from
this Agreement and the remaining provisions shall continue in full force and
effect. The parties will replace a severed provision by a provision which is
closest to the intent of the parties.
D. Notices. Notices permitted or required to be given hereunder shall be deemed
sufficient if given [1] by registered or certified mail, postage prepaid,
return receipt requested, addressed to the addresses above or such other
addresses as the respective parties may designate by like notice from time
to time, or [2] by international courier, telex or telegram, or telefax to
the telefax number above. Any notice shall be deemed effective when received
by the receiving party.
E. Governing Law and Jurisdiction. This Agreement is made and executed by
Hosting Alliance Partner and Great Plains in Cass County, North Dakota.
Hosting Alliance Partner consents to the jurisdiction by the Courts of
<PAGE> 7
Cass County, North Dakota, in connection with any dispute arising between the
parties. The Agreement shall be governed by and construed in accordance with
the laws of the State of Minnesota.
F. Counterparts. This Agreement shall be executed in two or more counterparts in
the English language and each such counterpart shall be deemed an original
hereof.
G. Waiver. No failure by either party to take any action or assert any right
hereunder shall be deemed to be a waiver of such right in the event of the
continuation or repetition of the circumstances giving rise to such right.
H. Government. If Hosting Alliance Partner is acting on behalf of any unit or
agency of the united States Government, the following provisions apply; [1]
Any products Hosting Alliance Partner acquires under this Agreement for or
on behalf of the United States Government are provided to the United States
of America with RESTRICTED RIGHTS. Use, duplication, or disclosure by the
U.S. Government is subject to restrictions as set forth in subparagraph
(c)(1)(ii) of the Rights in Technical Data and Computer Software clause at
DFARS 252.277-7013 and paragraph (d) of the Commercial Computer
software-Restricted Rights clause at FAR 52.227-19; [2] Great Plains grants
Hosting Alliance partner the right to transfer Software to the United States
government subject to the following restrictions. With the exception of the
Department of Defense, you will not distribute Software to the United States
of America except (i) on terms at least as restrictive as those set forth in
subparagraph (c)(1)(ii) of the Rights in Technical Data and Computer
Software clause at DFARS 252.227-7013 and paragraph (d) of the Commercial
Computer Software-Restricted Rights clause at FAR 52.227-19, and (ii) in
compliance with particular department or agency acquisition regulations that
provide Great Plains protection at least equivalent to that provided by the
above-referenced DFARS and FAR provisions.
I. Export Restrictions. Hosting Alliance Partner expressly agrees to neither
directly or through third parties export or transmit any Software to any
country to which such export or transmission is restricted or prohibited by
applicable regulations or statutes.
<PAGE> 8
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
date below.
Great Plains Software O.C., Inc.
- --------------------------------------------------------
/s/ RALPH J. MEHNERT-MELAND, ESQ.
- --------------------------------------------------------
Signature
Ralph J. Mehnert-Meland, Esq.
- --------------------------------------------------------
Print Name
General Counsel
- --------------------------------------------------------
Title
Hosting Alliance Partner
/s/ CAMERON CHELL
- --------------------------------------------------------
Signature
Cameron Chell
- --------------------------------------------------------
Print Name
CEO
- --------------------------------------------------------
Title
Oct 26/98
- ----------------------------------
Date
<PAGE> 9
APPENDIX A
[LOGO] DYNAMICS C/S+ HOSTING SOFTWARE LICENSE AGREEMENT
- --------------------------------------------------------------------------------
DO NOT ALTER OR AMEND THIS AGREEMENT IN ANY MANNER WITHOUT CONSENT OF GREAT
PLAINS. ANY ALTERATIONS OR AMENDMENTS WITHOUT SUCH CONSENT WILL
VOID THIS AGREEMENT AND YOUR LICENSE TO USE THE SOFTWARE.
- --------------------------------------------------------------------------------
This Hosting Software License Agreement ("Agreement") is entered into by and
between Great Plains Software O.C., Inc. ("Great Plains") and the undersigned
licensee ("Licensee").
1. DEFINITIONS
(a) "Software" means the Great Plains software products to which access
is provided to Licensee by Great Plains or its authorized hosting
service provider ("Service Provider"). Such Software may be
physically loaded at Licensee's or a third party location.
(b) "Documentation" means any user and technical documentation for the
Software provided by Great Plains in electronic or printed format.
2. LICENSES
(a) Grant of License. Great Plains grants Licensee the non-exclusive and
non-transferable right, subject to the terms and conditions of this
Agreement, to
(i) access and use the Software, provided the number of Software
instances running concurrently is limited to the number of
users specified in Appendix A; and
(ii) use the associated Documentation,
(b) Ownership. Great Plains (or its licensor, in the case of any
incorporated third party software) retains ownership in the Software
and Documentation (including all copies thereof) and all rights not
specifically granted to Licensee in this Agreement.
(c) Designated Server Computer. In the event the Software is located at
Licensee's site, Licensee may only execute the Software on the
computer designated in Appendix A ("Designated Server Computer") or
in a "cluster" which includes the Designated Server Computer. Use in
a cluster is only permitted if there is only one cumulative
installation of the Software actively in use at any one time.
Licensee shall notify Great Plains in advance in the event it
intends to relocate or change the Designated Server Computer.
Licensee may not have more than one active installation of the
Software on the Designated Server Computer or a cluster unless
Licensee purchases additional Software licenses. More specifically,
no function, such as database administration, or feature, such as
database schema, of the Software may be performed or used on a
computer other than the Designated Server Computer.
(d) Sublicensing/Transfer. The rights of Licensee shall not include the
right to grant sublicenses or transfer (including transfer by
rental) the Software or Documentation or
<PAGE> 10
the right to use these to benefit any third party. Any attempt to
grant sublicenses or transfer any rights shall be considered a
breach of this Agreement by Licensee.
(e) Restrictions on Use. Licensee may use the Software and Documentation
only in the conduct of its own business and shall not directly or
indirectly use the Software to process the work of any third party
or for any personal uses. Licensee may use the Software to process
accounting data for other Companies, as defined in this Section.
"Company" shall mean one or more corporations, partnerships, sole
proprietorships or other accounting entities, each of which is
controlled by or under common control with the company to whom this
license is granted and each of which has its own set of accounting
records. "Control" of any entity means ownership of at least 50% of
the shares entitled to elect the board of directors or other
management relationship sufficient to control the entity's business
policies and activities. The Software may not be used to process the
accounting data of any entity that is not one of the Companies so
defined and may not be used to operate a service bureau. Any
unauthorized use of the Software will not only automatically void
this license but also subject Licensee and others to legal claims by
Great Plains for copyright infringement and unauthorized use,
including claims for injunctive relief and monetary damages.
(f) Decompilation. Licensee shall not disassemble, decompile or
otherwise reverse engineer the Software except and only to the
extent that such activity is expressly permitted by applicable law
notwithstanding this limitation.
(g) Export Controls. Licensee agrees and certifies that no technical
data received from Great Plains, nor the direct product thereof,
will be shipped, transferred or exported, directly or indirectly, to
any country in violation of any applicable law, including the United
States Export Administration Act and the regulations thereunder.
(h) Reference. Licensee agrees to be listed in Great Plains' public
customer list.
3. PROPRIETARY RIGHTS AND CONFIDENTIALITY
Ownership. All title and rights of ownership in the Software and
Documentation remain with Great Plains and/or its suppliers or licensors
and are protected by applicable copyright, patent, trademark or trade
secret laws. Licensee agrees to take any reasonable step necessary to
protect the proprietary rights of Great Plains and its suppliers or
licensors in the Software and Documentation, including, but not limited
to, the proper display of copyright, trademark, trade secret and other
proprietary notices on any copies of the Software or Documentation.
Licensee must reproduce and include any such notices, other legends and
logos on the backup copies. Licensee must keep the Software free and clear
of any claims, liens and licenses by third parties.
4. U.S. Government Restricted Rights
If Licensee is acting on behalf of any unit or agency of the United States
Government ("Government"), the following provisions apply:
(i) The Software and documentation are provided to the Government with
RESTRICTED RIGHTS;
<PAGE> 11
(ii) (ii) USE, DUPLICATION OR DISCLOSURE BY THE GOVERNMENT IS SUBJECT TO
RESTRICTIONS AS SET FORTH IN SUBPARAGRAPH (c)(1)(ii) OF THE RIGHTS
IN TECHNICAL DATA AND COMPUTER SOFTWARE CLAUSE AT DFARS 252.227-7013
AND SUBPARAGRAPH (c)(2) OF THE COMMERCIAL COMPUTER SOFTWARE -
RESTRICTED RIGHTS CLAUSE AT FAR 52.227-19.
5. TERM AND TERMINATION
(a) Term. The licenses granted under this Agreement shall commence at
the time both parties have caused this Agreement to be signed by
their representatives and shall continue until terminated in
accordance with the provisions of this Agreement.
(b) Termination. Licensee may terminate this Agreement by destroying or
returning to Great Plains the Software and the Documentation and all
copies thereof. Great Plains may immediately terminate this
Agreement if Licensee breaches any material representation,
warranty, obligation or provision of this Agreement and does not
cure such breach within thirty (30) days of Great Plains' written
notification to Licensee of such breach. Upon termination, Licensee,
at the option of Great Plains, shall either promptly return to Great
Plains all copies of the Software and Documentation in Licensee's
possession or destroy all such copies, and shall certify in writing
that all such copies have been destroyed.
6. LIMITED WARRANTY
(a) Limited Warranties.
(i) Product Warranty. Great Plains warrants that, for a period of
ninety (90) days from the date of this Agreement, the Software
will substantially conform to the Documentation, provided that
it is properly used on the computer hardware and with the
operating system for which is was designed.
(ii) Title Warranty. Great Plains warrants that it is the owner or
authorized licensee of the Software or has the rights to
license the Software to Licensee.
(iii) Year 2000 Warranty. Great Plains warrants that all
date-related functions of the Software will accurately reflect
the change from the year 1999 to the year 2000 and beyond,
including leap year calculations, provided that the hardware,
third party software and operating system used with the
Software accurately reflect the change and do not affect the
Software.
(b) Remedies. Great Plains' entire liability and Licensee's exclusive
remedy relative to the Software shall be for Great Plains, at its
option, to either: a) replace the Software that does not meet the
limited warranty described above; or b) attempt to correct any
errors which Licensee finds in the Software during the warranty
period and which prevent the Software from substantially performing
as described in the Documentation. Any replacement Software will be
warranted for a period of ninety (90) days from the date such
replacement Software is delivered to Licensee.
(c) Limitations. The above warranties are null and void if Licensee or
any third party modifies or changes its copy of the Software in any
way beyond the scope of the Dynamics C/S+ Modifier or the
customization options contained in the Software, or if failure of
the Software has resulted from accident, abuse or misapplication. In
order to
<PAGE> 12
receive and maintain the warranties, Licensee must (i) use the Software in
accordance with the Documentation; (ii) use the Software on the hardware
and with the operating system for which it was designed; and (iii) use
only qualified personnel to operate the system and the hardware. Great
Plains will not be required to maintain compatibility between the Software
and software not specified in this Agreement, including, but not limited
to, versions of Software other than those listed in this Agreement. Great
Plains does not warrant that the functions contained in the Software will
meet Licensee's requirements or that the operation of the Software will be
uninterrupted or error-free or that all defects will be corrected.
(d) Exceptions. The warranties do not apply to errors or malfunctions caused
by (i) machine malfunction; (ii) equipment or software not licensed in
this Agreement; (iii) use of incorrect procedures or data by Licensee; or
(iv) any other cause not attributable to Great Plains.
(e) Duty to Inform. If Licensee believes that the Software is not
substantially performing in accordance with the Documentation, Licensee
will immediately notify Great Plains in writing regarding any such
non-performance and will provide a listing of output and such other data
as may be required by Great Plains to reproduce operating conditions as
existed when the non-performance occurred.
(f) Infringement/Indemnification. Great Plains shall defend or otherwise
dispose of, at its sole cost and expense, any claim, suit or proceeding
brought against Licensee which alleges that the Software, as delivered and
used in accordance with the terms of this Agreement, infringes any patent
or copyright, and to pay the amount of any judgment or settlement,
provided that Licensee gives Great Plains prompt written notice of such
claim, suit or proceeding and gives Great Plains full information and
reasonable assistance in its defense or settlement. Great Plains shall be
entitled to direct such defense and to settle or otherwise dispose of such
claim, suit or proceeding as it sees fit. If an injunction is obtained in
such action against Licensee's use of the Software, Great Plains shall, at
its option and expense, either (1) obtain for Licensee the right to
continue to use the Software; or (2) replace the Software with a product
with substantially equivalent functionality; or (3) modify the Software so
that it becomes non-infringing, while maintaining substantially equivalent
functionality; or, if (1), (2) or (3) above are not practical, terminate
this Agreement and reimburse Licensee for the Software license fees
actually paid by Licensee to Great Plains, less an allowance for
amortization over a 48-month period, straight-line method, beginning with
the date the Software is delivered to Licensee, Licensee's cooperation
with Great Plains at Great Plains' request, in accordance with this
Section, shall be at Great Plains' expense, which shall include the
reasonable costs of Licensee's initial consultation with its attorney. No
other costs or expenses shall be incurred for the account of Great Plains
without Great Plains' prior written consent. Licensee may participate with
Great Plains in Licensee's own defense in such claim, suit or proceeding,
at Licensee's option and at Licensee's sole expense.
Licensee agrees to defend and hold harmless Great Plains and its officers
and employees against any loss, cost or expenses incurred as a result of a
claim based on modifications to
<PAGE> 13
the Software made by or for Licensee without Great Plains' prior written
approval.
7. DISCLAIMER OF WARRANTY
(a) EXCEPT AS STATED ABOVE, GREAT PLAINS MAKES NO OTHER WARRANTIES
REGARDING THE SOFTWARE OR DOCUMENTATION, INCLUDING, WITHOUT
LIMITATION, EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS
THE WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE OR
MERCHANTABILITY, AND ANY OTHER WARRANTY, EXPRESS OR IMPLIED.
(b) Any statements made by a dealer or any other third party other than
Great Plains are not warranties and cannot be relied on by Licensee.
(c) Great Plains shall not be liable for any claimed non-conformance of
the Software under Article 35(2) of the United Nations Convention on
Contracts for the International Sale of Goods, even if that
Convention were to be determined applicable to this Agreement and
the underlying transactions.
8. LIMITATION OF LIABILITY
IN NO EVENT SHALL GREAT PLAINS OR ANYONE ELSE WHO HAS BEEN INVOLVED IN THE
CREATION, PRODUCTION OR DELIVERY OF THE SOFTWARE OR THE DOCUMENTATION BE
LIABLE FOR ANY INCIDENTAL, SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES,
LOSS OF BUSINESS, LOSS OF PROFITS, LOSS OF GOODWILL OR TORTIOUS CONDUCT
RELATING TO, CAUSED BY OR ARISING OUT OF ANY BREACH OF OBLIGATIONS OR
DELAY IN DELIVERY OF SOFTWARE OR DOCUMENTATION UNDER THIS AGREEMENT OR
FROM LICENSEE'S USE OR INABILITY TO USE THE SOFTWARE, EVEN IF GREAT PLAINS
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH LOSS OR DAMAGES.
SOME STATES DO NOT ALLOW THE EXCLUSION OR LIMITATION OF LIABILITY FOR
CONSEQUENTIAL OR INCIDENTAL DAMAGES SO THE ABOVE LIMITATION MAY NOT APPLY
TO LICENSEE.
ANY DAMAGES THAT GREAT PLAINS IS REQUIRED TO PAY FOR ANY AND ALL CAUSES,
WHETHER FOR NEGLIGENCE, BREACH OF CONTRACT OR OTHERWISE, REGARDLESS OF THE
FORM OF ACTION, SHALL, IN THE AGGREGATE, BE LIMITED TO THE PRICE PAID BY
LICENSEE TO GREAT PLAINS FOR THE SOFTWARE.
9. ARBITRATION
(a) Disputes. Any dispute, controversy, cause of action, or claim, of
any kind or nature whatsoever, whether legal or equitable,
including, but not limited to, claims sounding in contract, torts or
products liability and claims based upon alleged violations of
consumer
<PAGE> 14
protection laws, which arise out of or relate to (1) this Agreement,
or the breach, termination or invalidity of this Agreement, (2) the
sale, installation, modification or use of the Software sold, or (3)
any services rendered in connection with the sale, installation,
modification or use of the Software shall be finally and exclusively
settled by arbitration in accordance with the Arbitration Rules of
the American Arbitration Association in effect on the date of this
Agreement by one (1) arbitrator appointed in accordance with such
Rules. The place of arbitration shall be Fargo, North Dakota.
Judgment upon the award of the arbitrators may be entered in any
court having jurisdiction thereof.
(b) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Minnesota without regard to
the choice of law or conflict of law principles. The United Nations
Convention on Contracts for the International Sale of Goods shall
not apply to this Agreement.
10. GENERAL TERMS AND CONDITIONS
(a) Relationship. This Agreement does not make either party hereto the
employee, agent or legal representative of the other party for any
purpose whatsoever. Neither party hereto is granted any right or
authority to assume or to create any obligation or responsibility,
express or implied, on behalf of or in the name of the other party.
In fulfilling its obligations pursuant to this Agreement, each party
hereto shall act as an independent contractor.
(b) Assignment. Licensee shall not assign or otherwise transfer any of
its rights or obligations under this Agreement without the prior
written consent of Great Plains. This Agreement shall inure to the
benefit of and shall be binding on the successors of the parties.
This Agreement and the rights and obligation arising hereunder shall
not be affected by any change in the corporate structure or
ownership of the parties.
(c) Notices. All notices permitted or required to be given hereunder
shall be delivered personally or sent by telecopy or registered or
certified mail, postage prepaid, return receipt requested, addressed
to the addresses of the parties hereto as set forth above or to such
other addresses as the parties may designate by like notice from
time to time. Notices so given shall be effective (a) upon the date
of personal delivery, (b) if sent by telecopy, concurrently with the
transmission thereof if the sender's machine produces a transmission
report without notice of a communication fault, (c) on the third
(3rd) business day following the date on which such notice is mailed
by registered or certified mail.
(d) Entire Agreement. This Agreement, including Appendix A attached
hereto and by this reference made an integral part hereof,
constitutes the entire agreement of the parties hereto with respect
to the subject matter hereof and supersedes all previous proposals,
oral or written, express or implied, and all negotiations,
conversations or discussions heretofore had between the parties
hereto related to the subject matter of this Agreement.
(e) Amendment. This Agreement shall not be deemed or construed to be
modified, amended, rescinded, canceled or waived, in whole or in
part, except by a writing signed by both parties hereto.
(f) Severability. In the event that any of the terms of this Agreement
are in conflict with any
<PAGE> 15
rule of law or statutory provision or otherwise unenforceable under
the laws or regulations of any government or subdivision thereof,
such terms shall be deemed stricken from this Agreement, but such
invalidity or unenforceability shall not invalidate any of the other
terms of this Agreement, and this Agreement shall continue in force,
unless the invalidity or unenforceability of any such provisions
hereof does substantial violence to, or where the invalid or
unenforceable provisions comprise an integral part of, or are
otherwise inseparable from, the remainder of this Agreement.
(g) Waiver. No failure by either party hereto to take any action or
assert any right hereunder shall be deemed to be a waiver of such
right in the event of the continuation or repetition of the
circumstances giving rise to such right.
11. NO AGENCY OR PARTNERSHIP RELATIONSHIP
Licensee recognizes and acknowledges that any distributor or authorized
reseller of Great Plains, through which Licensee has acquired Great
Plains' Software or obtained services related to Great Plains' Software,
is not the agent or the partner of Great Plains. Rather, any such
distributor or authorized reseller is an independent company, person, or
entity with no authority to bind Great Plains or to make representations
or warranties on behalf of Great Plains. In this regard, as stated in
paragraphs 6, 7 and 11 of this Agreement, Great Plains makes no
representation or warranties regarding its software except as expressly
set forth in this Agreement.
12. EXCLUSIVE AGREEMENT
Licensee agrees that the terms and provisions of this Agreement shall
solely and exclusively govern the relationship between Licensee and Great
Plains. To the extent that the terms and conditions of this Agreement
conflict with any other written or oral statements or representations made
by Great Plains including, but not limited to, any statements and
representations set for the in the License Agreement contained in
shrink-wrapped packages of the Software or in electronic on-line license
agreements, the terms and provisions of this Agreement shall be
controlling.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the last date indicated
below.
GREAT PLAINS SOFTWARE O.C., INC. (Licensee)
-------------------------
By: By:
-------------------------------- --------------------------------
Title: Title:
----------------------------- -----------------------------
Date: Date:
------------------------------ ------------------------------
<PAGE> 16
Licensee's Place of Business:
-----------------------------------
-----------------------------------
Tel:
-------------------------------
FAX:
-------------------------------
<PAGE> 17
APPENDIX A
LICENSED SOFTWARE AND DESIGNATED COMPUTER(S)
NUMBER OF CONCURRENT ACCOUNTING SYSTEM USERS:
---------------
DESIGNATED SERVER COMPUTER:
Manufacturer: Model #:
--------------------------- ----------------------
Operating System: Version:
----------------------- ----------------------
Address of Designated Computer Site:
----------------------------------------
----------------------------------------
----------------------------------------
Contact:
--------------------------------------
Tel.:
----------------------------------------
FAX:
------------------------------------------
<PAGE> 18
RESPONSIBILITY MATRIX FOR INFORMATION TECHNOLOGY SERVICES
APPENDIX B
RESPONSIBILITY MATRIX DEFINITIONS
GREAT PLAINS & FUTURELINK HOSTING SERVICES
- --------------------------------------------------------------------------------
The following definitions will BE used to describe the relative roles and
responsibilities of FUTURELINK, Great Plains Software, and Business Partners.
1) PERFORM-Primary responsibility and ownership for ensuring that work
is completed in accordance with contract.
2) ASSIST-Secondary responsibility which includes the contribution of
skill, resources and/or tools to complete the task (s), in
accordance with the contract.
3) RQMTS-Primary responsibility to define technical specifications,
workload estimates and/or alternative evaluation in order to define
"what" is to be done - and "implications" to existing contractual
terms.
4) APPROVE-Accepts/Agrees with workload definition and resource
implications, that may or may not be within contractual scope. For
process definition, APPROVE means approval of the process to be
implemented.
5) RECOMMEND-Responsibility to define technical specifications or
alternative evaluation in order to define "what" is to be done, in
accordance with the contract.
6) N/A - Not within the scope of this proposal. However, additional
services may be available from FUTURELINK under a separate proposal.
7) PM - Project Manager
8) CREDITCO. - FUTURELINK Credit Corp
9) TBD - To be Determined
Page 1
<PAGE> 19
RESPONSIBILITY MATRIX FOR INFORMATION TECHNOLOGY SERVICES
<TABLE>
<CAPTION>
RESPONSIBILITY BUSINESS
FLINK GPS PARTNER CUSTOMER
-------------- --- -------- --------
<S> <C> <C> <C> <C>
OPERATIONS FUNCTIONS
- - Develop Standard Operations procedures, run books and scripts Perform
- - Document Procedures and reporting Perform
- - Standard Daily Data base Backups (automated scripts) Perform Assist
- - Standard quarterly full system Backups Perform Assist
- - Perform weekly Citrix reboot* Perform
Startup console Perform
Console Responses Perform
Shut Down Console Perform Perform
Monitor Systems 8X5 and on call 24x7 Perform
DISK MANAGEMENT
- - Develop Disk requirements/administrator volume groups Perform Assist
- - Develop requirements for non administrator volume groups Perform Assist
- - Develop requirements for file systems Perform Assist
- - Review disk requirements/administrator groups Perform Assist
- - Review disk requirements for non-administrator groups Perform Assist
- - Layout and create file system Perform Assist
- - Document file system config Perform Assist
SERVER TASKS
- - Second Level NT Technical support Perform
- - Citrix support Perform
- - WTS/Metaframe future support Perform
- - Define server to FUTURELINK delivery tools & procedures Perform
- - Bridge to customer LAN Perform Assist
- - Configure customer LAN Perform Assist
- - Verify OS requirements and layout at customer site Perform Assist
- - Implement and test OS at customer site Perform Assist
- - Ongoing OS review Perform
- - Install OS Perform
- - Install and quick test PD tools an scripts Perform
- - Administer DNS server Perform
- - Configure DNS server Perform
- - Ongoing maintenance Perform
CENTRALIZED BACKUP SERVICE
System Recovery Perform
Common Procedures Perform
Backup and Recovery Management Process Perform
Backup Integrity Testing Perform
Data Restores including SQL databases (FutureLink has ownership, they Perform
will support the entire process up to but not including on site support)
Install NT backup software Perform
Establish customer backup schedule Perform
</TABLE>
Page 2
<PAGE> 20
RESPONSIBILITY MATRIX FOR INFORMATION TECHNOLOGY SERVICES
<TABLE>
<S> <C> <C> <C>
Implement supplemental support tools Perform
Test backup and recovery process Perform
????te documentation Perform
????ge off-site storage of backups - optical disks Perform
Local tape library Perform
Off-site tape vault storage Perform
System log files and Systems files Perform
Database files Perform
- -Order tapes for data center N/A
- -Order tapes for customer (after initial 30) Perform
- -Load tapes for backups Perform Perform
- -Prepare tapes for off-site pickup Perform Perform
TAPE STORAGE
- -Local tape library Perform
- -Off-site vault storage Perform
HARDWARE INSTALLATION AND UPGRADES
- -Procure offering servers and other H/W and S/W and associated licenses. Perform/TBD
- -Project Planning Perform Assist
- -Scheduling Perform Assist
- -Requirements Perform Assist
- -Facility Requirements at Data Center Perform
- -Configuration Management at Data Center Perform
- -Hardware Installation at Data Center Perform
- -HW & SW Vendor Management (ordering process) Perform/TBD
- -Order data center only H/W & S/W Perform
INVENTORY MANAGEMENT
- -Hardware Owner of data center equipment Perform
- -Hardware Owner of offering equipment Lease from
Creditco
- -Hardware Inventory Documentation Perform
- -Software Inventory Documentation Perform
- -Asset Inventory Review Perform
HARDWARE MAINTENANCE (CONTRACT MANAGEMENT)
- -Follow the Preventative Maintenance Schedule Perform
- -Maintenance contract for all server and associated licenses and Perform
peripheral equipment at the FUTURELINK data center
- -Dispatch maintenance vendor
HARDWARE INSTALLATION AND UPGRADES AT CUSTOMER SITE
- -Define customer HW/SW requirements Perform Perform
- -Procure PCs and other H/W and S/W and associated licenses and Perform
upgrades
- -Schedule customer site installation Assist Perform
- -Setup Hardware and burn-in software Perform Perform
</TABLE>
Page 3
<PAGE> 21
RESPONSIBILITY MATRIX FOR INFORMATION TECHNOLOGY SERVICES
<TABLE>
<S> <C> <C> <C> <C>
- - Ship hardware Perform
- - Facility Requirements at customer site Perform Assist Perform
- - Configuration Management at customer site Perform
- - Hardware installation at customer site Perform
- - Request purchase Order machines for customer Perform Approve
INVENTORY MANAGEMENT FOR CUSTOMER
- - Hardware Owner Perform/CREDITCO.
- - Hardware Inventory Documentation Perform.
- - Software Inventory Documentation Perform.
- - Asset Inventory Review and system updates Perform/PM
CAPACITY PLANNING
- - Monitor & Data Collection (CPU, Memory and Disk utilization) Perform
REPORTING
- - Recommendations Perform
- - Disk Utilization Perform
"Early Warning" Alerts Perform
- CPU Perform
- DASD Perform
- - Manage Internal Reporting Server (when implemented) Perform
- - Use Internet based reporting server Perform Perform
BUSINESS PLANNING
- - Define key business factors Assist Perform
FORECASTING CHANGES IN CAPACITY Assist Perform
APPLICATION PERFORMANCE TUNING (GREAT PLAINS DYNAMICS - LINE
OF FINANCIAL PRODUCTS) (THE APPLICATION)
- - Set Performance Expectations Assist Perform
- - Define Service Level Requirements Perform Assist
- - Monitor & Data Collection Assist Perform
- - Analyze Data Perform Assist
- - Make Recommendations Perform
- - Develop, test and Implement Application Improvements Assist Perform
- - Second Level Application support Assist Perform
- - Second level database support Perform Assist
- - Load ISV software Perform Assist
- - Application Installation (Gold CD Image) Assist
- - Application customization /ISV integration Recommend Perform
APPLICATION DATA PURGES
- - Data Files Perform Assist Rqmts Approve
NT Log File Data Purges Perform
- - Defragment Disks (automatic script) Perform
PROBLEM MANAGEMENT
Receive, log, track and report on the first call or report on a Problem Perform Assist
HELPDESK - level 1
- - Provide 5 x 11 M-F & 4 Hrs on Saturdays Perform Assist Assist
</TABLE>
Page 4
<PAGE> 22
RESPONSIBILITY MATRIX FOR INFORMATION TECHNOLOGY SERVICES
<TABLE>
<S> <C> <C> <C> <C>
- - Application Specific problems - level 2 Perform Assist
- - Operating System/Hardware Perform
- - Business Specific problems Perform
- - Develop scripts Perform
- - Finalize call outs/contacts Perform
- - Follow-up resolution on FUTURELINK owned Perform
problems
- - Follow-up on application related problems Perform
owned by GPS
- - Update procedures Perform Assist Assist
- - Problem escalation management Perform Assist
- - Provide level 1&2 support for WIN95, Perform
MS Office or other
- - Provide problem source identification Perform Assist
PROBLEM RESOLUTION
- - Application Specific Perform Assist
- - Operating System Perform
- - Hardware dispatch of Vendor Perform
- - SQL data base specific Perform
- - Level 2 SQL DBA support to FUTURELINK DBA Perform Assist
- - Dispatch of Vendor for SQL (FUTURELINK L3-) Perform
- - Customer or data center site repair Perform
- - Business issues Assist Perform
- - Support Functions (capacity, scheduling, Perform Assist
trend analysis, measurements, defect prevention,
service level reporting)
- - Productivity tools and enhancements (call Assist Perform Assist
routing, populating customer database, building
knowledge base)
CHANGE REQUESTS & CHANGE CONTROL
- - Setup change management procedures Perform
- - Ongoing change management support Perform
- - Change management reporting server updates Perform
- - Provide new application releases Assist Perform
- - Change Requests from FUTURELINK Perform Approve
- - Change Priorities Perform Rqmts
Approve
NT SYSTEM SOFTWARE, SQL AND CITRIX
- - System Software installation for the servers Perform
- - Operating System Parameters Perform Assist
System Software Maintenance Perform
- - Patch Maintenance (only if critical to Perform Assist
customer operations or system management)
- - Install OEM Patch's (only if critical to Perform
customer's operations or system management)
- - Determine upgrade path for customers Perform Assist Assist
renewing subscriptions
- - Verify patch compatibility with GPS Perform
- - Define SQL layout Perform Assist Assist
NEW RELEASE & VERSION UPGRADES
FUTURELINK will provide Ghosted Images for
loading on the servers and workstations
</TABLE>
Page 5
<PAGE> 23
RESPONSIBILITY MATRIX FOR INFORMATION TECHNOLOGY SERVICES
<TABLE>
<S> <C> <C> <C> <C>
- - Evaluation Assist Perform Assist
- - Testing Perform Assist
- - Inter operability testing Perform Assist Assist
- - [illegible] on Enhancements Recommend Perform
- - Roll out Planning Assist Perform
- - Scheduling Assist Perform Approve
- - Installation of new versions Perform Assist
or releases of NT, SQL,
& Citrix
- - Prepare installation Perform
documentation for Partners
NT LICENSED SOFTWARE AND SQL
- - Configuration setup Perform Rqmts
- - Ongoing Management Perform
- - Software Maintenance Contract Perform
OEM SOFTWARE UTILITIES
(COMMUNICATIONS AND REMOTE
MANAGEMENT SOFTWARE)
- - Installation Perform
- - Configuration Perform Assist
- - Procure and Administer Licenses Perform
- - Product Support Perform
- - Software Maintenance Perform
- - Promote application changes Perform Approve Approve
to production
PRINTER SETUP & SUPPORT
- - Setup & configure supported Perform
printers
- - Update system documentation Perform
and helpdesk
- - Ongoing printer support Perform
- - Report Distribution Perform
- - Procure paper and consumables Perform
- - Restock printers with paper Perform
- - [illegible] maintenance Vendor Perform
Dispatch
NEW TECHNOLOGY
- - Product Research - Dynamics Assist Perform
CS+ and NT/SQL compatability)
- - Product Research - Hardware/ Perform Assist
CITRIX/WTS/NT/SQL
- - Technology Review Perform Assist
FORECAST BUSINESS REQUIREMENTS
- - Strategic Perform
- - Tactical Perform
- - Technology implementation Perform
Application consulting Perform
- - Dynamics configuration Perform
- - Dynamics screen modifications Perform
- - Dynamics Training Perform
- - Dynamics Report writing Perform
- - Technology consulting
(facility and LANs only) Perform
SECURITY
- - Application system security Assist Assist Perform
setup
- - System Account set up Perform Assist Rqmts
</TABLE>
Page 6
<PAGE> 24
RESPONSIBILITY MATRIX FOR INFORMATION TECHNOLOGY SERVICES
<TABLE>
<S> <C> <C> <C> <C>
- - SQL Database Security and Access Control for database user ids Perform Assist Rqmts
- - Security Consulting Perform Assist
???? and document owners of user id security Perform Assist Rqmts
- - Establish Administrator and users accounts Perform
- - Establish accounts in security groups Perform Assist Rqmts
- - Install scripts for security administration Perform Rqmts
- - Physical Security - remote customer site Recommend Perform
- - Physical Security at Data Center Perform
- - Ongoing management of system security* Perform Assist
USER ADMINISTRATION
- - Create/Change/Delete/Disable (User IDs - OS level) Perform Rqmts
- - Approval Procedures (OS Level) Perform Rqmts
- - Determine and document lvls of Application authority Assist Perform Rqmts
Approve
- - Document administrator user id manager for customer Perform Assist
- - Audit Requests (OS level) Perform Rqmts Rqmts
- - Security Policy and Standards Perform
- - Account Naming Standards Recommend Approve Perform
- - Reporting Perform Rqmts
SET MONITORING POLICIES AND THRESHOLDS
- - Monitor Alerts Perform
- - Tapesys Perform
- - Control Execution Times Perform Rqmts
- - Strategic direction for operations Perform
MONITOR BATCH JOBS AND CLEANUP QUEUES
- - Application Batch Job Completion Monitoring Perform
- - Reporting Logs (On Request) Perform
- - Job Scheduling system tasks Perform
- - Special Requests Perform Rqmts
- - ???? Scheduling of support desk Perform Rqmts
SQL DBA FUNCTIONS
- - Define disk space requirements at FUTURELINK site Perform Assist Rqmts
- - Load application customer data Assist Assist Perform
- - Ongoing DBA support Perform Assist
- NT/SQL Optimization for databases/systems Perform Assist
- Application code changes for optimization Perform
- Table maintenance Perform
- Use SQL PD tools Perform
- Monitor & understand error logs Perform
- - Perform disk space allocations Perform Rqmts
- - Complete installation of SQL (all tasks) Perform Assist
- - Create/Alter/Delete database objects Perform Assist
- - Utilities to monitor table space/out of space conditions/alerts Perform
- - Create and maintain scripts to start/stop/backup data bases Perform
- - Document file system configuration Perform Assist
- - Basic Understanding of the data flow in Dynamics Perform Assist
</TABLE>
Page 7
<PAGE> 25
RESPONSIBILITY MATRIX FOR INFORMATION TECHNOLOGY SERVICES
<TABLE>
<S> <C> <C> <C> <C>
- - Understand the MS SQL Server tools & principles Perform Assist
- - Basic Understanding of Dynamic CS+ Perform Assist
Management of server configurations Perform
- - Database sizing and capacity requirement Assist Perform
- - Database space allocations Perform
- - Monitor SQL databases Perform
- - Develop and maintain the backup strategy Perform Assist
- - Develop support requirements Perform
- - Develop system down strategy Perform
- - Create and maintain scheduled server tasks Perform
- - Develop hardware migration strategy for growing customers (T&M) Perform Assist
- - Manage Dynamics CS+ for SQL upgrades Perform
- - Basic understanding of the posting process Perform Assist
- - Approve additional ISV products that will be loaded on Server Perform Perform
- - Basic understanding of ISV integration process Perform Assist
- - Train DBA on Dynamics CS+ for SQL/backoffice Perform
- - Train DBA on Dynamics support process Perform
- - Dynamics/SQL trouble shooting process Perform
- - Setup WinFrame access to Server Facility Perform Assist
- - Manage data conversion - dependent upon Partner's requirements Assist Perform Perform
- - Develop knowledge of backoffice integration with Dynamics N/A
- - Interface with Great Plains on support issues Perform
- - Manage remote integrations to applications - Database level Perform
- - Manage remote integration to applications - application level Assist Perform
- - Dynamics CS+ for SQL application support (depending on support Perform Assist
contract)
MISCELLANEOUS
- - Provide business interruption insurance Perform
- - Customer training Perform Assist
- - Demo/QA/Sandbox access (product demos & testing) Perform
- - FUTURELINK Data Center Training Perform Assist
- - Setup, customization support and data conversion during transition Assist Assist Perform
- - Provide spread sheet of customer registration data to the FLNK Perform
HelpDesk within 5 days of end user contract signing.
- - Enable process accounting Perform
- - Install scripts for accounting system N/A
- - Ongoing support of login reports
WAN using Frame Relay based managed data network services as well as Perform
internet access/ISP services and secure dial LAN services; Also EDI VAN
- - services. If networking option is contracted.
- - Configure WAN routers Perform
(FUTURELINK
NS)
- - Verify and order WAN connections Assist Perform
- - Install and test connectivity Perform
(FUTURELINK
NS)
- - Configure TCP/IP segments Perform
- - Configure DNS Perform
</TABLE>
Page 8
<PAGE> 26
RESPONSIBILITY MATRIX FOR INFORMATION TECHNOLOGY SERVICES
<TABLE>
<S> <C> <C> <C> <C>
- - Disable IP package forwarding Perform
- - End-to-end managed WAN links from the end-user locations Perform
(FUTURELINK
NS)
- - End-to-end managed WAN links from the FUTURELINK data center Perform
- - End-to-end managed WAN links from other server host locations Perform
- - End-to-end managed WAN links from other customer locations Perform
(FUTURELINK
NS)
- - End-to-end managed WAN links from the GPS help desk Perform
(FUTURELINK
NS)
- - Dial up Support for software and modems Perform
(FUTURELINK
NS)
- - Order, install and test Local dial lines Perform
MARKETING SUPPORT TASKS
- - Demand creation development Perform Assist
- - Demand creation budget management Perform
- - Lead distribution Perform Assist
- - Lead management Perform
- - Lead system management Perform
- - Add-on sales Perform
- - Add-on services Perform Perform
- - Promotional development Perform Assist
- - Renewal marketing Perform
- - Price change communications Perform Assist
- - Customer satisfaction surveying Perform Assist
CUSTOMER MANAGEMENT TASKS
- - Original customer registration Perform Perform
- - Customer credit check Perform Assist
- - Define registration requirements Perform
- - Registration system management Perform
- - Registering new users Perform Assist Perform
- - Registering new products Perform Assist Perform
PROCUREMENT
- - Initial ordering process and system Perform Assist
- - Integrate Order systems Perform Assist
- - Order tracking Perform Assist
- - Partner billing requirements and systems Perform
- - Customer billing system Perform
- - Default collection process Perform Assist
- - FUTURELINK billing requirements Perform/PM Assist
CONTRACT PREPARATION
- - Contract Development Perform Assist
- - Obtain NT, SQL, Citrix and other software req. for offering Perform
- - Obtain Partner agreement Perform Assist
</TABLE>
Page 9
<PAGE> 27
RESPONSIBILITY MATRIX FOR INFORMATION TECHNOLOGY SERVICES
<TABLE>
<S> <C> <C> <C> <C>
- - Develop customer contracts Perform Assist
- - Obtain customer agreement Perform
- - Warranty process requirements Perform
- - Dynamics CS+ for SQL Application License development Perform
- - Subscription policy requirements Perform Perform
- - Subscription renewals Assist Perform Assist
CONTRACT EXECUTION
- - Select Offering Assist Perform
- - Select number of user seats Perform
- - Select software config for each customer (accounting and/or Perform
non-accounting
- - Define physical location for each user seat Perform
- - Appoint Key user Perform
- - Provide space and power at customer site Perform
- - Orientation walkthru for customer key user Perform Assist
- - Provide 1 copy per customer of Operational manual Perform
- - Provide on-line Dynamics CS+ for SQL application Perform
documentation
</TABLE>
Page 10
<PAGE> 28
GREAT PLAINS PROJECT SERIES
PROGRAM GUIDELINES
The Great Plains corporate vision is to be the world's leading provider of
Microsoft BackOffice business management software for midmarket businesses. Our
company strengths combined with our superior BackOffice products and strategy
uniquely position the company to further expand and extend this leadership
worldwide. And, most importantly, Great Plains is 100% committed to a Partner
distribution channel -- we do not sell our products direct.
To lead in the midmarket requires a commitment from both the manufacturer and
from you, the Partner. At Great Plains, we're looking for a focused Partner
group that can deliver the technical and organizational structure necessary to
provide the total solution that midmarket customers demand. In turn, Great
Plains will provide a unique level of commitment to Partners, to ensure that
they have the training, support and superior business opportunities they need
to succeed. In this way, we can create a true win/win situation for Great
Plains, our Partners and our mutual customers.
<TABLE>
PRE-QUALIFICATION REQUIREMENTS
<S> <C>
Must be authorized for Dynamics and/or Dynamics C/S+ X
Must be current on certifications (CIS and CAAS) X
Must be current on all product fees X
Previous Project Accounting experience preferred X
INITIAL REQUIREMENTS
Complete the Great Plains Project Accounting Authorization Application X
Attend the required Project Accounting classroom training courses o Project Accounting
Implementation and
Application Course
(4 days)
o Project Accounting
Market and Sales
Course
(1 day)
Actively use PartnerSource (manage company information, manage leads, say X
current on news/events, stay current on technical information)
Attend ongoing education opportunities X
Passing grade on Project Series Authorization test (when available.) X
ONGOING EXPECTATIONS
Attain annual customer add goals 2
Remain current with on-account balances with Great Plains X
Prepay or COD 30% of invoice amount at time of order X
(if 12 or more
users are
purchased)
Market proactively to generate and close leads X
Maintain updated software on all computers that are used in your office. X
</TABLE>
[ ] If you would like to place a Project Accounting order and you have not
attended training, you must purchase Project Accounting consulting from
Great Plains Consulting upon which your order will be released at a margin
of 15%.
<PAGE> 29
Margin Schedule
<TABLE>
PARTNER PRODUCT MARGINS
<S> <C> <C>
o Margin upon placing order when training has not been attended 15%
NOTE: You must purchase Great Plains Consulting if you have not
attended training.
o Completion of Project Series Partner Agreement Addendum. 25%
o Attendance and completion of Project Accounting Implementation
and Application course
o Completion of the Market and Sales Overview course Your margin will be based on
your Dynamics or Dynamics
C/S+purchase volume
</TABLE>
<PAGE> 30
DYNAMICS AND DYNAMICS C/S+
PROJECT SERIES
PARTNER AGREEMENT ADDENDUM
<TABLE>
<S> <C>
COMPANY NAME: FuturLink Distribution Corp.
CONTRACT NAME: Doug Evans, VP Business Practices
BILLING ADDRESS: 300,250 - 6th Avenue S.W.
Calgary, Alberta
T2P 3H7
SHIPPING ADDRESS: As above
TELEPHONE: (403) 216-6000
FAX NUMBER: (403) 216-6050
EMAIL ADDRESS: [email protected]
YEAR COMPANY ESTABLISHED: 1955 (1998 in current form)
NUMBER OF LOCATIONS: 3 (with 7 pending)
CONTACT FOR PROJECT ACCOUNTING Doug Evans
SALES EXPERTISE:
CONTACT FOR PROJECT ACCOUNTING Mike Shareski
IMPLEMENTATION EXPERTISE:
</TABLE>
[ ] Please check here if you meet the requirements as an existing Match Data
Partner to be automatically authorized for the Project Series. Existing,
active Match Data Partners who have attended training or made at least one
sale within the last year (as of April 1, 1998) will be automatically
authorized once they complete and send in the Great Plains North American
Project Account Series Authorization Guidelines and Agreement. If your
organization does not meet these requirements you will need to reauthorize
under the requirements outlined in the North American Project Account
Series Authorization Guidelines and Agreement.
SEND TO: GREAT PLAINS SOFTWARE, INC., SALES ADMINISTRATION,
PO BOX 9739, FARGO, ND 58109.
If you have questions, please call 800-456-0025 or 701-281-0550
(FAX: 701-281-3100)
<PAGE> 31
DYNAMICS AND DYNAMICS C/S+
PROJECT SERIES
PARTNER AGREEMENT ADDENDUM
This Addendum is entered by and between Great Plains Software O.C., Inc.
("Great Plains") and the undersigned partner ("Partner") to amend the Partner
Agreement ("Agreement") between the parties as follows:
Great Plains hereby appoints Partner as non-exclusive authorized reseller
for the Great Plains Dynamics and Dynamics C/S+ Project Series product in
the United States and Canada.
Partner agrees to comply with the terms and conditions of Great Plains'
partner program for Dynamics and Dynamics C/S+ Project Partners ad amended
by Great Plains from time to time (the "Program") as made available by
Great Plains.
Partner's failure to comply with the provisions of the Agreement, this
Addendum or the Program will result in immediate termination of this
Addendum and Partner's right to distribute the Dynamics and Dynamics C/S+
Project Series product.
IN WITNESS WHEREOF, the parties hereto have executed this Addendum as of the
date below.
Great Plains Software O.C., Inc. Partner Name
FUTURELINK DISTRIBUTION CORP.
- -------------------------------- -------------------------------------------
Signature Signature
Kyle B. Scott
- -------------------------------- -------------------------------------------
Print Name Print Name
Corporate Secretary
- -------------------------------- -------------------------------------------
Title Title
July 8, 1999
-----------------
Date
SEND TO: GREAT PLAINS SOFTWARE, INC., SALES ADMINISTRATION,
PO BOX 9739, FARGO, ND 58109.
If you have questions, please call 800-456-0025 or 701-281-0550
(FAX: 701-281-3100)
Fax completed and signed document to 701-492-1602
<PAGE> 1
EXHIBIT 10.31
CITRIX SOLUTIONS NETWORK
GOLD RENEWAL MEMBERSHIP AGREEMENT
This Agreement ("Agreement") is between:
CITRIX SYSTEMS, INC. ("Citrix"), a Delaware corporation, located at 6400
NW 6th Way, Fort Lauderdale, Florida 33309, and FutureLink, a U.S. corporation,
located at 200 250 6th Ave. SE Calgary, Alberta, Canada ("CSN Member").
Whereas, CSN Member desires to recommend or to provide comprehensive
computer solutions to its customers in the Territory in accordance with the
Member program defined in this agreement; and
Citrix desires to supply Citrix software and provide services and support
on Citrix products to assist CSN Member in providing its customers with such
solutions;
Now, therefore, in consideration of the mutual promises contained herein,
the parties agree as follows:
1. MEMBER OBLIGATIONS. Pursuant to this Agreement, Member makes the following
promises and undertakes the following obligations to Citrix:
1.1 CSN Member shall procure Citrix products from authorized distributors
of Citrix products in accordance with the terms of the license
agreements provided with each product, provided however that CSN
Member may distribute the Citrix products in accordance with the
license granted in Section 2.1 of this Agreement.
1.2 When requested by Citrix, CSN Member shall provide information to
Citrix regarding sales leads, referrals and services provided by
Citrix relating to the Citrix products. The information shall be
compiled in the form requested by Citrix or such other form as may be
agreed upon by the parties and shall be forwarded to the Citrix
address indicated above.
1.3 CSN Member represents and warrants that all the information provided
to Citrix hereunder, is, in all material respects, true and correct to
the best of its knowledge and belief, and will continue to be so
during the term of this Agreement. Should there be any changes in such
information during the course of this Agreement, CSN Member agrees to
promptly inform Citrix in writing, giving details of such changes.
1.4 CSN Member warrants that at all times during the term of this
Agreement at least one (1) full-time member of its staff located at
CSN Member's principal place of business will be a Citrix Certified
Administrator Professional. CSN Member shall, within thirty (30) days
replace the CCA Professional on its staff, if said CCA no longer works
there.
1.5 Upon execution of this Agreement, Citrix Solutions Member shall pay
the fees set forth in the Section 10 that accompanies this Agreement.
2. CITRIX OBLIGATIONS. Pursuant to this Agreement, Citrix grants the following
license, makes the following promises and undertakes the following
obligations to CSN Member:
2.1 Citrix grants to CSN Member a non-exclusive, non-transferable license
to distribute Citrix products to end users in the Territory pursuant
to the license agreements included with such products.
2.2 CSN Member is entitled to the support options shown in Sections 11.3
and 11.4 of this Agreement.
2.3 Citrix will make available all benefits listed in Section 11 of this
Agreement.
3. TRADEMARKS.
3.1 During the term of this Agreement, CSN Member shall have the right to
identify itself as a "Citrix Solutions Provider" or a "Gold Solutions
Provider."
3.2 During the term of this Agreement, CSN Member may refer to Citrix
products using the Citrix product trademarks in compliance with local
laws and customs concerning the protection of trademarks and trade
names if the reference is not misleading and does not indicate or
imply Citrix's endorsement, testing, or approval of any other product
or of any service offered by CSN Member. The appropriate trademark
symbol (either "(TM)" [standard trademark] or (R) [registered
trademark] in a superscript following the product name) shall be used
whenever a Citrix product name is mentioned in any advertisement,
brochure, or material circulated or published in any form whatsoever
by CSN Member. The appropriate trademark symbol must be used in
conjunction with, at least, the first reference to each Citrix product
in all CSN Member's publications.
3.3 Citrix reserves the right to amend any Citrix trademark, service mark
or logo and agrees to notify CSN Member of any such amendments that
are relevant to CSN Member's business. CSN Member agrees to ensure
that its use of any such mark and/or logo is amended accordingly.
<PAGE> 2
3.4 CSN Member shall obtain Citrix's written approval prior to the
commencement of any other use of a Citrix trademark or trade name.
3.5 CSN Member shall not use any Citrix service mark during the term of
this Agreement or thereafter.
4. CONFIDENTIALITY.
4.1 Each party expressly undertakes to retain in confidence the terms and
conditions of this Agreement and all information transmitted to the
other that the disclosing party has identified in writing as
confidential.
4.2 Either party may disclose confidential information as required by
governmental or judicial order, provided such party gives the other
party prompt written notice prior to such disclosure and complies with
any protective order (or equivalent) imposed on such disclosure.
4.3 Neither party shall have an obligation to maintain the confidentiality
of information that (i) it received rightfully from a third party
prior to its receipt to the disclosing party; (ii) the disclosing
party has disclosed to a third party without any obligation to
maintain to such information in confidence; or (iii) is independently
developed by the obligated party. Each party's obligation under this
Section shall survive the expiration or earlier termination of this
Agreement and shall extend to the earlier of such time as the
information protected hereby falls into the public domain through no
fault of the obligated party or five (5) years following termination
or expiration of this Agreement.
5. TERM AND TERMINATION.
5.1 This Agreement shall take effect on the date of its execution by
Citrix ("Effective Date"), and unless terminated earlier as provided
herein, shall continue for a period of one year from the Effective
Date. Either party shall have the right to terminate this Agreement at
any time, without cause and without the intervention of the courts, on
the giving of thirty (30) days' prior written notice. Neither party
shall be responsible to the other for any costs or damages resulting
from the termination of this Agreement.
5.2 Upon expiration or termination of this Agreement, all rights and
licenses granted by this Agreement shall revert to Citrix and CSN
Member shall immediately cease use of all licenses and the Citrix
Solutions Provider logo, and shall cease to represent itself as a
Citrix Solutions Provider.
6. NEW PRODUCTS.
6.1 Notwithstanding any other provisions of this Agreement, Citrix may
elect any time during the term of this Agreement to announce new
Citrix products to which the terms and conditions of this Agreement
may not apply. New versions (upgrades), minor product revisions
(updates), and maintenance releases of existing titles are not
considered new Citrix products.
7. WARRANTIES/LIMITED WARRANTIES.
7.1 Citrix warrants Citrix products on the terms set out in the license
agreement accompanying each such product. THESE LIMITED WARRANTIES ARE
IN LIEU OF ALL OTHER WARRANTIES AND CONDITIONS, EXPRESSED, IMPLIED, OR
STATUTORY, INCLUDING ALL IMPLIED WARRANTIES OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE, AND AGAINST INFRINGEMENT AND OF ALL
OTHER OBLIGATIONS, CONDITIONS, OR LIABILITIES ON CITRIX'S PART EXCEPT
AS OTHERWISE PROVIDED BY APPLICABLE LAW.
8. LIMITATION OF LIABILITY.
8.1 Subject to applicable law, neither Citrix nor anyone else who has
been involved in the creation, production, or delivery of the products
or services that are the subject of this Agreement shall be liable for
direct, indirect, consequential or incidental damages (including
damages for loss of business profits, business interruption, loss of
business information, and the like) arising out of the use of or
inability to use the Citrix products, or provision of, or failure to
provide, support, even if Citrix has been advised of the possibility
of such damages. Because some jurisdictions do not allow the exclusion
or limitation of consequential or incidental damages, the above
limitation may not apply. In any event, except as otherwise provided
by law, the liability of Citrix or its suppliers, whether for
negligence, breach of contract, breach of warranty, or otherwise,
shall, in the aggregate, not exceed the amount paid to Citrix by CSN
Member hereunder.
9. PURCHASE COMMITMENT; TERRITORY.
9.1 The benefits offered to Citrix Gold Solutions Providers pursuant
to this agreement are based upon a commitment by CSN Member to achieve
an annual distribution to end users of a minimum of One Hundred
Thousand Dollars ($100,000) of Citrix products. During the term of
this Agreement, CSN Member shall inform Citrix if, for any
twelve-month period beginning on the date of execution of this
Agreement or, in subsequent years, on the anniversary of such date,
the CSN Member shall not achieve this committed volume. The
achievement of the committed volume will be demonstrated at the close
of each annual period by submission to Citrix of copies of paid
invoices for Citrix products.
<PAGE> 3
-3-
9.2 CSN Member Territory: United States of America, Canada, Puerto
Rico, Bermuda, The Bahamas and Jamaica.
10. FEES, PAYMENT TERMS.
10.1 A fee in the amount of 0 for the products and services provided
by Citrix pursuant to this Agreement shall be submitted to
Citrix with CSN Member's signed copy of this Agreement.
11. CITRIX AGREES TO PROVIDE THE FOLLOWING PRODUCTS AND SERVICES TO CITRIX
GOLD SOLUTIONS PROVIDERS:
11.1 Not-for-Resale Softeware for Internal Use - Citrix will provide
each CSN Member an update to the current version of the one (1)
not-for-resale copy of each Citrix product procured by CSN
Member hereunder solely for internal use to provide support to
end users.
11.2 Citrix Tool Box - The tool box will include marketing, sales and
technical information and materials useful in the promotion of
Citrix-based solutions.
11.3 Support Engineer - Citrix will assign a Citrix support engineer
to provide technical support by telephone and/or on-line to each
CSN Member. Such technical support shall:
11.3.1 Be provided only to a CSN Member's Citrix Certified
Administrator Professional;
11.3.2 Consist of access to a Citrix support engineer on
weekdays (other than nationally recognized holidays)
between the hours of 8:00 AM and 9:00 PM (EST) for
reporting problems encountered in the use of Citrix
products and the provision of workarounds released by
Citrix to address reported problems; and
11.3.3 Require the submission by email of a problem report
which includes a description of the software bug and a
test case which demonstrates the bug on the then
current penultimate release of the Citrix product.
11.4 On-line Technical Support - CSN Member shall be provided
on-line technical support via CompuServe forum and/or BBS and
FTP sites.
11.5 Market Development Program - Citrix will provide up to Fifteen
Hundred Dollars ($1,500) in matching Market Development
Funds and Volume Bonus rewards. These funds may be used to
reimburse expenditures by CSN Member for pre-approved marketing
activities such as seminars, mailings and advertising. During
the term of this Agreement, CSN Member will continue to be
eligible to participate in the Market Development programs
offered by Citrix to CSN Member. All funds expire if not used
during the term of this Agreement.
11.6 Volume Bonus Program - For every Fifty Thousand Dollars
($50,000) in Citrix products acquired by CSN Member from a
Citrix authorized Distributor (as demonstrated by submission
to Citrix of copies of paid invoices for Citrix products), CSN
Member will receive product as described in the terms of the
Volume Bonus Award Program.
11.7 Sales Lead Program - During the term of this Agreement, CSN
Member will be eligible to participate in Citrix generated
sales leads and referrals programs offered by Citrix to
CSN Member in CSN Member's designated market place.
11.8 Web Page Listing - Citrix will list CSN Member on the Citrix
Web Page within sixty (60) days of Member completing all
requirements of membership.
11.9 Citrix Sales Representative - Citrix will assign a Citrix sales
representative to assist CSN Member in the marketing of
products.
11.10 Citrix Corporation Evaluation Program - Citrix grants to CSN
Member a non-exclusive, non-transferable license to sublicense
a limited number of copies of Citrix products to end users for
evaluation purposes only in accordance with the terms of the
Citrix Evaluation Program. The terms of the Citrix Evaluation
Program are available upon request and may be amended by Citrix
at any time.
11.11 On-Site Sales Training - Citrix will provide on-site sales
training to the Platinum Solutions Provider 6 times throughout
the term of this agreement.
12. GENERAL.
12.1 Except as expressly granted herein, no license regarding the
use of Citrix's copyrights, patents, trademarks or trade names
is granted or will be implied.
12.2 If a particular provision of the Agreement is terminated or
held by a court of competent jurisdiction to be invalid,
illegal, or unenforceable, this Agreement shall remain in full
force and effect as to the remaining provisions.
<PAGE> 4
-4-
12.3 No waiver of any breach of any provisions of this Agreement shall
constitute a waiver of any prior, concurrent, or subsequent breach
of the same or any other provisions hereof, and no waiver shall be
effective unless made in writing and signed by an authorized
representative of the waiving party.
12.4 Neither this Agreement, nor any terms and conditions contained
herein, shall be construed as creating a partnership, joint
venture, franchise or agency relationship between Citrix and CSN
Member.
12.5 CSN Member agrees that it shall inform its customers that CSN
Member is an independent business from Citrix, and shall not hold
itself out as an agent of Citrix, or attempt to bind Citrix to any
third-party agreement. CSN Member shall defend, indemnify, and hold
harmless Citrix from and against all liabilities, claims, costs,
fines, and damages of any type (including attorney's fees) arising
out of or in any way related to CSN Member's delivery of training
services and/or product support to its customers.
12.6 This Agreement, and any rights or obligations hereunder, shall not
be assigned or sublicensed by CSN Member, without prior written
consent from Citrix.
12.7 This Agreement shall be governed by the laws of the State of
Florida and CSN Member consents to jurisdiction and venue in the
state and federal courts sitting in the State of Florida. If either
Citrix or CSN Member employs attorneys to enforce any rights
arising out of or relating to this Agreement, the prevailing party
shall be entitled to recover costs and attorney's fees.
12.8 The making, execution and delivery of this Agreement have been
induced by no representations, statements, warranties or agreements
other than those herein expressed.
12.9 No term or provision of this Agreement may be changed, waived,
discharged or terminated except by a writing signed by duly
authorized officers of the parties hereof. The terms of any other
documents or electronic communications exchanged (including the
terms set forth on any purchase order) shall be of no force or
effect unless incorporated herein as a modification or addition to
the terms of this Agreement.
12.10 This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof and supersedes all prior
and contemporaneous communications including all prior and current
Citrix Authorized Reseller and Citrix Authorized Premier Reseller
Agreements. It shall not be modified except by a written agreement
dated subsequent to the Effective Date of the Agreement and signed
on behalf of CSN Member and Citrix by their respective duly
authorized representatives.
CSN MEMBER
Company Name: FutureLink
------------------------------------
Authorized Signature:
----------------------------
Name (printed)
-----------------------------------
Title: President
-------------------------------------------
Date: 4/20/99
--------------------------------------------
ACCEPTED BY CITRIX SYSTEMS
Authorized Signature: /s/ MICHELLE KEEFER
----------------------------
Name (printed) Michelle Keefer
-----------------------------------
Title: Manager, Channel Operations
-------------------------------------------
Effective Date: 7/16/99
----------------------------------
<PAGE> 1
EXHIBIT 10.32
CITRIX SOLUTIONS NETWORK
PLATINUM RENEWAL MEMBERSHIP AGREEMENT
This Agreement ("Agreement") is between:
CITRIX SYSTEMS, INC. ("Citrix"), a Delaware corporation, located at 6400
NW 6th Way, Fort Lauderdale, Florida 33309, and [illegible], a Michigan
corporation, located at 2065 E.W. Maple Rd., Ste. C304, [illegible], MI 48390
("CSN Member").
Whereas, CSN Member has been invited to recommend or to provide
comprehensive computer solutions to its customers in the Territory in
accordance with the Platinum Member program defined in this agreement; and
Citrix desires to supply Citrix software and provide services and support
on Citrix products to assist CSN Member in providing its customers with such
solutions;
Now, therefore, in consideration of the mutual promises contained herein,
the parties agree as follows:
1 MEMBER OBLIGATIONS. Pursuant to this Agreement, Member makes the following
promises and undertakes the following obligations to Citrix:
1.1 CSN Member shall procure Citrix products from authorized distributors
of Citrix products in accordance with the terms of the license
agreements provided with each product, provided however that CSN
Member may distribute the Citrix products in accordance with the
license granted in Section 2.1 of this Agreement.
1.2 When requested by Citrix, CSN Member shall provide information to
Citrix regarding sales leads, referrals and services provided by
Citrix relating to the Citrix products. The information shall be
compiled in the form requested by Citrix or such other form as may be
agreed upon by the parties and shall be forwarded to the Citrix
address indicated above.
1.3 CSN Member represents and warrants that all the information provided
to Citrix hereunder, is, in all material respects, true and correct to
the best of its knowledge and belief, and will continue to be so
during the term of this Agreement. Should there be any changes in such
information during the course of this Agreement, CSN Member agrees to
promptly inform Citrix in writing, giving details of such changes.
1.4 CSN Member warrants that at all times during the term of this
Agreement at least six (6) full-time member of its staff located at
CSN Member's principal place of business will be a Citrix Certified
Administrator Professional ("CCA Professional"). CSN Member shall have
the CCA Professionals on its staff before an application will be
considered.
2 CITRIX OBLIGATIONS. Pursuant to this Agreement, Citrix grants the following
license, makes the following promises and undertakes the following
obligations to CSN Member:
2.1 Citrix grants to CSN Member a non-exclusive, non-transferable license
to distribute Citrix products to end users in the Territory pursuant
to the license agreements included with such products.
2.2 CSN Member is entitled to the support options shown in Sections 10.1
and 10.2 of this Agreement.
2.3 Citrix will make available all benefits listed in Section 10 of this
Agreement.
3 TRADEMARKS.
3.1 During the term of this Agreement, CSN Member shall have the right to
identify itself as a "Citrix Solutions Provider" or a "Platinum
Solutions Provider."
3.2 During the term of this Agreement, CSN Member may refer to Citrix
products using the Citrix product trademarks in compliance with local
laws and customs concerning the protection of trademarks and trade
names if the reference is not misleading and does not indicate or
imply Citrix's endorsement, testing, or approval of any other product
or of any service offered by CSN Member. The appropriate trademark
symbol (either "(TM)" [standard trademark] or (R) [registered
trademark] in a superscript following the product name) shall be used
whenever a Citrix product name is mentioned in any advertisement,
brochure, or material circulated or published in any form whatsoever
by CSN Member. The appropriate trademark symbol must be used in
conjunction with, at least, the first reference to each Citrix product
in all CSN Member's publications.
3.3 Citrix reserves the right to amend any Citrix trademark, service mark
or logo and agrees to notify CSN Member of any such amendments that
are relevant to CSN Member's business. CSN Member agrees to ensure
that its use of any such mark and/or logo is amended accordingly.
<PAGE> 2
3.4 CSN Member shall obtain Citrix's written approval prior to the
commencement of any other use of a Citrix trademark or trade name.
3.5 CSN Member shall not use any Citrix service mark during the term of
this Agreement or thereafter.
CONFIDENTIALITY.
4.1 Each party expressly undertakes to retain in confidence the terms and
conditions of this Agreement and all information transmitted to the
other that the disclosing party has identified in writing as
confidential.
4.2 Either party may disclose confidential information as required by
governmental or judicial order, provided such party gives the other
party prompt written notice prior to such disclosure and complies with
any protective order (or equivalent) imposed on such disclosure.
4.3 Neither party shall have an obligation to maintain the confidentiality
of information that (i) it received rightfully from a third party
prior to its receipt to the disclosing party; (ii) the disclosing
party has disclosed to a third party without any obligation to
maintain to such information in confidence; or (iii) is independently
developed by the obligated party. Each party's obligation under this
Section shall survive the expiration or earlier termination of this
Agreement and shall extend to the earlier of such time as the
information protected hereby falls into the public domain through no
fault of the obligated party or five (5) years following termination
or expiration of this Agreement.
5 TERM AND TERMINATION.
5.1 This Agreement shall take effect on the date of its execution by
Citrix ("Effective Date"), and unless terminated earlier as provided
herein, shall continue for a period of one year from the Effective
Date. Either party shall have the right to terminate this Agreement at
any time, without cause and without the intervention of the courts, on
the giving of thirty (30) days' prior written notice. Neither party
shall be responsible to the other for any costs or damages resulting
from the termination of this Agreement.
5.2 Upon expiration or termination of this Agreement, all rights and
licenses granted by this Agreement shall revert to Citrix and CSN
Member shall immediately cease use of all licenses and the Citrix
Solutions Provider logo, and shall cease to represent itself as a
Citrix Solutions Provider.
6 NEW PRODUCTS.
6.1 Notwithstanding any other provisions of this Agreement, Citrix may
elect any time during the term of this Agreement to announce new
Citrix products to which the terms and conditions of this Agreement
may not apply. New versions (upgrades), minor product revisions
(updates), and maintenance releases of existing titles are not
considered new Citrix products.
7 WARRANTIES/LIMITED WARRANTIES.
7.1 Citrix warrants Citrix products on the terms set out in the license
agreement accompanying each such product. THESE LIMITED WARRANTIES ARE
IN LIEU OF ALL OTHER WARRANTIES AND CONDITIONS, EXPRESSED, IMPLIED, OR
STATUTORY, INCLUDING ALL IMPLIED WARRANTIES OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE, AND AGAINST INFRINGEMENT AND OF ALL
OTHER OBLIGATIONS, CONDITIONS, OR LIABILITIES ON CITRIX'S PART EXCEPT
AS OTHERWISE PROVIDED BY APPLICABLE LAW.
8 LIMITATION OF LIABILITY.
8.1 Subject to applicable law, neither Citrix nor anyone lease who has
been involved in the creation, production, or delivery of the products
or services that are the subject of this Agreement shall be liable for
any indirect, consequential or incidental damages (including damages
for loss of business profits, business interruption, loss of business
information, and the like) arising out of the use of or inability to
use the Citrix products, or provision of, or failure to provide,
support, even if Citrix has been advised of the possibility of such
damages. Because some jurisdictions do not allow the exclusion or
limitation of consequential or incidental damages, the above
limitation may not apply. In any event, except as otherwise provided
by law, the liability of Citrix or its suppliers, whether for
negligence, breach of contract, breach of warranty, or otherwise,
shall, in the aggregate, not exceed the amount paid to Citrix by CSN
Member hereunder.
9 PURCHASE COMMITMENT; TERRITORY.
9.1 The benefits offered to Citrix Platinum Solutions Providers pursuant
to Section 10 are based upon a commitment by CSN Member to achieve an
annual minimum or equal to Three Hundred Thousand Dollars ($300,000)
worth to Citrix product purchases from Distribution. During the term
of this Agreement, CSN Member shall inform Citrix if, for any
twelve-month period beginning on the date of execution of this
Agreement or, in subsequent years, on the anniversary of such date,
the CSN Member shall not achieve this committed volume. The
achievement of the committed volume will be demonstrated at the close
of each annual period by submission to Citrix of copies of Distributor
invoices for Citrix products.
<PAGE> 3
-3-
9.2 CSN Member Territory: United States of America, Canada, Puerto
Rico, Bermuda, The Bahamas and Jamaica.
10. CITRIX AGREES TO PROVIDE THE FOLLOWING PRODUCTS AND SERVICES TO CITRIX
PLATINUM SOLUTIONS PROVIDERS:
10.1 Support Engineer - Citrix will assign a Citrix support engineer
to provide technical support by telephone and/or on-line to each
CSN Member. Such technical support shall:
10.1.1 Be provided only to a CSN Member's Citrix Certified
Administrator Professional;
10.1.2 Consist of access to a Citrix support engineer on
weekdays (other than nationally recognized holidays)
between the hours of 8:00 AM and 9:00 PM (EST) for
reporting problems encountered in the use of Citrix
products and the provision of workarounds released by
Citrix to address reported problems; and
10.1.3 Require the submission by email of a problem report,
which includes a description of the software bug, and a
test case, which demonstrates the bug on the then
current penultimate release of the Citrix product.
10.2 On-line Technical Support - CSN Member shall be provided
on-line technical support via CompuServe forum and/or BBS and
FTP sites.
10.3 Market Development Program - Citrix will provide up to Ten
Thousand Dollars ($10,000) in matching Market Development
Funds. These Funds may be used to reimburse expenditures by CSN
Member for pre-approved marketing activities such as seminars,
mailings and advertising. During the term of this Agreement,
CSN Member will continue to be eligible to participate in the
Market Development programs offered by Citrix to CSN Member.
All funds expire if not used during the term of the Agreement.
10.4 Volume Bonus Program - For every Fifty Thousand Dollars
($50,000) in Citrix products acquired by CSN Member from a
Citrix authorized Distributor (as demonstrated by submission
to Citrix of copies of paid invoices for Citrix products), CSN
Member will receive product as described in the terms of the
Volume Bonus Award Program.
10.5 Sales Lead Program - During the term of this Agreement, CSN
Member will be eligible to participate in Citrix generated
sales leads and referrals programs offered by Citrix to
CSN Member in CSN Member's designated market place.
10.6 Web Page Listing - Citrix will list CSN Member on the Citrix
Web Page within 60 days of Member completing all requirement of
membership.
10.7 Citrix Sales Representative - Citrix will assign a Citrix sales
representative to assist CSN Member in the marketing of
products.
10.8 Citrix Corporation Evaluation Program - Citrix grants to CSN
Member a non-exclusive, non-transferable license to sublicense
a limited number of copies of Citrix products to end users for
evaluation purposes only in accordance with the terms of the
Citrix Evaluation Program. The terms of the Citrix Evaluation
Program are available upon request and may be amended by Citrix
at any
10.9 On-Site Sales Training - Citrix will provide on-site sales
training to the Platinum Solutions Provider 6 times throughout
the term of this agreement.
11 PLATINUM SOLUTIONS PROVIDER AGREES TO ACHIEVE THE FOLLOWING
REQUIREMENTS FOR PARTICIPATION IN THE PLATINUM PROGRAM:
11.1 CSN Member warrants that at all times during the term of this
Agreement at least six (6) full-time members of its staff will
attend a Citrix Sales training seminar.
11.2 CSN Member commits to cooperating with Citrix to conduct a
minimum of six (6) lead generation seminars during the term of
this agreement.
11.3 CSN Member commits to cooperating with Citrix to conduct a
minimum of twenty-four (24) qualified corporate sales calls
with a Citrix Sales Manager during the term of this agreement.
11.4 CSN Member commits to maintaining a working relationship with a
minimum of four (4) Citrix Business Alliance members.
12 GENERAL.
12.1 Except as expressly granted herein, no license regarding the
use of Citrix's copyrights, patents, trademarks or trade names
is granted or will be implied.
12.2 If a particular provision of the Agreement is terminated or
held by a court of competent jurisdiction to be invalid,
illegal, or unenforceable, this Agreement shall remain in full
force and effect as to the remaining provisions.
<PAGE> 4
-4-
12.3 No waiver of any breach of any provisions of this Agreement shall
constitute a waiver of any prior, concurrent, or subsequent breach
of the same or any other provisions hereof, and no waiver shall be
effective unless made in writing and signed by an authorized
representative of the waiving party.
12.4 Neither this Agreement, nor any terms and conditions contained
herein, shall be construed as creating a partnership, joint
venture, franchise or agency relationship between Citrix and CSN
Member.
12.5 CSN Member agrees that it shall inform its customers that CSN
Member is an independent business from Citrix, and shall not hold
itself out as an agent of Citrix, or attempt to bind Citrix to any
third-party agreement. CSN Member shall defend, indemnify, and hold
harmless Citrix from and against all liabilities, claims, costs,
fines, and damages of any type (including attorney's fees) arising
out of or in any way related to CSN Member's delivery of training
services and/or product support to its customers.
12.6 This Agreement, and any rights or obligations hereunder, shall not
be assigned or sublicensed by CSN Member, without prior written
consent from Citrix.
12.7 This Agreement shall be governed by the laws of the State of
Florida and CSN Member consents to jurisdiction and venue in the
state and federal courts sitting in the State of Florida. If either
Citrix or CSN Member employs attorneys to enforce any rights
arising out of or relating to this Agreement, the prevailing party
shall be entitled to recover costs and attorney's fees.
12.8 The making, execution and delivery of this Agreement have been
induced by no representations, statements, warranties or agreements
other than those herein expressed.
12.9 No term or provision of this Agreement may be changed, waived,
discharged or terminated except by a writing signed by duly
authorized officers of the parties hereof. The terms of any other
documents or electronic communications exchanged (including the
terms set forth on any purchase order) shall be of no force or
effect unless incorporated herein as a modification or addition to
the terms of this Agreement.
12.10 This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof and supersedes all prior
and contemporaneous communications including all prior and current
Citrix Authorized Reseller and Citrix Authorized Premier Reseller
Agreements. It shall not be modified except by a written agreement
dated subsequent to the Effective Date of the Agreement and signed
on behalf of CSN Member and Citrix by their respective duly
authorized representatives.
CSN MEMBER
Company Name: Asyic Technologies, Inc.
------------------------------------
Authorized Signature: /s/ MATTHEW J. SCHUMACHER
----------------------------
Name (printed) Matthew J. Schumacher
-----------------------------------
Title: President
-------------------------------------------
Date: 4/20/99
--------------------------------------------
ACCEPTED BY CITRIX SYSTEMS
Authorized Signature:
----------------------------
Name (printed)
-----------------------------------
Title:
-------------------------------------------
Effective Date:
----------------------------------
<PAGE> 1
EXHIBIT 10.33
INFORMATION SYSTEMS SERVICES AGREEMENT
THIS AGREEMENT made as of the 19th day of January, 1999.
BETWEEN;
NUMAC ENERGY INC, an Alberta corporation with its head office at 321 6th
Avenue S.W. Calgary, Alberta T2P 3H3. ("NUMAC")
and
FUTURELINK/SYSGOLD LTD., an Alberta corporation with its head office at
450,250 - 6th Avenue SW, Calgary, Alberta, T2P 3H7 ("FUTURELINK/SYSGOLD")
WHEREAS:
(a) NUMAC desires to outsource some of its computer and information systems
functions, to ensure continuity and reliability in its computer and
information systems operations for an extended period.
(b) FUTURELINK/SYSGOLD has agreed to provide such services upon the terms and
conditions set forth below.
IT IS AGREED THAT:
1. FUTURELINK/SYSGOLD shall provide computer and information systems operating
and consulting services to NUMAC described and for the consideration set
forth in the attached Schedule A.
2. This Agreement is effective from January 1, 1999 until December 31, 1999,
and automatically renews thereafter for successive 12 month terms unless
either party gives written notice of termination to the other party 60 days
prior to the end of the current term.
3. Either party may terminate this contract with 15 days notice, if the other
party is failing to meet its obligations under the contract.
4. FUTURELINK/SYSGOLD may change specific consultants assigned to support NUMAC
with 15 days notice. NUMAC also reserves the right to request that
FUTURELINK/SYSGOLD change personnel assigned to the account with 15 days
notice.
5. FUTURELINK/SYSGOLD shall invoice NUMAC at the end of each month for services
rendered during that month. Such invoices shall be accompanied by statements
which identify the relevant accounts, services, credits and charges,
summarized by appropriate classifications, except that unusual charges and
credits shall be separately identified and described in detail. NUMAC shall
pay all invoices rendered within 30 days of receipt thereof. If any invoice
or amount is not paid when due, the unpaid amount shall bear interest at a
nominal rate of 18% per annum (1.5% per month). Payment of any invoice shall
not prejudice NUMAC's right to protest or question the correctness thereof;
provided however, all invoices and statements rendered to NUMAC shall be
conclusively be deemed to be true and correct 90 days following rendering
thereof, unless NUMAC takes written exception thereto within the said 90
days and makes claim to FUTURELINK/SYSGOLD for adjustment.
6. Any controversy, uncertainty or difference arising out of this Agreement or
in respect of the terms thereof that cannot be resolved by discussion
between the parties hereto shall be submitted to arbitration, under the
Arbitration Act of Alberta.
7. This Agreement is governed by the laws in force in Alberta.
8. Time is of the essence in this Agreement.
<PAGE> 2
9. The terms of this Agreement express and constitute the entire agreement
between the parties in respect of the matters set forth herein. No implied
covenant or liability is created or shall arise by reason of this Agreement
or anything herein contained. No amendment or variation of the provisions
of this Agreement shall be binding upon any party unless it is evidenced
in writing and executed by all parties hereto.
10. This Agreement shall be binding upon and shall enure to the benefit of the
parties hereto and their respective successors, receivers,
receiver-managers, trustees and permitted assigns. Neither party may assign
its interest in this Agreement or any monies due or claim arising
hereunder, or subcontract all or any portion of the services to be provided
hereunder, without the prior written consent of the other party, which
consent shall not be unreasonably withheld. Such consent to any assignment
or subcontracting shall not relieve a party from its primary obligations
pursuant to this Agreement.
11. NUMAC agrees that former FUTURELINK/SYSGOLD employees shall not be allowed
to work indirectly or directly for NUMAC until a period of six months after
termination of this contract. Without limiting the generality of the
foregoing, it shall include, but not be limited to, employment by NUMAC,
employment by another party who contracts with NUMAC, contracting,
sub-contracting, agency, partnership, or any other association. Should
NUMAC breach this covenant (which covenant shall survive the termination of
the Contract), NUMAC shall pay to FUTURELINK/SYSGOLD as liquidated damages
and not a penalty, an amount equal to 50% of any fees or gross income
earned during that period, which amount shall be due and payable on demand.
Additionally, it is agreed that FUTURELINK/SYSGOLD may enforce this
covenant by an injunction or otherwise.
12. FUTURELINK/SYSGOLD agrees to keep confidential the affairs of NUMAC, its
affiliates and subsidiaries and not to divulge or make use of any
confidential or other information in connection with the same, whether or
not such information is in the public domain, including the names of and
dealings with any clients of NUMAC or its affiliates or subsidiaries. If
requested by NUMAC, all FUTURELINK/SYSGOLD employees who work for NUMAC
shall sign confidentiality agreements.
IN WITNESS WHEREOF, the parties have executed and delivered these presents as
of the day and year first above written.
NUMAC ENERGY INC. FUTURELINK/SYSGOLD LTD.
Per: /s/ Rich Pereiba Per: /s/ W.V. Arnett
------------------ ------------------
Name: Rich Pereiba Name: W.V. Arnett
------------------ ------------------
Title: IT, Team Leader Title: Vice President
------------------ ------------------
<PAGE> 3
SCHEDULE A SERVICES & REMUNERATION
- -------------------------------------------------------------------------------
1. CONSULTANTS. FUTURELINK/SYSGOLD will provide consulting services to NUMAC
at a rate of $60/$80/$100/$120/$150 per hour for Junior, Intermediate,
Senior, Expert, and Principal resources. The 1998 rate schedule is
attached.
2. The scope of the work covered by the consultants will be network, Unix and
Oracle support. Small projects may also be covered during support coverage.
Larger projects will be defined, estimated, and billed separately.
3. HARDWARE. FUTURELINK/SYSGOLD will purchase all required Network and PC
hardware, and desktop software for NUMAC. Prices will be based on a cost
plus 10% arrangement, or the arrangement agreed to in response to Numac's
RFP of November 1996.
4. COMPUTERS. NUMAC will provide access for FUTURELINK/SYSGOLD staff to PC's
of a type appropriate for the kind and nature of work FUTURELINK/SYSGOLD
performs for NUMAC.
5. TRAVEL EXPENSES. NUMAC will reimburse all travel and accommodation costs
associated with support provided by FUTURELINK/SYSGOLD to NUMAC's field
operations.
<PAGE> 1
EXHIBIT 10.34
INFORMATION SYSTEMS SERVICES AGREEMENT
THIS AGREEMENT made as of the 1st date of July, 1999.
BETWEEN: CANADIAN NATURAL RESOURCES LIMITED, an Alberta corporation, with
its head office at 2000, 425 1st Street SW, Calgary, Alberta T2P
3L8. ("CNRL")
-and-
FUTURELINK DISTRIBUTION CORP., an Alberta corporation, with its
head office at 300, 250-6th Avenue SW, Calgary, Alberta, T2P
3H7 ("FUTURELINK")
WHEREAS:
(a) CNRL desires to outsource some of its computer and information systems
functions, to ensure continuity and reliability in its computer and
information systems operations for an extended period.
(b) FutureLink has agreed to provide such services upon the terms and
conditions set forth below.
IT IS AGREED THAT:
1. FutureLink shall provide computer and information systems operating and
consulting services to CNRL as described and for the consideration set
forth in the attached Schedule A.
2. FutureLink shall provide additional computer and information systems
operating and consulting services (not specifically set forth in Schedule
A) to CNRL if, as and when requested by CNRL. FutureLink shall charge CNRL
for such additional work at its then current standard commercial billing
rates charged to third parties for similar services, or at a rate
specifically agreed to at the time the service is requested.
3. This Agreement is effective from July 1, 1999 until June 30, 2001. Notice
of renewal will be provided sixty (60) days prior to the end date of this
Agreement.
4. FutureLink shall invoice CNRL at the beginning of each month an amount
equal to 90% of the estimated total invoice for that month. CNRL will
receive a 3% prepayment discount should CNRL pay in full the estimated
amount no later than the first day of the month following the month for
which the services estimated in the said invoice were rendered. If in the
event CNRL does not pay the estimated amount of the invoice within the
calendar month the invoice is dated, (no later than the first day of the
month following), CNRL will be re-invoiced by FutureLink for the foregone
3% prepayment discount.
5. FutureLink shall invoice CNRL at the end of each month for services
rendered during that month, less the estimated amount already invoiced in
accordance with paragraph 4 hereof. Such invoices shall be accompanied by
statements which identify the relevant accounts, services, credits and
charges, summarized by appropriate classifications, except that unusual
charges and credits shall be separately identified and described in detail.
6. CNRL shall pay all invoices rendered within 30 days of receipt thereof. If
any invoice or amount is not paid when due, the unpaid amount shall bear
interest at a nominal rate of 12% per annum (1.0% per month). Payment of
any invoice shall not prejudice CNRL's right to protest or question the
<PAGE> 2
correctness thereof; provided however, all invoices and statements rendered
to CNRL shall be conclusively be deemed to be true and correct 90 days
following rendering thereof, unless CNRL takes exception thereto within the
said 90 days and makes a written claim to FutureLink for adjustment.
7. Any controversy, uncertainty or difference arising out of this Agreement or
in respect of the terms thereof that cannot be resolved by discussion
between the parties hereto shall be submitted to arbitration, under the
Arbitration Act of Alberta.
8. Unless mutually agreed in writing, and except as specified herein, CNRL
agrees that former FutureLink employees shall not be allowed to work
indirectly or directly for CNRL until the earlier of six months after
termination of the employee's employment with FutureLink, or six months
after termination of this Agreement. Without limiting the generality of the
foregoing, this employment shall include, but not be limited to, employment
by CNRL, employment by another party who contracts with CNRL, contracting,
sub-contracting, agency, partnership, or any other association. Should CNRL
breach this covenant (which covenant shall survive the termination of this
Agreement), CNRL shall pay to FutureLink as liquidated damages and not a
penalty, an amount equal to 50% of any fees or gross income earned by a
former FutureLink employee during the above mentioned six month period
which may be applicable for work performed by the former employee for CNRL,
which amount shall be due and payable on demand. Additionally, it is agreed
that FutureLink may enforce this covenant by an injunction or otherwise.
Should FutureLink undergo a change in control during the above mentioned
period which CNRL does not consent to in writing, or if FutureLink elects
to terminate this Agreement before the end of term of this Agreement in
accordance with paragraph 13 hereof, this paragraph will not be binding on
the parties hereto. For the purposes of this Agreement, a change in control
of FutureLink shall be effective if a party other than FutureLink's current
sole shareholder, FutureLink Corp., a Delaware corporation, directly or
indirectly, acquires 51% or more of FutureLink's voting shares.
9. FutureLink agrees to keep confidential the affairs of CNRL, its affiliates
and subsidiaries and not to divulge or make use of any confidential or
other information in connection with the same, whether or not such
information is in the public domain, including the names of and dealings
with any clients of CNRL or its affiliates or subsidiaries. If requested by
CNRL, all FutureLink employees who provide services to CNRL in accordance
with this Agreement shall sign confidentiality agreements.
10. FutureLink agrees that all product (software, design, proposals, or other
intellectual property) produced by FutureLink staff in the course of their
work for CNRL remains the exclusive property of CNRL.
11. FutureLink agrees to use its reasonable best efforts to provide continuity
of staff to CNRL, such that, unless agreed to in writing by CNRL, turnover
of full-time staff assigned to CNRL is not to exceed one person every six
months, or 20% annually, whichever is greater.
12. CNRL will have final approval at its sole discretion over FutureLink staff
assigned to work at CNRL and will have sole determination of the expertise
level (Junior, Intermediate, Senior, Expert) of assigned staff.
13. Either party may terminate this contract on 60 days written notice to the
other party hereto.
14. This Agreement is governed by the laws of the Province of Alberta and the
federal laws of Canada applicable therein.
15. Time is of the essence in this Agreement.
<PAGE> 3
16. The terms of this Agreement express and constitute the entire agreement
between the parties in respect of the matters set forth herein. No implied
covenant or liability is created or shall arise by reason of this Agreement
or anything herein contained. No amendment or variation of the provisions
of this Agreement shall be binding upon any party unless it is evidenced in
writing and executed by all parties hereto.
17. This Agreement shall be binding upon and shall enure to the benefit of the
parties hereto and their respective successors, receivers,
receiver-managers, trustees and permitted assigns. Neither party may assign
its interest in this Agreement or any monies due or claim arising
hereunder, or subcontract all or any portion of the services to be provided
hereunder, without the prior written consent of the other party, which
consent shall not be unreasonably withheld. Such consent to any assignment
or subcontracting shall not relieve a party from its primary obligations
pursuant to this Agreement.
IN WITNESS WHEREOF, the parties have executed and delivered these presents as of
the day and year first above written.
CANADIAN NATURAL RESOURCES LIMITED FUTURELINK DISTRIBUTION CORP.
Per: /s/ Steve Suckle Per: /s/ W.V. Arnett
------------------------------ --------------------------
Print Name: Steve Suckle Print Name: W.V. Arnett
----------------------- -------------------
Title: Manager, Info. Systems Title: Chief Operating Officer
---------------------------- ------------------------
<PAGE> 4
SCHEDULE A TO THE INFORMATION SYSTEMS SERVICES AGREEMENT BETWEEN CANADIAN
NATURAL RESOURCES LIMITED AND FUTURELINK DISTRIBUTION CORP. DATED AS OF
JULY 1, 1999.
- -------------------------------------------------------------------------------
SERVICES & REMUNERATION
1. CONSULTANTS. FutureLink 1999 rates for consulting services on an hourly
basis are $60/$80/$100/$120/$150 per hour for Junior, Intermediate, Senior,
Expert and Principal resources. Two options are available for contract
duration and discount rate for CNRL:
- If the duration of the contract is one year then the discount rate
offered will be 20%. The rates under this option will therefore be
$48/$64/$80/$96/$120 per hour for Junior, Intermediate, Senior,
Expert and Principal resources
- If the duration of the contract is two years then the discount rate
offered will be 30%. The rates under this option will therefore be
$42/$56/$70/$84/$105 per hour for Junior, Intermediate, Senior,
Expert and Principal resources
- FutureLink will provide the services of 5 Infrastructure staff (2
Senior, 2 Intermediate and 1 Junior) to CNRL on a full time basis.
Full time shall mean 8 hours per working day, or, if necessary,
additional hours in excess of 8 hours per day which must be
pre-approved by CNRL. The Consultants assigned shall be agreed in
advance by CNRL and FutureLink and defined in Schedule B.
- FutureLink will provide the services of 4 User Support staff (4
Intermediates) to CNRL on a full time basis. Full time shall mean
8 hours per working day. The Consultants assigned shall be agreed
in advance by CNRL and FutureLink and defined in Schedule B.
- FutureLink will provide the services of Team Leaders, Network
Support, Data and Development staff, AS 400 support, Unix support,
and additional Infrastructure and User Support resources on an as
required basis. These staff will be billed at the appropriate
discounted hourly rate described above. Consultants assigned shall
be agreed in advance by CNRL and FutureLink and defined in Schedule
B.
2. HARDWARE. FutureLink may at CNRL's option purchase all required Network
and PC hardware, and desktop software for CNRL. Prices will be based on a
cost plus 10% arrangement.
3. COMPUTERS. CNRL will provide FutureLink staff with access to PC's of a
type appropriate for the kind and nature of work FutureLink performs
for CNRL.
4. TRAVEL EXPENSES. CNRL will reimburse all travel and accommodation costs
associated with support provided by FutureLink to CNRL's field operations.
<PAGE> 5
SCHEDULE B TO THE INFORMATION SYSTEMS SERVICES AGREEMENT BETWEEN CANADIAN
NATURAL RESOURCES LIMITED AND FUTURELINK DISTRIBUTION CORP. DATED AS OF JULY 1,
1999.
- --------------------------------------------------------------------------------
SERVICES AND REMUNERATION
<TABLE>
20% 30% FULL OR
EMPLOYEE FUNCTION LEVEL 99 RATE DISCOUNT DISCOUNT P/T
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Bernard van Blokland AS400 Support Expert 120 96 84 P/T
Bernard van Blokland AS400 Support Senior 100 80 70 P/T
Bob Tulk Client Support Intermediate 80 64 56 F/T
Brian Oldridge Field Support Senior 100 80 70 F/T
Christine Anderson Client Support Senior 100 80 70 F/T
David Baker DBA Expert 120 96 84 P/T
Don Oldridge Field Support Junior 60 48 42 F/T
Chris Robertson Client Support Junior 60 48 42 F/T
Glen White App Development Expert 120 96 84 P/T
Greg Bolin Infrastructure Intermediate 80 64 56 F/T
Jason Auch Field Support Intermediate 80 64 56 F/T
Judie Roberts Client Support Intermediate 80 64 56 F/T
Kelvin McKay Infrastructure Senior 100 80 70 F/T
Kelvin McKay Infrastructure Expert 120 96 84 P/T
Kevin Hogg Field Support Junior 60 48 42 F/T
Kirby Laska Client Support Intermediate 80 64 56 F/T
Misc. (Brian West,
Keith Arriss etc.) Misc. Expert 120 96 84 P/T
Randy Groeneveld AS400 Support Senior 100 80 70 P/T
Randy Groeneveld AS400 Support System Check 65 52 45.5 P/T
Robin Bell Infrastructure Expert 120 96 84 P/T
Ross MacKay App Development Senior 100 80 70 P/T
Simon Graham Infrastructure Senior 100 80 70 F/T
</TABLE>
CNRL has the right to approve all staff assigned to the account. FutureLink
reserves the right to change staff assigned to the account from time to time
with fifteen (15) days notice. Replacement staff must be approved by CNRL.
<PAGE> 1
EXHIBIT 10.36
[Ameriquest Mortgage Company Letterhead]
MASTER CONSULTING AGREEMENT
[Agreement #CM001]
This Agreement (the "Agreement") is made and entered into as of the thirty
first day of December, 1999, by and between AMERIQUEST MORTGAGE COMPANY (the
"Company"), a Delaware corporation, and FutureLink Micro Visions Corp., a
Delaware corporation.
RECITAL
WHEREAS, FutureLink Micro Visions Corp. and the Company desire to set forth
the terms and conditions upon which FutureLink Micro Visions Corp. will render
any future services to the Company.
TERMS AND CONDITIONS
NOW, THEREFORE, in consideration of the above recitals and of the terms,
covenants and conditions hereinafter set forth, and for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Duties of FutureLink Micro Visions Corp.
(a) FutureLink Micro Visions Corp. shall serve in the capacity of
consultant to the Company to complete the agreed upon assignments in accordance
with the instructions of the Company and the specifications of any related
exhibit to this Agreement. The Company shall engage FutureLink Micro Visions
Corp. to provide during the term of this Agreement such services of a consulting
or advisory nature as the Company may request with respect to its business
including, by way of example and not by way of limitation, technical and
analytical advice and services with respect to the FiTech system and any other
programming and/or design efforts as detailed in the attached exhibits.
(b) FutureLink Micro Visions Corp. shall devote its best efforts to
perform the duties as outlined in attached exhibits, so as to advance the
interests of the Company. From time to time additional exhibits may be added to
this agreement upon written approval from both parties.
(c) FutureLink Micro Visions Corp. shall act solely in a consulting
capacity hereunder and shall not have any authority to act for the Company, to
give instructions or orders on behalf of the Company or otherwise bind, obligate
or make commitments for or on behalf of the Company.
(d) FutureLink Micro Visions Corp. agrees and acknowledges that at no
time during the effectiveness of this Agreement will FutureLink Micro Visions
Corp., or any of Consultant's employees, be treated as an employee or employees
of the Company. All payments made to FutureLink Micro Visions Corp. by the
Company (whether for services rendered, expenses, or otherwise) under this
Agreement will be recorded as income payments to FutureLink Micro Visions Corp.
and will be reported to the Internal Revenue Service on Form 1099. The Company
is under no obligation to withhold or pay any taxes or charges relating to any
compensation payable hereunder, including, without limitation, any federal,
state, or local income, withholding or payroll taxes; FICA (social security
taxes); state disability insurance premiums; Medicare or similar payments.
FutureLink Micro Visions Corp. shall be solely responsible to pay all taxes,
insurance and other withholding payments with respect to such compensation and
FutureLink Micro Visions Corp. specifically relieves the Company of all such
responsibilities. FutureLink Micro Visions Corp. agrees to indemnify, defend,
and hold the Company harmless from any claims, costs, or expenses arising out of
any withholding obligations imposed on the Company.
(e) In the event this Agreement contradicts the attached exhibits,
the exhibits shall control.
(f) All personnel of FutureLink Micro Visions Corp. assigned to
perform service for the Company pursuant to this Agreement shall be approved in
writing in advance by the Company.
2. Term. The term of this Agreement shall be for the period commencing
on the date of this Agreement and terminating on the unilateral, written
termination of this Agreement by either FutureLink Micro Visions Corp. or the
Company in its sole and absolute discretion, with sixty (60) days notice.
FutureLink Micro Visions Corp., 144475 Agreement CM001 page 1 of 9
<PAGE> 2
Ameriquest Mortgage Company
3. Compensation. As full and complete compensation for services rendered to
the Company in the capacity set forth above, the Company shall pay FutureLink
Micro Visions Corp. the amounts agreed upon in the attached exhibits. No
sharing of hours between exhibits is permitted without the prior written
agreement of both parties. FutureLink Micro Visions Corp. hereby acknowledges
and agrees that FutureLink Micro Visions Corp. shall have no right whatsoever
at any time to any income or profit of the Company.
4. Termination.
(a) Termination without cause:
[1] Either the Company or FutureLink Micro Visions Corp. may
unilaterally terminate this Agreement with or without cause at any
time, with sixty (60) days written notice.
[2] Notwithstanding any termination of this Agreement by either party
pursuant to this paragraph 4(a), the Company shall pay FutureLink
Micro Visions Corp.; (A) for any services rendered by FutureLink Micro
Visions Corp. prior to such termination, all in accordance with the
exhibits to this agreement; (B) any and all expenses incurred by
FutureLink Micro Visions Corp. prior to termination which are
otherwise reimbursable in accordance with Section 5 of this Agreement.
[3] Company shall pay the compensation owed FutureLink Micro Visions
Corp. pursuant to Sections 4(a)[2](A) and (B) above within thirty (30)
days of the termination of this Agreement.
(b) Termination for Cause:
[1] The Company may terminate this Agreement at any time, without
notice to FutureLink Micro Visions Corp., for cause. For the purposes
of this paragraph 4(b)[1], cause shall mean any breach by FutureLink
Micro Visions Corp. of the terms or conditions of this Agreement or
any of the exhibits which may from time to time be attached hereto, or
the failure of FutureLink Micro Visions Corp. otherwise to perform all
of its obligations hereunder in a competent and professional manner.
[2] Upon termination of this Agreement for cause, the Company shall be
obligated to pay FutureLink Micro Visions Corp. only for those
services satisfactorily completed prior to the event or events which
gave rise to the termination by the Company as provided for in
paragraph 4(b)[1] above. Such payments shall be made within thirty
(30) days of the termination of this Agreement at the rate set forth
in the applicable exhibit.
5. Expenses.
(a) Ameriquest shall reimburse FutureLink Micro Visions Corp. for
reasonable business, travel and entertainment expenses incurred on
behalf of Ameriquest and in connection with duties and
responsibilities to Ameriquest; provided, however, that all requests
for any reimbursement of any expense of FutureLink Micro Visions Corp.
shall be supported by such documentation as is necessary for said
expenses to be deducted for federal income tax purposes. Not
withstanding any term or provision herein to the contrary, FutureLink
Micro Visions Corp. shall not be entitled to, nor receive,
reimbursement of any expense without the express, prior written
consent of any one of the Chairman, the President or the Chief
Information Officer of Ameriquest, which consent may be withheld in
such officer's sole and absolute discretion, acting reasonably. In
addition, Ameriquest, in its sole and absolute discretion, acting
reasonably, may designate at any time those expenses of FutureLink
Micro Visions Corp. which shall be allocated to, and reimbursed by
Ameriquest. FutureLink Micro Visions Corp. shall submit any and all
expenses for which it desires reimbursement within thirty (30) days of
incurring the expense.
(b) For FutureLink Micro Visions Corp. employees residing outside the
Southern California Area, and not mentioned in Exhibits 1, 2, and 3,
Ameriquest will provide for the following expenses:
[1] For hours worked less than or equal to 80 billable hours,
Ameriquest will pay for all expenses relating to Airfare, lodging, per
diem and car rental.
FutureLink Micro Visions Corp., 144475 Agreement CM001 page 2 of 9
<PAGE> 3
AMERIQUEST MORTGAGE COMPANY
(2) For hours worked greater than 80 billable hours, Ameriquest
will pay for airfare only. FutureLink Micro Visions Corp. will
pay for lodging, per diem and car rental.
6. Miscellaneous.
(a) Confidential Information. During their retention hereunder and
thereafter, FutureLink Micro Visions Corp. will not disclose to any
person or persons not directly connected with the Company, or use for
their own benefit, any of the trade secrets, financial information,
systems, records or business methods of the Company or its affiliates,
or any of the business relationships between the Company or its
affiliates and any of their business partners or clients, unless such
disclosure shall be in direct connection with or as a part of
FutureLink Micro Visions Corp. performance of duties hereunder.
In the event that FutureLink Micro Visions Corp. is requested in any
proceeding to disclose any Confidential Information, it shall give
the Company prompt notice of such request so that the Company may
seek an appropriate protective order. It is further agreed that if in
the absence of a protective order FutureLink Micro Visions Corp. is
nonetheless compelled to disclose Confidential Information,
FutureLink Micro Visions Corp. may disclose such information without
liability hereunder, provided that FutureLink Micro Visions Corp.
shall give written notice to the Company of the information to be
disclosed as far in advance of its disclosure as is practicable and,
upon the Company's request and at the Company's expense, FutureLink
Micro Visions Corp. shall cooperate with the Company to obtain
assurances that confidential treatment will be accorded to such
information. FutureLink Micro Visions Corp. agrees that upon the
Company's request it will promptly redeliver to the Company all
copies of the Confidential Information. The term "Confidential
Information" does not include information which was or becomes
generally available to FutureLink Micro Visions Corp. on a
non-confidential basis; provided that the source of such information
was not bound by a confidentiality agreement. It is agreed that money
damages would not be a sufficient remedy for any breach of this
agreement and that in addition to all other remedies, the Company
shall be entitled to specific performance and injunctive or other
equitable relief as a remedy for any such breach.
The provisions of this section shall survive the expiration or any
earlier termination of this Agreement.
(b) Entire Agreement. This Agreement constitutes the entire agreement
and understanding of the parties hereto with respect to the
transactions contemplated hereby and supersedes all prior agreements,
arrangements and understandings relating to the subject matter hereof.
(c) Amendment. This Agreement may be amended, modified, superseded or
canceled and any of the terms, covenants or conditions hereof may be
amended, only by a written instrument executed by both parties hereto.
(d) Waiver. No waiver of any of the provisions of this Agreement shall
be deemed, or shall constitute, a waiver of any other provision,
whether or not similar, nor shall any waiver constitute a continuing
waiver. No waiver shall be binding unless executed in writing by the
party making the waiver.
(e) Governing Law. This Agreement shall be construed in accordance with,
and governed by, the laws of the State of California. Venue shall be
the appropriate court of jurisdiction in Orange County, California.
(f) Severability. If any provision hereof shall be found to be invalid
or unenforceable, all of the other provisions shall nonetheless
remain in full force and effect to the maximum extent permitted by
law.
(g) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
FutureLink Micro Visions Corp. 144475 Agreement CM001 Page 3 of 9
<PAGE> 4
Ameriquest Mortgage Company
(h) Notices. Any notice required or permitted to be given under this
Agreement by FutureLink Micro Visions Corp. to the Company shall be in
writing, personally delivered or sent by registered or certified
United States mail, return receipt requested, postage prepaid and
addressed to Ameriquest Mortgage Company, 1100 Town & Country Road,
11th Floor, Orange, California 92668, Attention: General Legal
Counsel, or such other address as the Company may specify from time to
time by like notice to FutureLink Micro Visions Corp. Any notice
required or permitted to be given under this Agreement by the Company
to FutureLink Micro Visions Corp. shall be in writing, sent by
registered or certified United States mail, return receipt requested,
postage prepaid or personally delivered and addressed to FutureLink
Micro Visions Corp., 6 Morgan, Suite 100, Irvine, California 92618, or
at such other address as FutureLink Micro Visions Corp. may specify
from time to time by like notice to the Company. Any notice personally
delivered shall be effective upon delivery. Any notice sent by mail in
the manner provided herein shall be effective on the date of delivery
or refusal indicated on the return receipt.
(i) Non-Exclusivity. Nothing in the agreement shall be construed to
confer upon FutureLink Micro Visions Corp. the exclusive rights to
provide consulting services of the type set forth in paragraph 1 above
or in any exhibits. The Company specifically reserves the right to
retain any other consultant or independent contractors to perform any
service whether or not related to those referred to in this agreement.
7. Proprietary Rights. The original work product shall be considered a work
for hire and shall be the exclusive property of the Company and FutureLink
Micro Visions Corp. shall have no ownership interest therein, except to the
extent the original work product embeds any of FutureLink Micro Visions
Corp.'s previously developed proprietary software. Micro Vision's
Proprietary Software shall remain the exclusive property of FutureLink
Micro Visions Corp. and the Company shall have no ownership interest
therein, but the Company shall have non-exclusive right to use Micro
Vision's Proprietary Software to the extent embedded in the original work
product.
8. Non-Solicitation of Ameriquest Mortgage Company Employees. FutureLink
Micro Visions Corp. recognizes that the Company employees constitute a
valuable asset of the company. Accordingly, FutureLink Micro Visions Corp.
hereby agrees not to employ or enter into a consulting relationship with
any person who is currently employed by the Company during the course of
this agreement and for a period of two (2) years from the date of
completion of this agreement without prior written approval by the Company.
9. Discount. In the purchase of Citrix software products, FutureLink Micro
Visions Corp. will give Ameriquest a discount of 27% off the current
published Citrix list price and Ameriquest agrees to use FutureLink Micro
Visions Corp. exclusively for all Citrix purchases. In consideration for
this agreement, FutureLink Micro Visions Corp. will reduce the basic hourly
programming rate for FiTECH programming services from $165 hourly to $160
hourly. If Ameriquest elects not to purchase Citrix software from
FutureLink Micro Visions Corp., and purchases Citrix software from another
vendor, the programming hourly rate for the FiTECH programming services
will increase to $165 immediately.
page 4 of 9
<PAGE> 5
AMERIQUEST MORTGAGE COMPANY
10. Credit. As a cost reduction to FiTECH programming, FutureLink Micro
Visions Corp. will provide a credit based on the cumulative purchase of
hardware, software and services (Citrix software purchases, FiTECH programming
services, and expense reimbursements, shall not be subject to credit), to be
applied to future invoiced FiTECH programming hours in the month of purchase,
as follows (this will appear as a line item credit on all future invoices):
<TABLE>
<S> <C>
$100,000.00 - $200,000.00 0.200%
200,001.00 - $300,000.00 0.400%
300,001.00 - $400,000.00 0.600%
400,001.00 - $500,000.00 0.800%
500,001.00 - $600,000.00 1.000%
600,001.00 - $700,000.00 1.200%
700,001.00 - $800,000.00 1.400%
800,001.00 - $900,000.00 1.600%
900,001.00 - $1,000,000.00 1.800%
1,000,001.00 - $1,100,000.00 2.000%
1,100,001.00 - $1,200,000.00 2.200%
1,200,001.00 - $1,300,000.00 2.400%
1,300,001.00 - $1,400,000.00 2.600%
1,400,001.00 - $1,500,000.00 2.800%
1,500,001.00 - $1,600,000.00 3.000%
1,600,001.00 - $1,700,000.00 3.200%
1,700,001.00 - $1,800,000.00 3.400%
1,800,001.00 - $1,900,000.00 3.600%
1,900,001.00 - $2,000,000.00 3.800%
2,000,001.00+ 4.000%
</TABLE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement in Orange, California, as of the date first above written.
AMERIQUEST MORTGAGE COMPANY
By: /s/ H. Lynn Ryan 12/10/99
----------------------- --------
H. Lynn Ryan, E.V.P. Date
Chief Information Officer
FutureLink Micro Visions Corp.
By: /s/ Glen Holmes 12/21/99
----------------------- --------
Mr. Glen Holmes, President Date
COO
FutureLink Micro Visions Corp. 144475 Agreement CM001 page 5 of 9
<PAGE> 6
AMERIQUEST MORTGAGE COMPANY
EXHIBIT 1
[CM001.001]
FITECH SYSTEM PROJECT
---------------------
DESCRIBE DELIVERABLES, RATE, ETC. HERE
MR. CHARLES POPE, in the capacity of programming support, commencing on or
about 01/01/2000 and extend through on or about 06/30/2000* provided at the
rate of $160.00 per hour straight time.
Maximum approved amount this exhibit is 1,000* hours and $165,000.00.
*Note: The contract period and number of hours may be extended at the same rate
through June 30, 2001 with ninety (90) days written notice to FutureLink Micro
Visions Corp prior to agreement expiration.
ADDITIONAL TERMS:
- -----------------
* If the Company requires programming support in excess of 1,000 hours, the
above rate schedule applies to the programmer providing the services.
* Authorized overtime will be billed at 1 1/2 times hourly rate for
unscheduled weekend work. FutureLink Micro Visions Corp. will be given five
(5) days notice for scheduled weekend work.
* This agreement does not include the development and management of FiTech
System forms, as they will be managed separately.
* This agreement provides for pager support and four (4) hour on site support
on a "7 day/24 hour" basis in support of FiTech Systems Application by
FutureLink Micro Visions Corp. personnel named above.
* This agreement provides for a team of three (3) technically proficient FiTech
System personnel to supplement Company personnel. Any changes to the
FutureLink Micro Visions Corp. team, either by Company or FutureLink Micro
Visions Corp. will be made with fifteen (15) days written notice. Replacement
(not currently on FutureLink Micro Visions Corp. FiTech System team) will
require a $12,000 credit Company to allow for knowledge transfer.
AMERIQUEST MORTGAGE COMPANY
---------------------------
By: /s/ H. Lynn Ryan 12/10/99
- --------------------------------- --------
(Authorized Signature) (Date)
H. Lynn Ryan, EVP
Chief Information Officer
FutureLink Micro Visions Corp.
------------------------------
By: /s/ Glen C. Holmes 12/21/99
- --------------------------------- --------
(Authorized Signature) (Date)
Mr. Glen Holmes, President & COO
FutureLink Micro Visions Corp.
Futurelink Micro Visions Corp. 144475 Agreement CM001 page 6 of 9
<PAGE> 7
AMERIQUEST MORTGAGE COMPANY
Exhibit 2
[CM001.002]
FiTech System Project
---------------------
DESCRIBE DELIVERABLES, RATE, ETC. HERE
MR. CORDELL EARL, in the capacity of programming support, commencing on or
about 01/01/2000 and extend through on or about 12/31/2000* provided at the
rate of $160.00 per hour straight time.
Maximum approved amount this exhibit is 2,000* hours and $330,000.00.
* Note: The contract period and number of hours may be extended at the same
rate through June 30, 2001 with ninety (90) days written notice to FutureLink
Micro Visions Corp prior to agreement expiration.
ADDITIONAL TERMS:
- - If the Company requires programming support in excess of 2,000 hours, the
above rate schedule applies to the programmer providing the services.
- - Authorized overtime will be billed at 1 1/2 times hourly rate for
unscheduled weekend work. FutureLink Micro Visions Corp. will be given
five (5) days notice for scheduled weekend work.
- - This agreement does not include the development and management of FiTech
System forms, as they will be managed separately.
- - This agreement provides for paper support and four (4) hour on site support
on a "7 day / 24 hour" basis in support of FiTech Systems Application by
FutureLink Micro Visions Corp. personnel, named above.
- - This agreement provides for a team of three (3) technically proficient
FiTech System personnel to supplement Company personnel. Any changes to
the FutureLink Micro Visions Corp. team, either by Company or FutureLink
Micro Visions Corp. will be made with fifteen (15) days written notice.
Replacement (not currently on FutureLink Micro Visions Corp. FiTech System
team) will require a $12,000 credit to Company to allow for knowledge
transfer.
AMERIQUEST MORTGAGE COMPANY
By: /s/ H. Lynn Ryan 12/10/99
----------------------------- ---------------
(Authorized Signature) Date
H. Lynn Ryan, EVP
Chief Information Officer
FUTURELINK MICRO VISIONS CORP.
By: /s/ Glen Holmes 12/21/99
----------------------------- ---------------
(Authorized Signature) Date
Mr. Glen Holmes, President & COO
FutureLink Micro Visions Corp., 144475 Agreement CM001 page 7 of 9
<PAGE> 8
Ameriquest Mortgage Company
EXHIBIT 3
[CM001.003]
FiTech System Project
DESCRIBE DELIVERABLES, RATE, ETC. HERE
DARYL NICKERSON, in the capacity of programming support, commencing on or about
01/01/2000 and extend through on or about 12/31/2000* provided at the rate of
$160.00 per hour straight time.
Maximum approved amount this exhibit is 2,000* hours and $330,000.00.
* Note: The contract period and number of hours may be extended at the same
rate through June 30, 2001 with ninety (90) days written notice to FutureLink
Micro Visions Corp prior to agreement expiration.
ADDITIONAL TERMS:
* If the Company requires programming support in excess of 2,000 hours, the
above rate schedule applies to the programmer providing the services.
* Authorized overtime will be billed at 1 1/2 times hourly rate for unscheduled
weekend work. FutureLink Micro Visions Corp. will be given five (5) days
notice for scheduled weekend work.
* This agreement does not include the development and management of FITech
System forms, as they will be managed separately.
* This agreement provides for pager support and four (4) hour on site support
on a "7 day/24 hour" basis in support of FiTech Systems Application by
FutureLink Micro Visions Corp. personnel, named above.
* This agreement provides for a team of three (3) technically proficient FiTech
System personnel to supplement Company personnel. Any changes to the
FutureLink Micro Visions Corp. team, either by Company or FutureLink Micro
Visions Corp. will be made with fifteen (15) days written notice. Replacement
(not currently on FutureLink Micro Visions Corp. FiTech System team) will
require a $12,000 credit to Company to allow for knowledge transfer.
AMERIQUEST MORTGAGE COMPANY
By: /s/ H. Lynn Ryan 12/10/99
------------------------------ --------
(Authorized Signature) Date
H. Lynn Ryan, EVP
Chief Information Officer
FutureLink Micro Visions Corp.
By: /s/ Glen Holmes 12/21/99
------------------------------ --------
(Authorized Signature) Date
Mr. Glen Holmes, President
FutureLink Micro Visions Corp., 144475 Agreement CM001 page 8 of 9
<PAGE> 9
Ameriquest Mortgage Company
EXHIBIT 4
[CM001,004]
FiTech System Project
DESCRIBE DELIVERABLES, RATE, ETC. HERE
Damaris Duplan, in the capacity of programming support, commencing on an as
needed basis at the rate of $160.00 per hour straight time.
Maximum approved amount this exhibit is 2,000* hours and $330,000.00.
For FutureLink Micro Visions Corp. employee Damaris Duplan, Ameriquest will pay
for all expenses relating to Airfare, lodging, per diem and car rental.
Additional Terms:
* If the Company requires programming support in excess of 2,000 hours, the
above rate schedule applies to the programmer providing the services.
* Authorized overtime will be billed at 1 1/2 times hourly rate for
unscheduled weekend work. FutureLink Micro Visions Corp. will be given five
(5) days notice for scheduled weekend work.
* This agreement does not include the development and management of FiTech
System forms, as they will be managed separately.
AMERIQUEST MORTGAGE COMPANY
By: /s/ H. Lynn Ryan 12/10/99
- -------------------------------------- ----------
(Authorized Signature) Date
H. Lynn Ryan, EVP
Chief Information Officer
FutureLink Micro Visions Corp.
By: /s/ Glen Holmes 12/21/99
- -------------------------------------- ----------
(Authorized Signature) Date
Mr. Glen Holmes, President
FutureLink Micro Visions Corp., 144475 Agreement CM001 page 9 of 9
<PAGE> 1
EXHIBIT 10.37
EXODUS COMMUNICATIONS, INC.
INTERNET DATA CENTER SERVICES AGREEMENT
THIS INTERNET DATA CENTER SERVICES AGREEMENT (this "Agreement") is made
effective as of the Submission Date (May 7, 1999) indicated in the initial
Internet Data Center Services Order Form accepted by Exodus, by and between
Exodus Communications, Inc. ("Exodus") and the customer identified below
("Customer").
PARTIES:
CUSTOMER NAME: Micro Visions
ADDRESS: 6 Morgan
Suite 100, Irvine, CA 92618
PHONE: (949) 837-8252
FAX: (949) 837-8387
EXODUS COMMUNICATIONS, INC.
2831 Mission College Blvd
Santa Clara, CA 95054
Phone: (408) 346-2200
Fax: (408) 346-2420
1. INTERNET DATA CENTER SERVICES.
Subject to the terms and conditions of this Agreement, during the term of this
Agreement, Exodus will provide to Customer the services described in the
Internet Data Center Services Order Form(s) ("IDC Services Order Form(s)")
accepted by Exodus, or substantially similar services if such substantially
similar services would provide Customer with substantially similar benefits
("Internet Data Center Services"). All IDC Services Order Forms accepted by
Exodus are incorporated herein by this reference, each as of the Submission
Date indicated in such form.
2. FEES AND BILLING.
2.1 Fees. Customer will pay all fees due according to the IDC Services
Order Form(s).
2.2 Billing Commencement. Billing for Internet Data Center Services, other
than Setup Fees, indicated in the initial IDC Services Order Form shall
commence on the earlier to occur of (i) the "Installation Date" indicated in
the initial IDC Services Order Form, regardless of whether Customer has
commenced use of the Internet Data Center Services, unless Customer is unable
to install the Customer Equipment and/or use the Internet Data Center Services
by the Installation Date due to the fault of Exodus, then billing will not
begin until the date Exodus has remedied such fault and (ii) the date the
"Customer Equipment" (Customer's computer hardware and other tangible
equipment, as identified in the Customer Equipment List which is incorporated
herein by this reference) is placed by Customer in the "Customer Area" (the
portion(s) of the Internet Data Centers, as defined in Section 3.1 below, made
available to Customer hereunder for the placement of Customer Equipment) and is
operational. All Setup Fees will be billed upon receipt of a Customer signed
IDC Services Order Form. In the event that Customer orders additional Internet
Data Center Services, billing for such services shall commence on the date
Exodus first provides such additional Internet Data Center Services to Customer
or as otherwise agreed to by Customer and Exodus.
2.3 Billing and Payment Terms. Customer will be billed monthly in advance
of the provision of Internet Data Center Services, and payment of such fees
will be due within thirty (30) days of the date of each Exodus invoice. All
payments will be made in U.S. dollars. Late payments hereunder will accrue
interest at a rate of one and one-half percent (1 1/2%) per month, or the
highest rate allowed by applicable law, whichever is lower. If in its judgment
Exodus determines that Customer is not creditworthy or is otherwise not
financially secure, Exodus may, upon written notice to Customer, modify the
payment terms to require full payment before the provision of Internet Data
Center Services or other assurances to accrue Customer's payment obligations
hereunder.
2.4 Taxes. All payments required by this Agreement are exclusive of all
national, state, municipal or other governmental excise, sales, value-added,
use, personal property, and occupational taxes, excises, withholding taxes and
obligations and other levies now in force or enacted in the future, all of
which Customer will be responsible for and will pay in full, except for taxes
bused on Exodus' net income.
3. CUSTOMER'S OBLIGATIONS.
3.1 Compliance with Law and Rules and Regulations. Customer agrees that
Customer will comply at all times with all applicable laws and regulations and
Exodus' general rules and regulations relating to its provision of Internet
Data Center Services, as updated by Exodus from time to time ("Rules and
Regulations"). Customer acknowledges that Exodus exercises no control
whatsoever over the content of the information passing through its sites
containing the Customer Area and equipment and facilities used by Exodus to
provide Internet Data Center Services ("Internet Data Centers"), and that it is
the sole responsibility of Customer to ensure that the information it transmits
and receives complies with all applicable laws and regulations.
3.2 Customer's Costs. Customer agrees that it will be solely responsible,
and at Exodus's request will reimburse Exodus, for all costs and expenses
(other than those included as part of the Internet Data Center Services and
except as otherwise expressly provided herein) it incurs in connection with
this Agreement.
3.3 Access and Security. Customer will be fully responsible for any
charges, costs, expenses (other than those included in the Internet Data Center
Services), and third party claims that amy result from its use of, or access
to, the Internet Data Centers and/or the Customer Area including but not
limited to any unauthorized use of any access devices provided by Exodus
hereunder. Except with the advanced written consent of Exodus, Customer's
access to the Internet Data Centers will be limited solely to the individuals
identified and authorized by Customer to have access to the Internet Data
Centers and the Customer Area in accordance with this Agreement, as identified
in the Customer Registration Form, as amended from time to time, which is
hereby incorporated by this reference ("Representatives").
3.4 No Competitive Services. Customer may not at any time permit any
Internet Data Center Services to be utilized for the provision of any services
that compete with any Exodus services, without Exodus' prior written consent.
3.5 Insurance.
(a) Minimum Levels. Customer will keep in full force and effect during the
term of this Agreement: (i) comprehensive general liability insurance in an
amount not less than $5 million per occurrence for bodily injury and property
damage; (ii) employer's liability insurance in an amount not less than $1
million per occurrence; and (iii) workers' compensation insurance in an amount
not less than that required by applicable law. Customer also agrees that it
will, and will be solely responsible for ensuring that it agents (including
contractors and subcontractors) maintain, other insurance at levels no less
than those required by applicable law and customary in Customer's and its
agents' industries.
(b) Certificates of Insurance. Prior to installation of any Customer
Equipment in the Customer Area, Customer will furnish Exodus with certificates
of insurance which evidence the minimum levels of insurance set forth above.
(c) Naming Exodus as an Additional Insured. Customer agrees that prior to
the installation of any Customer Equipment, Customer will cause its insurance
provider(s) to name Exodus as an additional insured and notify Exodus in
writing of the effective date thereof.
4. CONFIDENTIAL INFORMATION.
4.1 Confidential Information. Each party acknowledges that it will have
access to certain confidential information of the other party concerning the
other party's business, plans, customers, technology, and products, including
the terms and conditions of this Agreement ("Confidential Information").
Confidential Information will include, but not be limited to, each party's
proprietary software and customer information. Each party agrees that it will
not use in any way, for its own account or the account of any third party,
except as expressly permitted by this Agreement, nor disclose to any third party
(except as required by law or to that party's attorneys, accountants and other
advisors as reasonably necessary), any of the other party's Confidential
Information and will take reasonable precautions to protect the confidentiality
of such information.
4.2 Exceptions. Information will not be deemed Confidential Information
hereunder if such information: (i) is known to the receiving party prior to
receipt from the disclosing party directly or indirectly from a source other
than one having an obligation of confidentiality to the disclosing party; (ii)
becomes known (independently of disclosure by the disclosing party) to the
receiving party directly or indirectly from a source other than one having an
obligation of confidentiality to the disclosing party; (iii) becomes publicly
known or otherwise ceases to be secret or confidential, except through a breach
of this Agreement by the receiving party; or (iv) is independently developed by
the receiving party.
5. REPRESENTATIONS AND WARRANTIES.
5.1 Warranties by Customer.
(a) Customer Equipment. Customer represents and warrants that it owns or
has the legal right and authority, and will continue to own or maintain the
legal right and authority during the term of this Agreement, to place and use
the Customer Equipment as contemplated by this Agreement. Customer further
represents and warrants that its placement, arrangement, and use of the
Customer Equipment in the Internet Data Centers complies with the Customer
Equipment Manufacturer's environmental and other specifications.
(b) Customer's Business. Customer represents and warrants that Customer's
services, products, materials, data, information and Customer Equipment used by
Customer in connection with this Agreement as well as Customer's and its
permitted customers' and users' use of the Internet Data Center Services
(collectively, "Customer's Business") does not as of the Installation Date, and
will not during the term of this Agreement operate in any manner that would
violate any applicable law or regulation.
(c) Rules and Regulations. Customer has read the Rules and Regulations and
represents and warrants that Customer and Customer's Business are currently in
full compliance with the Rules and Regulations, and will remain so at all times
during the term of this Agreement.
(d) Breach of Warranties. In the event of any breach, or reasonably
anticipated breach, of any of the foregoing warranties, in addition to any
other remedies available at law or in equity, Exodus will have the right
immediately, in Exodus' sole discretion, to suspend any related Internet Data
Center Services if deemed reasonably necessary by Exodus to prevent any harm to
Exodus and its business.
Page 1
<PAGE> 2
5.2 Warranties and Disclaimers by Exodus.
5.2(a) Service Level Warranty. In the event Customer experiences any
of the following and Exodus determines in its reasonable judgment that such
inability was caused by Exodus' failure to provide Internet Data Center
Services for reasons within Exodus' reasonable control and not as a result of
any actions or inactions of Customer or any third parties (including Customer
Equipment and third party equipment), Exodus will, upon Customer's request in
accordance with paragraph (iii) below, credit Customer's account as described
below:
(i) Inability to Access the Internet (Downtime). If Customer is
unable to transmit and receive information from Exodus' Internet Data Centers
(i.e., Exodus' LAN and WAN) to other portions of the Internet because Exodus
failed to provide the Internet Data Center Services for more than fifteen (15)
consecutive minutes, Exodus will credit Customer's account the pro-rata
connectivity charges (i.e., all bandwidth related charges) for one (1) day of
service, up to an aggregate maximum credit of connectivity charges for seven
(7) days of service in any one calendar (1) month. Exodus' scheduled
maintenance of the Internet Data Centers and Internet Data Center Services, as
described in the Rules and Regulations, shall not be deemed to be a failure of
Exodus to provide Internet Data Center Services. For purposes of the foregoing,
"unable to transmit and receive" shall mean sustained packet loss in excess of
50% based on Exodus' measurements.
(ii) Packet Loss and Latency. Exodus does not proactively monitor the
packet loss or transmission latency of specific customers. Exodus does,
however, proactively monitor the aggregate packet loss and transmission latency
within its LAN and WAN. In the event that Exodus discovers (either from its own
efforts or after being notified by Customer) that Customer is experiencing
packet loss in excess of one percent (1%) ("Excess Packet Loss") or
transmission latency in excess of 120 milliseconds round trip time (based on
Exodus' measurements) between any two Internet Data Centers within Exodus' U.S.
network (collectively, "Excess Latency", and with Excess Packet Loss "Excess
Packet Loss/Latency"), and Customer notifies Exodus (or confirms that Exodus
has notified Customer), Exodus will take all actions necessary to determine the
source of the Excess Packet Loss/Latency.
(A) Time to Discover Source of Excess Packet Loss/Latency;
Notification of Customer. Within two (2) hours of discovering the existence of
Excess Packet Loss/Latency, Exodus will determine whether the source of the
Excess Packet Loss/Latency is limited to the Customer Equipment and the Exodus
equipment connecting the Customer Equipment to Exodus' LAN ("Customer Specific
Packet Loss/Latency"). If the Excess Packet Loss/Latency is not a Customer
Specific Packet Loss/Latency, Exodus will determine the source of the Excess
Packet Loss/Latency within two (2) hours after determining that it is not a
Customer Specific Packet Loss/Latency. In any event, Exodus will notify
Customer of the source of the Exodus Packet Loss/Latency within sixty (60)
minutes after identifying the source.
(B) Remedy of Excess Packet Loss/Latency. If the Excess Packet
Loss/Latency remedy is within the sole control of Exodus, Exodus will remedy
the Excess Packet Loss/Latency within two (2) hours of determining the source
of the Excess Packet Loss/Latency. If the Excess Packet Loss/Latency is caused
from outside of the Exodus LAN or WAN, Exodus will notify Customer and will use
commercially reasonable efforts to notify the party(ies) responsible for the
source and cooperate with it (them) to resolve the problem as soon as possible.
(C) Failure to Determine Source and/or Resolve Problem. In the
event that Exodus is unable to determine the source of and remedy the Excess
Packet Loss/Latency within the time periods described above (where Exodus was
solely in control of the source), Exodus will credit Customer's account the
pro-rata connectivity charges for one (1) day of service for every two (2)
hours after the time periods described above that it takes Exodus to resolve
the problem, up to an aggregate maximum credit of connectivity charges for
seven (7) days of service in any one (1) month.
(iii) Customer Must Request Credit: To receive any of the credits described
in this section 5.2(a), Customer must notify Exodus within three (3) business
days from the time Customer becomes eligible to receive a credit. Failure to
comply with this requirement will forfeit Customer's right to receive a credit.
(iv) Remedies Shall Not Be Cumulative; Maximum Credit: In the event that
Customer is entitled to multiple credits hereunder arising from the same event,
such credits shall not be cumulative and Customer shall be entitled to receive
only the maximum single credit available for such event. In no event will
Exodus be required to credit Customer in any one (1) calendar month
connectivity charges in excess of seven (7) days of service. A credit shall be
applied only to the month in which there was the incident that resulted in the
credit. Customer shall not be eligible to receive any credits for periods in
which Customer received any Internet Data Center Services free of charge.
(v) Termination Option for Chronic Problems: If in any single calendar month,
Customer would be able to receive credits totaling fifteen (15) or more days
(but for the limitation in paragraph (iv) above) resulting from three (3) or
more events during such calendar month or, if any single event entitling
customer to credits under paragraph 5.2(a)(i) exists for a period of eight (8)
consecutive hours, then, Customer may terminate this Agreement for cause and
without penalty by notifying Exodus within five (5) days following the end of
such calendar month. Such termination will be effective thirty (30) days after
receipt of such notice by Exodus.
THIS WARRANTY DOES NOT APPLY TO ANY INTERNET DATA CENTER SERVICES THAT
EXPRESSLY EXCLUDE THIS WARRANTY (AS DESCRIBED IN THE SPECIFICATION SHEETS FOR
SUCH PRODUCTS). THIS SECTION 5.2(a) STATES CUSTOMER'S SOLE AND EXCLUSIVE REMEDY
FOR ANY FAILURE BY EXODUS TO PROVIDE INTERNET DATA CENTER SERVICES.
(b) No Other Warranty. EXCEPT FOR THE EXPRESS WARRANTY SET OUT IN
SUBSECTION (a) ABOVE, THE INTERNET DATA CENTER SERVICES ARE PROVIDED ON AN "AS
IS" BASIS, AND CUSTOMER'S USE OF THE INTERNET DATA CENTER SERVICES IS AT ITS
OWN RISK. EXODUS DOES NOT MAKE, AND HEREBY DISCLAIMS, ANY AND ALL OTHER EXPRESS
AND/OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT AND TITLE,
AND ANY WARRANTIES ARISING FROM A COURSE OF DEALING, USAGE, OR TRADE PRACTICE.
EXODUS DOES NOT WARRANT THAT THE INTERNET DATA CENTER SERVICES WILL BE
UNINTERRUPTED, ERROR-FREE, OR COMPLETELY SECURE.
(c) Disclaimer of Actions Caused by and/or Under the Control of Third
Parties. EXODUS DOES NOT AND CANNOT CONTROL THE FLOW OF DATA TO OR FROM EXODUS'
INTERNET DATA CENTERS AND OTHER PORTIONS OF THE INTERNET. SUCH FLOW DEPENDS IN
LARGE PART ON THE PERFORMANCE OF INTERNET SERVICES PROVIDED OR CONTROLLED BY
THIRD PARTIES. AT TIMES, ACTIONS OR INACTIONS CAUSED BY THESE THIRD PARTIES CAN
PRODUCE SITUATIONS IN WHICH EXODUS' CUSTOMERS' CONNECTIONS TO THE INTERNET (OR
PORTIONS THEREOF) MAY BE IMPAIRED OR DISRUPTED. ALTHOUGH EXODUS WILL USE
COMMERCIALLY REASONABLE EFFORTS TO TAKE ACTIONS IT DEEMS APPROPRIATE TO REMEDY
AND AVOID SUCH EVENTS, EXODUS CANNOT GUARANTEE THAT THEY WILL NOT OCCUR.
ACCORDINGLY, EXODUS DISCLAIMS ANY AND ALL LIABILITY RESULTING FROM OR RELATED
TO SUCH EVENTS.
6. LIMITATIONS OF LIABILITY.
6.1 Personal Injury. EACH REPRESENTATIVE AND ANY OTHER PERSONS VISITING
THE INTERNET DATA CENTERS DOES SO AT ITS OWN RISK AND EXODUS ASSUMES NO
LIABILITY WHATSOEVER FOR ANY HARM TO SUCH PERSONS RESULTING FROM ANY CAUSE
OTHER THAN EXODUS' NEGLIGENCE OR WILLFUL MISCONDUCT RESULTING IN PERSONAL
INJURY TO SUCH PERSONS DURING SUCH A VISIT.
6.2 Damage to Customer Equipment or Business. EXODUS ASSUMES NO LIABILITY
FOR ANY DAMAGE TO, OR LOSS RELATING TO, CUSTOMER'S BUSINESS RESULTING FROM ANY
CAUSE WHATSOEVER. CERTAIN CUSTOMER EQUIPMENT, INCLUDING BUT NOT LIMITED TO
CUSTOMER EQUIPMENT LOCATED ON CYBERRACKS, MAY BE DIRECTLY ACCESSIBLE BY OTHER
CUSTOMERS. EXODUS ASSUMES NO LIABILITY FOR ANY DAMAGE TO, OR LOSS OF, ANY
CUSTOMER EQUIPMENT RESULTING FROM ANY CAUSE OTHER THAN EXODUS' GROSS NEGLIGENCE
OR WILLFUL MISCONDUCT. TO THE EXTENT EXODUS IS LIABLE FOR ANY DAMAGE TO, OR
LOSS OF, THE CUSTOMER EQUIPMENT FOR ANY REASON, SUCH LIABILITY WILL BE LIMITED
SOLELY TO THE THEN-CURRENT VALUE OF THE CUSTOMER EQUIPMENT.
6.3 Exclusions. EXCEPT AS SPECIFIED IN SECTIONS 6.1 AND 6.2, IN NO EVENT
WILL EXODUS BE LIABLE TO CUSTOMER, ANY REPRESENTATIVE, OR ANY THIRD PARTY FOR
ANY CLAIMS ARISING OUT OF OR RELATED TO THIS AGREEMENT, CUSTOMER EQUIPMENT,
CUSTOMER'S BUSINESS OR OTHERWISE, AND ANY LOST REVENUE, LOST PROFITS,
REPLACEMENT GOODS, LOSS OF TECHNOLOGY, RIGHTS OR SERVICES, INCIDENTAL,
PUNITIVE,INDIRECT OR CONSEQUENTIAL DAMAGES, LOSS OF DATA, OR INTERRUPTION OR
LOSS OF USE OF SERVICE OR OF ANY CUSTOMER EQUIPMENT OR CUSTOMER'S BUSINESS,
EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER UNDER THEORY OF
CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY OR OTHERWISE.
6.4 Maximum Liability. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS
AGREEMENT, EXODUS'S MAXIMUM AGGREGATE LIABILITY TO CUSTOMER RELATED TO OR IN
CONNECTION WITH THIS AGREEMENT WILL BE LIMITED TO THE TOTAL AMOUNT PAID BY
CUSTOMER TO EXODUS HEREUNDER FOR THIS PRIOR TWELVE (12) MONTH PERIOD.
6.5 Customer's Insurance. Customer agrees that it will not pursue any
claims against Exodus for any liability Exodus may have under or relating to
this Agreement until Customer first makes claims against Customer's insurance
provider(s) and such insurance provider(s) finally resolve(s) such claims.
6.6 Basis of the Bargain; Failure of Essential Purpose. Customer
acknowledges that Exodus has set its prices and entered into this Agreement in
reliance upon the limitations of liability and the disclaimers of warranties
and damages set forth herein, and that the same form an essential basis of the
bargain between the parties. The parties agree that the limitations and
exclusions of liability and disclaimers specified in this Agreement will
survive and apply even if found to have failed of their essential purpose.
7. INDEMNIFICATION.
7.1 Exodus' Indemnification of Customer. Exodus will indemnify, defend and
hold Customer harmless from and against any and all costs, liabilities, losses,
and expenses (including, but not limited to, reasonable attorneys' fees)
(collectively, "Losses") resulting from any claim, suit, action, or proceeding
(each, an "Action") brought against Customer alleging (i) the infringement of
any third party registered U.S. copyright or issued U.S. patent resulting from
the provision of Internet Data Center Services pursuant to this Agreement (but
excluding any infringement contributorily caused by Customer's Business or
Customer Equipment) and (ii) personal injury to Customer's Representative from
Exodus' gross negligence or willful misconduct.
7.2 Customer's Indemnification of Exodus. Customer will indemnify, defend
and hold Exodus, its affiliates and customers harmless from and against any
and all Losses resulting from or arising out of any Action brought by or
against Exodus, its affiliates or customers alleging: (a) with respect to the
Customer's Business: (i) infringement or misappropriation of any intellectual
property rights; (ii) defamation, libel, slander, obscenity, pornography, or
violation of the rights of privacy or publicity; or (iii) spamming, or any
other offensive, harassing or illegal conduct or violation of the Rules and
Regulations; (b) any damage or destruction to the Customer Area, the Internet
Data Centers or the equipment of Exodus or any other customer by Customer or
Representative(s) or Customer's designees; or (c) any other damage arising from
the Customer Equipment or Customer's Business.
PAGE 2
<PAGE> 3
7.3 Notice. Each party will provide the other party prompt written
notice upon of the existence of any such event of which it becomes aware, and
an opportunity to participate in the defense thereof.
8. TERM AND TERMINATION.
8.1 Term. This Agreement will be effective for a period of one (1) year
from the Installation Date, unless earlier terminated according to the
provisions of this Section 8. The Agreement will automatically renew for
additional terms of one (1) year each.
8.2 Termination.
(a) For Convenience.
(i) By Customer During First Thirty Days. Customer may terminate this
Agreement for convenience by providing written notice to Exodus at any time
during the thirty (30) day period beginning on the Installation Date.
(ii) By Either Party. Either party may terminate this Agreement for
convenience at any time effective after the first (1st) anniversary of the
Installation Date by providing ninety (90) days' prior written notice to the
other party at any time thereafter.
(b) For Cause. Either will have the right to terminate this Agreement if:
(i) the other party breaches any material term or condition of this Agreement
and fails to cure such breach within thirty (30) days after receipt of written
notice of the same, except in the case of failure to pay fees, which must be
cured within five (5) days after receipt of written notice from Exodus; (ii)
the other party becomes the subject of a voluntary petition in bankruptcy or
any voluntary proceeding relating to insolvency, receivership, liquidation, or
composition for the benefit of creditors; or (iii) the other party becomes the
subject of an involuntary petition in bankruptcy or any involuntary proceeding
relating to insolvency, receivership, liquidation, or composition for the
benefit of creditors, if such petition or proceeding is not dismissed within
sixty (60) days of filing.
8.3 No Liability for Termination. Neither party will be liable to the
other for any termination or expiration of this Agreement in accordance with
its terms.
8.4 Effect of Termination. Upon the effective date of expiration or
termination of this Agreement: (a) Exodus will immediately cease providing the
Internet Data Center Services; (b) any and all payment obligations of Customer
under this Agreement will become due immediately; (c) within thirty (30) days
after such expiration or termination, each party will return all Confidential
Information of the other party in its possession at the time of expiration or
termination and will not make or retain any copies of such Confidential
Information except as required to comply with any applicable legal or
accounting record keeping requirements; and (d) Customer will remove from the
Internet Data Centers all Customer Equipment and any of its other property
within the Internet Data Centers within five (5) days of such expiration or
termination and return the Customer Area to Exodus in the same condition as it
was on the Installation Date, normal wear and tear excepted. If Customer does
not remove such property within such five-day period, Exodus will have the
option to (i) move any and all such property to secure storage and charge
Customer for the cost of such removal and storage, and/or (ii) liquidate the
property in any reasonable manner.
8.5 Customer Equipment as Security. In the event that Customer fails to
pay Exodus all amounts owed Exodus under this Agreement when due, Customer
Agrees that upon written notice, Exodus may take possession of any Customer
Equipment and store it, at Customer's expense, until taken in full or partial
satisfaction of any lien or judgment, all without being liable to prosecution
or for damages.
8.6 Survival. The following provisions will survive any expiration or
termination of the Agreement: Sections 2, 3, 4, 5, 6, 7, 8 and 9.
9. MISCELLANEOUS PROVISIONS.
9.1 Force Majeure. Except for the obligations to pay money, neither party
will be liable for any failure or delay in its performance under this Agreement
due to any cause beyond its reasonable control, including act of war, acts of
God, earthquake, flood, embargo, riot, sabotage, labor shortage or dispute,
governmental act or failure of the Internet, provided that the delayed party:
(a) gives the other party prompt notice of such cause, and (b) uses its
reasonable commercial efforts to correct promptly such failure or delay in
performance.
9.2 No Lease. This Agreement is a services agreement and is not intended
to and will not constitute a lease of any real or personal property. Customer
acknowledges and agrees that (i) it has been granted only a license to occupy
the Customer Space and use the Internet Data Centers and any equipment provided
by Exodus in accordance with this Agreement, (ii) Customer has not been granted
any real property interest in the Customer Space or Internet Data Centers, and
(iii) Customer has no rights as a tenant or otherwise under any real property
or landlord/tenant laws, regulations, or ordinances. For good cause, including
the exercise of any rights under Section 8.5 above, Exodus may suspend the
right of any Representative or other person to visit the Internet Data Centers.
9.3 Marketing. Customer agrees that Exodus may refer to Customer by trade
name and trademark, and may briefly describe Customer's Business, in Exodus'
marketing materials and web site. Customer hereby grants Exodus a license to
use any Customer trade names and trademarks solely in connection with the
rights granted to Exodus pursuant to this Section 9.3.
9.4 Government Regulations. Customer will not export, re-export,
transfer, or make available, whether directly or indirectly, any regulated
item or information to anyone outside the U.S. in connection with this
Agreement without first complying with all export control laws and regulations
which may be imposed by the U.S. Government and any country or organization of
nations within whose jurisdiction Customer operates or does business.
9.5 Non-Solicitation. During the period beginning on the Installation
Date and ending on the first anniversary of the termination or expiration of
this Agreement in accordance with its terms, Customer agrees that it will not,
and will ensure that its affiliates do not, directly or indirectly, solicit or
attempt to solicit for employment any persons employed by Exodus during such
period.
9.6 Governing Law, Dispute Resolution, Severability, Waiver. This
Agreement is made under and will be governed by and construed in accordance
with the laws of the State of California (except that body of law controlling
conflicts of law) and specifically excluding from application to this Agreement
that law known as the United Nations Convention on the International Sale of
Goods. Any dispute relating to the terms, interpretation or performance of this
Agreement (other than claims for preliminary injunctive relief or other
pre-judgment remedies) will be resolved at the request of either party through
binding arbitration. Arbitration will be conducted in Santa Clara County,
California, under the rules and procedures of the Judicial Arbitration and
Mediation Society ("JAMS"). The parties will request that JAMS appoint a single
arbitrator possessing knowledge of online services agreements; however, the
arbitration will proceed even if such a person is unavailable. In the event any
provision of this Agreement is held by a tribunal of competent jurisdiction to
be contrary to the law, the remaining provisions of this Agreement will remain
in full force and effect. The waiver of any breach or default of this Agreement
will not constitute a waiver of any subsequent breach or default, and will not
act to amend or negate the rights of the waiving party.
9.7 Assignment; Notices. Customer may not assign its rights or delegate
its duties under this Agreement either in whole or in part without the prior
written consent of Exodus, except that Customer may assign this Agreement in
whole as part of a corporate reorganization, consolidation, merger, or sale of
substantially all of its assets. Any attempted assignment or delegation without
such consent will be void. Exodus may assign this Agreement in whole or part.
This Agreement will bind and inure to the benefit of each party's successors
and permitted assigns. Any notice or communication required or permitted to be
given hereunder may be delivered by hand, deposited with an overnight courier,
sent by confirmed facsimile, or mailed by registered or certified mail, return
receipt requested, postage prepaid, in each case to the address as may
hereafter be furnished in writing by either party hereto to the other. Such
notice will be deemed to have been given as of the date it is delivered, mailed
or sent, whichever is earlier.
9.8 Relationship of Parties. Exodus and Customer are independent
contractors and this Agreement will not establish any relationship of
partnership, joint venture, employment, franchise or agency between Exodus and
Customer. Neither Exodus nor Customer will have the power to bind the other or
incur obligations on the other's behalf without the other's prior written
consent, except as otherwise expressly provided herein.
9.9 Entire Agreement; Counterparts. This Agreement, including all
documents incorporated herein by reference, constitutes the complete and
exclusive agreement between the parties with respect to the subject matter
hereof, and supersedes and replaces and all prior or contemporaneous
discussions, negotiations, understandings and agreements, written and oral,
regarding such subject matter. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original, but all of which
together shall contribute one and the same instrument.
Customer's and Exodus' authorized representatives have read the foregoing and
all documents incorporated therein and agree and accept such terms effective as
of the date first above written.
CUSTOMER EXODUS COMMUNICATIONS, INC.
Signature: /s/ GLEN C. HOLMES Signature:
--------------------------- ---------------------------
Print Name: Glen C. Holmes Print Name:
-------------------------- --------------------------
Title: President Title:
-------------------------- --------------------------
PAGE 3
<PAGE> 1
EXHIBIT 10.38
[EMC2 LOGO]
EMC CORPORATION
SOFTWARE LICENSE AGREEMENT
This Software License Agreement ("Agreement") dated the _____ day of __________
199__ is between EMC Corporation, identified herein as "EMC", and FUTURELINK
CORP., identified herein as "Customer". The parties hereby agree to the
following terms and conditions:
1. DEFINITIONS
Acceptance: Acceptance for Software shall occur seven (7) days after shipment
of such Software by EMC.
Core Software: EMC microcode and firmware that enable a Designated EMC System to
perform the basic storage functions. Core Software does not include any
Enterprise Storage Software.
Designated EMC System: The storage system owned by Customer at the Designated
Site identified by the serial number set forth on the storage system cabinet.
Designated Site: Customer's facility where the Heat CPU or Designated EMC
System is located.
Enterprise Storage Software: Software separately identified by EMC other than
Care Software and Maintenance Aids, which consists of:
I. Host-based Software: Software that is licensed for use on one or more
Host CPUs, as designated by EMC.
II. System-based Software: Software that is licensed for use on the
Designated EMC System and, if applicable, one or more Host CPUs, as designated
by EMC.
Host CPU: A central processing unit designated by Customer for operation with
the Designated EMC System.
Maintenance Aids: Hardware, software and other aids used by EMC in furnishing
Maintenance Services.
Maintenance Services: Maintenance services for Core Software and Enterprise
Storage Software provided under this Agreement.
Software: Core Software, Enterprise Storage Software and any other software
licensed by EMC as Customer. Software does not include Maintenance Aids.
Software Release: New versions by EMC consisting of:
I. Maintenance Release: A new version of Software that includes
corrections, updates and minor modifications to existing features.
II. New Release: A new version of Software that expands or extends
currently existing features, functions or capabilities.
III. New Version: A new revision of Software that includes substantial new
features, functions or capabilities.
2. SOFTWARE LICENSE
(1). EMC Grants to customer a non-exclusive, non-transferable license to use the
Software solely in conjunction with the Designated EMC System or Host CPU, as
applicable, for which the Software was licensed, provided Customer pays all
applicable one-time and annual usage fees in accordance with the provisions of
this Agreement.
(2). Customer shall not, without EMC's prior written consent, provide, disclose
or otherwise make available Software in any form to any person other than
Customer's employees, independent contractors or consultants who shall use the
Software solely for Customer's internal business purposes in a manner
consistent with this Agreement. Customer shall be fully responsible to EMC for
the actions of its employees, independent contractors and consultants.
(3). Customer may make one copy of the Software for back-up and archival
purposes for use only in the case of a malfunction of Software, EMC Designated
System or Host CPU, as applicable.
(4). Customer may, only after written notice to EMC, change the location of a
Designated EMC System or Host CPU upon which the licensed Software is used to a
replacement location. If Customer moves the Software to another Designated EMC
System or Host CPU which has a different model number than the originally
Designated EMC System or Host CPU, Customer agrees to pay, if applicable, an
upgrade fee based on EMC's then-current price and upgrade policy and, at the
next support anniversary date, agrees to pay applicable fees based upon the
replacement model number.
(5). If Customer is granted a license to use Software in conjunction with a
Statement of Work (a "Project License"), Customer shall have a non-transferable
right to use the Software only for the purposes of conducting a specific
project under such Statement of Work. The Project License term shall be for one
(1) year or the completion of the project, whichever occurs first.
(6). Customer shall not use the Software on any device other than the
Designated EMC System or Host CPU, as applicable, except that the Enterprise
Storage Software may be temporarily transferred to a replacement Designated EMC
System or Host CPU, as applicable (and deleted from the original Designated EMC
System or Host CPU) if the Designated EMC System or Host CPU is inoperable due
to malfunction or initiation of a disaster recovery program or if the
Designated EMC System or Host CPU is otherwise not able to use the Enterprise
Storage Software.
(7). Ownership: no title to, or ownership of, the Software is transferred to
Customer, and any references to "sale" or "purchase", with respect to the
Software, shall be deemed to mean "license on the terms contained in this
Agreement." Customer shall reproduce and include EMC's copyright and other
proprietary notices on and in any copies, including but not limited to partial,
physical or electronic copies of the Software. Neither Customer nor any of its
agents, independent contractors or consultants shall modify, enhance,
supplement, create derivative works from, reverse assemble, reverse engineer,
reverse compile or otherwise reduce the Software to human readable form without
EMC's prior written consent. If Customer requires access to the source code of
the software in order to achieve interoperability of the Software with other
software in the European Union or Norway, Customer shall provide EMC with
written notice. EMC can then decide either (I) to perform the work in order to
achieve such interoperability and charge EMC's then-current rates for such work
to Customer, or (II) to permit Customer to reverse engineer parts of the
Software in order to attain such source code, but only to the extent necessary
to achieve such interoperability. Customer shall promptly report to EMC any
violation of this clause and shall take such further steps as may be reasonably
requested by EMC to remedy any such violation and to prevent future violations.
(8). Secondary Purchaser. Customer's right to use the Software may not be
assigned, sublicensed or otherwise transferred; provided however, that if
Customer sells or transfers the Designated EMC System, EMC shall offer to
license the Core Software and to render Equipment and Core Software Maintenance
Services to any bona fide end user (hereinafter "Secondary Purchaser") to whom
Customer has transferred the Designated EMC System pursuant to EMC's
then-current standard terms and conditions, so long as such Secondary Purchaser
is not deemed, in EMC's reasonable discretion, to be a competitor of EMC's.
Whenever the Core Software is licensed to a Secondary Purchaser in accordance
with this Paragraph, EMC shall offer to provide de-installation services for
Customer and re-installation and certification for Equipment and Core Software
Maintenance Services for the Secondary Purchaser at EMC's then-current
applicable rates.
(9). Software Releases: EMC shall provide Software Releases as part of
Maintenance Services. A Software Release does not include new Software
products. A Software Release is treated as Software and is covered by the
license to the original Software.
(10). Maintenance Aids: Maintenance Aids (including diagnostic tools) for
aiding the provision of Maintenance Services are owned by EMC and provided at
Customer's site for use by EMC's personnel. Customer agrees to use its best
efforts to prevent the unauthorized use or disclosure of Maintenance Aids.
Customer will not allow copies to be made of any Maintenance Aids. Customer
further agrees to allow EMC, upon reasonable notice, to enter the Designated
Site(s) to remove Maintenance Aids. Nothing hereunder grants to Customer a
license to make use of Maintenance Aids in any way.
3. PATENTS AND COPYRIGHTS
(1). If Customer notifies EMC promptly in writing of any action (and all prior
related orders) brought against Customer alleging that Customer's use of any
Software or his receipt of any Service infringes a valid patent or copyright,
EMC will defend that action at its expense and will pay the costs and damages
awarded against Customer in the action, provided (i) that EMC shall have sole
control of the defense of any such action and negotiations for its settlement or
compromise and (ii) Customer provides all reasonable assistance requested by
EMC. If a permanent injunction is obtained in such action against Customer's use
or receipt of such Software or if in EMC's opinion such Software is likely to
become the subject of a permanent injunction, EMC will at its option and
expense, either procure for customer the right to continue using or receiving
such Software, replace or modify such Software as then it becomes non-infringing
or pay Customer's refund based on a straight line depreciation of the price of
such Software over five (5) years upon return of the Software to EMC or refund
the unused amounts paid to EMC for discontinued Maintenance Services, as the
case may be.
(2). EMC shall have no liability to Customer if the alleged infringement is
based on (i) use, sale or receipt of any of the Software in combination with
other equipment, software or services not sold to Customer by EMC; (ii) use of
any of the Software in a manner or for a purpose for which they were not
designed; (iii) use of the Software, when use of a Software Release which EMC
has made commercially available would have avoided such infringement; (iv) any
modification to any of the Software not made by EMC.
1
<PAGE> 2
or any modifications to any of the Software made by EMC pursuant to Customer's
specific instructions; or (v) any intellectual property right owned or licensed
by Customer or any of its Affiliates.
(3). THIS PATENTS AND COPYRIGHTS SECTION STATES EMC'S ENTIRE LIABILITY WITH
RESPECT TO ANY ALLEGED INFRINGEMENTS OF PATENTS, COPYRIGHTS AND OTHER
INTELLECTUAL PROPERTY RIGHTS BY THE SOFTWARE OR ANY PART OF THEM OR BY THEIR
OPERATION, USE OR RECEIPT.
4. WARRANTY
(1). Warranty for Software
(a). EMC warrants that the Core Software shall be free from material defects in
materials and workmanship and that the Core Software shall perform substantially
in accordance with EMC's written specifications for such Core Software for two
(2) years from Acceptance, under normal use and regular recommended service.
(b). EMC warrants that the Enterprise Storage Software shall, under normal use,
perform substantially in accordance with EMC's written specifications for such
Enterprise Storage Software. The warranty period for Enterprise Storage
Software shall be for a period of ninety (90) days from Acceptance.
(c). EMC's entire liability and Customer's exclusive remedy under the above two
warranties described in two preceding paragraphs shall be for EMC to use
reasonable efforts to remedy material defects covered by these warranties
within a reasonable period of time or, at EMC's option, either to replace the
non-conforming Software or to refund the amount paid by Customer for such
Software, as depreciated on a straight line basis over a five (5) year period
upon return of such Software to EMC. EMC does not warrant that the operation of
the Software will be uninterrupted or error free, or that all Software defects
can be corrected. Customer shall return the replaced Software to EMC upon EMC's
request.
(2). The warranties described above do not include efforts to remedy, repair or
replace as a result of: (i) accident or neglect; (ii) problems relating to or
residing in other hardware, software or services with which the Software is
used; (iii) installation of the Software not in accordance with EMC's
instructions or specifications; (iv) use of the Software in an environment, in
a manner or for a purpose for which it was not designed; and (v) installation,
modification, alteration or repair of the Equipment or the Software by anyone
other than EMC or its authorized representatives.
(3). Disclaimer of Warranties: EXCEPT AS EXPRESSLY STATED IN THIS WARRANTY
SECTION, EMC MAKES NO WARRANTIES, EXPRESS OR IMPLIED, WRITTEN OR ORAL, BY
OPERATION OF LAW OR OTHERWISE, OF ANY SOFTWARE FURNISHED UNDER OR IN CONNECTION
WITH THIS AGREEMENT. EMC DISCLAIMS ALL IMPLIED WARRANTIES OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE, TITLE, OR NON-INFRINGEMENT AND THOSE ARISING
BY STATUTE OR OTHERWISE IN LAW OR FROM A COURSE OF DEALING OR USAGE OF TRADE.
5. MAINTENANCE SERVICES
(1). Warranty Period: Maintenance Services shall be provided at no additional
cost during the respective warranty periods for (i) Core Software and (ii)
licensed Enterprise Storage Software.
(2). Automatic Enrollment: After the warranty period ends for Core Software,
Customer shall be automatically enrolled for continued Core Software Maintenance
Services for such Core Software and invoiced accordingly; provided Customer may
decline such automatic enrollment in writing sixty (60) days prior to the end
of the applicable warranty or continued support period. Customer shall be
enrolled for Enterprise Storage Software Maintenance Services for so long as
Customer maintains its right to use Enterprise Storage Software pursuant to
this Agreement.
(3). Support Procedures: Customer shall designate in writing a reasonable
number of authorized contacts, as determined by Customer and EMC ("Support
Contacts"), who shall initially report problems and receive support from EMC
hereunder. A change to the authorized Support Contacts by Customer must be
submitted in writing to EMC by one of Customer's duly authorized
representatives.
(4). Continuous Support: Core Software Maintenance Services shall be subject to
the terms of this Agreement and shall include (a) EMC keeping the Core Software
in good operating condition in conformance with applicable specifications,
which includes remedial maintenance and the installation of engineering changes
deemed necessary by EMC; (b) 24-hour English-language help line service, seven
days per week, via telephone or other electronic media; (c) Maintenance
Releases and New Releases; (d) documentation updates, as they become
available; and (e) replacement of the Core Software at no charge if the media
becomes destroyed or damaged so that such Core Software becomes unusable.
(5). Non-continuous Support: In the event the Core Software was not maintained
by EMC immediately prior to Customer's order, Core Software Maintenance
Services will commence upon EMC's certification that the Core Software is in
good operating condition. Efforts to make such a certification shall be at
EMC's then-current rates for such certification services. Customer shall also
be invoiced for all applicable fees.
(6). Enterprise Storage Software Support: Enterprise Storage Software
Maintenance Services shall be subject to the terms of this Agreement and shall
include the following: (a) 24-hour English-language help line service, seven
days per week, via telephone or other electronic media; (b) Software Release;
(c) documentation updates, as they become available; and (d) replacement of the
Enterprise Storage Software at no charge if the media becomes destroyed or
damaged so that such Software becomes unusable.
(7). Limitations On Maintenance Services and Warranties: EMC shall not be
required to support any releases of any Software other than the current release
and the immediately prior release of such Software.
6. TERMINATION
EMC shall have the right to terminate without liability any of Customer's
licenses to the Software granted pursuant to this Agreement (a) if Customer
fails to comply with the terms and conditions of this Agreement and then fails
to cure such failure within thirty (30) days after receiving written notice
thereof from EMC, or (b) if Customer fails to pay applicable fees. Upon notice
of termination, Customer shall immediately cease to use all copies of the
terminated Software, and shall return or destroy, and certify destruction of,
the terminated Software and all portions and copies thereof.
7. DISCLAIMER AND LIMITATIONS OF LIABILITY
(1). EXCEPT AS IS PROVIDED IN THE PATENTS AND COPYRIGHTS SECTION OF THIS
AGREEMENT, EMC'S LIABILITY ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT,
THE LICENSE OF SOFTWARE, THE PROVISION OF SERVICES AND THE USE, PERFORMANCE,
RECEIPT OR DISPOSITION OF SUCH SOFTWARE OR SERVICES, WHETHER BASED UPON
WARRANTY, CONTRACT, TORT OR OTHERWISE, SHALL NOT EXCEED THE LESSER OF THE
ACTUAL AMOUNTS PAID BY CUSTOMER (OTHER THAN REIMBURSEMENT OF EMC'S EXPENSES)
FOR SUCH SOFTWARE AND/OR SERVICES DURING THE IMMEDIATELY PRECEDING 12 MONTH
PERIOD OR ONE MILLION US DOLLARS ($1,000,000). EMC'S LIABILITY FOR DAMAGES
SHALL BE LIMITED TO DAMAGES CAUSED BY EMC'S SOLE NEGLIGENCE, AND IS FURTHER
LIMITED BY THE WARRANTY SECTION OF THIS AGREEMENT. CUSTOMER WAIVES THE RIGHT TO
BRING ANY CLAIM ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT MORE THAN
EIGHTEEN MONTHS AFTER THE CAUSE OF ACTION UPON WHICH THE CLAIM IS BASED.
(2). IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR SPECIAL,
INCIDENTAL, CONSEQUENTIAL, OR EXEMPLARY DAMAGES (INCLUDING, BUT NOT LIMITED TO,
LOSS OF PROFITS, LOSS OF DATA OR LOSS OF USE DAMAGES) ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES OR LOSSES.
8. GOVERNING LAW:
This Agreement shall be governed, interpreted and construed in accordance with
the laws of the Commonwealth of Massachusetts, U.S.A., excluding its conflict
of laws rules.
Signed by authorized representatives of both parties.
FUTURELINK CORP.
EMC CORPORATION ----------------------------------
("EMC") ("Customer")
/s/ RADPURATH KILAMBI
- ---------------------------------- ----------------------------------
Signature Signature
Radpurath Kilambi
- ---------------------------------- ----------------------------------
Printed Name Printed Name
Executive VP & C.F.O.
- ---------------------------------- ----------------------------------
Title Title
2
<PAGE> 1
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our report dated
November 16, 1999 (except for Note 21 (g) as to which the date is January 13,
2000, and Notes 21(h) and (i) as to which the date is February 11, 2000), in the
Registration Statement (Form SB-2) and related Prospectus of FutureLink Corp.
dated February 11, 2000.
/s/ ERNST & YOUNG LLP
--------------------------------------
Chartered Accountants
Calgary, Canada
February 4, 2000
<PAGE> 1
EXHIBIT 23.3
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated November 17, 1999, with respect to the financial
statements of Executive LAN Management, Inc., dba Micro Visions included in the
Registration Statement (Form SB-2) and related Prospectus of FutureLink
Corporation dated February 11, 2000.
/s/ ERNST & YOUNG LLP
Orange County, California
February 10, 2000
<PAGE> 1
EXHIBIT 23.4
CONSENT OF MORELAND & DAVIS, CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated August 30, 1999, with respect to the financial
statements of CN Networks, Inc., included in the Registration Statement (Form
SB-2) and related Prospectus of FutureLink Corp. dated February 11, 2000.
MORELAND & DAVIS
Livermore, California
February 10, 2000
<PAGE> 1
EXHIBIT 23.5
CONSENT OF M. JEVAHIRIAN & CO., INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 3, 2000, with respect to the combined
financial statements of Async Technologies, Inc. and Async Technical Institute,
Inc. included in the Registration Statement (Form SB-2) and related Prospectus
of FutureLink Corporation dated February 11, 2000.
/s/ M. JEVAHIRIAN & CO.
February 9, 2000
<PAGE> 1
EXHIBIT 23.6
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated December 17, 1999 with respect to the combined
financial statements of KNS Holdings Limited included in the Registration
Statement (Form SB-2) and related Prospectus of FutureLink Corporation dated
February 11, 2000.
/s/ ERNST & YOUNG
Reading, England
February 4, 2000
<PAGE> 1
EXHIBIT 23.7
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 7, 2000, with respect to the financial
statements of Vertical Software, Inc. included in the Registration Statement
(Form SB-2) related Prospectus of FutureLink Corporation dated February 11,
2000.
/s/ ERNST & YOUNG LLP
McLean, Virginia
February 4, 2000
<PAGE> 1
EXHIBIT 23.8
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 27, 2000, with respect to the financial
statements of Microlan Systems, Inc. "DBA" Madison Technology Group included in
the Registration Statement (Form SB-2) and related Prospectus of FutureLink
Corporation dated February 11, 2000.
JOEL E. SAMMET & CO.
New York, New York 10005
February 10, 2000
<PAGE> 2
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 27, 2000, with respect to the financial
statements of Madison Consulting Resources, Inc. included in the Registration
Statement (Form SB-2) and related Prospectus of FutureLink Corporation dated
February 11, 2000.
JOEL E. SAMMET & CO.
New York, New York 10005
February 10, 2000
<PAGE> 3
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 27, 2000, with respect to the financial
statements of Madison Consulting Resources N.J., Inc. included in the
Registration Statement (Form SB-2) and related Prospectus of FutureLink
Corporation dated February 11, 2000.
JOEL E. SAMMET & CO.
New York, New York 10005
February 10, 2000
<PAGE> 1
EXHIBIT 23.9
CONSENT OF BDO DUNWOODY LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 31, 2000, with respect to the financial
statements of Charon Systems Inc. included in the Registration Statement (Form
SB-2) and related Prospectus of FutureLink Corporation dated February 11, 2000.
Markham, Ontario
February 8, 2000
