UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------
SCHEDULE 13D/A
(Rule 13d-101)
INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT
TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO
RULE 13d-2(a)
(Amendment No. 1)
FutureLink Distribution Corp.
- --------------------------------------------------------------------------------
(Name of Issuer)
Common Stock, par value $.0005 per share
- --------------------------------------------------------------------------------
(Title of Class of Securities)
361142 10 9
- --------------------------------------------------------------------------------
(CUSIP Number)
Bruce Glaser, 830 Third Avenue, Fourth Floor, New York, NY 10022
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
July 19, 1999
- --------------------------------------------------------------------------------
(Date of Event Which Requires Filing of This Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition that is the subject of this Schedule 13D, and is filing
this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the
following box |_|.
Note. Schedules filed in paper format shall include a signed
original and five copies of the schedule, including all exhibits. See Rule
13d-7(b) for other parties to whom copies are to be sent.
(Continued on following pages)
(Page 1 of 81 Pages)
- ----------
(1) The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which would
alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
<PAGE>
CUSIP No. 361142 10 9 SCHEDULE 13D Page 2 of 81 Pages
- --------------------------------------------------------------------------------
1 NAMES OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Commonwealth Associates L.P.
13-3467952
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) |_|
(b) |_|
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
WC
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEM 2(d) or 2(e) |_|
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
New York
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
--------------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES
BENEFICIALLY 2,715,545
OWNED BY --------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON
WITH --------------------------------------------------------
10 SHARED DISPOSITIVE POWER
2,715,545
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,715,545
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* |_|
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
30.4%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
PN
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
CUSIP No. 361142 10 9 SCHEDULE 13D Page 3 of 81 Pages
- --------------------------------------------------------------------------------
1 NAMES OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Commonwealth Associates Management Corp.
13-3468747
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) |_|
(b) |_|
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEM 2(d) or 2(e) |_|
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
New York
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
--------------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES
BENEFICIALLY 2,715,545
OWNED BY --------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON
WITH --------------------------------------------------------
10 SHARED DISPOSITIVE POWER
2,715,545
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,715,545
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* |_|
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
30.4%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
CO
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
CUSIP No. 361142 10 9 SCHEDULE 13D Page 4 of 81 Pages
- --------------------------------------------------------------------------------
1 NAMES OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Michael S. Falk
###-##-####
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) |_|
(b) |_|
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
PF
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEM 2(d) or 2(e) |_|
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
USA
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
978,027
--------------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES
BENEFICIALLY 2,715,545
OWNED BY --------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON 978,027
WITH --------------------------------------------------------
10 SHARED DISPOSITIVE POWER
2,715,545
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
3,693,572
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* |_|
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
37.3%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
CUSIP No. 361142 10 9 SCHEDULE 13D Page 5 of 81 Pages
- --------------------------------------------------------------------------------
1 NAMES OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Robert Priddy
###-##-####
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) |_|
(b) |_|
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
PF
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEM 2(d) or 2(e) |_|
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
USA
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
1,000,000
--------------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES
BENEFICIALLY 2,715,545
OWNED BY --------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON 1,000,000
WITH --------------------------------------------------------
10 SHARED DISPOSITIVE POWER
2,715,545
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
3,715,545
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* |_|
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
37.4%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
CUSIP No. 361142 10 9 SCHEDULE 13D Page 6 of 81 Pages
- --------------------------------------------------------------------------------
1 NAMES OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Keith Rosenbloom
###-##-####
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) |_|
(b) |_|
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
PF
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEM 2(d) or 2(e) |_|
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
USA
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
255,968
--------------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES
BENEFICIALLY 2,715,545
OWNED BY --------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON 255,968
WITH --------------------------------------------------------
10 SHARED DISPOSITIVE POWER
2,715,545
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,971,513
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* |_|
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
32.4%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
CUSIP No. 361142 10 9 SCHEDULE 13D Page 7 of 81 Pages
- --------------------------------------------------------------------------------
1 NAMES OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Basil Ascuitto
###-##-####
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) |_|
(b) |_|
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
PF
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEM 2(d) or 2(e) |_|
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
USA
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
20,000
--------------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES
BENEFICIALLY 2,715,545
OWNED BY --------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON 20,000
WITH --------------------------------------------------------
10 SHARED DISPOSITIVE POWER
2,715,545
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,735,545
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* |_|
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
30.6%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
Page 8 of 81 Pages
Item 1. Security and Issuer.
This statement relates to the common stock, par value $.0005 per share
("Common Stock"), of FutureLink Distribution Corp., a Colorado
corporation (the "Company"). The address of the Company's principal
executive office is 300, 250 6th Avenue, S.W., Calgary, Alberta, Canada
T2P 3H7.
The shares of Common Stock that are the subject of this statement were
purchased on the open market, or are issuable either:
(A)(i) upon conversion of convertible promissory notes (the "Notes")
issued by the Company in a private placement completed in May 1999 (the
"Private Placement"), at a conversion rate of $1.00 per share, (ii) upon
exercise of seven-year warrants (the "Private Placement Warrants") issued
in connection with the aforementioned private placement which have an
exercise price of $1.25 per share, or (iii) upon exercise of seven-year
warrants (the "Agent's Warrants") issued as placement agent compensation
which have an exercise price of $1.25 per share, or
(B)(i) upon exercise of two-year warrants (the "Bridge Warrants") issued
by the Company in a private placement completed in July 1999 (the "Bridge
Financing"), which have an exercise price of $8.50 per share, or (ii)
upon exercise of two-year warrants (the "Agent's Bridge Warrants") issued
as placement agent compensation which have an exercise price of $8.50 per
share.
Certain of the foregoing conversion and exercise prices reflect
adjustments which were made subsequent to the date of issuance and such
prices are subject to further adjustment in certain instances.
Item 2. Identity and Background.
This statement is filed jointly by Commonwealth Associates L.P.
("Commonwealth"), a limited partnership organized under the laws of New
York, whose principal business is investment banking and advisory
services, Commonwealth Associates Management Corp., the corporate general
partner of Commonwealth ("CAMC"), Michael S. Falk, the Chairman and
controlling equity owner of CAMC, Robert Priddy, a director and
shareholder of CAMC, and Keith Rosenbloom and Basil Ascuitto, employees,
directors and shareholders of CAMC (the "Reporting Persons").
The officers of CAMC (the "CAMC Officers"), all of whom are U.S.
citizens, are:
Michael Falk Chief Executive Officer
Bruce Glaser Chief Administrative Officer
Joseph Wynne Chief Financial Officer
Basil Ascuitto Chief Operating Officer
<PAGE>
Page 9 of 81 Pages
The business address for all of the Reporting Persons other than Mr.
Priddy is 830 Third Avenue, 4th Floor, New York, New York 10022. Mr.
Priddy is a principal of RMC Capital, 1640 Powers Ferry, Suite 125,
Marietta, Georgia 30067, an investment firm.
During the past five years, none of the Reporting Persons or CAMC
Officers has been convicted in a criminal proceeding or been a party to a
civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding, was or is subject to a
judgment, decree or final order enjoining future violations of, or
prohibiting or mandating activities subject to, federal or state
securities laws or finding any violation with respect to such laws.
Item 3. Source and Amount of Funds or Other Consideration.
Mr. Priddy purchased an aggregate of 100,000 shares of common stock on
the open market (the "Open Market Shares") in June 1999, for an aggregate
price of $778,284.15, which amount was provided by Mr. Priddy from
personal funds.
Commonwealth acquired the Agent's Warrants in April and May 1999 for a
nominal purchase price with funds provided from working capital pursuant
to an Agency Agreement dated as of April 14, 1999 with the Company (the
"Agency Agreement") filed as Exhibit (1) to the Schedule 13D filed by the
Reporting Persons on May 14, 1999, pursuant to which Commonwealth acted
as placement agent in connection with the Private Placement of units,
each consisting of $50,000 principal amount of Notes and 25,000 Private
Placement Warrants (as adjusted). In no case were any funds borrowed. The
Agent's Warrants were distributed by Commonwealth among its employees,
including the Reporting Persons (other than Mr. Priddy). The Reporting
Persons currently hold an aggregate of 2,855,265 Agent's Warrants.
Commonwealth, Mr. Falk, Mr. Priddy, Mr. Rosenbloom and Mr. Asciutto
purchased an aggregate of $1,075,000 principal amount of Notes and
512,500 Private Placement Warrants (as adjusted) as investors in the
Private Placement for an aggregate purchase price of $1,075,000, which
amount was provided by Commonwealth from its working capital and by
Messrs. Falk, Priddy, Rosenbloom and Asciutto from personal funds.
Commonwealth acquired the Agent's Bridge Warrants in July 1999 for a
nominal purchase price with funds provided from working capital, pursuant
to an Agency Agreement dated as of July 1, 1999 with the Company (the
"Bridge Agency Agreement") filed as Exhibit (1) hereto, pursuant to which
Commonwealth acted as placement agent in connection with the Bridge
Financing of units, each consisting of $250,000 principal amount of
convertible promissory notes (the "Bridge Notes") (which are not
currently convertible), and 37,500 Bridge Warrants. In no case were any
funds borrowed. The Agent's Bridge Warrants will distributed by
Commonwealth among its employees, including the Reporting Persons (other
than Mr. Priddy). Commonwealth currently holds an aggregate of 225,000
Agent's Bridge Warrants.
Commonwealth, Mr. Falk and Mr. Priddy purchased an aggregate of
$1,178,500 principal amount of Bridge Notes and 176,775 Bridge Warrants
as investors in the Bridge Financing for an aggregate purchase price of
$1,178,500, which amount was provided by Commonwealth from its working
capital and by Messrs. Falk and Priddy from personal funds.
<PAGE>
Page 10 of 81 Pages
Item 4. Purpose of Transaction.
The Agent's Warrants and Agent's Bridge Warrants were acquired by the
Reporting Persons as compensation for services rendered in connection
with the Private Placement and the Bridge Financing, respectively, solely
for investment purposes and not for the purpose of acquiring control of
the Company. The Open Market Shares, Notes, Private Placement Warrants,
Bridge Notes and Bridge Warrants were acquired to make a profitable
investment.
Pursuant to the Agency Agreement, Commonwealth has the right until April
29, 2001 to designate a nominee to the Company's Board of Directors.
Commonwealth has the right to immediately appoint a majority of the Board
if the Company fails to repay the Notes when due. In addition, the Agency
Agreement contains restrictions on the Company's ability, while the Notes
are outstanding, to amend its by-laws with shareholder approval and
approval of the holders of a majority of the Notes issued in the Private
Placement.
Other than as set forth above, the Reporting Persons have no present
plans or proposals which relate to, or could result in, any of the
matters referred to in paragraphs (a) through (j), inclusive, of Item 4
of Schedule 13D. The Reporting Persons may, at any time and from time to
time, review or reconsider their position and formulate plans or
proposals with respect thereto, but have no present intention of doing
so.
Item 5. Interest in Securities of the Issuer.
(a)(1) Commonwealth is the beneficial owner of an aggregate of 2,715,545 shares
of Common Stock, representing approximately 30.4% of the issued and
outstanding shares of Common Stock of the Company. Commonwealth's
holdings include the right to acquire (i) 2,021,270 shares issuable upon
exercise of Agent's Warrants, (ii) 300,000 shares issuable upon
conversion of Notes, (iii) 150,000 shares issuable upon exercise of
Private Placement Warrants, (iv) 225,000 shares issuable upon exercise of
Agent's Bridge Warrants, and (v) 19,275 shares issuable upon exercise of
Bridge Warrants. CAMC is the beneficial owner of Commonwealth's shares.
(a)(2) Mr. Falk is the beneficial owner of an aggregate of 3,693,527 shares of
Common Stock, representing approximately 37.3% of the issued and
outstanding shares of Common Stock of the Company. In addition to
Commonwealth's 2,715,545 shares, Mr. Falk's holdings represent the right
to acquire (i) 633,027 shares issuable upon exercise of Agent's Warrants,
(ii) 225,000 shares issuable upon conversion of Notes, (iii) 112,500
shares issuable upon exercise of Private Placement Warrants, and (iv)
7,500 shares issuable upon exercise of Bridge Warrants. In his capacity
as Chairman and controlling equity owner of CAMC, Mr. Falk shares voting
and dispositive power with respect to the securities beneficially owned
by Commonwealth and may be deemed to be the beneficial owner of such
securities.
(a)(3) Mr. Priddy is the beneficial owner of an aggregate of 1,000,000 shares of
Common Stock, representing approximately 10.1% of the issued and
outstanding shares of Common Stock of the Company. Mr. Priddy's holdings
include the right to acquire (i) 500,000 shares issuable upon conversion
of Notes, (ii) 250,000 shares issuable upon exercise of Private Placement
Warrants, and (iii) 150,000 shares issuable upon exercise of Bridge
Warrants.
<PAGE>
Page 11 of 81 Pages
In his capacity as a director and equity owner of CAMC, Mr. Priddy shares
indirect voting and dispositive power with respect to Commonwealth's
2,715,545 shares and may be deemed to be the beneficial owner of such
securities, although Mr. Priddy disclaims beneficial interest in such
shares other than that portion which corresponds with his equity
ownership in CAMC.
(a)(4) Mr. Rosenbloom is the beneficial owner of an aggregate of 255,968 shares
of Common Stock, representing approximately 2.8% of the issued and
outstanding shares of Common Stock of the Company. Mr. Rosenbloom's
holdings represent the right to acquire (i) 180,968 shares issuable upon
exercise of Agent's Warrants, (ii) 50,000 shares issuable upon conversion
of Notes, and (iii) 25,000 shares issuable upon exercise of Private
Placement Warrants. In his capacity as a director and equity owner of
CAMC, Mr. Rosenbloom shares indirect voting and dispositive power with
respect to Commonwealth's 2,715,545 shares and may be deemed to be the
beneficial owner of such securities, although Mr. Rosenbloom disclaims
beneficial interest in such shares other than that portion which
corresponds with his equity ownership in CAMC.
(a)(5) Mr. Ascuitto is the beneficial owner of an aggregate of 20,000 shares of
Common Stock, representing approximately 0.2% of the issued and
outstanding shares of Common Stock of the Company. Mr. Ascuitto's
holdings represent the right to acquire shares issuable upon exercise of
Agent's Warrants. In his capacity as a director of CAMC, Mr. Ascuitto
shares voting and dispositive power with respect to Commonwealth's
2,715,545 shares and may be deemed to be the beneficial owner of such
securities, although Mr. Ascuitto disclaims beneficial interest in such
shares other than that portion which corresponds with his equity
ownership in CAMC.
The percentages set forth above are calculated using a base of 6,207,783
shares of Common Stock outstanding. An additional 8,038,500 shares would be
outstanding if the Notes issued in the Private Placement were converted in full,
an additional 4,019,250 shares would be outstanding if the Private Placement
Warrants were exercised in full, and an additional 2,250,000 shares would be
outstanding if the Bridge Warrants were exercised in full. Assuming conversion
of all the Notes, exercise of all the Private Placement Warrants and exercise of
all the Bridge Warrants, the percentage holdings of the Reporting Persons would
be as follows: Commonwealth and CAMC-- 13.3%; Mr. Falk--18.0%; Mr. Priddy--4.9%;
Mr. Rosenbloom--1.3%; Mr. Ascuitto--.10%.
(b) Number of shares as to which each such person has:
(1) sole power to vote or to direct the vote:
(i) Mr. Falk has the sole power to vote or to direct the vote of his
978,027 shares.
(ii) Mr. Priddy has the sole power to vote or to direct the vote of his
1,000,000 shares.
(iii) Mr. Rosenbloom has the sole power to vote or to direct the vote of
his 255,968 shares.
(iv) Mr. Ascuitto has the sole power to vote or to direct the vote of
his 20,000 shares.
(2) shared power to vote or to direct the vote:
<PAGE>
Page 12 of 81 Pages
Commonwealth, CAMC, Michael Falk, Robert Priddy, Keith Rosenbloom and
Basil Ascuitto share the power to vote or to direct the vote of
Commonwealth's 2,715,545 shares.
(3) sole power to dispose or to direct the disposition of:
(i) Mr. Falk has the sole power to dispose or to direct the
disposition of his 978,027 shares.
(ii) Mr. Priddy has the sole power to dispose or to direct the
disposition of his 1,000,000 shares.
(iii) Mr. Rosenbloom has the sole power to dispose or to direct the
disposition of his 255,968 shares.
(iv) Mr. Ascuitto has the sole power to dispose or to direct the
disposition of his 20,000 shares.
(4) shared power to dispose of or to direct the disposition of:
Commonwealth, CAMC, Michael Falk, Robert Priddy, Keith Rosenbloom and
Basil Ascuitto share the power to dispose or to direct the disposition of
Commonwealth's 2,715,545 shares.
(c) Inapplicable
(d) Inapplicable
(e) Inapplicable
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to
Securities of the Issuer.
Under the terms of the Subscription Agreement filed as Exhibit 4 hereto
between the Company and the purchasers of the Bridge Notes and Bridge
Warrants, the Company is required to prepare and file a registration
statement with the Securities and Exchange Commission with respect to the
shares issuable upon conversion of the Bridge Notes (which are not
currently convertible) and exercise of the Bridge Warrants. Pursuant to
the terms of the Agent's Bridge Warrant filed as Exhibit 5 hereto, the
Company has agreed to register the shares of Common Stock underlying the
Agent's Bridge Warrants with the SEC under certain circumstances.
<PAGE>
Page 13 of 81 Pages
Item 7. Materials to be Filed as Exhibits.
(a) Filed with Form 13D on May 17, 1999:
(1) Agency Agreement dated as of April 14, 1999 between Commonwealth
and the Company
(2) Form of Note
(3) Form of Private Placement Warrant
(4) Subscription Agreement regarding purchase of the Company's Notes
and Private Placement Warrants
(5) Form of Agent's Warrant
(b) Filed herewith:
(1) Agency Agreement dated as of July 1, 1999 between Commonwealth and
the Company
(2) Form of Bridge Note
(3) Form of Bridge Warrant
(4) Subscription Agreement regarding purchase of the Company's Bridge
Notes and Bridge Warrants
(5) Form of Agent's Bridge Warrant
(6) Joint Statement on Schedule 13D, as required by Rule 13d-1(f)(1)
under the Exchange Act
<PAGE>
Page 14 of 81 Pages
SIGNATURES
After reasonable inquiry and to the best of my knowledge and belief, the
undersigned certify that the information set forth in this statement is true,
complete and correct.
Dated: August 4, 1999 Commonwealth Associates L.P.
New York, New York
By: Commonwealth Associates Management
Corp., its general partner
By: /s/ Joseph Wynne
-----------------------------------
Joseph Wynne
Chief Financial Officer
Dated: August 4, 1999 /s/ Michael S. Falk
New York, New York -----------------------------------
Michael S. Falk
Dated: August 4, 1999 /s/ Robert Priddy
Marietta, Georgia -----------------------------------
Robert Priddy
Dated: August 4, 1999 /s/ Keith Rosenbloom
New York, New York -----------------------------------
Keith Rosenbloom
Dated: August 4, 1999 /s/ Basil Ascuitto
New York, New York -----------------------------------
Basil Ascuitto
<PAGE>
Page 15 of 81 Pages
EXHIBIT INDEX
Exhibit No. Page
- ----------- ----
(1) Agency Agreement dated as of July 1, 1999 between Commonwealth
and the Company 16
(2) Form of Note 31
(3) Form of Private Placement Warrant 47
(4) Subscription Agreement regarding purchase of the Company's Notes
and Private Placement Warrants 56
(5) Form of Agent's Warrant 67
(6) Joint Statement on Schedule 13D, as required by Rule 13d-1(f)(1)
under the Exchange Act 80
Page 16 of 81 Pages
FUTURELINK DISTRIBUTION CORP.
AGENCY AGREEMENT
Commonwealth Associates L.P.
830 Third Avenue
New York, New York 10022
July 1, 1999
Gentlemen:
FutureLink Distribution Corp., a Colorado corporation (the "Company"),
proposes to offer for sale to "accredited investors", in a private placement,
units ("Units"), each Unit consisting (i) $250,000 principal amount of 8% senior
subordinated convertible promissory notes (the "Notes") and (ii) two-year
warrants (the "Warrants") to purchase 37,500 shares of the Company's common
stock, $.0005 par value (the "Common Stock"). Such offering and sale are
referred to herein as the "Offering." A minimum of 20 Units for $5,000,000
("Minimum Offering") and a maximum of 40 Units for $10,000,000 ("Maximum
Offering") will be sold in the Offering at $250,000 per Unit. The Units will be
offered pursuant to those terms and conditions acceptable to you as reflected in
the Confidential Term Sheet dated July 1, 1999 (the "Term Sheet"). The Minimum
Offering will be made on a "best efforts - all-or-none" basis and the balance of
the Offering will be offered on a "best efforts" basis. The Units are being
offered pursuant to the Term Sheet and related documents in accordance with
Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act")
and Rule 506 of Regulation D promulgated thereunder.
Commonwealth Associates is sometimes referred to herein as the "Placement
Agent." The Term Sheet (including the exhibits thereto), as it may be amended or
supplemented from time to time, and the form of proposed subscription agreement
between the Company and each subscriber (the "Subscription Agreement") and the
exhibits which are part of the Term Sheet and/or Subscription Agreement are
collectively referred to herein as the "Offering Documents."
The Company will prepare and deliver to the Placement Agent a reasonable
number of copies of the Offering Documents in form and substance satisfactory to
counsel to the Placement Agent.
Each prospective investor subscribing to purchase Units ("Subscriber")
will be required to deliver, among other things, a Subscription Agreement and a
confidential purchaser questionnaire ("Questionnaire") in the form to be
provided to offerees. Capitalized terms used herein, unless otherwise defined or
unless the context otherwise indicates, shall have the same meanings provided in
the Offering Documents.
<PAGE>
Page 17 of 81 Pages
1. Appointment of Placement Agent.
(a) You are hereby appointed exclusive Placement Agent of the
Company (subject to your right to have Selected Dealers, as defined in Section
1(c) hereof, participate in the Offering) during the Offering Period herein
specified for the purposes of assisting the Company in finding qualified
Subscribers pursuant to the offering (the "Offering") described in the Offering
Documents. The Offering Period shall commence on the day (the "Commencement
Date") the Offering Documents are first made available to you by the Company for
delivery in connection with the offering for sale of the Units and shall
continue until the earlier to occur of (i) the sale of all of the Maximum
Offering or (ii) July 31, 1999; provided, however, that if the Minimum Offering
has been sold by such date, the Offering will continue until August 31, 1999
(unless extended for a period of up to 30 days under circumstances specified in
the Term Sheet). If the Minimum Offering is not sold prior to July 31, 1999, the
Offering will be terminated and all funds received from Subscribers will be
returned, without interest and without any deduction. The day that the Offering
Period terminates is hereinafter referred to as the "Termination Date."
(b) Subject to the performance by the Company of all of its
obligations to be performed under this Agreement and to the completeness and
accuracy of all representations and warranties of the Company contained in this
Agreement, Commonwealth Associates L.P. hereby accepts its appointment as
exclusive Placement Agent and agrees to use its best efforts to assist the
Company in finding qualified subscribers pursuant to the Offering described in
the Offering Documents. It is understood that the Placement Agent has no
commitment to sell the Units. Your agency hereunder is not terminable by the
Company except upon termination of the Offering Period.
(c) Subscriptions for Units shall be evidenced by the execution by
Subscribers of a Subscription Agreement. No Subscription Agreement shall be
effective unless and until it is accepted by the Company. Until the Closing, all
subscription funds received shall be held as described in the Subscription
Agreement. The Placement Agent shall not have any obligation to independently
verify the accuracy or completeness of any information contained in any
Subscription Agreement or the authenticity, sufficiency, or validity of any
check delivered by any prospective investor in payment for Units.
(d) The Placement Agent and its affiliates may purchase Units sold
in the Offering.
2. Representations and Warranties of the Company. The Company represents
and warrants to the Placement Agent and each Selected Dealer, if any, as
follows:
(a) Securities Law Compliance. The Offering Documents conform in all
respects with the requirements of Section 4(2) of the Securities Act and
Regulation D promulgated thereunder and with the requirements of all other
published rules and regulations of the Securities and Exchange Commission (the
"Commission") currently in effect relating to "private offerings" to "accredited
investors" of the type contemplated by the Company. The Offering Documents will
not contain an untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in light of the
circumstances in which they were made, not misleading. If at any time prior to
the completion of the Offering or other termination of this Agreement any event
shall occur as a result of which it might become necessary to amend or
supplement the Offering
<PAGE>
Page 18 of 81 Pages
Documents so that they do not include any untrue statement of any material fact
or omit to state any material fact necessary in order to make the statements
therein, in the light of the circumstances then existing, not misleading, the
Company will promptly notify you and will supply you with amendments or
supplements correcting such statement or omission. The Company will also provide
the Placement Agent, for delivery to all offerees and purchasers and their
representatives, if any, any information, documents and instruments which the
Placement Agent deems reasonably necessary to comply with applicable state and
federal law.
(b) Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Colorado
and has all requisite corporate power and authority to own and lease its
properties, to carry on its business as currently conducted and as proposed to
be conducted, to execute and deliver this Agreement and to carry out the
transactions contemplated by this Agreement, as appropriate, and is duly
licensed or qualified to do business as a foreign corporation in each other
jurisdiction in which the conduct of its business or ownership or leasing of its
properties requires it to be so qualified, except where the failure to be so
licensed or qualified would not, in the aggregate, have a material adverse
effect on the business or financial condition of the Company (a "Material
Adverse Effect").
(c) Capitalization. The authorized, issued and outstanding capital
stock of the Company prior to the consummation of the transactions contemplated
hereby is as set forth in the Offering Documents. All issued and outstanding
shares of the Company are validly issued, fully paid and nonassessable (with the
exception of 2,752,321 shares held in escrow to satisfy certain obligations upon
conversion of outstanding debentures and exercise of outstanding warrants which
have not been paid for) and such shares have not been issued in violation of the
preemptive rights of any stockholder of the Company. All prior sales of
securities of the Company were either registered under the Securities Act and
applicable state securities laws or exempt from such registration, and no
security holder has any rescission rights with respect thereto.
(d) Warrants, Preemptive Rights, Etc. Except as set forth in or
contemplated by the Term Sheet, there are not, nor will there be immediately
after the Closing (as hereinafter defined), any outstanding warrants, options,
agreements, convertible securities, preemptive rights to subscribe for or other
commitments pursuant to which the Company is, or may become, obligated to issue
any shares of its capital stock or other securities of the Company and this
Offering will not cause any anti-dilution adjustments to such securities or
commitments except as reflected in the Term Sheet.
(e) Subsidiaries and Investments. Other than as set forth in the
Offering Documents, the Company has no subsidiaries and the Company does not
own, directly or indirectly, any capital stock or other equity ownership or
proprietary interests in any other corporation, association, trust, partnership,
joint venture or other entity.
(f) Financial Statements. The financial information regarding the
Company which is contained in the Offering Documents is accurate in all material
respects. The financial statements of the Company which are attached to the
Offering Documents are hereinafter referred to collectively as the "Financial
Statements". The Financial Statements have been prepared in conformity with
generally accepted accounting principles consistently applied and show all
material liabilities, absolute or contingent, of the Company required to be
recorded thereon and present fairly the financial position and results of
operations of the Company as of the dates and for the periods indicated.
<PAGE>
Page 19 of 81 Pages
(g) Absence of Changes. Since the date of the Term Sheet, except
with respect to matters of which the Company has notified you in writing, the
Company has not incurred any liabilities or obligations, direct or contingent,
not in the ordinary course of business, or entered into any transaction not in
the ordinary course of business, which is material to the business of the
Company, and there has not been any change in the capital stock of, or any
incurrence of long-term debt by, the Company, or any issuance of options,
warrants or other rights to purchase the capital stock of the Company, or any
adverse change or any development involving, so far as the Company can now
reasonably foresee, a prospective adverse change in the condition (financial or
otherwise), net worth, results of operations, business, key personnel or
properties which would be material to the business or financial condition of the
Company, and the Company has not become a party to, and neither the business nor
the property of the Company has become the subject of, any material litigation
whether or not in the ordinary course of business.
(h) Title. The Company has good and marketable title to all
properties and assets, owned by it, free and clear of all liens, charges,
encumbrances or restrictions, except such as are incurred in the normal course
of the Company's business, such as general security interests granted to the
Company's banking institution and security interests granted to certain
equipment manufacturers; all of the material leases and subleases under which
the Company is the lessor or sublessor of properties or assets or under which
the Company holds properties or assets as lessee or sublessee are in full force
and effect, and the Company is not in default in any material respect with
respect to any of the terms or provisions of any of such leases or subleases,
and no material claim has been asserted by anyone adverse to rights of the
Company as lessor, sublessor, lessee or sublessee under any of the leases or
subleases mentioned above, or affecting or questioning the right of the Company
to continued possession of the leased or subleased premises or assets under any
such lease or sublease. The Company owns or leases all such properties as are
necessary to its operations as now conducted.
(i) Proprietary Rights. The Company owns or possesses adequate and
enforceable rights to use all patents, patent applications, trademarks, service
marks, copyrights, trade secrets, processes, formulations, technology or
know-how used in the conduct of its business as described in the Term Sheet and
will own or possess such rights with respect to the business to be conducted as
contemplated by the Term Sheet (the "Proprietary Rights"). The Company has not
received any notice of any claims, nor does it have any knowledge of any
threatened claims, and knows of no facts which would form the basis of any
claim, asserted by any person to the effect that the sale or use of any product
or process now used or offered by the Company or proposed to be used or offered
by the Company infringes on any patents or infringes upon the use of any such
Proprietary Rights of another person and, to the best of the Company's
knowledge, no others have infringed the Company's Proprietary Rights.
(j) Litigation. Other than as set forth in the Offering Documents,
there is no material action, suit, investigation, customer complaint, claim or
proceeding at law or in equity by or before any arbitrator, governmental
instrumentality or other agency now pending or, to the knowledge of the Company,
threatened against the Company (or basis therefor known to the Company) the
adverse outcome of which would have a Material Adverse Effect. The Company is
not subject to any judgment, order, writ, injunction or decree of any Federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign which have a Material Adverse
Effect.
<PAGE>
Page 20 of 81 Pages
(k) Non-Defaults; Non-Contravention. The Company is not in violation
of or default under, nor will the execution and delivery of this Agreement or
any of the Offering Documents or the Fund Escrow Agreement or consummation of
the transactions contemplated herein or therein result in a violation of or
constitute a default in the performance or observance of any obligation under
(i) its Articles of Incorporation, or its By-laws, or (ii) any indenture,
mortgage, contract, material purchase order or other agreement or instrument to
which the Company is a party or by which it or its property is bound or
affected, where such violation or default would have a Material Adverse Effect,
or (iii) any material order, writ, injunction or decree of any court of any
Federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, where such violation or
default would have a Material Adverse Effect, and there exists no condition,
event or act which constitutes, nor which after notice, the lapse of time or
both, could constitute a default under any of the foregoing, which in either
case would have a Material Adverse Effect.
(l) Taxes. To the best of current management's knowledge: (i) the
Company has filed all Federal, state, local and foreign tax returns which are
required to be filed by it or otherwise met its disclosure obligations to the
relevant agencies and all such returns are true and correct in all material
respects; (ii) the Company has paid all taxes pursuant to such returns or
pursuant to any assessments received by it or which it is obligated to withhold
from amounts owing to any employee, creditor or third party; (iii) the Company
has properly accrued all taxes required to be accrued by generally accepted
accounting principals consistently applied; (iv) the tax returns of the Company
have never been audited by any state, local or Federal authorities; and (v) the
Company has not waived any statute of limitations with respect to taxes or
agreed to any extension of time with respect to any tax assessment or
deficiency.
(m) Compliance With Laws; Licenses, Etc. The Company has not
received notice of any violation of or noncompliance with any Federal, state,
local or foreign, laws, ordinances, regulations and orders applicable to its
business which has not been cured, the violation of, or noncompliance with
which, would have a Material Adverse Effect. The Company has all licenses and
permits and other governmental certificates, authorizations and permits and
approvals (collectively, "Licenses") required by every Federal, state and local
government or regulatory body for the operation of its business as currently
conducted and the use of its properties, except where the failure to be licensed
would not have a Material Adverse Effect. The Licenses are in full force and
effect and to the Company's knowledge no violations currently exist in respect
of any License and no proceeding is pending or threatened to revoke or limit any
thereof.
(n) Authorization of Agreement, Etc. This Agreement has been duly
and validly authorized, executed and delivered by the Company and the execution,
delivery and performance by the Company of this Agreement, the Subscription
Agreement and the Fund Escrow Agreement have been duly authorized by all
requisite corporate action by the Company and when delivered, constitute or will
constitute the legal, valid and binding obligations of the Company, enforceable
in accordance with their respective terms, subject to applicable laws regarding
insolvency and to principles of equity.
(o) Authorization of Notes and Warrants Etc. The issuance, sale and
delivery of the Notes, the Warrants and the Agent's Warrants (as defined herein)
have been duly authorized by all requisite corporate action of the Company. When
so issued, sold and delivered, the Notes, the Warrants and the Agent's Warrants
will be duly executed, issued and delivered and will constitute
<PAGE>
Page 21 of 81 Pages
valid and legal obligations of the Company enforceable in accordance with their
respective terms and, in each case, will not be subject to preemptive or any
other similar rights of the stockholders of the Company or others which rights
shall not have been waived prior to the Initial Closing.
(p) Authorization of Reserved Shares. The issuance, sale and
delivery by the Company of the shares of Common Stock issuable upon conversion
of the Notes and exercise of the Warrants and the Agent's Warrants (the
"Reserved Shares") have been duly authorized by all requisite corporate action
of the Company, and the Reserved Shares have been duly reserved for issuance
upon conversion of all or any of the Notes and exercise of all or any of the
Warrants and Agent's Warrants and when so issued, sold, paid for and delivered,
the Reserved Shares will be validly issued and outstanding, fully paid and
nonassessable, and not subject to preemptive or any other similar rights of the
stockholders of the Company or others which rights shall not have been waived
prior to the Initial Closing.
(q) Exemption from Registration. Assuming (i) the accuracy of the
information provided by the respective Subscribers in the Subscription Documents
and (ii) that the Placement Agent has complied in all material respects with the
provisions of Regulation D promulgated under the Securities Act, the offer and
sale of the Units pursuant to the terms of this Agreement are exempt from the
registration requirements of the Securities Act and the rules and regulations
promulgated thereunder (the "Regulations"). The Company is not disqualified from
the exemption under Regulation D by virtue of the disqualifications contained in
Rule 505(b)(2)(iii) or Rule 507 promulgated thereunder.
(r) Registration Rights. Except with respect to holders of the Units
and other securities previously sold to or through the Placement Agent or
otherwise specified in writing to the Placement Agent, no person has any right
to cause the Company to effect the registration under the Securities Act of any
securities of the Company. The Company shall grant registration rights under the
Securities Act to the investors in the Offering and/or their transferees as more
fully described in the Subscription Agreement between the Company and the
investors.
(s) Brokers. Neither the Company nor any of its officers, directors,
employees or stockholders has employed any broker or finder in connection with
the transactions contemplated by this Agreement other than the Placement Agent.
(t) Title to Units. When certificates representing the securities
comprising the Units shall have been duly delivered to the purchasers and
payment shall have been made therefor, the several purchasers shall have good
and marketable title to the Notes and Warrants and/or the Reserved Shares free
and clear of all liens, encumbrances and claims whatsoever (with the exception
of claims arising through the acts or omissions of the purchasers and except as
arising from applicable Federal and state securities laws), and the Company
shall have paid all taxes, if any, in respect of the original issuance thereof.
(u) Right of First Refusal. Except for the right of first refusal
previously granted to the Placement Agent, no person, firm or other business
entity is a party to any agreement, contract or understanding, written or oral
entitling such party to a right of first refusal with respect to offerings by
the Company.
<PAGE>
Page 22 of 81 Pages
3. Closing; Placement and Fees.
(a) Closing. Provided the Minimum Offering shall have been
subscribed for and funds representing the sale thereof shall have cleared, a
closing (the "Initial Closing") shall take place at the offices of the Placement
Agent, 830 Third Avenue, New York, New York within five business days thereafter
(which date (the "Closing Date") may be accelerated or adjourned by agreement
between the Company and the Placement Agent). At the Initial Closing, payment
for the Units issued and sold by the Company shall be made against delivery of
the Notes and Warrants comprising such Units. In addition, subsequent closings
(if applicable) may be scheduled at the discretion of the Company and Placement
Agent, each of which shall be deemed a "Closing" hereunder.
(b) Conditions to Placement Agent's Obligations. The obligations of
the Placement Agent hereunder will be subject to the accuracy of the
representations and warranties of the Company herein contained as of the date
hereof and as of each Closing Date, to the performance by the Company of its
obligations hereunder and to the following additional conditions:
(i) Due Qualification or Exemption. (A) The Offering will
become qualified or be exempt from qualification under the securities laws of
the several states pursuant to paragraph 4(e) below not later than the Closing
Date, and (B) at the Closing Date no stop order suspending the sale of the Units
shall have been issued, and no proceeding for that purpose shall have been
initiated or threatened;
(ii) No Material Misstatements. Neither the Blue Sky
qualification materials nor the Term Sheet, nor any supplement thereto, will
contain an untrue statement of a fact which in the opinion of the Placement
Agent is material, or omits to state a fact, which in the opinion of the
Placement Agent is material and is required to be stated therein, or is
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading;
(iii) Compliance with Agreements. The Company will have
complied with all agreements and satisfied all conditions on its part to be
performed or satisfied hereunder at or prior to each Closing;
(iv) Corporate Action. The Company will have taken all
necessary corporate action, including, without limitation, obtaining the
approval of the Company's board of directors, for the execution and delivery of
this Agreement, the performance by the Company of its obligations hereunder and
the offering contemplated hereby;
(v) Opinion of Counsel. The Placement Agent shall receive the
opinion of acceptable counsel to the Company, dated the Closing(s),
substantially to the effect that:
(A) the Company is validly existing and in good standing
under the laws of Colorado, has all requisite corporate power and authority
necessary to own or hold its respective properties and conduct its business and
is duly qualified or licensed to do business as described in the Offering
Documents. The Company is not qualified to do business as a foreign corporation
in states other than Colorado;
(B) each of this Agreement, the Notes, the Warrants, the
Agent's
<PAGE>
Page 23 of 81 Pages
Warrants, the Fund Escrow Agreement and the Subscription Agreements has been
duly and validly authorized, executed and delivered by the Company, and is the
valid and binding obligation of the Company, enforceable against it in
accordance with its terms, subject to any applicable bankruptcy, insolvency or
other laws affecting the rights of creditors generally and to general equitable
principles;
(C) to the best of such counsel's knowledge: (i) the
authorized, issued and outstanding capital stock of the Company as of the date
hereof (before giving effect to the transactions contemplated by this Agreement)
is as set forth in the Offering Documents and there are no commitments pursuant
to which the Company is, or may become, obligated to issue any shares of its
capital stock or other securities of the Company other than as set forth in the
Offering Documents; (ii) all of the issued shares of capital stock of the
Company issued in connection with and subsequent to the reverse merger in
January1998 have been duly and validly authorized and issued, are fully paid and
non-assessable (with the exception of certain shares currently held in escrow to
satisfy certain obligations upon conversion of outstanding debentures and
exercise of outstanding warrants, which shares will not be fully paid and
non-assessable until such conversion or exercise); and (iii) no securities have
been issued in violation of the preemptive rights of any securityholder of the
Company. The offers and sales of such securities were either registered under
the Securities Act and applicable state securities laws or exempt from such
registration requirements;
(D) assuming (i) the accuracy of the information
provided by the Subscribers in the Subscription Documents, (ii) that the
Placement Agent has complied with the requirements of section 4(2) of the
Securities Act (and the provisions of Regulation D promulgated thereunder),
(iii) that there has been no public solicitation, (iv) each Subscriber has
received the Offering Documents, (v) that the Offering Documents do not contain
any material misstatements or omissions, and (vi) that a Notice on Form D is
timely and accurately filed, the issuance and sale of the Units is exempt from
registration under the Securities Act and Regulation D promulgated thereunder;
(E) neither the execution and delivery of this Agreement
or the Subscription Agreement, nor compliance with the terms hereof or thereof,
nor the consummation of the transactions herein or therein contemplated, nor the
issuance of the Notes, the Warrants or the Agent's Warrants, has, nor will,
conflict with, result in a breach of, or constitute a default under the Articles
of Incorporation or By-laws of the Company, or, to the best of such counsel's
knowledge, any material contract, instrument or document to which the Company is
a party, or by which it or any of its properties is bound or, to the best of
such counsel's knowledge, violate any applicable law, rule, regulation,
judgment, order or decree known to us of any governmental agency or court having
jurisdiction over the Company or any of its properties or business;
(F) to the best of such counsel's knowledge, there are
no claims, actions, suits, investigations or proceedings before or by any
arbitrator, court, governmental authority or instrumentality pending or, to such
counsel's knowledge, threatened against or affecting the Company or involving
the properties of the Company which might materially and adversely affect the
business, properties or financial condition of the Company or which might
materially adversely affect the transactions or other acts contemplated by this
Agreement or the validity or enforceability of this Agreement, except as set
forth in or contemplated by the Offering Documents; and
(G) such counsel has reviewed the Offering Documents and
nothing
<PAGE>
Page 24 of 81 Pages
has come to the attention of such counsel to cause them to believe that the
Offering Documents contain any untrue statement of a material fact required to
be stated therein or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading (except for
the financial statements, notes thereto and other financial information and
statistical data contained therein, as to which such counsel need express no
opinion).
(H) to the best of such counsel's knowledge, there have
been no claims asserted against the Company relating to the potential
infringement of or conflict with any patents, trademarks, copyrights or trade
secrets of others.
(vi) Officers' Certificate. The Placement Agent shall receive
a certificate of the Company, signed by the Chief Executive Officer and Chief
Financial Officer thereof, that the representations and warranties contained in
Section 2 hereof are true and accurate in all material respects at such Closing
with the same effect as though expressly made at such Closing.
(vii) Fund Escrow Agreement. On or prior to the Initial
Closing Date, the Placement Agent shall receive a copy of a duly executed escrow
agreement with United States Trust Company of New York in the form previously
delivered to you regarding the deposit of funds pending the Closing(s) (the
"Fund Escrow Agreement").
(c) Blue Sky. A summary blue sky survey shall be prepared by counsel
to the Placement Agent stating the extent to which and the conditions upon which
offers and sales of the Units may be made in certain jurisdictions. It is
understood that such survey may be based on or rely upon (i) the representations
of each Subscriber set forth in the Subscription Agreement delivered by such
Subscriber, (ii) the representations, warranties and agreements of the Company
set forth in Section 2 of this Agreement, (iii) the representations and
warranties of the Placement Agent, and (iv) the representations of the Company
set forth in the certificate to be delivered at the Closing pursuant to
paragraph (vi) of Section 3(b).
(d) Placement Fee and Expenses. Simultaneously with payment for and
delivery of the Units at each Closing as provided in paragraph 3(a) above, the
Company shall at such Closing pay to the Placement Agent (i) a commission equal
to 9% of the gross proceeds from the sale of the Units; (ii) reimbursement of up
to $50,000 of accountable expenses (exclusive of up to $12,000 for blue sky fees
disbursements and up to $20,000 of Placement Agent's counsel fees which shall
also be reimbursable by the Company; and (iii) warrants to purchase that number
of shares of Common Stock as equals 10% of the Warrant Shares issuable upon
exercise of the Warrants sold in the Offering (the Agent's Warrants). The
Agent's Warrants will be substantially identical to the Warrants included in the
Units except that they will not be subject to redemption by the Company. The
Company shall also pay all expenses in connection with the qualification of the
Units under the securities or Blue Sky laws of the states which the Placement
Agent shall designate, including legal fees and filing fees (not to exceed
$12,000). The Agent's Warrants will be issue to you or your designees (which may
include any Selected Dealer or any officer of the Placement Agent or a Selected
Dealer).
(e) Bring-Down Opinions and Certificates. If there is more than one
Closing, then at each such Closing there shall be delivered to the Placement
Agent updated opinion and certificate as described in subsections (v) and (vi)
of Section 3(b) above, respectively.
<PAGE>
Page 25 of 81 Pages
(f) No Adverse Changes. There shall not have occurred, at any time
prior to the Closing or, if applicable, any additional Closing, (i) any domestic
or international event, act or occurrence which has materially disrupted, or in
the Placement Agent's opinion will in the immediate future materially disrupt,
the securities markets; (ii) a general suspension of, or a general limitation on
prices for, trading in securities on the New York Stock Exchange or the American
Stock Exchange or in the over-the-counter market; (iii) any outbreak of major
hostilities or other national or international calamity; (iv) any banking
moratorium declared by a state or federal authority; (v) any moratorium declared
in foreign exchange trading by major international banks or other persons; (vi)
any material interruption in the mail service or other means of communication
within the United States; (vii) any material adverse change in the business,
properties, assets, results of operations, or financial condition of the
Company; or (viii) any change in the market for securities in general or in
political, financial, or economic conditions which, in the Placement Agent's
reasonable judgment, makes it inadvisable to proceed with the offering, sale,
and delivery of the Units.
4. Covenants of the Company.
(a) Use of Proceeds. The net proceeds of the Offering will be used
by the Company substantially as set forth in the Term Sheet. The Company shall
not use any of the proceeds from the Offering to repay any indebtedness of the
Company (other than trade payables in the ordinary course), including but not
limited to indebtedness to any current executive officers, directors or
principal stockholders of the Company.
(b) Expenses of Offering. The Company shall be responsible for, and
shall bear all expenses directly incurred in connection with, the proposed
Offering including, but not limited to, (i) legal fees of the Company's counsel
relating to the costs of preparing the Offering Documents and all amendments,
supplements and exhibits thereto; (ii) blue sky filing fees and the fees and
disbursements of Placement Agent's counsel in connection with blue sky matters
(up to $12,000 in the aggregate) (the "Company Expenses"). Such expenses shall
not include the cost of the Placement Agent's mailing, telephone, telegraph,
travel, due diligence meetings, or other similar expenses (the "Placement Agent
expenses") which are reimbursable by the Company up to $50,000 (exclusive of
fees and expenses of counsel to the Placement Agent unrelated to blue sky
matters which are also reimbursable by the Company up to $20,000).
If the Company determines not to proceed with the Offering for any
reason prior to the Termination Date and terminates the Letter of Intent dated
June 16, 1999 (the "LOI") and within one year from the termination of the LOI
obtains any similar financing from any third party, the Company shall be
obligated to pay the Placement Agent a break-up fee as follows:
(1) If the Company elects to terminate the LOI prior to the
distribution of the Term Sheet to prospective investors, the break-up fee
shall be $200,000;
(2) If the Company elects to terminate the LOI after the
distribution of the Term Sheet to prospective investors but prior to the
closing of the Minimum Offering and Commonwealth could have reasonably
been expected to sell the Minimum Offering by July 31, 1999, the break-up
fee shall be $400,000;
(3) If the Company elects to terminate the LOI after closing of not
less than the
<PAGE>
Page 26 of 81 Pages
Minimum Offering but prior to the closing of the Maximum Offering and
Commonwealth could have reasonably been expected to sell the Maximum
Offering by August 31, 1999, the break-up fee shall be $600,000;
which break-up fee represents liquidated damages and represents the total
liability of the Company to the Placement Agent to the date of early
termination. Any amounts previously paid to the Placement Agent as compensation
under the LOI or this Agreement will be credited towards the break-up fee.
The Placement Agent shall have no liability to the Company for any reason
should the Placement Agent choose not to proceed with the Offering contemplated
hereby.
(c) Notification. The Company shall notify the Placement Agent
immediately, and in writing, (A) when any event shall have occurred during the
period commencing on the date hereof and ending on the later of the last Closing
or the Termination Date as a result of which the Offering Documents would
include any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, and (B) of the receipt of any notification with respect to the
modification, rescission, withdrawal or suspension of the qualification or
registration of the Units, or of any exemption from such registration or
qualification, in any jurisdiction. The Company will use its best efforts to
prevent the issuance of any such modification, rescission, withdrawal or
suspension and, if any such modification, rescission, withdrawal or suspension
is issued and you so request, to obtain the lifting thereof as promptly as
possible.
(d) Blue Sky. The Company will use its best efforts to qualify or
register the Units for offering and sale under, or establish an exemption from
such qualification or registration under, the securities or "blue sky" laws of
such jurisdictions as you may reasonably request; provided however, that the
Company will not be obligated to qualify as a dealer in securities in any
jurisdiction in which it is not so qualified. The Company will not consummate
any sale of Units in any jurisdiction in which it is not so qualified or in any
manner in which such sale may not be lawfully made.
(e) Form D Filing. The Company shall file five copies of a Notice of
Sales of Securities on Form D with the Securities and Exchange Commission (the
"Commission") no later than 15 days after the first sale of the Units. The
Company shall file promptly such amendments to such Notices on Form D as shall
become necessary and shall also comply with any filing requirement imposed by
the laws of any state or jurisdiction in which offers and sales are made. The
Company shall furnish the Placement Agent with copies of all such filings.
(f) Press Releases, etc. The Company shall not, during the period
commencing on the date hereof and ending on the later of the last Closing and
the Termination Date, issue any press release or other communication, or hold
any press conference with respect to the Company, its financial condition,
results of operations, business, properties, assets, or liabilities, or the
Offering, without the prior consent of the Placement Agent, which consent shall
not be unreasonably withheld.
(g) Executive Compensation. The compensation of the executive
officers of the Company shall not increase until repayment of the Notes, without
the unanimous approval of the Compensation Committee of the Board of Directors
(the "Compensation Committee"). In addition,
<PAGE>
Page 27 of 81 Pages
prior to the maturity date of the Notes and thereafter in the event the Company
defaults on repayment of the Notes, the Company shall not amend or enter into
any employment agreement containing anti-takeover provisions without the
unanimous approval of the Compensation Committee.
(h) Transmittal Letters. Within five days after the Closing, the
Placement Agent shall receive copies of all letters from the Company to the
investors transmitting the Notes and Warrants and shall receive a letter from
the Company confirming transmittal of the securities to the investors.
5. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Placement
Agent and each Selected Dealer, if any, and their respective shareholders,
directors, officers, agents and controlling persons (an "Indemnified Party")
against any and all loss, liability, claim, damage and expense whatsoever (and
all actions in respect thereof), and to reimburse the Placement Agent for
reasonable legal fees and related expenses as incurred (including, but not
limited to the costs of investigating, preparing or defending any such action or
claim whether or not in connection with litigation in which the Placement Agent
is a party and the costs of giving testimony or furnishing documents in response
to a subpoena or otherwise), arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Offering Documents or the
omission or alleged omission therefrom of a material fact necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The indemnification provisions incorporated into the LOI
will remain in full force and effect.
(b) The Company agrees to indemnify and hold harmless an Indemnified
Party to the same extent as the foregoing indemnity, against any and all loss,
liability, claim, damage and expense whatsoever directly arising out of the
exercise by any person of any right under the Securities Act or the Exchange Act
or the securities or Blue Sky laws of any state on account of violations of the
representations, warranties or agreements set forth in Section 2 hereof.
(c) Promptly after receipt by an Indemnified Party under this
Section of notice of the commencement of any action, the indemnified party will,
if a claim in respect thereof is to be made against the Company under this
Section, notify in writing the Company of the commencement thereof; but the
omission so to notify the Company will not relieve it from any liability which
it may have to the Indemnified Party otherwise than under this Section except to
the extent the defense of the claim is prejudiced. In case any such action is
brought against an Indemnified Party, and it notifies the Company of the
commencement thereof, the Company will be entitled to participate in, and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, subject to the provisions herein
stated, with counsel reasonably satisfactory to the Indemnified Party, and after
notice from the Company to the Indemnified Party of its election so to assume
the defense thereof, the Company will not be liable to the Indemnified Party
under this Section for any legal or other expenses subsequently incurred by the
Indemnified Party in connection with the defense thereof other than reasonable
costs of investigation (provided the Company has been advised in writing that
such investigation is being undertaken). The Indemnified Party shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall not be at the
expense of the Company if the Company has assumed the defense of the action with
counsel reasonably satisfactory to the Indemnified Party;
<PAGE>
Page 28 of 81 Pages
provided that the fees and expenses of such counsel shall be at the expense of
the Company if (i) the employment of such counsel has been specifically
authorized in writing by the Company or (ii) the named parties to any such
action (including any impleaded parties) include both the Indemnified Party or
Parties and the Company and, in the reasonable judgment of counsel for the
Indemnified Party, it is advisable for the Indemnified Party or Parties to be
represented by separate counsel due to an actual conflict of interest (in which
case the Company shall not have the right to assume the defense of such action
on behalf of the an Indemnified Party or Parties), it being understood, however,
that the Company shall not, in connection with any one such action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys for all
the Indemnified Parties. No settlement of any action against an Indemnified
Party shall be made unless such an Indemnified Party is fully and completely
released in connection therewith.
6. Contribution.
To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section (5) but
it is found in a final judicial determination, not subject to further appeal,
that such indemnification may not be enforced in such case, even though this
Agreement expressly provides for indemnification in such case, or (ii) any
indemnified or indemnifying party seeks contribution under the Securities Act,
the Exchange Act, or otherwise, then the Company (including for this purpose any
contribution made by or on behalf of any officer, director, employee or agent
for the Company, or any controlling person of the Company), on the one hand, and
the Placement Agent and any Selected Dealers (including for this purpose any
contribution by or on behalf of an indemnified party), on the other hand, shall
contribute to the losses, liabilities, claims, damages, and expenses whatsoever
to which any of them may be subject, in such proportions as are appropriate to
reflect the relative benefits received by the Company, on the one hand, and the
Placement Agent and the Selected Dealers, on the other hand; provided, however,
that if applicable law does not permit such allocation, then other relevant
equitable considerations such as the relative fault of the Company and the
Placement Agent and the Selected Dealers in connection with the facts which
resulted in such losses, liabilities, claims, damages, and expenses shall also
be considered. In no case shall the Placement Agent or a Selected Dealer be
responsible for a portion of the contribution obligation in excess of the
compensation received by it pursuant to Section 3 hereof or the Selected Dealer
Agreement, as the case may be. No person guilty of a fraudulent
misrepresentation shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation. For purposes of this Section 6,
each person, if any, who controls the Placement Agent or a Selected Dealer
within the meaning of Section 15 of the Securities Act or Section 20(a) of the
Exchange Act and each officer, director, stockholder, employee and agent of the
Placement Agent or a Selected Dealer, shall have the same rights to contribution
as the Placement Agent or the Selected Dealer, and each person, if any who
controls the Company within the meaning of Section 15 of the Securities Act or
Section 20(a) of the Exchange Act and each officer, director, employee and agent
of the Company, shall have the same rights to contribution as the Company,
subject in each case to the provisions of this Section 6. Anything in this
Section 6 to the contrary notwithstanding, no party shall be liable for
contribution with respect to the settlement of any claim or action effected
without its written consent. This Section 6 is intended to supersede any right
to contribution under the Securities Act, the Exchange Act, or otherwise.
<PAGE>
Page 29 of 81 Pages
7. Miscellaneous.
(a) Survival. Any termination of the Offering without consummation
thereof shall be without obligation on the part of any party except that the
indemnification provided in Section 5 hereof and the contribution provided in
Section 6 hereof shall survive any termination and shall survive the Closing for
a period of five years.
(b) Representations, Warranties and Covenants to Survive Delivery.
The respective representations, warranties, indemnities, agreements, covenants
and other statements of the Company as of the date hereof shall survive
execution of this Agreement and delivery of the Units and the termination of
this Agreement for a period of one year after such respective event.
(c) No Other Beneficiaries. This Agreement is intended for the sole
and exclusive benefit of the parties hereto and their respective successors and
controlling persons, and no other person, firm or corporation shall have any
third-party beneficiary or other rights hereunder.
(d) Governing Law; Resolution of Disputes. This Agreement shall be
governed by and construed in accordance with the law of the State of New York
without regard to conflict of law provisions. The Placement Agent and the
Company will attempt to settle any claim or controversy arising out of this
Agreement through consultation and negotiation in good faith and a spirit of
mutual cooperation. Should such attempts fail, then the dispute will be mediated
by a mutually acceptable mediator to be chosen by the Placement Agent and the
Company within 15 days after written notice from either party demanding
mediation. Neither party may unreasonably withhold consent to the selection of a
mediator, and the parties will share the costs of the mediation equally. Any
dispute which the parties cannot resolve through negotiation or mediation within
six months of the date of the initial demand for it by one of the parties may
then be submitted to the courts for resolution. The use of mediation will not be
construed under the doctrine of latches, waiver or estoppel to affect adversely
the rights of either party. Nothing in this paragraph will prevent either party
from resorting to judicial proceedings if (a) good faith efforts to resolve the
dispute under these procedures have been unsuccessful or (b) interim relief from
a court is necessary to prevent serious and irreparable injury.
(e) Counterparts. This Agreement may be signed in counterparts with
the same effect as if both parties had signed one and the same instrument.
(f) Notices. Any communications specifically required hereunder to
be in writing, if sent to the Placement Agent, will be sent by overnight courier
providing a receipt of delivery or by certified or registered mail to it at
Commonwealth Associates, 830 Third Avenue, New York, New York 10022, Att:
Alexandra Salas, with a copy to Bachner, Tally, Polevoy & Misher LLP, 380
Madison Avenue, New York, New York 10017, Att: Fran Stoller and if sent to the
Company, will be sent by overnight courier providing a receipt of delivery or by
certified or registered mail to it at 300, 250-6th Avenue SW, Calgary, AB Canada
T2P 3H7, Att: Raghu Kilambi, with a copy to Jeffer, Mangels, Butler & Marmaro,
10th Floor, 2121 Avenue of the Stars, Los Angeles, California, 90067-5010, Att:
Jeffrey E. Sultan.
(g) Entire Agreement. This Agreement constitutes the entire
agreement of the parties with respect to the matters herein referred and
supersedes all prior agreements and
<PAGE>
Page 30 of 81 Pages
understandings, written and oral, between the parties with respect to the
subject matter hereof except as otherwise specifically set forth herein. Neither
this Agreement nor any term hereof may be changed, waived or terminated orally,
but only by an instrument in writing signed by the party against which
enforcement of the change, waiver or termination is sought.
If you find the foregoing is in accordance with our understanding, kindly
sign and return to us a counterpart hereof, whereupon this instrument along with
all counterparts will become a binding agreement between us.
Very truly yours,
FUTURELINK DISTRIBUTION CORP.
By: --------------------------------
Name: Raghu Kilambi
Title: Chief Financial Officer
Agreed:
COMMONWEALTH ASSOCIATES,
a New York limited partnership
By: Commonwealth Associates Management Corp., Inc.
a New York corporation, its general partner
By:
-------------------------------------------------
Name: Joseph Wynne
Title: Chief Financial Officer
Page 31 of 81 Pages
THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE
HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE TRANSFERRED UNTIL
(i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO OR (ii)
RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE SECURITIES ACT IS NOT REQUIRED
IN CONNECTION WITH SUCH PROPOSED TRANSFER NOR IS SUCH TRANSFER IN VIOLATION OF
ANY APPLICABLE STATE SECURITIES LAWS. THIS LEGEND SHALL BE ENDORSED UPON ANY
NOTE ISSUED IN EXCHANGE FOR THIS NOTE OR ANY SHARES OF COMMON STOCK ISSUABLE
UPON CONVERSION OF THIS NOTE.
THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF THE COMPANY AND PAYEE HEREUNDER ARE
SUBJECT TO THE SUBORDINATION PROVISIONS SET FORTH IN SECTION 2 HEREOF. IN THE
EVENT OF A CONFLICT BETWEEN ANY TERMS OF THIS NOTE AND THE TERMS OF SUCH SECTION
2, THE TERMS OF SECTION 2 SHALL GOVERN.
----------------------------------------------------------------
FUTURELINK DISTRIBUTION CORP.
No. B-____ $____________
Senior Subordinated Convertible Note
FutureLink Distribution Corp., a corporation organized under the laws of
the State of Colorado (the "Company"), for value received, hereby promises to
pay to the order of _________________ (the "Payee" or the "holder of this Note")
or registered assigns at the offices of the Company the principal amount of
___________ Dollars ($_______) (the "Principal Amount") on the earlier of (i)
July 19, 2001; (ii) the completion of a public offering of the Company's
securities (exclusive of offerings pursuant to registration statements on S-4 or
S-8 or comparable limited purpose forms); (iii) the completion (whether through
one or a series of sales) of a private offering of the Company's securities
resulting in gross proceeds of at least $15,000,000 (except as set forth in
Section 6 hereof); or (iv) consummation by the Company of a merger, combination
or sale of substantially all of its assets or the purchase by a single entity or
person or group of affiliated entities or persons of more than 50% of the
Company's outstanding capital stock (the "Maturity Date"). Each payment by the
Company pursuant to this Note shall be made without set-off or counterclaim and
shall be made in lawful currency of the United States of America and in
immediately available funds. Interest on this Note shall accrue on the Principal
Amount outstanding from time to time at a rate per annum computed in accordance
with Section 3 hereof.
Accrued and unpaid interest shall commence on the date hereof and be
payable (i) semi-annually on January 31 and July 31 commencing January 31, 2000,
(ii) upon maturity (whether at the Maturity Date, by acceleration or otherwise),
(iii) upon conversion, on the amount converted and (iv) after maturity until
paid in full (after as well as before judgment), on demand. Each of the dates
referred to in clauses (i), (ii), (iii) and (iv) is sometimes hereinafter
referred to as an "Interest Payment Date." All computations of interest
hereunder shall be made based on the actual number of days elapsed in a year of
360 days (including the first day but excluding the last day during which any
<PAGE>
Page 32 of 81 Pages
such Principal Amount is outstanding). Interest is payable either (i) in cash or
(ii) in shares of common stock having a value equal to the average of the
closing bid prices for the three trading days prior to the Interest Payment
Date, the method of dividend payment to be at the discretion of the Company.
All payments by the Company hereunder shall be applied first to pay any
interest which is due, but unpaid, then to reduce the Principal Amount.
The Company (i) waives presentment, demand, protest or notice of any kind
in connection with this Note and (ii) agrees to pay to the holder hereof, on
demand, all costs and expenses (including reasonable legal fees and expenses)
incurred in connection with the enforcement and collection or this Note.
This Note is issued is issued to the Payee in connection with a private
placement of Notes through Commonwealth Associates L.P., as placement agent
("Commonwealth"), the terms of which are more fully set forth in a Confidential
Term Sheet dated July 1, 1999 (the "Term Sheet"), and pursuant to a subscription
agreement between the Company and the Payee (the "Subscription Agreement"), a
copy of which agreement is available for inspection at the Company's principal
office. Notwithstanding any provision to the contrary contained herein, this
Note is subject and entitled to certain terms, conditions, covenants and
agreements contained in the Subscription Agreement. Any transferee of this Note,
by its acceptance hereof, assumes the obligations of the Payee in the
Subscription Agreement with respect to the conditions and procedures for
transfer of this Note. Reference to the Subscription Agreement shall in no way
impair the absolute and unconditional obligation of the Company to pay both
principal hereof and interest hereon as provided herein.
In consideration for the loan evidenced by this Note and other identical
notes in the aggregate principal amount of up to $10,000,000 (the "Notes"), the
Company shall issue to the holders of the Notes (the "Holders") two-year
warrants (the "Warrants") to purchase 37,500 shares of the Company's common
stock, $.0005 par value (the "Common Stock") for each $250,000 Principal Amount
of Notes held. The Warrants will be exercisable at a per share price equal to
$8.50.
1. Prepayment. The Principal Amount of this Note may not be prepaid, in
whole or in part, without the consent of the Payee.
2. Subordination. The Company, for itself, its successors and assigns,
covenants and agrees, and the Payee and each successive holder of this Note, by
its acceptance of this Note, likewise covenants and agrees (expressly for the
benefit of the present and future holders of the Senior Debt (as hereinafter
defined)), that the payment of principal of, and interest on, this Note is
hereby expressly subordinated in right of payment to the prior payment in full
of the principal of, premium (if any) and interest on, all Senior Debt of the
Company (other than the Notes), whether outstanding on the date hereof or
hereafter incurred or created. "Senior Debt" means (i) up to $2,000,000 of
indebtedness under an existing line of credit with a bank or other financial
institution and all renewals, extensions, refundings, amendments and
modifications of any such indebtedness and (ii) $8,038,500 principal amount of
outstanding Senior Subordinated Convertible Notes.
The provisions of this Section 2 are not for the benefit of the Company,
but are solely for the purpose of defining the relative rights of the holders of
the Senior Debt, on the one hand, and the holders of the Notes, on the other
hand. Nothing contained herein (i) shall impair, as between the
<PAGE>
Page 33 of 81 Pages
Company and the holder of this Note, the obligations of the Company, which are
absolute and unconditional, to pay to the holder hereof all amounts payable in
respect of this Note as and when the same shall become due and payable in
accordance with the terms hereof or (ii) is intended to or shall affect the
relative rights of the holder of this Note and the creditors of the Company, or
(iii) shall prevent the holder of this Note from exercising all rights, powers
and remedies otherwise permitted by applicable law or upon a default or Event of
Default under this Note as set forth in these subordination provisions.
3. Computation of Interest.
A. Base Interest Rate. Subject to subsections 3B and 3C below, the
outstanding Principal Amount shall bear interest at the rate of eight percent
(8%) per annum.
B. Penalty Interest. In the event the Note is not repaid on the
Maturity Date, the rate of interest applicable to the unpaid Principal Amount
shall be adjusted to fifteen percent (15%) per annum from the date of default
until repayment; provided, that in no event shall the interest rate exceed the
Maximum Rate provided in Section 3C below.
C. Maximum Rate. In the event that it is determined that, under the
laws relating to usury applicable to the Company or the indebtedness evidenced
by this Note ("Applicable Usury Laws"), the interest charges and fees payable by
the Company in connection herewith or in connection with any other document or
instrument executed and delivered in connection herewith cause the effective
interest rate applicable to the indebtedness evidenced by this Note to exceed
the maximum rate allowed by law (the "Maximum Rate"), then such interest shall
be recalculated for the period in question and any excess over the Maximum Rate
paid with respect to such period shall be credited, without further agreement or
notice, to the Principal Amount outstanding hereunder to reduce said balance by
such amount with the same force and effect as though the Company had
specifically designated such extra sums to be so applied to principal and the
Payee had agreed to accept such extra payment(s) as a premium-free prepayment.
All such deemed prepayments shall be applied to the principal balance payable at
maturity. In no event shall any agreed-to or actual exaction as consideration
for this Note exceed the limits imposed or provided by Applicable Usury Laws in
the jurisdiction in which the Company is resident applicable to the use or
detention of money or to forbearance in seeking its collection in the
jurisdiction in which the Company is resident.
4. Covenants of Company
A. Affirmative Covenants. The Company covenants and agrees that, so
long as this Note shall be outstanding, it will perform the obligations set
forth in this Section 4A, unless it has otherwise obtained the prior written
consent of Commonwealth and a committee of Noteholders holding in the aggregate
not less than 10% of the outstanding Principal Amount of the Notes to be
designated by Commonwealth (the "Committee"):
(i) Taxes and Levies. The Company will promptly pay and discharge
all taxes, assessments, and governmental charges or levies imposed upon
the Company or upon its income and profits, or upon any of its property,
before the same shall become delinquent, as well as all claims for labor,
materials and supplies which, if unpaid, might become a lien or charge
upon such properties or any part thereof; provided, however, that the
company shall
<PAGE>
Page 34 of 81 Pages
not be required to pay and discharge any such tax, assessment,
charge, levy or claim so long as the validity thereof shall be contested
in good faith by appropriate proceedings and the Company shall set aside
on its books adequate reserves in accordance with generally accepted
accounting principles ("GAAP") with respect to any such tax, assessment,
charge, levy or claim so contested;
(ii) Maintenance of Existence. The Company will do or cause to be
done all things reasonably necessary to preserve and keep in full force
and effect its corporate existence, rights and franchises and comply with
all laws applicable to the Company, except where the failure to comply
would not have a material adverse effect on the Company;
(iii) Maintenance of Property. The Company will at all times
maintain, preserve, protect and keep its property used or useful in the
conduct of its business in good repair, working order and condition, and
from time to time make all needful and proper repairs, renewals,
replacements and improvements thereto as shall be reasonably required in
the conduct of its business;
(iv) Insurance. The Company will, to the extent necessary for the
operation of its business, keep adequately insured by financially sound
reputable insurers, all property of a character usually insured by similar
corporations and carry such other insurance as is usually carried by
similar corporations;
(v) Books and Records. The Company will at all times keep true and
correct books, records and accounts reflecting all of its business affairs
and transactions in accordance with GAAP. Such books and records shall be
open at reasonable times and upon reasonable notice to the inspection of
the Payee or its agents; and
(vi) Notice of Certain Events. The Company will give prompt written
notice (with a description in reasonable detail) to the Payee of:
(a) the occurrence of any Event of Default or any event which,
with the giving of notice or the lapse of time, would constitute an Event
of Default; and
(b) the occurrence of any event of default or any event which,
with the giving of notice or the lapse of time, would constitute an event
of default under any document or instrument evidencing or governing any
indebtedness of the Company and the delivery of any notice effecting the
acceleration of any such indebtedness.
B. Negative Covenants. The Company covenants and agrees that, so
long as this Note shall be outstanding, it will perform the obligations set
forth in this Section 4B, unless it has otherwise obtained the prior written
consent of Commonwealth and the Committee:
(i) Liquidation, Dissolution. The Company will not liquidate or
dissolve, consolidate with, or merge into or with, any other corporation
or other entity, except that any wholly-owned subsidiary may merge with
another wholly-owned subsidiary or with the Company (so long as the
Company is the surviving corporation and no Event of Default shall occur
as a result thereof);
<PAGE>
Page 35 of 81 Pages
(ii) Sales of Assets. The Company will not sell, transfer, lease or
otherwise dispose of, or grant options, warrants or other rights with
respect to, all or a substantial part of its properties or assets to any
person or entity, provided that this clause (ii) shall not restrict any
disposition made in the ordinary course of business and consisting of
(a) capital goods which are obsolete or have no remaining
useful life; or
(b) finished goods inventories;
(iii) Redemptions. The Company will not redeem or repurchase any
outstanding equity securities of the Company, except for (a) repurchases
of unvested or restricted shares of Common Stock at cost from employees,
consultants or members of the Board of Directors pursuant to repurchase
options of the Company (1) currently outstanding or (2) hereafter entered
into pursuant to a stock option plan or restricted stock plan approved by
the Company's Board of Directors or (b) rescission offers contemplated in
the Memorandum or necessary or appropriate to address violations of
applicable securities laws;
(iv) Indebtedness. The Company will hereafter not create, incur,
assume or suffer to exist, contingently or otherwise, any indebtedness
which is not expressly subordinated in right of payment to the Notes other
than Senior Debt, as defined in Section 2 hereof and up to $1,000,000 of
debt which may be ranked parri passu with the Notes;
(v) Negative Pledge. The Company will not hereafter create, incur,
assume or suffer to exist any mortgage, pledge, hypothecation, assignment,
security interest, encumbrance, lien (statutory or other), preference,
priority or other security agreement or preferential arrangement of any
kind or nature whatsoever (including any conditional sale or other title
retention agreement and any financing lease) (each, a "Lien") upon any of
its property, revenues or assets, whether now owned or hereafter acquired,
except:
(a) Liens granted to secure indebtedness incurred to finance
the acquisition (whether by purchase or capitalized lease) of tangible
assets, but only on the assets acquired with the proceeds of such
indebtedness;
(b) Liens for taxes, assessments or other governmental charges
or levies not at the time delinquent or thereafter payable without penalty
or being contested in good faith by appropriate proceedings and for which
adequate reserves in accordance with GAAP shall have been set aside on its
books;
(c) Liens of carriers, warehousemen, mechanics, materialmen
and landlords incurred in the ordinary course of business for sums not
overdue or being contested in good faith by appropriate proceedings and
for which adequate reserves in accordance with GAAP shall have been set
aside on its books;
(d) Liens (other than Liens arising under the Employee
Retirement Income Security Act of 1974, as amended, or Section 412(n) of
the Internal Revenue Code of 1986, as amended) incurred in the ordinary
course of business in connection with workers' compensation, unemployment
insurance or other forms of governmental insurance or benefits,
<PAGE>
Page 36 of 81 Pages
or to secure performance of tenders, statutory obligations, leases and
contracts (other than for borrowed money) entered into in the ordinary
course of business or to secure obligations on surety or appeal bonds; and
(e) judgment Liens in existence less than 30 days after the
entry thereof or with respect to which execution has been stayed;
(vi) Investments. The Company will not purchase, own, invest in or
otherwise acquire, directly or indirectly, any stock or other securities
or make or permit to exist any investment or capital contribution or
acquire any interest whatsoever in any other person or entity or permit to
exist any loans or advances for such purposes except for investments in
direct obligations of the United States of America or any agency thereof,
obligations guaranteed by the United States of America and certificates of
deposit or other obligations of any bank or trust company organized under
the laws of the United States or any state thereof and having capital and
surplus of at least $500,000,000; provided, however, that nothing
contained in this clause (v) shall preclude the Company from making
acquisitions for the purpose of expanding its business or transferring
funds to wholly-owned subsidiaries for the purpose of operating its
business or effecting acquisitions through such subsidiaries.
(vii) Transactions with Affiliates. The Company will not enter into
any transaction, including, without limitation, the purchase, sale, lease
or exchange of property, real or personal, the purchase or sale of any
security, the borrowing or lending of any money, or the rendering of any
service, with any person or entity affiliated with the Company (including
officers, directors and shareholders owning 3% or more of the Company's
outstanding capital stock) other than as set forth in (vi) above, except
in the ordinary course of and pursuant to the reasonable requirements of
its business and upon fair and reasonable terms not less favorable than
would be obtained in a comparable arms-length transaction with any other
person or entity not affiliated with the Company and, where the
transaction is valued at in excess of $50,000, with the prior consent of
Commonwealth;
(viii) Dividends. The Company will not declare or pay any cash
dividends or distributions on its outstanding capital stock.
5. Events of Default
A. The term "Event of Default" shall mean any of the events set
forth in this Section 5A:
(i) Non-Payment of Obligations. The Company shall default in the
payment of the principal or accrued interest of this Note as and when the
same shall become due and payable, whether by acceleration or otherwise.
(ii) Non-Performance of Affirmative Covenants. The Company shall
default in the due observance or performance of any covenant set forth in
Section 4A, which default shall continue uncured for five (5) days.
(iii) Non-Performance of Negative Covenants. The Company shall
default in the
<PAGE>
Page 37 of 81 Pages
due observance or performance of any covenant set forth in Section 4B.
(iv) Bankruptcy, Insolvency, etc. The Company shall:
(a) become insolvent or generally fail or be unable to pay, or
admit in writing its inability to pay, its debts as they become due;
(b) apply for, consent to, or acquiesce in, the appointment of
a trustee, receiver, sequestrator or other custodian for the Company or
any of its property, or make a general assignment for the benefit of
creditors;
(c) in the absence of such application, consent or acquiesce
in, permit or suffer to exist the appointment of a trustee, receiver,
sequestrator or other custodian for the Company or for any part of its
property;
(d) permit or suffer to exist the commencement of any
bankruptcy, reorganization, debt arrangement or other case or proceeding
under any bankruptcy or insolvency law, or any dissolution, winding up or
liquidation proceeding, in respect of the Company, and, if such case or
proceeding is not commenced by the Company or converted to a voluntary
case, such case or proceeding shall be consented to or acquiesced in by
the Company or shall result in the entry of an order for relief; or
(e) take any corporate or other action authorizing, or in
furtherance of, any of the foregoing.
(v) Cross-Default. The Company shall default in the payment when due
of any amount payable under any other obligation of the Company for money
borrowed in excess of $100,000.
(vi) Cross-Acceleration. Any senior debt or any other indebtedness
of the Company in an aggregate principal amount exceeding $100,000 (i)
shall be duly declared to be or shall become due and payable prior to the
stated maturity thereof or (ii) shall not be paid as and when the same
becomes due and payable including any applicable grace period.
(vii) Warrants. The Company shall violate any material
representation, warranty or obligation under the Warrants.
B. Action if Bankruptcy. If any Event of Default described in
clauses (iv)(a) through (d) of Section 5A shall occur, the outstanding principal
amount of this Note and all other obligations hereunder shall automatically be
and become immediately due and payable, without notice or demand.
C. Action if Other Event of Default. If any Event of Default (other
than any Event of Default described in clauses (iv)(a) through (d) of Section
5A) shall occur for any reason, whether voluntary or involuntary, and be
continuing, the holder of the Note may, upon notice to the Company, declare all
or any portion of the outstanding principal amount of the Notes together with
<PAGE>
Page 38 of 81 Pages
interest accrued thereon to be due and payable and any or all other obligations
hereunder to be due and payable, whereupon the full unpaid principal amount
hereof, such accrued interest and any and all other such obligations which shall
be so declared due and payable shall be and become immediately due and payable,
without further notice, demand, or presentment.
6. Conversion of Note.
A. Automatic Conversion. If prior to the Maturity Date, the Company
completes a private placement of its debt or equity securities resulting in
gross proceeds to the Company of at least $15,000,000 (a "Subsequent Placement")
and the terms of the Subsequent Placement are consented to by Commonwealth and
the Committee (a "Subsequent Conversion Placement"), the outstanding Principal
Amount shall be automatically converted as payment for the Payee's investment
into the securities sold in the Subsequent Conversion Placement without any
further action on the part of the Payee. Upon cancellation of this Note in
connection with the Payee's investment in the Subsequent Conversion Placement,
all accrued interest shall be paid. The securities issuable upon conversion of
this Note into the Subsequent Conversion Placement are referred to herein as the
"Placement Securities."
B. Optional Conversion. If this Note has not been converted pursuant
to the provision for automatic conversion set forth in subsection 6A above or
the Company has not otherwise completed a Subsequent Placement on or prior to
April 19, 2000, the Payee shall have the right, at its option, at any time up to
and including the Maturity Date, to convert any portion of the outstanding
Principal Amount of this Note into shares of Common Stock of the Company at a
price equal to $8.50 per share (the "Conversion Price"), subject to adjustment
as provided in subsection 6C below. The shares of Common Stock issuable upon
conversion of this Note at the Conversion Price are referred to herein as the
"Conversion Shares."
C. Adjustment of Conversion Price. The Conversion Price in effect at
any time and the number and kind of securities issuable upon conversion of the
Notes shall be subject to adjustment from time to time upon the happening of
certain events as follows:
(i) In case the Company shall hereafter (i) declare a dividend or
make a distribution on its outstanding shares of Common Stock in shares of
Common Stock, (ii) subdivide or reclassify its outstanding shares of
Common Stock into a greater number of shares, or (iii) combine or
reclassify its outstanding shares of Common Stock into a smaller number of
shares, the applicable Conversion Price in effect at the time of the
record date for such dividend or distribution or of the effective date of
such subdivision, combination or reclassification shall be adjusted so
that it shall equal the number of shares determined by multiplying the
Conversion Price by a fraction, the denominator of which shall be the
number of shares of Common Stock outstanding after giving effect to such
action, and the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such action. Such adjustment shall
be made successively whenever any event listed above shall occur.
(ii) In the event the Company defaults in any payment of principal
under the Notes, the Conversion Price shall be reset to the lower of $4.25
or one-half the Conversion Price then in effect, subject to further
adjustment in accordance with Subsection (i) above.
<PAGE>
Page 39 of 81 Pages
(iii) Whenever the Conversion Price payable upon conversion of each
Note is adjusted pursuant to Subsection (i) or (ii) above, the number of
Conversion Shares purchasable upon conversion of this Note shall
simultaneously be adjusted by multiplying the number of Conversion Shares
initially issuable upon conversion of this Note by the Conversion Price in
effect on the date hereof and dividing the product so obtained by the
Conversion Price, as adjusted.
(iv) No adjustment in the Conversion Price shall be required unless
such adjustment would require an increase or decrease of at least five
cents ($0.05) in such price; provided, however, that any adjustments which
by reason of this Subsection (x) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment
required to be made hereunder. All calculations under this Section 6C
shall be made to the nearest cent or to the nearest one-hundredth of a
share, as the case may be. Anything in this Section 6C to the contrary
notwithstanding, the Company shall be entitled, but shall not be required,
to make such changes in the Conversion Price, in addition to those
required by this Section 6C, as it shall determine, in its sole
discretion, to be advisable in order that any dividend or distribution in
shares of Common Stock, or any subdivision, reclassification or
combination of Common Stock, hereafter made by the Company shall not
result in any Federal Income tax liability to the holders of Common Stock
or securities convertible into Common Stock (including Notes).
(v) Whenever the Conversion Price is adjusted, as herein provided,
the Company shall promptly, but no later than 10 days after any request
for such an adjustment by Commonwealth or the Committee, cause a notice
setting forth the adjusted Conversion Price and adjusted number of Shares
issuable upon conversion of each Note, and, if requested, information
describing the transactions giving rise to such adjustments, to be mailed
to the Holders at their last addresses appearing in the Note Register, and
shall cause a certified copy thereof to be mailed to its transfer agent,
if any. In the event the Company does not provide the Holder with such
notice and information within 10 days of a request by the Holder, then
notwithstanding the provisions of this Section 6C, the Conversion Price
shall be immediately adjusted to equal the lowest Offering Price,
Subscription Price or Conversion Price, as applicable, since the date of
this Note, and the number of Conversion Shares issuable upon conversion of
this Note shall be adjusted accordingly. The Company may retain a firm of
independent certified public accountants selected by the Board of
Directors (who may be the regular accountants employed by the Company) to
make any computation required by this Section 6C, and a certificate signed
by such firm shall be conclusive evidence of the correctness of such
adjustment.
(vi) In the event that at any time, as a result of an adjustment
made pursuant to Subsection (i) above, the Holder of this Note thereafter
shall become entitled to receive any shares of the Company, other than
Common Stock, thereafter the number of such other shares so receivable
upon conversion of this Note shall be subject to adjustment from time to
time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in Subsections (i)
to (iii), inclusive above.
(vii) Reorganization of the Company. In case of any reclassification
or capital
<PAGE>
Page 40 of 81 Pages
reorganization, or in case of any consolidation or merger of the Company
with or into another corporation (other than a merger with a subsidiary in
which merger the Company is the continuing corporation and which does not
result in any reclassification or capital reorganization) or in case of
any sale, lease or conveyance to another corporation of the property of
the Company as an entirety, the Company shall, as a condition precedent to
such transaction, cause effective provisions to be made so that the holder
of this Note shall have the right thereafter upon conversion of this Note
in accordance with the provisions of this Section 6, to purchase the kind
and amount of shares of stock and other securities and property receivable
upon such reclassification, capital reorganization, consolidation, merger,
sale or conveyance by a holder of the number of shares of Common Stock
which might have been received upon conversion of this Note immediately
prior to such reclassification, consolidation, merger, sale or conveyance.
Any such provision shall include provision for adjustments which shall be
as nearly equivalent as may be practicable to the adjustments provided for
in this Note. The Company shall not effect any such consolidation, merger,
sale, transfer or other disposition, unless prior to or simultaneously
with the consummation thereof the successor corporation (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing or otherwise acquiring such properties shall assume, by written
instrument executed and mailed or delivered to the holder of this Note at
the last address of such holder appearing on the books of the Company, the
obligation to deliver to such holder such shares of stock, securities,
cash or properties as, in accordance with the foregoing provisions, such
holder may be entitled to acquire. The above provisions of this paragraph
shall similarly apply to successive reorganizations, reclassifications,
consolidations, mergers, sales, transfers or other dispositions. Nothing
herein shall be construed as to require the consent of the holder to any
such reorganization, reclassification, consolidation, merger, sale,
transfer or other disposition.
D. Mechanics of Conversion.
(i) Optional Conversion. Before the Payee shall be entitled to
convert this Note into Conversion Shares pursuant to the provisions of 6B
hereof, the Payee shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Company, and shall give
written notice to the Company at its principal corporate office, of the
election to convert the same and shall state therein the name or names in
which the certificate or certificates for the Conversion Shares are to be
issued. The Company shall, as soon as practicable thereafter, issue and
deliver to the Payee, or to the nominee or nominees of Payee, a
certificate or certificates for the number of Conversion Shares to which
such holder shall be entitled as aforesaid. Such conversion shall be
deemed to have been made immediately prior to the close of business on the
date of such surrender of the Note to be converted (the "Conversion
Date"), and the person or persons entitled to receive the Conversion
Shares issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock as of such
date.
(ii) Automatic Conversion. In the event the Notes are to be
automatically converted into the Subsequent Conversion Placement pursuant
to the provisions of Section 6A hereof, the Company shall deliver to the
Payee at its address appearing on the records of the Company a written
notice of the imminent conversion of this Note (the "Conversion Notice"),
requesting surrender of this Note for cancellation and written
instructions regarding the registration and delivery of certificates for
representing the Placement Securities. In the
<PAGE>
Page 41 of 81 Pages
event the Payee receives a Conversion Notice, the Payee shall be required
to surrender this Note for cancellation within five business days of the
Conversion Notice, but the failure of the Payee so to surrender this Note
shall not affect the conversion of the outstanding Principal Amount into
Placement Securities, provided that if a Note is not surrendered, an
affidavit of lost note shall be provided. No holder of this Note shall be
entitled upon conversion of this Note to have the Placement Securities
registered in the name of another person or entity without first complying
with all applicable restrictions on the transfer of this Note. In the
event the Payee does not provide the Company with written instructions
regarding the registration and delivery of certificates for the Placement
Securities, the Company shall issue such securities in the name of the
Payee and shall forward such certificates to the Payee at its address
appearing on the records of the Company. The person entitled to receive
the Placement Securities shall be deemed to have become the holder of
record of such shares at the close of business on the Conversion Date. The
Company may rely on record ownership of this Note for all corporate
purposes, notwithstanding any contrary notice. After the Conversion Date,
this Note shall, until surrendered to the Company, represent the right to
receive the Placement Securities plus accrued and unpaid interest on the
Principal Amount of this Note through, but excluding the Conversion Date.
E Cash Payments. No fractional shares (or scrip representing
fractional shares) of Common Stock shall be issued upon conversion of this Note.
In the event that the conversion of the Principal Amount of this Note would
result in the issuance of a fractional share of Common Stock, the Company shall
pay a cash adjustment in lieu of such fractional share to the holder of this
Note based upon the Conversion Price. Upon the surrender of this Note, accrued
and unpaid interest on the Principal Amount of this Note converted pursuant to
Section 6 shall be paid by the Company to the holder of this Note through but
excluding the Conversion Date.
F. Stamp Taxes, etc. The Company shall pay all documentary, stamp or
other transactional taxes attributable to the issuance or delivery of shares of
Common Stock upon conversion of this Note; provided, however, that the Company
shall not be required to pay any taxes which may be payable in respect of any
transfer involved in the issuance or delivery of any certificate for such shares
in a name other than that of the holder of this Note, and the Company shall not
be required to issue or deliver any such certificate unless and until the person
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the Company's satisfaction that such tax
has been paid.
G. Validity of Stock. All shares of Common Stock or Placement
Securities which may be issued upon conversion of this Note will, upon issuance
by the Company in accordance with the terms of this Note, be validly issued,
free from all taxes and liens with respect to the issuance thereof (other than
those created by the holders), free from all preemptive or similar rights and
fully paid and non-assessable.
H. Reservation of Shares. The Company covenants and agrees that it
will at all times have authorized and reserved, solely for the purpose of such
possible conversion, out of its authorized but unissued shares, a sufficient
number of shares of its Common Stock to provide for the exercise in full of the
conversion rights contained in this Note.
I. Notice of Certain Transactions. In case at any time:
<PAGE>
Page 42 of 81 Pages
(i) The Company shall declare any dividend upon, or other
distribution in respect of, its Common Stock; or
(ii) The Company shall offer for subscription to the holders of its
Common Stock any additional shares of stock of any class or any other
securities convertible into shares of stock or any rights to subscribe
thereto; or
(iii) There shall be any capital reorganization or reclassification
of the capital stock of the Company, or a sale of all or substantially all
of the assets of the Company, or a consolidation or merger of the Company
with another corporation (other than a merger with a subsidiary in which
merger the Company is the continuing corporation and which does not result
in any reclassification); or
(iv) There shall be a voluntary or involuntary dissolution;
liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall cause to be
mailed to the registered holder of this Note at the earliest practicable
time (and, in any event not less than 20 days before any record date or
other date set for definitive action), written notice of the date on which
the books of the Company shall close or a record shall be taken for such
dividend, distribution or subscription rights or such reorganization,
reclassification, sale, consolidation, merger or dissolution, liquidation
or winding-up shall take place, as the case may be. Such notice shall also
set forth such facts as shall indicate the effect of such action (to the
extent such effect may be known at the date of such notice) on the
Conversion Price and the kind and amount of the shares of stock and other
securities and property deliverable upon the conversion of this Note. Such
notice shall also specify the date as of which the holders of the Common
Stock of record shall participate in said dividend, distribution or
subscription rights or shall be entitled to exchange their Common Stock
for securities or other property deliverable upon such reorganization,
reclassification, sale, consolidation, merger or dissolution, liquidation
or winding-up, as the case may be.
Nothing herein shall be construed as the consent of the holder of this
Note to any action otherwise prohibited by the terms of this Note or as a
waiver of any such prohibition.
7. Amendments and Waivers.
A. The provisions of this Note may from time to time be amended,
modified or waived, if such amendment, modification or waiver is in writing and
consented to by the Company and the holders of not less than 50% in Principal
Amount of the Notes (the "Required Holders"); provided, however, that no such
amendment, modification or waiver:
(i) which would modify this Section 7A, change the definition of
"Required Holders", extend the Maturity Date for more than 120 days, or
subject the Payee under each Note to any additional obligations shall be
made without the consent of the Payee of each Note, or
(ii) which would reduce the amount of any payment of principal of or
interest on
<PAGE>
Page 43 of 81 Pages
any Principal Amount payable hereunder (or reduce the Principal Amount of
or rate of interest payable hereunder) shall be made without the consent
of the holder of each Note so affected.
B. No failure or delay on the part of the Payee in exercising any
power or right under this Note shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power or right preclude any other or
further exercise thereof or the exercise of any other power or right. No notice
to or demand on the Company in any case shall entitle it to any notice or demand
in similar or other circumstances. No waiver or approval by the Payee shall,
except as may be otherwise stated in such waiver or approval, be applicable to
subsequent transactions. No waiver or approval hereunder shall require any
similar or dissimilar waiver or approval thereafter to be granted hereunder.
C. To the extent that the Company makes a payment or payments to the
Payee, and such payment or payments or any part thereof are subsequently for any
reason invalidated, set aside and/or required to be repaid by the Payee to a
trustee, receiver or any other party under any bankruptcy law, state or federal
law, common law or equitable cause, then to the extent of such recovery, the
obligation or part thereof originally intended to be satisfied, and all rights
and remedies therefor, shall be revived and continued in full force and effect
as if such payment had not been made by the Payee or such enforcement or setoff
had not occurred.
D. After any waiver, amendment or supplement under this section
becomes effective, the Company shall mail to the holders of the Notes a copy
thereof.
8. Miscellaneous
A. Registered Holder. The Company may consider and treat the person
in whose name this Note shall be registered as the absolute owner thereof for
all purposes whatsoever (whether or not this Note shall be overdue) and the
Company shall not be affected by any notice to the contrary. In case of transfer
of this Note by operation of law, the transferee agrees to notify the Company of
such transfer and of its address, and to submit appropriate evidence regarding
such transfer so that this Note may be registered in the name of the transferee.
This Note is transferable only on the books of the Company by the holder hereof,
in person or by attorney, on the surrender hereof, duly endorsed. Communications
sent to any registered owner shall be effective as against all holders or
transferees of the Note not registered at the time of sending the communication.
B. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York. Sections 5-1401 and 5-1402 of
the General Obligations Law of the State of New York shall apply to this Note
and the Company hereby waives any right to stay or dismiss on the basis of forum
non conveniens any action or proceeding brought before the courts of the State
of New York sitting in New York County or of United States of America for the
Southern District of New York and hereby submits to the jurisdiction of such
courts.
C. Notices. All notices required or permitted under this Note shall
be given in accordance with the Subscription Agreement.
D. Waiver of Jury Trial. THE PAYEE AND THE COMPANY HEREBY
<PAGE>
Page 44 of 81 Pages
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS NOTE OR ANY OTHER DOCUMENT OR INSTRUMENT
EXECUTED AND DELIVERED IN CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE
OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF THE PAYEE OR
THE COMPANY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PAYEE'S PURCHASING
THIS NOTE.
IN WITNESS WHEREOF, the Company has caused this Note to be signed in its
name by its duly authorized officer.
FUTURELINK.DISTRIBUTION CORP.
By
---------------------------------------
Raghu Kilambi, Chief Financial Officer
Page 45 of 81 Pages
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE
TRANSFERRED UNTIL (i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT") SHALL HAVE BECOME EFFECTIVE WITH RESPECT
THERETO OR (ii) RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE SECURITIES
ACT IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER NOR IS SUCH
TRANSFER IN VIOLATION OF ANY APPLICABLE STATE SECURITIES LAWS. THIS LEGEND SHALL
BE ENDORSED UPON ANY WARRANT ISSUED IN EXCHANGE FOR THIS WARRANT OR ANY SHARES
OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT.
WARRANT TO PURCHASE COMMON STOCK
OF
FUTURELINK DISTRIBUTION CORP.
No. B- _____
This is to Certify That, FOR VALUE RECEIVED, ____________, or assigns
("Holder"), is entitled to purchase, subject to the provisions of this Warrant,
from FutureLink Distribution Corp., a corporation organized under the laws of
the State of Colorado ("Company"), ___________ (________) fully paid, validly
issued and nonassessable shares of common stock, $.0005 par value, of the
Company ("Common Stock") at a price of $8.50 per share at any time or from time
to time during the period from the date hereof until July 19, 2001 (the
"Exercise Period"), subject to adjustment as set forth herein. The number of
shares of Common Stock to be received upon the exercise of this Warrant and the
price to be paid for each share of Common Stock may be adjusted from time to
time as hereinafter set forth. The shares of Common Stock deliverable upon such
exercise, and as adjusted from time to time, are hereinafter sometimes referred
to as "Warrant Shares" and the exercise price of a share of Common Stock in
effect at any time and as adjusted from time to time is hereinafter sometimes
referred to as the "Exercise Price". This Warrant, together with warrants of
like tenor, constituting in the aggregate warrants (the "Warrants") to purchase
up to 1,500,000 shares of Common Stock, was originally issued in connection with
a private offering of the Company's securities (the "Private Placement") through
Commonwealth Associates L.P. ("Commonwealth") pursuant to a Confidential Term
Sheet dated July 1, 1999 in consideration for loans evidenced by 8% senior
subordinated convertible promissory notes issued in the Private Placement (the
"Notes").
(a) EXERCISE OF WARRANT; CANCELLATION OF WARRANT.
(1) This Warrant may be exercised in whole or in part at any time or
from time to time during the "Exercise Period; provided, however, that (i) if
either such day is a day on which banking institutions in the State of New York
are authorized by law to close, then on the next succeeding day which shall not
be such a day, and (ii) in the event of any merger, consolidation or sale of
substantially all the assets of the Company as an entirety, resulting in any
distribution to the Company's stockholders, prior to July 19, 2001, the Holder
shall have the right to exercise this Warrant commencing at such time through
July 19, 2001 into the kind and amount of shares of stock
and other securities and property (including cash) receivable by a holder of the
number of shares of Common Stock into which this Warrant might have been
exercisable immediately prior thereto. This
<PAGE>
Page 46 of 81 Pages
Warrant may be exercised by presentation and surrender hereof to the Company at
its principal office with the Purchase Form annexed hereto duly executed and
accompanied by payment of the Exercise Price for the number of Warrant Shares
specified in such form. As soon as practicable after each such exercise of the
warrants, but not later than seven (7) days following the receipt of good and
available funds, the Company shall issue and deliver to the Holder a certificate
or certificate for the Warrant Shares issuable upon such exercise, registered in
the name of the Holder or its designee. If this Warrant should be exercised in
part only, the Company shall, upon surrender of this Warrant for cancellation,
execute and deliver a new Warrant evidencing the rights of the Holder thereof to
purchase the balance of the Warrant Shares purchasable thereunder. Upon receipt
by the Company of this Warrant at its office in proper form for exercise, the
Holder shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books of
the Company shall then be closed or that certificates representing such shares
of Common Stock shall not then be physically delivered to the Holder.
(2) At any time during the Exercise Period, the Holder may, at its
option, exercise this Warrant on a cashless basis by exchanging this Warrant, in
whole or in part (a "Warrant Exchange"), into the number of Warrant Shares
determined in accordance with this Section (a)(2), by surrendering this Warrant
at the principal office of the Company or at the office of its stock transfer
agent, accompanied by a notice stating such Holder's intent to effect such
exchange, the number of Warrant Shares to be exchanged and the date on which the
Holder requests that such Warrant Exchange occur (the "Notice of Exchange"). The
Warrant Exchange shall take place on the date specified in the Notice of
Exchange or, if later, the date the Notice of Exchange is received by the
Company (the "Exchange Date"). Certificates for the shares issuable upon such
Warrant Exchange and, if applicable, a new warrant of like tenor evidencing the
balance of the shares remaining subject to this Warrant, shall be issued as of
the Exchange Date and delivered to the Holder within seven (7) days following
the Exchange Date. In connection with any Warrant Exchange, this Warrant shall
represent the right to subscribe for and acquire the number of Warrant Shares
equal to (i) the number of Warrant Shares specified by the Holder in its Notice
of Exchange (the "Total Number") less (ii) the number of Warrant Shares equal to
the quotient obtained by dividing (A) the product of the Total Number and the
existing Exercise Price by (B) the current market value of a share of Common
Stock. Current market value shall have the meaning set forth Section (c) below,
except that for purposes hereof, the date of exercise, as used in such Section
(c), shall mean the Exchange Date.
(b) RESERVATION OF SHARES. The Company shall at all times reserve for
issuance and/or delivery upon exercise of this Warrant such number of shares of
its Common Stock as shall be required for issuance and delivery upon exercise of
the Warrants.
(c) FRACTIONAL SHARES. No fractional shares or script representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of a share, determined as follows:
(1) If the Common Stock is listed on a national securities exchange
or admitted to unlisted trading privileges on such exchange or listed for
trading on the Nasdaq National Market, the current market value shall be the
last reported sale price of the Common Stock on such exchange
<PAGE>
Page 47 of 81 Pages
or market on the last business day prior to the date of exercise of this Warrant
or if no such sale is made on such day, the average of the closing bid and asked
prices for such day on such exchange or market; or
(2) If the Common Stock is not so listed or admitted to unlisted
trading privileges, but is traded on the Nasdaq SmallCap Market, the current
market value shall be the average of the closing bid and asked prices for such
day on such market and if the Common Stock is not so traded, the current market
value shall be the mean of the last reported bid and asked prices reported by
the NASD Electronic Bulletin Board on the last business day prior to the date of
the exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the current
market value shall be an amount, not less than book value thereof as at the end
of the most recent fiscal year of the Company ending prior to the date of the
exercise of the Warrant, determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof to the Company or at the office of its stock transfer
agent, if any, for other warrants of different denominations entitling the
holder thereof to purchase in the aggregate the same number of shares of Common
Stock purchasable hereunder. Upon surrender of this Warrant to the Company at
its principal office or at the office of its stock transfer agent, if any, with
the Assignment Form annexed hereto duly executed and funds sufficient to pay any
transfer tax, the Company shall, without charge, execute and deliver a new
Warrant in the name of the assignee named in such instrument of assignment and
this Warrant shall promptly be cancelled. This Warrant may be divided or
combined with other warrants which carry the same rights upon presentation
hereof at the principal office of the Company or at the office of its stock
transfer agent, if any, together with a written notice specifying the names and
denominations in which new Warrants are to be issued and signed by the Holder
hereof. The term "Warrant" as used herein includes any Warrants into which this
Warrant may be divided or exchanged. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new Warrant of
like tenor and date. Any such new Warrant executed and delivered shall
constitute an additional contractual obligation on the part of the Company,
whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be at
any time enforceable by anyone.
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth herein.
(f) ANTI-DILUTION PROVISIONS. Subject to the provisions of Section l
hereof, the Exercise Price in effect at any time and the number and kind of
securities purchasable upon the exercise of the Warrants shall be subject to
adjustment from time to time upon the happening of certain events as follows:
<PAGE>
Page 48 of 81 Pages
(1) In case the Company shall hereafter (i) declare a dividend or
make a distribution on its outstanding shares of Common Stock in
shares of Common Stock, (ii) subdivide or reclassify its outstanding
shares of Common Stock into a greater number of shares, or (iii)
combine or reclassify its outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price in effect at the time
of the record date for such dividend or distribution or of the
effective date of such subdivision, combination or reclassification
shall be adjusted so that it shall equal the price determined by
multiplying the Exercise Price by a fraction, the denominator of
which shall be the number of shares of Common Stock outstanding
after giving effect to such action, and the numerator of which shall
be the number of shares of Common Stock outstanding immediately
prior to such action. Such adjustment shall be made successively
whenever any event listed above shall occur.
(2) Subject to Subsection (12) below, in case the Company shall
hereafter fix a record date for the issuance of rights or warrants
to all holders of its Common Stock entitling them to subscribe for
or purchase shares of Common Stock (or securities convertible into
Common Stock) at a price (the "Subscription Price") (or having a
conversion price per share) less than the current market price of
the Common Stock (as defined in Subsection (8) below) on the record
date mentioned below, the Exercise Price shall be adjusted so that
the same shall equal the price determined by multiplying the
Exercise Price in effect immediately prior to the date of such
issuance by a fraction, the numerator of which shall be the sum of
the number of shares of Common Stock outstanding on the record date
mentioned below and the number of additional shares of Common Stock
which the aggregate offering price of the total number of shares of
Common Stock so offered (or the aggregate conversion price of the
convertible securities so offered) would purchase at such current
market price per share of the Common Stock, and the denominator of
which shall be the sum of the number of shares of Common Stock
outstanding on such record date and the number of additional shares
of Common Stock offered for subscription or purchase (or into which
the convertible securities so offered are convertible). Such
adjustment shall be made successively whenever such rights or
warrants are issued and shall become effective immediately after the
record date for the determination of shareholders entitled to
receive such rights or warrants; and to the extent that shares of
Common Stock are not delivered (or securities convertible into
Common Stock are not delivered) after the expiration of such rights
or warrants the Exercise Price shall be readjusted to the Exercise
Price which would then be in effect had the adjustments made upon
the issuance of such rights or warrants been made upon the basis of
delivery of only the number of shares of Common Stock (or securities
convertible into Common Stock) actually delivered.
(3) In case the Company shall hereafter distribute to the
holders of its Common Stock evidences of its indebtedness or assets
(excluding cash dividends or distributions and dividends or
distributions referred to in Subsection (1) above) or subscription
rights or warrants (excluding those referred to in Subsection (2)
above), then in each such case the Exercise Price in effect
thereafter shall be determined by multiplying the Exercise Price in
effect immediately prior thereto by a fraction, the
<PAGE>
Page 49 of 81 Pages
numerator of which shall be the total number of shares of Common
Stock outstanding multiplied by the current market price per share
of Common Stock (as defined in Subsection (8) below), less the fair
market value (as determined by the Company's Board of Directors) of
said assets or evidences of indebtedness so distributed or of such
rights or warrants, and the denominator of which shall be the total
number of shares of Common Stock outstanding multiplied by such
current market price per share of Common Stock. Such adjustment
shall be made successively whenever such a record date is fixed.
Such adjustment shall be made whenever any such distribution is made
and shall become effective immediately after the record date for the
determination of shareholders entitled to receive such distribution.
(4) Subject to Subsection (12) below, in case the Company
shall hereafter issue shares of its Common Stock (excluding shares
issued (a) in any of the transactions described in Subsection (1)
above, (b) upon exercise of options granted to the Company's
officers, directors and employees under a plan or plans adopted by
the Company's Board of Directors and approved by its shareholders,
if such shares would otherwise be included in this Subsection (4),
(but only to the extent that the aggregate number of shares excluded
hereby and issued after the date hereof, shall not exceed 5% of the
Company's Common Stock outstanding at the time of any issuance), (c)
upon exercise of options, warrants and convertible debentures
outstanding as of the final closing of the Private Placement, or
conversion of the Notes or the Warrants, (d) to shareholders of any
corporation which merges into the Company in proportion to their
stock holdings of such corporation immediately prior to such merger,
upon such merger, (e) issued in a private placement through
Commonwealth, as placement agent, or upon exercise or conversion of
any securities issued in or in connection with such a private
placement (including agent, consulting or advisory warrants) or (f)
issued in a bona fide public offering pursuant to a firm commitment
underwriting, but only if no adjustment is required pursuant to any
other specific subsection of this Section (f) (without regard to
Subsection (9) below) with respect to the transaction giving rise to
such rights) for a consideration per share (the "Offering Price")
less than the current market price per share (as defined in
Subsection (8) below) on the date the Company fixes the offering
price of such additional shares, the Exercise Price shall be
adjusted immediately thereafter so that it shall equal the price
determined by multiplying the Exercise Price in effect immediately
prior thereto by a fraction, the numerator of which shall be the sum
of the number of shares of Common Stock outstanding immediately
prior to the issuance of such additional shares and the number of
shares of Common Stock which the aggregate consideration received
(determined as provided in Subsection (7) below) for the issuance of
such additional shares would purchase at such current market price
per share of Common Stock, and the denominator of which shall be the
number of shares of Common Stock outstanding immediately after the
issuance of such additional shares. Such adjustment shall be made
successively whenever such an issuance is made.
(5) Subject to Subsection (12) below, in case the Company
shall hereafter issue any securities convertible into or
exchangeable for its Common Stock (excluding securities issued in
transactions described in Subsections (2) and (3) above) for a
consideration per share of Common Stock (the "Conversion Price")
initially
<PAGE>
Page 50 of 81 Pages
deliverable upon conversion or exchange of such securities
(determined as provided in Subsection (7) below) less than the
current market price per share (as defined in Subsection (8) below)
in effect immediately prior to the issuance of such, the Exercise
Price shall be adjusted immediately thereafter so that it shall
equal the price determined by multiplying the Exercise Price in
effect immediately prior thereto by a fraction, the numerator of
which shall be the sum of the number of shares of Common Stock
outstanding immediately prior to the issuance of such securities and
the number of shares of Common Stock which the aggregate
consideration received (determined as provided in Subsection (7)
below) for such securities would purchase at such current market
price per share of Common Stock, and the denominator of which shall
be the sum of the number of shares of Common Stock outstanding
immediately prior to such issuance and the maximum number of shares
of Common Stock of the Company deliverable upon conversion of or in
exchange for such securities at the initial conversion or exchange
price or rate. Such adjustment shall be made successively whenever
such an issuance is made.
(6) Whenever the Exercise Price payable upon exercise of each
Warrant is adjusted pursuant to Subsections (1), (2), (3), (4) and
(5) above, the number of Shares purchasable upon exercise of this
Warrant shall simultaneously be adjusted by multiplying the number
of Shares initially issuable upon exercise of this Warrant by the
Exercise Price in effect on the date hereof and dividing the product
so obtained by the Exercise Price, as adjusted.
(7) For purposes of any computation respecting consideration
received pursuant to Subsections (4) and (5) above, the following
shall apply:
(A) in the case of the issuance of shares of Common
Stock for cash, the consideration shall be the amount of such
cash, provided that in no case shall any deduction be made for
any commissions, discounts or other expenses incurred by the
Company for any underwriting of the issue or otherwise in
connection therewith;
(B) in the case of the issuance of shares of Common
Stock for a consideration in whole or in part other than cash,
the consideration other than cash shall be deemed to be the
fair market value thereof as determined in good faith by the
Board of Directors of the Company (irrespective of the
accounting treatment thereof), whose determination shall be
conclusive; and
(C) in the case of the issuance of securities
convertible into or exchangeable for shares of Common Stock,
the aggregate consideration received therefor shall be deemed
to be the consideration received by the Company for the
issuance of such securities plus the additional minimum
consideration, if any, to be received by the Company upon the
conversion or exchange thereof (the consideration in each case
to be determined in the same manner as provided in clauses (A)
and (B) of this Subsection (7)).
(8) For the purpose of any computation under Subsections (2),
(3), (4)
<PAGE>
Page 51 of 81 Pages
and (5) above, the current market price per share of Common Stock at
any date shall be determined in the manner set forth in Section (c)
hereof except that the current market price per share shall be
deemed to be the higher of (i) the average of the prices for 30
consecutive business days before such date or (ii) the price on the
business day immediately preceding such date.
(9) No adjustment in the Exercise Price shall be required
unless such adjustment would require an increase or decrease of at
least five cents ($0.05) in such price; provided, however, that any
adjustments which by reason of this Subsection (9) are not required
to be made shall be carried forward and taken into account in any
subsequent adjustment required to be made hereunder. All
calculations under this Section (f) shall be made to the nearest
cent or to the nearest one-hundredth of a share, as the case may be.
Anything in this Section (f) to the contrary notwithstanding, the
Company shall be entitled, but shall not be required, to make such
changes in the Exercise Price, in addition to those required by this
Section (f), as it shall determine, in its sole discretion, to be
advisable in order that any dividend or distribution in shares of
Common Stock, or any subdivision, reclassification or combination of
Common Stock, hereafter made by the Company shall not result in any
Federal Income tax liability to the holders of Common Stock or
securities convertible into Common Stock (including Warrants).
(10) Whenever the Exercise Price is adjusted, as herein
provided, the Company shall promptly but no later than 10 days after
any request for such an adjustment by the Holder, cause a notice
setting forth the adjusted Exercise Price and adjusted number of
Shares issuable upon exercise of each Warrant, and, if requested,
information describing the transactions giving rise to such
adjustments, to be mailed to the Holders at their last addresses
appearing in the Warrant Register, and shall cause a certified copy
thereof to be mailed to its transfer agent, if any. In the event the
Company does not provide the Holder with such notice and information
within 10 days of a request by the Holder, then notwithstanding the
provisions of this Section (f), the Exercise Price shall be
immediately adjusted to equal the lowest Offering Price,
Subscription Price or Conversion Price, as applicable, since the
date of this Warrant, and the number of shares issuable upon
exercise of this Warrant shall be adjusted accordingly. The Company
may retain a firm of independent certified public accountants
selected by the Board of Directors (who may be the regular
accountants employed by the Company) to make any computation
required by this Section (f), and a certificate signed by such firm
shall be conclusive evidence of the correctness of such adjustment.
(11) In the event that at any time, as a result of an
adjustment made pursuant to Subsection (1) above, the Holder of this
Warrant thereafter shall become entitled to receive any shares of
the Company, other than Common Stock, thereafter the number of such
other shares so receivable upon exercise of this Warrant shall be
subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to
the Common Stock contained in Subsections (1) to (9), inclusive
above.
<PAGE>
Page 52 of 81 Pages
(12) The adjustment provisions contained in Subsections (2),
(4) and (5) above shall terminate and be of no further force and
effect at such time as the closing bid price of the Common Stock
equals or exceeds 200% of the initial Exercise Price for twenty (20)
consecutive trading days.
(13) Irrespective of any adjustments in the Exercise Price or
the number or kind of shares purchasable upon exercise of this
Warrant, Warrants theretofore or thereafter issued may continue to
express the same price and number and kind of shares as are stated
in the similar Warrants initially issuable pursuant to this
Agreement.
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be adjusted
as required by the provisions of the foregoing Section, the Company shall
forthwith file in the custody of its Secretary or an Assistant Secretary at its
principal office and with its stock transfer agent, if any, an officer's
certificate showing the adjusted Exercise Price determined as herein provided,
setting forth in reasonable detail the facts requiring such adjustment,
including a statement of the number of additional shares of Common Stock, if
any, and such other facts as shall be necessary to show the reason for and the
manner of computing such adjustment. Each such officer's certificate shall be
made available at all reasonable times for inspection by the holder or any
holder of a Warrant executed and delivered pursuant to Section (a) and the
Company shall, forthwith after each such adjustment, mail a copy by certified
mail of such certificate to the Holder or any such holder.
(h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be
outstanding, (i) if the Company shall pay any dividend or make any distribution
upon the Common Stock or (ii) if the Company shall offer to the holders of
Common Stock for subscription or purchase by them any share of any class or any
other rights or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then in any such case, the Company shall cause
to be mailed by certified mail to the Holder, at least fifteen days prior the
date specified in (x) or (y) below, as the case may be, a notice containing a
brief description of the proposed action and stating the date on which (x) a
record is to be taken for the purpose of such dividend, distribution or rights,
or (y) such reclassification, reorganization, consolidation, merger, conveyance,
lease, dissolution, liquidation or winding up is to take place and the date, if
any is to be fixed, as of which the holders of Common Stock or other securities
shall receive cash or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up.
(i) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company, or in case of any consolidation or merger of the
Company with or into another corporation (other than a merger with a subsidiary
in which merger the Company is the continuing corporation and which does not
result in any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the class issuable upon exercise of this
Warrant) or in case of any sale, lease or conveyance to another corporation of
the property of the Company as an entirety, the Company shall, as a condition
precedent to such transaction, cause effective provisions to be made so that the
Holder shall have the right thereafter by exercising this Warrant at any time
<PAGE>
Page 53 of 81 Pages
prior to the expiration of the Warrant, to purchase the kind and amount of
shares of stock and other securities and property receivable upon such
reclassification, capital reorganization and other change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
which might have been purchased upon exercise of this Warrant immediately prior
to such reclassification, change, consolidation, merger, sale or conveyance. Any
such provision shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Warrant. The foregoing provisions of this Section (i) shall similarly apply to
successive reclassifications, capital reorganizations and changes of shares of
Common Stock and to successive consolidations, mergers, sales or conveyances. In
the event that in connection with any such capital reorganization or
reclassification, consolidation, merger, sale or conveyance, additional shares
of Common Stock shall be issued in exchange, conversion, substitution or
payment, in whole or in part, for a security of the Company other than Common
Stock, any such issue shall be treated as an issue of Common Stock covered by
the provisions of Subsection (1) of Section (f) hereof.
(j) REGISTRATION UNDER THE SECURITIES ACT OF 1933. The holder will have
registration rights with respect to the Warrant Shares as more particularly set
forth in the subscription agreement executed in connection with the Private
Placement.
(k) REDEMPTION.
(1) The Warrants may be redeemed, at the option of the Company
on not less than thirty (30) days notice (the "Redemption Notice")
to the Holders, at a redemption price of $0.05 per Warrant (the
"Redemption Price"), if (i) the average closing bid price of the
Company's Common Stock for 20 consecutive trading days ending within
five days of the date of the Redemption Notice exceeds the 200% of
the Exercise Price (the "Target Price") and (ii) either a
registration statement covering the Warrant Shares has been declared
effective by the Securities and Exchange Commission or two years has
elapsed since the issuance of the Warrants and the Holder is not
subject to any lock-up agreement with respect to the Warrants or the
Warrant Shares. The date fixed for redemption of the Warrants (the
"Redemption Date") shall be set forth in the Redemption Notice.
(2) Any right to exercise a Warrant shall terminate at 5:00
P.M. (New York time) on the business day immediately preceding the
Redemption Date. On and after the Redemption Date, Holders of the
Warrants shall have no further rights except to receive, upon
surrender of the Warrant, the Redemption Price.
(3) From and after the Redemption Date, the Company shall, at
the place specified in the Redemption Notice, upon presentation and
surrender to the Company by or on behalf of the Holder thereof of
one or more Warrant Certificates evidencing Warrants to be redeemed,
deliver or cause to be delivered to or upon the written order of
such Holder a sum in cash equal to the Redemption Price of each such
Warrant. From and after the Redemption Date and upon the deposit or
setting aside by the Company of a sum sufficient to redeem all the
Warrants called for redemption, such Warrants shall expire and
become void and all rights hereunder and under the Warrant
Certificates, except the right to receive payment of the Redemption
Price,
<PAGE>
Page 54 of 81 Pages
shall cease.
(4) If the shares of the Company's Common Stock are subdivided
or combined into a greater or smaller number of shares of Common
Stock, the Target Price shall be proportionally adjusted by the
ratio which the total number of shares of Common Stock outstanding
immediately prior to such event bears to the total number of shares
of Common Stock to be outstanding immediately after such event.
FUTURELINK DISTRIBUTION CORP.
By:
------------------------------------
Cameron Chell, Chief Executive
Officer
By:
------------------------------------
Raghu Kilambi, Chief Financial
Officer
Dated: July 19, 1999
<PAGE>
Page 55 of 81 Pages
PURCHASE FORM
Dated___________
The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing ________ shares of Common Stock and hereby
makes payment of ________ in payment of the actual exercise price thereof.
---------------
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name_________________________________________
(Please typewrite or print in block letters)
Address______________________________________
Signature____________________________________
ASSIGNMENT FORM
FOR VALUE RECEIVED, ____________________hereby sells, assigns and
transfers unto
Name_________________________________________
(Please typewrite or print in block letters)
Address______________________________________
the right to purchase Common Stock represented by this Warrant to the extent of
______ shares as to which such right is exercisable and does hereby irrevocably
constitute and appoint _____________ Attorney, to transfer the same on the books
of the Company with full power of substitution in the premises.
Date________________________
Signature___________________
Page 56 of 81 Pages
FUTURELINK DISTRIBUTION CORP.
SUBSCRIPTION AGREEMENT made as of this __th day of _____, 1999 between
FutureLink Distribution Corp., a corporation organized under the laws of the
State of Colorado with offices at 300, 250-6 Avenue SW, Calgary, AB Canada T2P
3H7 (the "Company") and the undersigned (the "Subscriber").
WHEREAS, the Company desires to issue in a private placement (this
"Offering") a minimum of 20 (the "Minimum Offering") and a maximum of 40 (the
"Maximum Offering") units ("Units") in a private placement in accordance with an
exemption provided by Regulation D from the registration provisions of the
Securities Act of 1933 (the "Act"), each Unit consisting of $250,000 principal
amount of 8% senior subordinated convertible promissory notes (the "Notes") in
the form attached as Exhibit (vi) to the Confidential Term Sheet dated July 1,
1999 (the "Term Sheet") and 37,500 two-year common stock purchase warrants (the
"Warrants") in the form attached as Exhibit (vii) to the Term Sheet on the terms
and conditions hereinafter set forth and the Subscriber desires to acquire the
number of Units set forth on the signature page hereof; and
WHEREAS, subsequent to this Offering the Company expects to undertake a
private placement of equity securities;
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants hereinafter set forth, the parties hereto do hereby agree as follows:
I. SUBSCRIPTION FOR UNITS AND REPRESENTATIONS BY AND COVENANTS OF
SUBSCRIBER
1.1 Subject to the terms and conditions hereinafter set forth, the
Subscriber hereby subscribes for and agrees to purchase from the Company such
number of Units as is set forth upon the signature page hereof at a price equal
to $250,000 per Unit, and the Company agrees to sell such Units to the
Subscriber for said purchase price subject to the Company's right to sell to the
Subscriber such lesser number of Units as the Company may, in its sole
discretion, deem necessary or desirable. The purchase price is payable by
certified or bank check made payable to United States Trust Company of New York,
as Escrow Agent for FutureLink Distribution Corp., or by wire transfer of funds,
contemporaneously with the execution and delivery of this Subscription
Agreement. The Subscriber understands however, that this purchase of Units is
contingent upon the Company having received and accepted subscriptions in the
minimum amount of $5,000,000 prior to the Termination Date as defined in Article
III hereof.
1.2 The Subscriber recognizes that the purchase of Units involves a
high degree of risk in that (i) an investment in the Company is highly
speculative and only investors who can afford the loss of their entire
investment should consider investing in the Company and the Units; (ii) he may
not be able to liquidate his investment; (iii) transferability of the securities
comprising the Units is extremely limited; and (iv) an investor could suffer the
loss of his entire investment, as well as other risk factors as more fully set
forth herein and in the Term Sheet and the exhibits thereto.
<PAGE>
Page 57 of 81 Pages
1.3 The Subscriber represents and warrants that he is an "accredited
investor" as such term in defined in Rule 501 of Regulation D promulgated under
the United States Securities Act of 1933, as amended (the "Act"), as indicated
by his responses to the Investor Questionnaire, and that he is able to bear the
economic risk of an investment in the Units. The Subscriber further represents
and warrants that the information furnished in the Investor Questionnaire is
accurate and complete in all material respects.
1.4 The Subscriber acknowledges that he has prior investment
experience, including investment in non-listed and non-registered securities and
that he recognizes the highly speculative nature of this investment.
1.5 The Subscriber acknowledges receipt and careful review of the
Term Sheet and all exhibits thereto and other documents furnished in connection
with this transaction (collectively, the "Offering Documents") and hereby
represents that he has been furnished by the Company during the course of this
transaction with all information regarding the Company which he has requested or
desires to know and that he has been afforded the opportunity to ask questions
of and receive answers from duly authorized officers or other representatives of
the Company concerning the terms and conditions of this Offering.
1.6 The Subscriber acknowledges that this Offering may involve tax
consequences (including, but not limited to, the possible need to recognize
interest income relating to the Warrants) and that the contents of the Offering
Documents do not contain tax advice or information. The Subscriber acknowledges
that he must retain his own professional advisors to evaluate the tax and other
consequences of an investment in the Units.
1.7 The Subscriber acknowledges that this Offering has not been
reviewed by the United States Securities and Exchange Commission ("SEC") because
of the Company's representations that this is intended to be a nonpublic
offering pursuant to Sections 4(2) or 3(b) of the Act. The Subscriber represents
that the Notes and Warrants comprising his Units are being purchased for his own
account, for investment and not for distribution or resale to others. The
Subscriber agrees that he will not sell or otherwise transfer the Notes or the
Warrants unless they are registered under the Act or unless an exemption from
such registration is available.
1.8 The Subscriber understands that Rule 144 (the "Rule")
promulgated under the Act requires, among other conditions, a one year holding
period prior to the resale (in limited amounts) of securities acquired in a
non-public offering without having to satisfy the registration requirements
under the Act. The Subscriber understands that the Company makes no
representation or warranty regarding its fulfillment in the future of any
reporting requirements under the Securities Exchange Act of 1934, as amended, or
its dissemination to the public of any current financial or other information
concerning the Company, as is required by the Rule as one of the conditions of
its availability. The Subscriber understands and hereby acknowledges that the
Company is under no obligation to register the securities comprising the Units
under the Act, with the exception of certain registration rights set forth in
Article IV herein. The Subscriber consents that the Company may, if it desires,
permit the transfer of the Notes, the shares of Common Stock issuable upon
conversion of the Notes (the "Conversion Shares"), the Warrants or the shares of
Common Stock issuable upon exercise of the Warrants (the "Warrant Shares") out
of his name only when his request for transfer is accompanied by an opinion of
counsel reasonably satisfactory to the Company that neither the sale
<PAGE>
Page 58 of 81 Pages
nor the proposed transfer results in a violation of the Act or any applicable
state "blue sky" laws (collectively "Securities Laws").
1.9 The Subscriber hereby agrees not to sell, transfer or otherwise
dispose of the Warrant Shares or the Conversion Shares for such period of time
(not to exceed one year) after completion by the Company of a public offering of
its securities as the managing underwriter for such offering may request in
writing and Commonwealth Associates L.P. may agree to; provided that in no event
shall the term of such lock-up exceed that agreed to by the officers, directors
and principal stockholders of the Company.
1.10 The Subscriber consents to the placement of a legend on any
certificate or other document evidencing the Notes, the Warrants, the Warrant
Shares and the Conversion Shares stating that they have not been registered
under the Act and setting forth or referring to the restrictions on
transferability and sale thereof.
1.11 The Subscriber acknowledges that if he is a Registered
Representative of an NASD member firm, he must give such firm the notice
required by the NASD's Rules of Fair Practice, receipt of which must be
acknowledged by such firm on the signature page hereof.
1.12 If the undersigned Subscriber is a partnership, corporation,
trust or other entity, such partnership, corporation, trust or other entity
further represents and warrants that: (i) it was not formed for the purpose of
investing in the Company; (ii) it is authorized and otherwise duly qualified to
purchase and hold the Units; and (iii) that this Subscription Agreement has been
duly and validly authorized, executed and delivered constitutes the legal,
binding and enforceable obligation of the undersigned.
II. REPRESENTATIONS BY THE COMPANY
2.1 The Company represents and warrants to the Subscriber that prior
to the consummation of this Offering and at the Closing Date:
(a) The Company is a corporation duly organized, existing and
in good standing under the laws of the State of Colorado and has the corporate
power to conduct the business which it conducts and proposes to conduct.
(b) The execution, delivery and performance of this
Subscription Agreement by the Company will have been duly approved by the Board
of Directors of the Company and all other actions required to authorize and
effect the offer and sale of the Units and the securities contained therein will
have been duly taken and approved.
(c) The Notes and Warrants have been duly and validly
authorized and when issued and paid for in accordance with the terms hereof,
will be duly and validly issued and fully paid and non assessable.
(d) The Company will at all times have authorized and reserved
a sufficient number of Conversion Shares and Warrant Shares to provide for
conversion of the Notes and exercise of the Warrants.
<PAGE>
Page 59 of 81 Pages
(e) The Company has obtained, or is in the process of
obtaining, all licenses, permits and other governmental authorizations necessary
to the conduct of its business; such licenses, permits and other governmental
authorizations obtained are in full force and effect; and the Company is in all
material respects complying therewith.
(f) The Company knows of no pending or threatened legal or
governmental proceedings to which the Company is a party which could materially
adversely affect the business, property, financial condition or operations of
the Company.
(g) The Company is not in violation of or default under, nor
will the execution and delivery of this Subscription Agreement, the issuance of
the Notes or the Warrants, and the incurrence of the obligations herein and
therein set forth and the consummation of the transactions herein or therein
contemplated, result in a violation of, or constitute a default under, the
Company's articles of incorporation or by-laws, any material obligations,
agreement, covenant or condition contained in any bond, debenture, note or other
evidence of indebtedness or in any material contract, indenture, mortgage, loan
agreement, lease, joint venture or other agreement or instrument to which the
Company is a party or by which it or any of its properties may be bound or any
material order, rule, regulation, writ, injunction, or decree of any government,
governmental instrumentality or court, domestic or foreign.
III. TERMS OF SUBSCRIPTION
3.1 The subscription period will begin as of July 1, 1999 and will
terminate at 11:59 PM Eastern time on July 31, 1999; provided, however, that if
the Minimum Offering is sold by such date, the subscription period will continue
until August 31, 1999, unless extended by the Company and the Placement Agent
for up to an additional 30 days (the "Termination Date"). Such extension may be
effected without notice to the Subscribers. Of the Units, 20 will be offered on
a "best efforts-all or none" basis and the remaining 20 Units will be offered on
a "best-efforts" basis.
3.2 Placement of the Units will be made by the Placement Agent which
will receive (i) a commission equal to 9% of the gross proceeds from the sale of
the Units; (ii) reimbursement of up to $50,000 of accountable expenses
(exclusive of up to $12,000 for blue sky fees and disbursements and $20,000 of
Placement Agent's counsel fees and disbursements which shall also be
reimbursable by the Company); and (iii) warrants to purchase that number of
shares of Common Stock as equals 10% of the Warrant Shares issuable upon
exercise of the Warrants sold in the Offering (the Agent's Warrants). The
Agent's Warrants will be substantially identical to the Warrants included in the
Units except that they will not be subject to redemption by the Company.
3.3 Pending the sale of the Units, all funds paid hereunder shall be
deposited by the Company in escrow with United States Trust Company of New York.
If the Company shall not have obtained subscriptions (including this
subscription) for purchases of 20 Units for an aggregate purchase price of
$5,000,000 on or before the Termination Date, then this subscription shall be
void and all funds paid hereunder by the Subscriber, without interest, shall be
promptly returned to the Subscriber, subject to paragraph 3.5 hereof. If 20
Units are sold at or prior to the Termination Date, then all subscription
proceeds shall be paid over to the Company within 10 days thereafter at an
initial closing (the "Initial Closing"). In such event, placements of additional
Units may continue until the
<PAGE>
Page 60 of 81 Pages
Termination Date, with subsequent releases of funds to be at the mutual consent
of the Company and the Placement Agent.
3.4 The Subscriber hereby authorizes and directs the Company to
deliver certificates representing the securities to be issued to such Subscriber
pursuant to this Subscription Agreement either (a) to the residential or
business address indicated in the Investor Questionnaire or (b) directly to the
Subscriber's account maintained with the Placement Agent, if any.
3.5 The Subscriber hereby authorizes and directs the Company to
return any funds for unaccepted subscriptions to the same account from which the
funds were drawn, including any customer account maintained with the Placement
Agent.
3.6 If the Subscriber is not a United States person, such Subscriber
hereby represents that it has satisfied itself as to the full observance of the
laws of its jurisdiction in connection with any invitation to subscribe for the
securities comprising the Units or any use of this Agreement, including (i) the
legal requirements within its jurisdiction for the purchase of the Units, (ii)
any foreign exchange restrictions applicable to such purchase, (iii) any
governmental or other consents that may need to be obtained, and (iv) the income
tax and other tax consequences, if any, that may be relevant to the purchase,
holding, redemption, sale or transfer of the securities comprising the Units.
Such Subscriber's subscription and payment for, and his or her continued
beneficial ownership of the Units, will not violate any applicable securities or
other laws of the Subscriber's jurisdiction.
IV. REGISTRATION RIGHTS
4.1 Required Registration. The Company hereby agrees with the
holders of the Notes, the Warrants and the Warrant Shares or their transferees
(collectively, the "Holders") to include the Warrant Shares in the registration
statement to be filed with the SEC covering the resale of the securities sold by
the Company in its private placement in May 1999. The Company hereby agrees with
the Holders to file a registration statement with the SEC covering the resale of
the Conversion Shares (if the notes have not been converted) on Form S-1 or such
other form as the Company desires, pursuant to the Act within nine months of the
Initial Closing Date, and to use its best efforts to cause such registration to
become effective as soon as practicable thereafter.
The Company shall pay the expenses described in Section 4.3 for the
registration statements filed pursuant to this Section 4.1, except for
underwriting discounts and commissions and legal fees of the Holders, which
shall be borne by the Holders.
4.2 Registration Procedures. If and whenever the Company is required by
the provisions of Section 4.1 to effect the registration of Registrable Shares
under the Act, the Company will:
(a) prepare and file with the SEC a registration statement with
respect to such securities, and use its best efforts to cause such registration
statement to become and remain effective until the Registrable Shares are freely
salable without the volume limitations of Rule 144;
(b) prepare and file with the SEC such amendments to such
registration statement and supplements to the prospectus contained therein as
may be necessary to keep such registration
<PAGE>
Page 61 of 81 Pages
statement effective until the Registrable Shares are freely salable without the
volume limitations of Rule 144;
(c) furnish to the Holders participating in such registration and to
the underwriters of the securities being registered such reasonable number of
copies of the registration statement, preliminary prospectus, final prospectus
and such other documents as such underwriters may reasonably request in order to
facilitate the public offering of such securities;
(d) use its best efforts to register or qualify the securities
covered by such registration statement under such state securities or blue sky
laws of such jurisdictions as such participating Holders may reasonably request
in writing within 20 days following the original filing of such registration
statement, except that the Company shall not for any purpose be required to
execute a general consent to service of process or to qualify to do business as
a foreign corporation in any jurisdiction wherein it is not so qualified;
(e) notify the Holders participating in such registration, promptly
after it shall receive notice thereof, of the time when such registration
statement has become effective or a supplement to any prospectus forming a part
of such registration statement has been filed;
(f) notify the Placement Agent promptly of any request by the SEC
for the amending or supplementing of such registration statement or prospectus
or for additional information;
(g) prepare and file with the SEC, promptly upon the request of any
such Holders, any amendments or supplements to such registration statement or
prospectus which, in the opinion of counsel for such Holders (and concurred in
by counsel for the Company), is required under the Act or the rules and
regulations thereunder in connection with the distribution of the Registrable
Shares by such Holders;
(h) prepare and promptly file with the SEC and promptly notify such
Holders of the filing of such amendment or supplement to such registration
statement or prospectus as may be necessary to correct any statements or
omissions if, at the time when a prospectus relating to such securities is
required to be delivered under the Act, any event shall have occurred as the
result of which any such prospectus or any other prospectus as then in effect
would include an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances in which they were made, not misleading; and
(i) advise such Holders, promptly after it shall receive notice or
obtain knowledge thereof, of the issuance of any stop order by the SEC
suspending the effectiveness of such registration statement or the initiation or
threatening of any proceeding for that purpose and promptly use its best efforts
to prevent the issuance of any stop order or to obtain its withdrawal if such
stop order should be issued.
4.3 Expenses.
(a) With respect to the registration required pursuant to Section
4.1 hereof, all fees, costs and expenses of and incidental to such registration,
inclusion and public offering (as specified in paragraph (b) below) in
connection therewith shall be borne by the Company, provided,
<PAGE>
Page 62 of 81 Pages
however, that Holders participating in such registration shall bear their pro
rata share of the underwriting discount and commissions and transfer taxes.
(b) The fees, costs and expenses of registration to be borne by the
Company as provided in paragraph (a) above shall include, without limitation,
all registration, filing, and NASD fees, printing expenses, fees and
disbursements of counsel and accountants for the Company, and all legal fees and
disbursements and other expenses of complying with state securities or blue sky
laws of any jurisdictions in which the securities to be offered are to be
registered and qualified (except as provided in 4.3(a) above). Fees and
disbursements of counsel and accountants for the participating Holders and any
other expenses incurred by the participating Holders not expressly included
above shall be borne by the such Holders.
4.4 Indemnification.
(a) The Company will indemnify and hold harmless each Holder of
Registrable Shares which are included in a registration statement pursuant to
the provisions of Section 4.1 hereof, its directors and officers, and any
underwriter (as defined in the Act) for such Holder and each person, if any, who
controls such Holder or such underwriter within the meaning of the Act, from and
against, and will reimburse such Holder and each such underwriter and
controlling person with respect to, any and all loss, damage, liability, cost
and expense to which such holder or any such underwriter or controlling person
may become subject under the Act or otherwise, insofar as such losses, damages,
liabilities, costs or expenses are caused by any untrue statement or alleged
untrue statement of any material fact contained in such registration statement,
any prospectus contained therein or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading; provided, however, that the Company will not be liable in any such
case to the extent that any such loss, damage, liability, cost or expenses
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission so made in conformity with information furnished
by or on behalf of such Holder, its directors and officers, such underwriter or
such controlling person in writing specifically for use in the preparation
thereof.
(b) Each Holder of Registrable Shares included in a registration
pursuant to the provisions of Section 4.1 hereof will indemnify and hold
harmless the Company, its directors and officers, any controlling person and any
underwriter from and against, and will reimburse the Company, its directors and
officers, any controlling person and any underwriter with respect to, any and
all loss, damage, liability, cost or expense to which the Company or any
controlling person and/or any underwriter may become subject under the Act or
otherwise, insofar as such losses, damages, liabilities, costs or expenses are
caused by any untrue statement or alleged untrue statement of any material fact
contained in such registration statement, any prospectus contained therein or
any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, in each case to the
extent that such untrue statement or alleged untrue statement or omission or
alleged omission was so made in conformity with written information furnished by
or on behalf of such Holder specifically for use in the preparation thereof.
<PAGE>
Page 63 of 81 Pages
(c) Promptly after receipt by an indemnified party pursuant to the
provisions of paragraph (a) or (b) of this Section 4.4 of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions such indemnified party will, if a claim thereof is to be
made against the indemnifying party pursuant to the provisions of said paragraph
(a) or (b), promptly notify the indemnifying party of the commencement thereof;
but the omission to so notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than
hereunder. In case such action is brought against any indemnified party and it
notifies the indemnifying party of the commencement thereof, the indemnifying
party shall have the right to participate in, and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party,
provided, however, if the defendants in any action include both the indemnified
party and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be legal defenses available to it and/or other
indemnified parties which are different from or in addition to those available
to the indemnified party, or if there is a conflict of interest which would
prevent counsel for the indemnifying party from also representing the
indemnified party, the indemnified party or parties have the right to select
separate counsel to participate in the defense of such action on behalf of such
indemnified party or parties. After notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party pursuant to the
provisions of said paragraph (a) or (b) for any legal or other expense
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation, unless (i) the indemnified
party shall have employed counsel in accordance with the provisions of the
preceding sentence, (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after the notice of the commencement of the action or (iii)
the indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party.
V. INVESTMENT IN SUBSEQUENT PRIVATE PLACEMENT
5.1 The Subscriber acknowledges and agrees that pursuant to the
terms of the Notes, if the Company completes a private placement of its debt or
equity securities resulting in gross proceeds to the Company of at least
$15,000,000 (exclusive of Note conversions pursuant to this paragrph) and the
terms of such placement are consented to by Commonwealth Associates L.P. and a
committee of Noteholders holding in the aggregate not less than 10% of the
outstanding Principal Amount of the Notes to be designated by Commonwealth (a
"Subsequent Conversion Placement"), the principal amount of the Subscriber's
Notes will be converted into an investment by the Subscriber in the securities
sold in the Subsequent Conversion Placement.
5.2 The Subscriber agrees that its investment in the Subsequent
Conversion Placement will be made without any further action on the part of the
Subscriber; however, the Subscriber agrees to execute and deliver all documents
reasonably requested by the Company to effectuate such investment.
5.3 The Subscriber understands that the Company will rely on the
representations and warranties of the Subscriber contained in this Subscription
Agreement and the Investor Questionnaire in connection with the Subscriber's
investment in the Subsequent Conversion Placement.
<PAGE>
Page 64 of 81 Pages
VI. MISCELLANEOUS
6.1 Any notice or other communication given hereunder shall be
deemed sufficient if in writing and sent by registered or certified mail, return
receipt requested, addressed to the Company, at its registered office, 300,
250-6 Avenue SW, Calgary, AB Canada T2P 3H7, Attention: Chief Financial Officer
and to the Subscriber at his address indicated on the last page of this
Subscription Agreement. Notices shall be deemed to have been given on the date
of mailing, except notices of change of address and notices sent from outside
the continental United States, which shall be deemed to have been given when
received.
6.2 This Subscription Agreement shall not be changed, modified or
amended except by a writing signed by the parties to be charged, and this
Subscription Agreement may not be discharged except by performance in accordance
with its terms or by a writing signed by the party to be charged.
6.3 This Subscription Agreement shall be binding upon and inure to
the benefit of the parties hereto and to their respective heirs, legal
representatives, successors and assigns. This Subscription Agreement sets forth
the entire agreement and understanding between the parties as to the subject
matter thereof and merges and supersedes all prior discussions, agreements and
understandings of any and every nature among them.
6.4 Notwithstanding the place where this Subscription Agreement may
be executed by any of the parties hereto, the parties expressly agree that all
the terms and provisions hereof shall be construed in accordance with and
governed by the laws of the State of New York. The parties hereby agree that any
dispute which may arise between them arising out of or in connection with this
Subscription Agreement shall be adjudicated before a court located in New York
City and they hereby submit to the exclusive jurisdiction of the courts of the
State of New York located in New York, New York and of the federal courts in the
Southern District of New York with respect to any action or legal proceeding
commenced by any party, and irrevocably waive any objection they now or
hereafter may have respecting the venue of any such action or proceeding brought
in such a court or respecting the fact that such court is an inconvenient forum,
relating to or arising out of this Subscription Agreement or any acts or
omissions relating to the sale of the securities hereunder, and consent to the
service of process in any such action or legal proceeding by means of registered
or certified mail, return receipt requested, in care of the address set forth
below or such other address as the undersigned shall furnish in writing to the
other.
6.5 This Subscription Agreement may be executed in counterparts.
Upon the execution and delivery of this Subscription Agreement by the
Subscriber, this Subscription Agreement shall become a binding obligation of the
Subscriber with respect to the purchase of Units as herein provided; subject,
however, to the right hereby reserved to the Company to enter into the same
agreements with other subscribers and to add and/or to delete other persons as
subscribers.
6.6 The holding of any provision of this Subscription Agreement to
be invalid or unenforceable by a court of competent jurisdiction shall not
affect any other provision of this Subscription Agreement, which shall remain in
full force and effect.
6.7 It is agreed that a waiver by either party of a breach of any
provision of this
<PAGE>
Page 65 of 81 Pages
Subscription Agreement shall not operate, or be construed, as a waiver of any
subsequent breach by that same party.
6.8 The parties agree to execute and deliver all such further
documents, agreements and instruments and take such other and further action as
may be necessary or appropriate to carry out the purposes and intent of this
Subscription Agreement.
6.9 The Company agrees not to disclose the names, addresses or any
other information about the Subscribers, except as required by law, provided,
that the Company may use information relating to the Subscriber in any
registration statement under the Act with respect to the Warrant Shares.
VI. BLUE SKY LEGENDS
Connecticut The undersigned acknowledges that the Securities have
not been registered under the Connecticut Uniform Securities Act, as amended
(the "Act") and are subject to restrictions on transferability and sale of
securities as set forth herein. The undersigned hereby agrees that such
Securities will not be transferred or sold without registration under the Act or
exemption therefrom.
Pennsylvania The undersigned hereby acknowledges that the Issuer is
relying upon the exemption from registration of securities set forth in Section
203(d) of the Pennsylvania Securities Act of 1972, as amended (the "Pennsylvania
Act") in connection with the sale of the Securities to the undersigned.
In accordance with the requirements of Section 203(d) of the
Pennsylvania Act, the undersigned hereby agrees not to sell his Securities
within twelve (12) months from the date of purchase except pursuant to Section
204.01 of the Blue Sky Regulations of the Pennsylvania Securities Act of 1972.
Additionally, the undersigned is aware of the right of withdrawal under Section
207(m) of the Act.
Texas The undersigned hereby acknowledges that the Securities cannot
be sold unless they are subsequently registered under the Securities Act of
1933, as amended, and the Texas Securities Act, or an exemption from
registration is available. The undersigned further acknowledges that because the
Securities are not readily transferable, he must bear the economic risk of his
investment for an indefinite period of time.
<PAGE>
Page 66 of 81 Pages
IN WITNESS WHEREOF, the parties have executed this Subscription
Agreement as of the day and year first written above.
- ------------------------------------ --------------------------------------
Signature of Subscriber Signature of Co-Subscriber
- ------------------------------------ --------------------------------------
Name of Subscriber Name of Co-Subscriber
[please print] [please print]
- ------------------------------------ --------------------------------------
Address of Subscriber Address of Co-Subscriber
- ------------------------------------ --------------------------------------
Social Security or Taxpayer Social Security or Taxpayer
Identification Number of Subscriber Identification Number of
Co-Subscriber
- ------------------------------------
Subscriber's Account Number
at Commonwealth Associates
- ------------------------------------
Dollar Amount of Units Subscribed For
* If Subscriber is a Registered Representative with an NASD member firm, have
the following acknowledgment signed by the appropriate party:
The undersigned NASD member firm
acknowledges receipt of the notice
required by Rule 3050 of the NASD Subscription Accepted:
Conduct Rules.
FUTURELINK DISTRIBUTION CORP.
- ------------------------------------
Name of NASD Member Firm By:
----------------------------------
Name:
Title:
By
---------------------------------
Authorized Officer
Page 67 of 81 Pages
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE
TRANSFERRED UNTIL (i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT") SHALL HAVE BECOME EFFECTIVE WITH RESPECT
THERETO OR (ii) RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE SECURITIES
ACT IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER NOR IS SUCH
TRANSFER IN VIOLATION OF ANY APPLICABLE STATE SECURITIES LAWS. THIS LEGEND SHALL
BE ENDORSED UPON ANY WARRANT ISSUED IN EXCHANGE FOR THIS WARRANT OR ANY SHARES
OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT.
WARRANT TO PURCHASE COMMON STOCK
OF
FUTURELINK DISTRIBUTION CORP.
No. BB-___
This is to Certify That, FOR VALUE RECEIVED, Commonwealth Associates, L.P.
or assigns ("Holder"), is entitled to purchase, subject to the provisions of
this Warrant, from FutureLink Distribution Corp., a corporation organized under
the laws of the State of Colorado ("Company"), _________________________________
(___________) fully paid, validly issued and nonassessable shares of common
stock, $.0005 par value, of the Company ("Common Stock") at a price of $8.50 at
any time or from time to time during the period from the date hereof until July
19, 2001 (the "Exercise Period"), subject to adjustment as set forth herein. The
number of shares of Common Stock to be received upon the exercise of this
Warrant and the price to be paid for each share of Common Stock may be adjusted
from time to time as hereinafter set forth. The shares of Common Stock
deliverable upon such exercise, and as adjusted from time to time, are
hereinafter sometimes referred to as "Warrant Shares" and the exercise price of
a share of Common Stock in effect at any time and as adjusted from time to time
is hereinafter sometimes referred to as the "Exercise Price". This Warrant was
originally issued pursuant to an agency agreement ("Agency Agreement") between
the Company and Commonwealth Associates, L.P. ("Commonwealth"), in connection
with a private offering of the Company's securities through Commonwealth
pursuant to the terms of a confidential term sheet dated July 1, 1999, as
supplemented.
(a) EXERCISE OF WARRANT; CANCELLATION OF WARRANT.
(1) This Warrant may be exercised in whole or in part at any time or
from time to time during the "Exercise Period; provided, however, that (i) if
either such day is a day on which banking institutions in the State of New York
are authorized by law to close, then on the next succeeding day which shall not
be such a day, and (ii) in the event of any merger, consolidation or sale of
substantially all the assets of the Company as an entirety, resulting in any
distribution to the Company's stockholders, prior to July 19, 2001, the Holder
shall have the right to exercise this Warrant commencing at such time through
July 19, 2001 into the kind and amount of shares of stock and other securities
and property (including cash) receivable by a holder of the number of shares of
Common Stock into which this Warrant might have been exercisable immediately
prior thereto. This Warrant may be exercised by presentation and surrender
hereof to the Company at its principal office with the Purchase Form annexed
hereto duly executed and accompanied by payment of the Exercise
<PAGE>
Page 68 of 81 Pages
Price for the number of Warrant Shares specified in such form. As soon as
practicable after each such exercise of the warrants, but not later than seven
(7) days following the receipt of good and available funds, the Company shall
issue and deliver to the Holder a certificate or certificate for the Warrant
Shares issuable upon such exercise, registered in the name of the Holder or its
designee. If this Warrant should be exercised in part only, the Company shall,
upon surrender of this Warrant for cancellation, execute and deliver a new
Warrant evidencing the rights of the Holder thereof to purchase the balance of
the Warrant Shares purchasable thereunder. Upon receipt by the Company of this
Warrant at its office in proper form for exercise, the Holder shall be deemed to
be the holder of record of the shares of Common Stock issuable upon such
exercise, notwithstanding that the stock transfer books of the Company shall
then be closed or that certificates representing such shares of Common Stock
shall not then be physically delivered to the Holder.
(2) At any time during the Exercise Period, the Holder may, at its
option, exercise this Warrant on a cashless basis by exchanging this Warrant, in
whole or in part (a "Warrant Exchange"), into the number of Warrant Shares
determined in accordance with this Section (a)(2), by surrendering this Warrant
at the principal office of the Company or at the office of its stock transfer
agent, accompanied by a notice stating such Holder's intent to effect such
exchange, the number of Warrant Shares to be exchanged and the date on which the
Holder requests that such Warrant Exchange occur (the "Notice of Exchange"). The
Warrant Exchange shall take place on the date specified in the Notice of
Exchange or, if later, the date the Notice of Exchange is received by the
Company (the "Exchange Date"). Certificates for the shares issuable upon such
Warrant Exchange and, if applicable, a new warrant of like tenor evidencing the
balance of the shares remaining subject to this Warrant, shall be issued as of
the Exchange Date and delivered to the Holder within seven (7) days following
the Exchange Date. In connection with any Warrant Exchange, this Warrant shall
represent the right to subscribe for and acquire the number of Warrant Shares
equal to (i) the number of Warrant Shares specified by the Holder in its Notice
of Exchange (the "Total Number") less (ii) the number of Warrant Shares equal to
the quotient obtained by dividing (A) the product of the Total Number and the
existing Exercise Price by (B) the current market value of a share of Common
Stock. Current market value shall have the meaning set forth Section (c) below,
except that for purposes hereof, the date of exercise, as used in such Section
(c), shall mean the Exchange Date.
(b) RESERVATION OF SHARES. The Company shall at all times reserve for
issuance and/or delivery upon exercise of this Warrant such number of shares of
its Common Stock as shall be required for issuance and delivery upon exercise of
the Warrants.
(c) FRACTIONAL SHARES. No fractional shares or script representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of a share, determined as follows:
(1) If the Common Stock is listed on a national securities exchange
or admitted to unlisted trading privileges on such exchange or listed for
trading on the Nasdaq National Market, the current market value shall be the
last reported sale price of the Common Stock on such exchange or market on the
last business day prior to the date of exercise of this Warrant or if no such
sale is made on such day, the average of the closing bid and asked prices for
such day on such exchange or market; or
<PAGE>
Page 69 of 81 Pages
(2) If the Common Stock is not so listed or admitted to unlisted
trading privileges, but is traded on the Nasdaq SmallCap Market, the current
market value shall be the average of the closing bid and asked prices for such
day on such market and if the Common Stock is not so traded, the current market
value shall be the mean of the last reported bid and asked prices reported by
the NASD Electronic Bulletin Board on the last business day prior to the date of
the exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the current
market value shall be an amount, not less than book value thereof as at the end
of the most recent fiscal year of the Company ending prior to the date of the
exercise of the Warrant, determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof to the Company or at the office of its stock transfer
agent, if any, for other warrants of different denominations entitling the
holder thereof to purchase in the aggregate the same number of shares of Common
Stock purchasable hereunder. Upon surrender of this Warrant to the Company at
its principal office or at the office of its stock transfer agent, if any, with
the Assignment Form annexed hereto duly executed and funds sufficient to pay any
transfer tax, the Company shall, without charge, execute and deliver a new
Warrant in the name of the assignee named in such instrument of assignment and
this Warrant shall promptly be cancelled. This Warrant may be divided or
combined with other warrants which carry the same rights upon presentation
hereof at the principal office of the Company or at the office of its stock
transfer agent, if any, together with a written notice specifying the names and
denominations in which new Warrants are to be issued and signed by the Holder
hereof. The term "Warrant" as used herein includes any Warrants into which this
Warrant may be divided or exchanged. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new Warrant of
like tenor and date. Any such new Warrant executed and delivered shall
constitute an additional contractual obligation on the part of the Company,
whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be at
any time enforceable by anyone.
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth herein.
(f) ANTI-DILUTION PROVISIONS. Subject to the provisions of Section l
hereof, the Exercise Price in effect at any time and the number and kind of
securities purchasable upon the exercise of the Warrants shall be subject to
adjustment from time to time upon the happening of certain events as follows:
(1) In case the Company shall hereafter (i) declare a dividend or
make a distribution on its outstanding shares of Common Stock in
shares of Common Stock, (ii) subdivide or reclassify its outstanding
shares of Common Stock into a greater
<PAGE>
Page 70 of 81 Pages
number of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, the Exercise
Price in effect at the time of the record date for such dividend or
distribution or of the effective date of such subdivision,
combination or reclassification shall be adjusted so that it shall
equal the price determined by multiplying the Exercise Price by a
fraction, the denominator of which shall be the number of shares of
Common Stock outstanding after giving effect to such action, and the
numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such action. Such adjustment shall
be made successively whenever any event listed above shall occur.
(2) Subject to Subsection (12) below, in case the Company shall
hereafter fix a record date for the issuance of rights or warrants
to all holders of its Common Stock entitling them to subscribe for
or purchase shares of Common Stock (or securities convertible into
Common Stock) at a price (the "Subscription Price") (or having a
conversion price per share) less than the current market price of
the Common Stock (as defined in Subsection (8) below) on the record
date mentioned below, the Exercise Price shall be adjusted so that
the same shall equal the price determined by multiplying the
Exercise Price in effect immediately prior to the date of such
issuance by a fraction, the numerator of which shall be the sum of
the number of shares of Common Stock outstanding on the record date
mentioned below and the number of additional shares of Common Stock
which the aggregate offering price of the total number of shares of
Common Stock so offered (or the aggregate conversion price of the
convertible securities so offered) would purchase at such current
market price per share of the Common Stock, and the denominator of
which shall be the sum of the number of shares of Common Stock
outstanding on such record date and the number of additional shares
of Common Stock offered for subscription or purchase (or into which
the convertible securities so offered are convertible). Such
adjustment shall be made successively whenever such rights or
warrants are issued and shall become effective immediately after the
record date for the determination of shareholders entitled to
receive such rights or warrants; and to the extent that shares of
Common Stock are not delivered (or securities convertible into
Common Stock are not delivered) after the expiration of such rights
or warrants the Exercise Price shall be readjusted to the Exercise
Price which would then be in effect had the adjustments made upon
the issuance of such rights or warrants been made upon the basis of
delivery of only the number of shares of Common Stock (or securities
convertible into Common Stock) actually delivered.
(3) In case the Company shall hereafter distribute to the
holders of its Common Stock evidences of its indebtedness or assets
(excluding cash dividends or distributions and dividends or
distributions referred to in Subsection (1) above) or subscription
rights or warrants (excluding those referred to in Subsection (2)
above), then in each such case the Exercise Price in effect
thereafter shall be determined by multiplying the Exercise Price in
effect immediately prior thereto by a fraction, the numerator of
which shall be the total number of shares of Common Stock
outstanding multiplied by the current market price per share of
Common Stock (as defined in Subsection (8) below), less the fair
market value (as determined by the Company's Board of Directors) of
said assets or evidences of indebtedness so distributed or of
<PAGE>
Page 71 of 81 Pages
such rights or warrants, and the denominator of which shall be the
total number of shares of Common Stock outstanding multiplied by
such current market price per share of Common Stock. Such adjustment
shall be made successively whenever such a record date is fixed.
Such adjustment shall be made whenever any such distribution is made
and shall become effective immediately after the record date for the
determination of shareholders entitled to receive such distribution.
(4) Subject to Subsection (12) below, in case the Company
shall hereafter issue shares of its Common Stock (excluding shares
issued (a) in any of the transactions described in Subsection (1)
above, (b) upon exercise of options granted to the Company's
officers, directors and employees under a plan or plans adopted by
the Company's Board of Directors and approved by its shareholders,
if such shares would otherwise be included in this Subsection (4),
(but only to the extent that the aggregate number of shares excluded
hereby and issued after the date hereof, shall not exceed 5% of the
Company's Common Stock outstanding at the time of any issuance), (c)
upon exercise of options, warrants and convertible debentures
outstanding as of the final closing of the Private Placement, or
conversion of the Notes or the Warrants, (d) to shareholders of any
corporation which merges into the Company in proportion to their
stock holdings of such corporation immediately prior to such merger,
upon such merger, (e) issued in a private placement through
Commonwealth, as placement agent, or upon exercise or conversion of
any securities issued in or in connection with such a private
placement (including agent, consulting or advisory warrants) or (f)
issued in a bona fide public offering pursuant to a firm commitment
underwriting, but only if no adjustment is required pursuant to any
other specific subsection of this Section (f) (without regard to
Subsection (9) below) with respect to the transaction giving rise to
such rights) for a consideration per share (the "Offering Price")
less than the current market price per share (as defined in
Subsection (8) below) on the date the Company fixes the offering
price of such additional shares, the Exercise Price shall be
adjusted immediately thereafter so that it shall equal the price
determined by multiplying the Exercise Price in effect immediately
prior thereto by a fraction, the numerator of which shall be the sum
of the number of shares of Common Stock outstanding immediately
prior to the issuance of such additional shares and the number of
shares of Common Stock which the aggregate consideration received
(determined as provided in Subsection (7) below) for the issuance of
such additional shares would purchase at such current market price
per share of Common Stock, and the denominator of which shall be the
number of shares of Common Stock outstanding immediately after the
issuance of such additional shares. Such adjustment shall be made
successively whenever such an issuance is made.
(5) Subject to Subsection (12) below, in case the Company
shall hereafter issue any securities convertible into or
exchangeable for its Common Stock (excluding securities issued in
transactions described in Subsections (2) and (3) above) for a
consideration per share of Common Stock (the "Conversion Price")
initially deliverable upon conversion or exchange of such securities
(determined as provided in Subsection (7) below) less than the
current market price per share (as defined in Subsection (8) below)
in effect immediately prior to the issuance of such, the Exercise
Price shall be adjusted immediately thereafter so that it shall
equal the price
<PAGE>
Page 72 of 81 Pages
determined by multiplying the Exercise Price in effect immediately
prior thereto by a fraction, the numerator of which shall be the sum
of the number of shares of Common Stock outstanding immediately
prior to the issuance of such securities and the number of shares of
Common Stock which the aggregate consideration received (determined
as provided in Subsection (7) below) for such securities would
purchase at such current market price per share of Common Stock, and
the denominator of which shall be the sum of the number of shares of
Common Stock outstanding immediately prior to such issuance and the
maximum number of shares of Common Stock of the Company deliverable
upon conversion of or in exchange for such securities at the initial
conversion or exchange price or rate. Such adjustment shall be made
successively whenever such an issuance is made.
(6) Whenever the Exercise Price payable upon exercise of each
Warrant is adjusted pursuant to Subsections (1), (2), (3), (4) and
(5) above, the number of Shares purchasable upon exercise of this
Warrant shall simultaneously be adjusted by multiplying the number
of Shares initially issuable upon exercise of this Warrant by the
Exercise Price in effect on the date hereof and dividing the product
so obtained by the Exercise Price, as adjusted.
(7) For purposes of any computation respecting consideration
received pursuant to Subsections (4) and (5) above, the following
shall apply:
(A) in the case of the issuance of shares of Common
Stock for cash, the consideration shall be the amount of such
cash, provided that in no case shall any deduction be made for
any commissions, discounts or other expenses incurred by the
Company for any underwriting of the issue or otherwise in
connection therewith;
(B) in the case of the issuance of shares of Common
Stock for a consideration in whole or in part other than cash,
the consideration other than cash shall be deemed to be the
fair market value thereof as determined in good faith by the
Board of Directors of the Company (irrespective of the
accounting treatment thereof), whose determination shall be
conclusive; and
(C) in the case of the issuance of securities
convertible into or exchangeable for shares of Common Stock,
the aggregate consideration received therefor shall be deemed
to be the consideration received by the Company for the
issuance of such securities plus the additional minimum
consideration, if any, to be received by the Company upon the
conversion or exchange thereof (the consideration in each case
to be determined in the same manner as provided in clauses (A)
and (B) of this Subsection (7)).
(8) For the purpose of any computation under Subsections (2),
(3), (4) and (5) above, the current market price per share of Common
Stock at any date shall be determined in the manner set forth in
Section (c) hereof except that the current market price per share
shall be deemed to be the higher of (i) the average of the prices
for 30 consecutive business days before such date or (ii) the price
on the business day
<PAGE>
Page 73 of 81 Pages
immediately preceding such date.
(9) No adjustment in the Exercise Price shall be required
unless such adjustment would require an increase or decrease of at
least five cents ($0.05) in such price; provided, however, that any
adjustments which by reason of this Subsection (9) are not required
to be made shall be carried forward and taken into account in any
subsequent adjustment required to be made hereunder. All
calculations under this Section (f) shall be made to the nearest
cent or to the nearest one-hundredth of a share, as the case may be.
Anything in this Section (f) to the contrary notwithstanding, the
Company shall be entitled, but shall not be required, to make such
changes in the Exercise Price, in addition to those required by this
Section (f), as it shall determine, in its sole discretion, to be
advisable in order that any dividend or distribution in shares of
Common Stock, or any subdivision, reclassification or combination of
Common Stock, hereafter made by the Company shall not result in any
Federal Income tax liability to the holders of Common Stock or
securities convertible into Common Stock (including Warrants).
(10) Whenever the Exercise Price is adjusted, as herein
provided, the Company shall promptly but no later than 10 days after
any request for such an adjustment by the Holder, cause a notice
setting forth the adjusted Exercise Price and adjusted number of
Shares issuable upon exercise of each Warrant, and, if requested,
information describing the transactions giving rise to such
adjustments, to be mailed to the Holders at their last addresses
appearing in the Warrant Register, and shall cause a certified copy
thereof to be mailed to its transfer agent, if any. In the event the
Company does not provide the Holder with such notice and information
within 10 days of a request by the Holder, then notwithstanding the
provisions of this Section (f), the Exercise Price shall be
immediately adjusted to equal the lowest Offering Price,
Subscription Price or Conversion Price, as applicable, since the
date of this Warrant, and the number of shares issuable upon
exercise of this Warrant shall be adjusted accordingly. The Company
may retain a firm of independent certified public accountants
selected by the Board of Directors (who may be the regular
accountants employed by the Company) to make any computation
required by this Section (f), and a certificate signed by such firm
shall be conclusive evidence of the correctness of such adjustment.
(11) In the event that at any time, as a result of an
adjustment made pursuant to Subsection (1) above, the Holder of this
Warrant thereafter shall become entitled to receive any shares of
the Company, other than Common Stock, thereafter the number of such
other shares so receivable upon exercise of this Warrant shall be
subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to
the Common Stock contained in Subsections (1) to (9), inclusive
above.
(12) The adjustment provisions contained in Subsections (2),
(4) and (5) above shall terminate and be of no further force and
effect at such time as the closing bid price of the Common Stock
equals or exceeds 200% of the initial Exercise Price for twenty (20)
consecutive trading days.
<PAGE>
Page 74 of 81 Pages
(13) Irrespective of any adjustments in the Exercise Price or
the number or kind of shares purchasable upon exercise of this
Warrant, Warrants theretofore or thereafter issued may continue to
express the same price and number and kind of shares as are stated
in the similar Warrants initially issuable pursuant to this
Agreement.
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be adjusted
as required by the provisions of the foregoing Section, the Company shall
forthwith file in the custody of its Secretary or an Assistant Secretary at its
principal office and with its stock transfer agent, if any, an officer's
certificate showing the adjusted Exercise Price determined as herein provided,
setting forth in reasonable detail the facts requiring such adjustment,
including a statement of the number of additional shares of Common Stock, if
any, and such other facts as shall be necessary to show the reason for and the
manner of computing such adjustment. Each such officer's certificate shall be
made available at all reasonable times for inspection by the holder or any
holder of a Warrant executed and delivered pursuant to Section (a) and the
Company shall, forthwith after each such adjustment, mail a copy by certified
mail of such certificate to the Holder or any such holder.
(h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be
outstanding, (i) if the Company shall pay any dividend or make any distribution
upon the Common Stock or (ii) if the Company shall offer to the holders of
Common Stock for subscription or purchase by them any share of any class or any
other rights or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then in any such case, the Company shall cause
to be mailed by certified mail to the Holder, at least fifteen days prior the
date specified in (x) or (y) below, as the case may be, a notice containing a
brief description of the proposed action and stating the date on which (x) a
record is to be taken for the purpose of such dividend, distribution or rights,
or (y) such reclassification, reorganization, consolidation, merger, conveyance,
lease, dissolution, liquidation or winding up is to take place and the date, if
any is to be fixed, as of which the holders of Common Stock or other securities
shall receive cash or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up.
(i) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company, or in case of any consolidation or merger of the
Company with or into another corporation (other than a merger with a subsidiary
in which merger the Company is the continuing corporation and which does not
result in any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the class issuable upon exercise of this
Warrant) or in case of any sale, lease or conveyance to another corporation of
the property of the Company as an entirety, the Company shall, as a condition
precedent to such transaction, cause effective provisions to be made so that the
Holder shall have the right thereafter by exercising this Warrant at any time
prior to the expiration of the Warrant, to purchase the kind and amount of
shares of stock and other securities and property receivable upon such
reclassification, capital reorganization and other change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
<PAGE>
Page 75 of 81 Pages
which might have been purchased upon exercise of this Warrant immediately prior
to such reclassification, change, consolidation, merger, sale or conveyance. Any
such provision shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Warrant. The foregoing provisions of this Section (i) shall similarly apply to
successive reclassifications, capital reorganizations and changes of shares of
Common Stock and to successive consolidations, mergers, sales or conveyances. In
the event that in connection with any such capital reorganization or
reclassification, consolidation, merger, sale or conveyance, additional shares
of Common Stock shall be issued in exchange, conversion, substitution or
payment, in whole or in part, for a security of the Company other than Common
Stock, any such issue shall be treated as an issue of Common Stock covered by
the provisions of Subsection (1) of Section (f) hereof.
(j) REGISTRATION UNDER THE SECURITIES ACT OF 1933.
(1) The Company hereby agrees with the holders of the Warrants
and the Warrant Shares or their transferees (collectively, the
"Holders") that upon notice by either Commonwealth or Holders
beneficially owning at least 50% of the Warrants and Warrant Shares,
it will prepare and file with the Securities and Exchange Commission
("SEC") a registration statement under the Securities Act of 1933,
as amended (the "Act") covering the resale of the Warrant Shares and
use its best efforts to cause such registration statement to become
effective as soon as practicable thereafter. If the Company shall
determine to proceed with the actual preparation and filing of a
registration statement under the Act in connection with the proposed
offer and sale of any of its securities by it or any of its security
holders (other than a registration statement on Form S-4, S-8 or
other limited purpose form), then the Company will give written
notice of its determination to all record holders of the Warrants
and Warrant Shares. Upon the written request from any Holder, the
Company will, except as herein provided, cause all such Warrant
Shares to be included in such registration statement, all to the
extent requisite to permit the sale or other disposition by the
prospective seller or sellers of the Warrant Shares to be so
registered; provided, further, that nothing herein shall prevent the
Company from, at any time, abandoning or delaying any registration.
If any registration pursuant to this Section j(1) shall be
underwritten in whole or in part, the Company may require that the
Warrant Shares requested for inclusion by the Holders be included in
the underwriting on the same terms and conditions as the securities
otherwise being sold through the underwriters.
(2) The Company will, until such time as the Warrant Shares
may be sold under Rule 144 without volume limitation:
(A) prepare and file with the SEC such amendments to
such registration statement and supplements to the prospectus
contained therein as may be necessary to keep such
registration statement effective;
(B) furnish to the Holders participating in such
registration and to the underwriters of the securities being
registered such reasonable number of copies of the
registration statement, preliminary prospectus, final
prospectus and such other documents as such underwriters may
reasonably request in order to facilitate the public offering
of such securities;
<PAGE>
Page 76 of 81 Pages
(C) use its best efforts to register or qualify the
securities covered by such registration statement under such
state securities or blue sky laws of such jurisdictions as the
Holders may reasonably request in writing within twenty (20)
days following the original filing of such registration
statement, except that the Company shall not for any purpose
be required to execute a general consent to service of process
or to qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified or subject itself
to taxation in any such jurisdiction;
(D) notify the Holders, promptly after it shall receive
notice thereof, of the time when such registration statement
has become effective or a supplement to any prospectus forming
a part of such registration statement has been filed;
(E) notify the Holders promptly of any request by the
SEC for the amending or supplementing of such registration
statement or prospectus or for additional information;
(F) prepare and file with the SEC, promptly upon the
request of any Holders, any amendments or supplements to such
registration statement or prospectus which, in the opinion of
counsel for such Holders (and concurred in by counsel for the
Company), is required under the Act or the rules and
regulations thereunder in connection with the distribution of
Common Stock by such Holders;
(G) prepare and promptly file with the SEC and promptly
notify such Holders of the filing of such amendment or
supplement to such registration statement or prospectus as may
be necessary to correct any statements or omissions if, at the
time when a prospectus relating to such securities is required
to be delivered under the Act, any event shall have occurred
as the result of which any such prospectus or any other
prospectus as then in effect would include an untrue statement
of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the
circumstances in which they were made, not misleading; and
(H) advise the Holders, promptly after it shall receive
notice or obtain knowledge thereof, of the issuance of any
stop order by the SEC suspending the effectiveness of such
registration statement or the initiation or threatening of any
proceeding for that purpose and promptly use its best efforts
to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued.
The Company may require each Holder of Warrant Shares as to which any
registration is being effected to furnish to the Company such information
regarding the distribution of such Warrant Shares as the Company may from time
to time reasonably request in writing.
(3) All fees, costs and expenses of and incidental to such
registration, inclusion and public offering in connection therewith shall
be borne by the Company, provided, however, that the Holders shall bear
their pro rata share of the underwriting discount and commissions and
transfer taxes. The fees, costs and expenses of registration to be borne
by the Company as provided above shall include, without limitation, all
registration, filing, and
<PAGE>
Page 77 of 81 Pages
NASD fees, printing expenses, fees and disbursements of counsel and
accountants for the Company, and all legal fees and disbursements and
other expenses of complying with state securities or blue sky laws of any
jurisdictions in which the securities to be offered are to be registered
and qualified (except as provided above). Fees and disbursements of
counsel and accountants for the Holders and any other expenses incurred by
the Holders not expressly included above shall be borne by the Holders.
(4) The Company will indemnify and hold harmless each Holder of
Warrant Shares which are included in a registration statement pursuant to
the provisions of Section (j)(1) hereof, its directors and officers, and
any underwriter (as defined in the Act) for such Holder and each person,
if any, who controls such Holder or such underwriter within the meaning of
the Act, from and against, and will reimburse such Holder and each such
underwriter and controlling person with respect to, any and all loss,
damage, liability, cost and expense to which such Holder or any such
underwriter or controlling person may become subject under the Act or
otherwise, insofar as such losses, damages, liabilities, costs or expenses
are caused by any untrue statement or alleged untrue statement of any
material fact contained in such registration statement, any prospectus
contained therein or any amendment or supplement thereto, or arise out of
or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made,
not misleading; provided, however, that the Company will not be liable in
any such case to the extent that any such loss, damage, liability, cost or
expenses arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity
with information furnished by such Holder, such underwriter or such
controlling person in writing specifically for use in the preparation
thereof.
(5) Each Holder of Warrant Shares included in a registration
pursuant to the provisions of Section (j)(1) hereof will indemnify and
hold harmless the Company, its directors and officers, any controlling
person and any underwriter from and against, and will reimburse the
Company, its directors and officers, any controlling person and any
underwriter with respect to, any and all loss, damage, liability, cost or
expense to which the Company or any controlling person and/or any
underwriter may become subject under the Act or otherwise, insofar as such
losses, damages, liabilities, costs or expenses are caused by any untrue
statement or alleged untrue statement of any material fact contained in
such registration statement, any prospectus contained therein or any
amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading, in each case to
the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was so made in reliance
upon and in strict conformity with written information furnished by or on
behalf of such Holder specifically for use in the preparation thereof.
(6) Promptly after receipt by an indemnified party pursuant to the
provisions of Sections (j)(4) or (5) of notice of the commencement of any
action involving the subject matter of the foregoing indemnity provisions
such indemnified party will, if a claim thereof is to be made against the
indemnifying party pursuant to the provisions of said Sections (j)(4)
<PAGE>
Page 78 of 81 Pages
or (5), promptly notify the indemnifying party of the commencement
thereof; but the omission to so notify the indemnifying party will not
relieve it from any liability which it may have to any indemnified party
otherwise than hereunder. In case such action is brought against any
indemnified party and it notifies the indemnifying party of the
commencement thereof, the indemnifying party shall have the right to
participate in, and, to the extent that it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party, provided,
however, if counsel for the indemnifying party concludes that a single
counsel cannot under applicable legal and ethical considerations,
represent both the indemnifying party and the indemnified party, the
indemnified party or parties have the right to select separate counsel to
participate in the defense of such action on behalf of such indemnified
party or parties. After notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party pursuant
to the provisions of said Sections (j)(4) or (5) for any legal or other
expense subsequently incurred by such indemnified party in connection with
the defense thereof other than reasonable costs of investigation, unless
(i) the indemnified party shall have employed counsel in accordance with
the provisions of the preceding sentence, (ii) the indemnifying party
shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after the notice
of the commencement of the action or (iii) the indemnifying party has
authorized the employment of counsel for the indemnified party at the
expense of the indemnifying party.
FUTURELINK DISTRIBUTION CORP.
By:
-----------------------------------
Cameron Chell, Chief Executive
Officer
By:
-----------------------------------
Dated: July 19 , 1999 Raghu Kilambi, Chief Financial
Officer
<PAGE>
Page 79 of 81 Pages
PURCHASE FORM
Dated__________
The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing ________ shares of Common Stock and hereby
makes payment of _________ in payment of the actual exercise price thereof.
---------------
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name_________________________________________
(Please typewrite or print in block letters)
Address______________________________________
Signature____________________________________
ASSIGNMENT FORM
FOR VALUE RECEIVED, ____________________hereby sells, assigns and
transfers unto
Name_________________________________________
(Please typewrite or print in block letters)
Address______________________________________
the right to purchase Common Stock represented by this Warrant to the extent of
______ shares as to which such right is exercisable and does hereby irrevocably
constitute and appoint _____________ Attorney, to transfer the same on the books
of the Company with full power of substitution in the premises.
Date________________________
Signature___________________
Page 80 of 81 Pages
JOINT FILING OF SCHEDULE 13D
The undersigned hereby agree to jointly prepare and file with regulatory
authorities a Schedule 13D and any future amendments thereto reporting each of
the undersigned's ownership of securities of FutureLink Distribution Corp. and
hereby affirm that such Schedule 13D is being filed on behalf of each of the
undersigned.
Dated: August 4, 1999 Commonwealth Associates L.P.
New York, New York
By: Commonwealth Associates Management
Corp., its general partner
By: /s/ Joseph Wynne
------------------------------------
Joseph Wynne
Chief Financial Officer
Dated: August 4, 1999 /s/ Michael S. Falk
New York, New York ------------------------------------
Michael S. Falk
Dated: August 4, 1999 /s/ Robert Priddy
Marietta, Georgia ------------------------------------
Robert Priddy
Dated: August 4, 1999 /s/ Keith Rosenbloom
New York, New York ------------------------------------
Keith Rosenbloom
Dated: August 4, 1999 /s/ Basil Ascuitto
New York, New York ------------------------------------
Basil Ascuitto
