Information Statement
Pursuant to Section 14(c)
of the Securities Exchange Act of 1934
Check the appropriate box:
[X] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14c-
5(d)(2).
[ ] Definitive Information Statement
FREESOFTWARECLUB.COM, INC.
(Name of Registrant As Specified In Charter)
- --------------------------------------------------------------------------------
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
1) Title of each class of securities to which transaction applies: Common Stock,
$0.001 par value
2) Aggregate number of securities to which transaction applies: 3,000,000.
3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction*: $128,550
5) Total fee paid*: $113.00
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1)Amount Previously Paid:
2)Form, Schedule or Registration Statement No.:
<PAGE 1>
3)Filing Party: Freesoftwareclub.com, Inc.
- --------------------------------------------------------------------------------
4)Date Filed:
*The fee paid is based upon a total of three million shares of the Company being
transferred to the stockholders of 3608948 Canada, Inc. dba "Ideas and
Associates," in exchange for all the issued and outstanding stock of Ideas and
Associates, the net book value of which as of the latest applicable date is
$579,000.
<PAGE 2>
________________________
FREESOFTWARECLUB.COM, INC.
INFORMATION STATEMENT
ACTION OF A MAJORITY IN INTEREST
OF STOCKHOLDERS
________________________
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED
NOT TO SEND US A PROXY
NOTICE IS HEREBY GIVEN TO ALL STOCKHOLDERS THAT AN ACTION
OF A MAJORITY IN INTEREST OF STOCKHOLDERS (THE "ACTION") OF
FREESOFTWARECLUB.COM, INC. (THE "COMPANY") WILL BE TAKEN AS SOON
AS PRACTICAL AFTER JANUARY ___, 2002.
1) To amend the Company's Certificate of Incorporation to effect a 1-for-
8.93 reverse stock split of the shares of Common Stock without changing the
$0.001 par value of the Common Stock (the "Reverse Stock Split");
2) To amend the Company's Certificate of Incorporation to change the name of
the Company from "FREESOFTWARECLUB.COM, INC." to "IDEAS AND ASSOCIATES,
INC.";
3) To elect six persons to the Company's Board of Directors to serve
until the next annual meeting of stockholders and until their respective
successors are duly elected and qualify, namely, Terence C. Byrne, Glen Pearson,
Arthur Gutch, Dejan Nenov, John Hartley and Eric Boyd; and
4) To increase the number of shares reserved and available for grant and
issuance pursuant to the Company's Equity Incentive Plan, dated June 1, 2000,
from the current 2,000,000 shares before the Reverse Stock Split (which will
convert to 223,964 after the Reverse Stock Split) to 3,000,000 shares (after the
Reverse Stock Split).
STOCKHOLDERS OF RECORD AT THE CLOSE OF BUSINESS ON JANUARY 3,
2002 SHALL BE ENTITLED TO RECEIPT OF THIS INFORMATION.
BY THE ORDER OF THE BOARD OF DIRECTORS
/S/ RICHARD MILES
----------------
Richard Miles
January ___, 2002
<PAGE 3>
FREESOFTWARECLUB.COM, INC.
600 BANCROFT WAY
BERKELEY, CA 94710
INFORMATION STATEMENT FOR STOCKHOLDERS
The Board of Directors of FreeSoftwareClub.com, Inc., a Delaware corporation
(the "Company") is furnishing this INFORMATION STATEMENT to stockholders in
connection with an Action of Majority in Interest of Stockholders of the Company
to advise you of certain actions that will be taken as soon as practical after
January __, 2002, related to a transaction approved by the Board of Directors
between the Company and 3608948 Canada, Inc. dba "Ideas and Associates," as
described herein.
Specifically, the actions to be taken are (i) a reverse stock split, (ii)
a change in the name of the Company to "Ideas and Associates, Inc.", (ii) the
election of six persons to the Board of Directors, namely, Terence C. Byrne,
Glen Pearson, Arthur Gutch, Dejan Nenov, John Hartley and Eric Boyd and (iv) an
increase in the number of shares available in the Company's Equity Incentive
Plan. The reverse stock split and the change in the Company's name will require
amendments to the Certificate of Incorporation of the Company.
This Information Statement is first being mailed to stockholders on or
about January ___, 2002. This Information Statement is accompanied by the
Company's Annual Report for the fiscal year ended March 31, 2001. The Annual
Report includes the Company's most recent Annual Report on Form 10-KSB which has
been previously filed with the Securities and Exchange Commission.
GENERAL INFORMATION
This Information Statement is being furnished to the stockholders of
FreeSoftwareClub.com, Inc., a Delaware corporation (the "Company"), to advise
you of actions which have already been approved by a majority in interest of the
stockholders of the Company. The approved actions are being taken in connection
with the proposed acquisition by the Company of 3608948 Canada, Inc. dba "Ideas
and Associates" ("Ideas"), an information technology services company, as
further described herein. The proposed acquisition has already been approved by
the Board of Directors of the Company.
Each of these actions is being taken in order to satisfy the conditions of
a transaction which will result in the Company acquiring all of the issued and
outstanding shares of capital stock of Ideas (the "Transaction"). On November
28, 2001, the Board of Directors of the Company unanimously approved the
Transaction, which will close as soon as the conditions to closing set forth
herein are met.
The approved actions (the "Actions") are as follows: (a) an amendment to
the Company's Certificate of Incorporation (the "Amendment") which (i)
effectuates a 1-for-8.93 reverse stock
<PAGE 4>
split of the Company's outstanding Common Stock (the "Reverse Stock Split") and
(ii) changes the name of the Company to "Ideas and Associates, Inc." (so that
the name of the Company will be the same as of the acquired subsidiary); (b) the
election of six persons, who are nominees of Ideas, to the Board of Directors
of the Company and (c) the proposed increase in the number of shares reserved
and available for grant and issuance pursuant to the Company's Equity Incentive
Plan dated June 1, 2000 from 2,000,000 shares prior to the Reverse Stock Split
(which will convert to 223,964 shares after the Reverse Stock Split) to
3,000,000 shares after the Reverse Stock Split.
The Company's Board of Directors, on November 28, 2001, approved the
Amendment and recommended that the Amendment be approved by written consent of a
majority in interest of our stockholders. Upon the execution of the requisite
stockholder written consent, as explained below, the proposed Amendment will
become effective when filed with the Secretary of State of the State of
Delaware.
The Company's Board of Directors, on November 28, 2001, also the increase
in the shares reserved and available for grant and issuance pursuant to the
Company's Equity Incentive Plan dated June 1, 2000 from 2,000,000 shares prior
to the Reverse Stock Split (which will convert to 223,964 shares after the
Reverse Stock Split) to 3,000,000 shares after the Reverse Stock Split.
In order to accelerate the closing of the transaction with Ideas and reduce
the costs of obtaining stockholder approval, our Board of Directors elected to
obtain such approval by utilizing the written consent of the holders of a
majority in interest of our Common Stock (the "Consent"). The elimination of the
need for a special meeting of stockholders to approve the Amendment is made
possible by Section 228 of the Delaware General Corporation Law (the "Delaware
Law") which provides that the written consent of the holders of outstanding
shares of voting capital stock, having not less than the minimum number of votes
which would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted, may be substituted
for such a special meeting. Pursuant to Section 228 of the Delaware Law, the
Amendment is required to be approved by a majority in interest of our
stockholders. In accordance with Rule 14c-2(b) under the Securities Exchange
Act of 1934, as amended, the corporate action can be taken no sooner than 20
calendar days after this Information Statement is first mailed to the
stockholders of the Company. If the proposed actions were not adopted by
written consent, it would have to be considered by the Company's stockholders at
a special stockholders' meeting convened for the specific purpose of approving
the Amendment upon the expiration of the 20-day period set forth above.
Stockholders, who own in the aggregate 12,618,000 shares of our Common Stock,
representing approximately 74.4% of our outstanding shares, have agreed to give
their written consent to the adoption of the actions (a) through (c) described
above in this Information Statement and execute the Consent.
5
QUESTIONS AND ANSWERS
Q: What am I being asked to approve?
A: You are not being asked to approve anything. This Information Statement is
being provided to you solely for your information. Stockholders holding a
majority in interest of the outstanding voting common stock of the Company
have already agreed to approve:
o a 1-for-8.93 reverse stock split of the Company's outstanding Common
Stock,
o a change in the name of the Company to "Ideas and Associates, Inc.,"
o election of six persons, who are nominees of Ideas to the Board of
Directors of the Company, and who will replace the current members of the
Board of Directors, namely, Terence C. Byrne, Glen Pearson, Arthur Gutch,
Dejan Nenov, John Hartley and Eric Boyd; and
o An increase in the number of shares reserved and available for grant and
issuance pursuant to the Company's Equity Incentive Plan dated June 1,
2000 from 2,000,000 shares (which will convert to 223,964 shares after the
Reverse Stock Split) to 3,000,000 shares after the Reverse Stock Split.
Q: Why has the Board of Directors unanimously and a majority in interest of
the stockholders agreed to approve these actions?
A: All of these actions are required to satisfy the terms of all conditions
of the Agreement and Plan of Reorganization (the "Reorganization Agreement")
dated as of December 4, 2001, between the Company, Ideas and the
stockholders of Ideas which will result in Ideas becoming a wholly-owned
subsidiary of the Company.
Q: What are the basic terms of the transaction with Ideas?
A: The stockholders of Ideas will acquire control of the Company in exchange
for all of the capital stock of Ideas. After the transaction is completed,
Ideas will be a subsidiary of the Company and the Company will be controlled
by the former stockholders of Ideas.
Q: What interest in the Company will the existing stockholders of the Company
maintain?
A: You will retain all of your present interest, subject to the Reverse Stock
Split, but after the closing of the transaction, the existing stockholders
of the Company will then suffer an immediate and substantial dilution.
Q: Are there any conditions to the transaction with Ideas?
A: Yes. There are several conditions, including the following:
o approval of a 1-for-8.93 reverse stock split of the Company's outstanding
<PAGE 6>
Common Stock, and the change in the Company's name;
o approval of a change in the name of the Company to "Ideas and Associates,
Inc.";
o an increase in the number of members of the Board of Directors of the
Company from five to six.
o the representations and warranties of the parties contained in the
Reorganization Agreement are true and correct as of the Closing; and
o an asset purchase agreement has been executed between the Company and
certain existing stockholders of the Company to acquire the
FreeSoftwareClub.com web site and business.
Q: What business is conducted by Ideas?
A: Established in 1999, Ideas is a provider of information technology ("IT")
products and services to corporations including web site development,
applications development, database development and implementation of
business intelligence tools. Ideas executive offices are at 2050 de Bleury
Street, Montreal, QC H3A 2J5 and its main telephone number is (514) 940-
2891. During 2000, its last full fiscal year, Ideas had gross revenues of
$2,068,068 and a net profit of $292,793. Its web site address is
www.ideasandassociates.com. (See "GENERAL INFORMATION.")
Q: Are there risks involved in the transaction with Ideas?
A: Yes. After the transaction is completed, the Company's success will be
totally dependent upon the business of Ideas. While Ideas has generated
revenues and moderate amounts of operating profit, it competes in a highly
competitive industry. There are no assurances that Ideas' operations will be
profitable after the closing of the transaction or of its ability to retain
and/or attract clients.
Q: When do you expect to complete the transaction with Ideas?
A: Within approximately twenty-five days after the date of this Information
Statement, subject, however, to the successful satisfaction of several
conditions which are necessary prior to the closing of the transaction. As
mentioned previously, there are several conditions to the closing of the
transaction.
Q: Do I have to take any action regarding the Reverse Stock Split?
A: Not initially, but after the Reverse Stock Split becomes effective,
stockholders will be asked to surrender their certificates in accordance
with the procedures set forth in a letter of transmittal to be sent by the
Company. Upon such surrender, a new certificate will be issued and forwarded
to the stockholders evidencing the reduced number of shares.
<PAGE 7>
Q: What will happen to the Company's existing business.
A: After the transaction is complete, the Company intends to sell its certain
assets of its existing FreeSoftwareClub.com business to Richard Miles, Rene
Pardo and Aitech, Inc. in exchange for these existing officers, directors
and/or stockholders transferring to the Company 897,816 (post-Reverse Stock
Split) shares of Common Stock and their collective agreement to assume of
all of our liabilities which have accrued and exist prior to the
transaction. The assets proposed to be sold include the FreeSoftwareClub.com
Web site, all intellectual property associated with the FreeSoftwareClub.com
Web site including the FreeSoftwareClub.com domain name, web site and
trademarks and the FreeSoftwareClub.com customer lists.
Q: Who can I call with questions about any information regarding the various
issues mentioned here?
A: Please call Richard Miles, President of the Company, at (510) 649-2920.
Q: What dilution will the existing shareholders of the Company suffer?
A: After the transaction is complete, the existing shareholders of the Company
will be diluted by 91%.
OUTSTANDING SHARES AND VOTING RIGHTS
At October 31, 2001, the Company had 16,947,500 shares of Common Stock
outstanding. In connection with the Ideas transaction (the "Reorganization"),
the Board of Directors and a majority in interest of its stockholders have
agreed to amend the Certificate of Incorporation of the Company to effectuate a
1-for-8.93 reverse stock split (the "Reverse Stock Split") of the issued and
outstanding shares of the Company's Common Stock, such that there would be
1,897,816 shares subsequent to the Reverse Stock Split. The complete text of
the amendment to the Certificate for the Reverse Stock Split is set forth in
Exhibit A to this Information Statement.
ACTIONS TO BE TAKEN
A. THE REVERSE STOCK SPLIT
Approval of the Reverse Stock Split requires the affirmative consent of at
least a majority in interest of the outstanding shares of Common Stock.
Stockholders holding a total of 12,618,000 shares of Common Stock, representing
74.4% of the outstanding shares of Common Stock, have already agreed to give
such consent regarding this action.
<PAGE 8>
The Reverse Stock Split will have the following effects upon the number of
shares of our Common Stock outstanding and the number of authorized and unissued
shares of our Common Stock:
o The number of shares owned by each holder of Common Stock will be
reduced by the ratio of 8.93 to 1;
o The number of shares of Common Stock we are authorized to issue will
remain the same;
o The par value of the Common Stock will remain $.001 per share;
o The stated capital on our balance sheet attributable to the Common
Stock will be reduced to 1/8.93th of its present amount, and the additional paid
- -in capital account shall be credited with the amount by which the stated
capital is reduced; and
Manner of Effecting the Reverse Stock Split and Exchange Stock Certificates
The Reverse Stock Split will be effectuated by the filing of a Certificate of
Amendment to our Certificate of Incorporation with the Secretary of the State of
Delaware. The Reverse Stock Split will become effective on the date of filing
the Certificate of Amendment unless we specify otherwise (the "Effective Date").
Upon the Effective Date, each certificate representing shares of Common Stock
outstanding immediately prior to the Reverse Stock Split (the "Old Shares")
will, without any action on the part of the stockholders, be deemed to
represent one share for every 8.93 shares owned prior to the Reverse Stock Split
(the "New Shares"); provided, however that no fractional New Shares will be
issued as a result of the Reverse Stock Split. All fractional shares will be
rounded to the next highest whole number.
As soon as practicable after the Effective Date, we will send a letter of
transmittal to all stockholders of record as of the Record Date. The letter of
transmittal will contain instructions for the surrender of the Old Shares of
each holder of record outstanding on the Effective Date. Upon proper completion
and execution of the letter of transmittal and return thereof, together with
certificates representing the Old Shares, a stockholder will be entitled to
receive a replacement certificate representing the number of New Shares into
which their Old Shares have been reduced as a result of the Reverse Stock Split.
Stockholders should not submit any certificates until requested to do so. No new
certificate will be issued to a stockholder until such stockholder has
surrendered his outstanding certificates together with the properly completed
and executed letter of transmittal. Until so surrendered, each outstanding
certificate representing the Old Shares will be deemed for all corporate
purposes after the Effective Date to evidence ownership of the New Shares in the
appropriately reduced number.
The Reverse Stock Split action by its approval alone will reduce the number
of outstanding shares of Common Stock to 1,897,816. After the consummation of
the Reverse Stock Split, a total of 1,897,816 shares of Common Stock will be
outstanding.
The number of shares of capital stock authorized by the Certificate of
Incorporation will
<PAGE 9>
not change as a result of the Reverse Stock Split. The voting and other rights
that presently characterize the Common Stock will not be altered by the Reverse
Stock Split. The Company's Common Stock is presently listed for trading on the
Over-the-Counter Bulletin Board ("OTCBB").
B. THE NAME CHANGE
The proposed change of the Company's name to "Ideas and Associates, Inc." is
intended to more clearly convey a sense of the Company's business after Ideas
becomes a subsidiary. Approval of the name change requires the affirmative
consent of at least a majority of the outstanding shares of Common Stock of the
Company. Stockholders holding a total of 12,618,000 shares of Common Stock
(74.4%) have already agreed to give such consent to such action. The name
change will become effective on the Effective Date.
C. ELECTION OF NEW DIRECTORS
The election of new directors is being taken pursuant to the terms of the
proposed transaction with Ideas and it is a condition to closing. The agreement
with Ideas requires that existing directors of the Company resign and new
directors (approved by the former stockholders of Ideas) be appointed and
elected to the Board of Directors of the Company. The Bylaws of the Company give
the Board of Directors the authority to determine the number of directors, to
increase or decrease the number of directors and to fill vacancies or eliminate
vacancies by resolution of the Board of Directors. The directors must receive a
plurality of the votes cast. The Certificate of Incorporation of the Company
does not permit cumulative voting. Stockholders holding a total of 12,618,000
shares of Common Stock or 74.4% of the outstanding shares of Common Stock have
agreed to vote for the following persons, who are all currently directors of
Ideas: Terence C. Byrne, Glen Pearson, Arthur Gutch, Dejan Nenov, John Hartley
and Eric Boyd.
D. APPROVAL OF INCREASE IN SHARES RESERVED FOR THE EQUITY
INCENTIVE PLAN
The Company's Equity Incentive Plan dated June 1, 2000 (the "Equity Incentive
Plan") was authorized by the Board of Directors and stockholders of the Company
as a way to provide equity-based compensation to employees and consultants of
the Company. The Equity Incentive Plan currently has 2,000,000 shares reserved
and available for grant and issuance. The number of shares reserved and
available for grant and issuance will be reduced to only 223,964 shares after
the Reverse Stock Split.
The increase in the number of shares reserved and available for grant and
issuance pursuant to the Company's from 223,964 shares (after giving effect to
the Reverse Stock Split) to 3,000,000 is proposed in order to provide the
Company with a sufficient number of shares to attract, retain and motivate
existing and new employees after the Reorganization. Approval of the increase in
the number of shares available for grant and issuance pursuant to the Equity
Incentive Plan requires the affirmative consent of at least a majority of the
outstanding shares of Common Stock of the Company. Stockholders holding a total
of 12,618,000 shares of Common
<PAGE 10>
Stock (74.4%) have already agreed to give such consent. Any options previously
issued under the Equity Incentive Plan have expired.
RECORD DATE
The close of business January 3, 2002, has been fixed as the record date for
the determination of stockholders entitled to receive this Information
Statement.
EXPENSES OF INFORMATION STATEMENT
The expenses of mailing this Information Statement will be borne by the
Company, including expenses in connection with the preparation and mailing of
this Information Statement and all documents that now accompany or may hereafter
supplement it. It is contemplated that brokerage houses, custodians, nominees,
and fiduciaries will be requested to forward the Information Statement to the
beneficial owners of the Common Stock held of record, on the Record Date, by
such persons and that the Company will reimburse them for their reasonable
expenses incurred in connection therewith.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information concerning the ownership of Common
Stock giving effect to the Reverse Stock Split (a) immediately before the
consummation of the Ideas transaction and (b) after the consummation of the
Ideas transaction (including the Stock Purchase and the Asset Sale, as described
below), with respect to stockholders who were known to the us to be beneficial
owners of more than 5% of the Common Stock as of the date hereof, and officers
and directors as a group. Unless otherwise indicated, the beneficial owner has
sole voting and investment power with respect to such shares of Common Stock.
Shares Beneficially Owned Percentage of Voting Stock(5)
-------------------------- ----------------------------
Name and Address of Before After Before After
Beneficial Reorganization(5) Reorganization Reorganiz Reorgan-
ation ation
- ------------------ --------------- -------------- --------- ---------
Richard Miles (1)
654 Neilson Street
Berkeley, CA 94707 4,376,000 490,034 25.82% 4.45%
John Collins (1)
164 Esmeyer
San Rafael. CA 94903 2,647,180 296,437 15.62% 2.69%
Rene Pardo (1)
Toronto, CA 4,400,000 492,721 25.96% 4.48%
EMJ DataSystems (2)
7067 Wellington
Guelph, Ontario 1,194,820 133,798 7.05% 1.22%
Mika Determan (1)
600 Bancroft Way
Berkeley, CA 94710 10,000 1,120 * -
<PAGE 11>
Terence C. Byrne (3)(4)(7)
c/o Ideas
2050 de Bleury Street,
Montreal, QC H3A 2J5 * 4,149,956 - 37.73%
Glen Pearson (3)(7)
c/o Ideas
2050 de Bleury Street,
Montreal, QC H3A 2J5 * 1,324,454 - 12.04%
3632563 Canada Inc. (7)
c/o Ideas
2050 de Bleury Street,
Montreal, QC H3A 2J5 * 1,324,454 - 12.04%
Greg Stark (3) (7)
c/o Ideas
2050 de Bleury Street,
Montreal, QC H3A 2J5 * 706,376 - 6.42%
Philip Nanni (3) (7)
c/o Ideas
2050 de Bleury Street,
Montreal, QC H3A 2J5 * 1,324,454 - 12.04%
Tom Wagner (7)
c/o Ideas
2050 de Bleury Street,
Montreal, QC H3A 2J5 * 254,604 - 2.31%
Tim Liddelow (7)
c/o Ideas
2050 de Bleury Street,
Montreal, QC H3A 2J5 * 103,926 - *
Rockgardem, Ltd. (7)
c/o Ideas
2050 de Bleury Street,
Montreal, QC H3A 2J5 * 483,594 - 4.40%
Alain Boucher (7)
c/o Ideas
2050 de Bleury Street,
Montreal, QC H3A 2J5 * 73,578 - *
* Less than one percent.
(1) Currently an Officer, Director or 5% stockholder of the Company.
(2) EMJ DataSystems is controlled by Jim Estill, a director of the Company.
(3) Expected to be an Officer, Director or 5% stockholder of the Company after
the Reorganization.
(4) Terence Byrne is the principal of TT Byrne Capital Investment, Inc.
(5) Takes into effect Reverse Stock Split which will, occur immediately before
the Reorganization.
(6) All post-Reorganization percentages assume issuance of 7,000,000 shares to
the stockholders of Ideas pursuant to the Stock Purchase.
<PAGE 12>
BACKGROUND OF THE REORGANIZATION
We were organized in 1999 to develop and market a subscription-based,
membership-based Web site for the purchase of computer software. In much the
same way that hit movies are offered "free" to subscribers of premium movie
channels, we offered popular software in a variety of categories free to club
members. Originally, members paid a fee of $9.95/month and were eligible for
one free title per month from what was intended to be an extensive "commercial
catalog" comprised of current and popular selling software titles. However,
after we were unable obtain funding to accomplish the goal of acquiring best-
selling commercial software to make available to our subscribers, we were unable
to attract enough paid subscribers sufficient to generate a profitable and
sustainable business model. We then changed our business model to a cost-free
membership and promoted dozens of free products and services to members and non-
members alike. Since we stopped charging for subscriptions, we sought to
generate revenues through the successful acquisition of customers for
advertisers. However, despite management's efforts to generate revenue from
advertisers, our revenues for the six months ended September 30, 2001 were only
$27,264. Thus, in order to maximize stockholder's value, our officers began
searching for an appropriate business opportunity for us. After reviewing
various business opportunities, management chose to pursue the acquisition of
Ideas based upon it ability to generate revenue, the experience of Ideas'
management team and its potential for future growth.
REASONS FOR APPROVAL BY MAJORITY IN INTEREST OF STOCKHOLDERS
AND BOARD OF DIRECTORS
The Board of Directors has given careful consideration to the Reorganization,
the existing and future business operations of FreeSoftwareClub.com, the
existing and future business potential and plans of Ideas, the interest of
our stockholders, and the risks related to the Reorganization to our existing
stockholders. Based on the foregoing considerations, the Board of Directors
together with stockholders holding a majority in interest believe that the
transactions contemplated by the Reorganization Agreement, including the Reverse
Stock Split and the name change, are fair and in our best interest. Stockholders
holding a majority in interest believe that we will benefit from the
Reorganization, with an immediate impact being made by Ideas revenues, assets,
stockholders' equity and growth potential.
ACCOUNTING TREATMENT OF THE REORGANIZATION
Upon closing of the Reorganization, based upon management's consultation
with, KPMG, the auditors for Ideas, it appears that the proper accounting
treatment for the Reorganization will be as a so-called "reverse acquisition,"
whereby Ideas will account for the transaction as a purchase of us by Ideas.
Ideas will be deemed to be the "acquirer" due to the fact that the stockholders
of Ideas will ultimately control the reorganized company.
SUMMARY OF THE REORGANIZATION AGREEMENT
The following contains, among other things, a summary of the material
features of the Reorganization Agreement. This summary does not purport to be
complete and is subject in all
<PAGE 13>
respects to the provisions of, and is qualified in its entirety by reference to,
the executed Agreement and Plan of Reorganization, a copy of which is attached
hereto as Exhibit B.
General Terms. The Company, Ideas and certain stockholders of Ideas have entered
into an Agreement and Plan of Reorganization which provides that subject to the
meeting of certain conditions, including the Reverse Stock Split on a 1-for-8.93
basis of the Common Stock of the Company, the Company will issue 3,000,000
shares of Common Stock with restrictive legend for each share to the former
stockholders of Ideas in exchange for all of the outstanding capital stock
of Ideas. After the Closing, Ideas will be a wholly-owned subsidiary of the
Company and the Company will be controlled by the former stockholders of Ideas.
Closing. Closing is scheduled to take place at such time as agreed by the
parties but in any event may not occur earlier than 20 days following notice to
stockholders under this Information Statement as prescribed by Section l4C of
the Securities Exchange Act of 1934 (the "Act").
Conditions for Closing. The obligation of each of the parties to consummate the
Reorganization is subject to the following conditions, among others:
o the Reverse Stock Split has been completed;
o this Information Statement has been sent to the Company's Stockholders
and 20 days therefrom has elapsed.
o a change in the name of the Company to "Ideas and Associates, Inc.";
o an increase in the number of members of the Board of Directors of the
Company from five to six and the election of Terence C. Byrne, Glen
Pearson, Arthur Gutch, Dejan Nenov, John Hartley and Eric Boyd to the
Board of Directors of the Company,
o the representations and warranties of the parties contained in the
Reorganization Agreement are true and correct as of the Closing; and
o an asset purchase agreement has been executed between the Company and
certain existing stockholders of the Company to acquire certain assets
of the Company including the FreeSoftwareClub.com web site.
Termination; Waivers. The Reorganization may be terminated at any time prior to
the Closing by mutual consent of the parties, or by either party if the
conditions to the obligations of such party to consummate the Reorganization
have not been satisfied, or waived. Each party may, by a written instrument,
waive or extend the time for closing or performance of any of the obligations of
the other party pursuant to the Reorganization.
Indemnification. The Company has agreed to indemnify and hold harmless the Ideas
stockholders in respect of any undisclosed liabilities and any damages resulting
from a
<PAGE 14>
misrepresentation or breach of warranty or other breach of the Reorganization
Agreement by the Company.
Regulatory Approvals. No approvals by any governmental authority are required in
to complete the Reorganization with the exception of compliance by the Company
with certain Quebec securities regulations, namely, that the Quebec Securities
Commission shall have granted an exemption from the prospectus and registration
requirements set forth in Titles II and V of the Quebec Securities Act (the
"Exemption") for the transaction contemplated herein and the transaction
contemplated under the Stock Purchase Agreement.
SUMMARY OF STOCK PURCHASE
Stock Purchase. Simultaneously with the Closing, the Company intends to,
pursuant to the terms of a Stock Purchase Agreement between the Company and the
stockholders of Ideas, issue to the stockholders of Ideas, 7,000,000 shares
(post-Reverse Stock Split) of Common Stock for an aggregate purchase price of
$300,000.00. The shares issued will not be registered and will be issued
pursuant will be made pursuant to the exemption from registration offered by
Section 4(2) of the Securities Act of 1933. The proceeds of the sale will be
used to pay existing liabilities of the Company which have accrued prior to the
Closing.
Use of Proceeds. The proceeds available to the Company from the sale of the
Common Stock, shall be utilized to pay the Company's existing liabilities which
have accrued from the operation of the Company prior to the Closing.
Restrictions on Resale. The shares issued will not be registered and will be
issued pursuant will be made pursuant to the exemption from registration offered
by Section 4(2) of the Securities Act of 1933.
SUMMARY OF ASSET SALE
A condition to the closing of the Reorganization Agreement is that certain
principal stockholders of the Company execute an Asset Purchase Agreement with
the Company for the purchase of certain assets of the Company associated with
the FreeSoftwareClub.com Web site (the "Web Site"). The proposed purchase price
of the assets is the return to the Company of 897,816 (post-Reverse Stock Split)
(8,017,496 pre-Reverse Stock Split) shares of common stock of the Company and
the assumption of certain liabilities of the Company which accrued in connection
with operating the FreeSoftwareClub.com Web site. The assets proposed to be
sold include the FreeSoftwareClub.com Web site, all intellectual property
associated with the FreeSoftwareClub.com Web site including the
FreeSoftwareClub.com domain name, web site and trademarks and the
FreeSoftwareClub.com customer lists. It is expected that the closing of the
asset sale will take place within 30 days after the closing of the
Reorganization Agreement.
MATERIAL TERMS OF THE COMMON STOCK
The authorized common stock consists of 100,000,000 shares of $.001 par value
stock. As of October 31, 2001, there were 16,947,500 shares issued and
outstanding. After the Reverse
<PAGE 15>
Stock Split, the number of outstanding shares of Common Stock will be reduced to
1,897,816. At the closing of the Reorganization Agreement, 3,000,000 shares
will be issued in exchange for all of the issued and outstanding shares of Ideas
and, simultaneously, 7,000,000 shares will be issued pursuant to the Stock
Purchase, for a total of 11,897,816 shares issued and outstanding. Upon the
completion of the proposed Asset Sale, 11,000,000 shares of Common Stock will be
outstanding, owned as follows:
Groups of Stockholders Common Stock % Owned
- --------------------------------------- ------------------- --------------
Ideas Stockholders 10,000,000 90.9%
FreeSoftwareClub.com Stockholders 1,000,000 9.1%
--------------- ------------
TOTAL OF ALL STOCKHOLDERS 11,000,000 100.0%
The holders of shares of Common Stock are entitled to one vote for each share
held of record on each matter submitted to stockholders. Shares of Common Stock
do not have cumulative voting rights for the election of directors. The holders
of shares of Common Stock are entitled to receive such dividends as the Board of
Directors may from time to time declare out of funds of the Company legally
available for the payment of dividends. The holders of shares of Common Stock do
not have any preemptive rights to subscribe for or purchase any stock,
obligations or other securities of the Company and have no rights to convert
their Common Stock into any other securities.
Upon any liquidation, dissolution or winding up of the Company, holders of
shares of Common Stock are entitled to receive pro rata all of the assets
available for distribution to stockholders.
The foregoing summary of the material terms of the capital stock of the
Company does not purport to be complete and is subject in all respects to the
provisions of, and is qualified in its entirety by reference to, the provisions
of the Certificate of Incorporation of the Company, as amended by the Amendment
to the Certificate attached hereto as Exhibit A.
NO RIGHTS OF APPRAISAL
Under the laws of the State of Delaware, our dissenting stockholders are not
entitled to appraisal rights with respect to our proposed Amendment to our
Certificate of Incorporation effectuating the Reverse Stock Split and the change
in the Company's name, nor with respect to the planned increase in the number of
shares available for grant pursuant to the Equity Incentive Plan and we will not
independently provide our stockholders with any such right.
ELECTION OF DIRECTORS
Because the current directors of the Company will resign their positions with
the Company at the closing of the Reorganization and six (6) new directors will
be elected by the stockholders pursuant to this Information Statement, all of
the information set forth in this
<PAGE 16>
Section regarding the "Election of Directors" pertains to those executives of
Ideas who will become directors of the Company upon the closing of the
Reorganization. Information regarding the current officers and directors of the
Company is set forth in the Company's Annual Report for 2000, which accompanies
this Information Statement.
INFORMATION CONCERNING NOMINEES
The following nominees of Ideas are expected to become directors of the
Company at the Closing of the Reorganization.
Name Age Expected Position with Company
Terence Byrne 43 Chief Executive Officer, President and Director
Arthur Gutch 40 Chief Operating and Marketing Officer and Director
Dejan Nenov 35 CTO and EVP Professional Services and Director
Glen Pearson 39 EVP, General Manager and Director
John Hartley 54 Chairman of the Board of Directors
Eric Boyd 40 Director
Terence Byrne, Director and Chief Executive Officer
Mr. Byrne has been involved in the high technology venture capital arena
for most of the past decade. From 1999 to the present, as the President of Byrne
Mirman Capital Investments, he acts as an investment banker and advisor. Byrne
Mirman has equity interests in companies in the food service,
telecommunications, biotech, e-commerce, entertainment and music industries. In
1997 and 1998, Mr. Byrne held executive positions including Chief Executive
Officer and Chairman for The Tirex Corporation, Inc. Prior to that, Mr. Byrne
served as President of Digital Optronics, Inc., a business engaged in the
manufacturing of digital optronic measuring devices for the defense industry.
Prior to its acquisition by Digital Optronics, Mr. Byrne was the Founder
and President of Byrne Industries, Inc. a manufacturer of electronic defense
equipment that completed numerous contracts with multi-billion dollar defense
industry companies such as Lockheed Aviation. Mr. Byrne has a B.A. degree in
economics from Villanova University in Philadelphia.
Arthur Gutch, Director, Chief Operating and Marketing Officer
Mr. Gutch brings almost two decades of experience in corporate management
with a background in operations, marketing, distribution, business-creation and
information technology. Most recently, in 2000 and 2001, Mr. Gutch was CEO of
esolo, an e-learning application for marketing services, where he developed a
proprietary method for developing marketing strategy and tactics. In 1998 and
1999, at Adscience LLC, Mr. Gutch was a General Partner where he was a
consultant to companies from Microsoft to start-ups on strategic marketing
and investment strategy. In 1996 and 1997, he was the CEO of RDC Networks, a
developer of wireless LAN & WAN solutions. Mr. Gutch successfully re-launched
the US operation of RDC Networks and the company was ultimately sold to Marconi.
<PAGE 17>
Dejan Nenov, Director, CTO and EVP Professional Services
Mr. Nenov has held management positions with leading Silicon Valley and
International technology firms. In 2000, he was CTO of Instill Corporation where
Mr. Nenov created and patented cutting-edge technologies in the area of trading
partner integration, data analysis and warehousing and online systems
provisioning. In 1999, Mr. Nenov was was responsible for the operation of the
first online Yellow Pages product, BigBook Inc., which was later acquired by
GTE. From 1997 to 1998, he was Director of Architecture and Methodology of
Solution 6 Pty and responsible for the technology direction of development teams
in four countries. During 1996, he was a VP of High Technology at Pyramid, Inc.
Mr. Nenov holds a degree in Computer Engineering from Rose-Hulman and an
International Baccalaureate from the Armand Hammer United World College.
Glen Pearson, Director, Director, Executive Vice President and General Manager
Mr. Pearson is currently President of Ideas, a position he has held since
2000 and was a co-founder of Ideas. Prior to co-founding Ideas and Associates
in June of 1999, Mr. Pearson was the operations manager for an international
eyewear company.
Eric Boyd, Director
Mr. Boyd is the principal of FortCap, Inc., a financial consultancy, which
he formed in 2000. From 1996 to 2000, Mr. Boyd was an independent financial
consultant and advisor to private and public companies. Mr. Boyd holds a BA
degree from Concordia University.
EXECUTIVE COMPENSATION
During 2000, Eric Nanni served as President of Ideas at a salary of $75,000
per year and Glen Pearson served as Vice-President of Ideas at a salary of
$75,000 per year. During 2001, Glen Pearson served as President of Ideas at a
salary of $75,000 per year.
During the period from inception to December 31, 2000, no cash compensation
was paid to any of the directors of Ideas for serving in such capacity. The
Ideas Board of Directors has complete discretion as to the appropriateness of
(a) key-man life insurance, (b) obtaining officer and director liability
insurance, (c) employment contracts with and compensation of executive officers
and directors, (d) indemnification contracts, and (e) bonuses and incentive
plans to award executive officers and key employees.
The following table sets forth the annual salary for each executive officer
of the Company which will be in effect as of the Closing of the Reorganization.
Biographical data for each of the executive officers can be found above.
Annual Salary
Name Office 2002(projected)(1)
- ---------------------- ----------------------------- ------------------------
Terence C. Byrne Chief Executive Officer $250,000
<PAGE 18>
Glen Pearson President $250,000
Arthur Gutch Chief Operating Officer $250,000
Dejan Nenov Chief Technical Officer $180,000
(1) The definitive compensation of the Company's officers will be determined
by the Board of Directors of the Company.
Board of Directors Report on Executive Compensation
The Board of Directors of Ideas has been composed of Terence C. Byrne, Glen
Pearson, Arthur Gutch, Dejan Nenov, John Hartley and Eric Boyd.
The Company's Board of Directors, which will include Terence C. Byrne, Glen
Pearson, Arthur Gutch, Dejan Nenov, John Hartley and Eric Boyd, will be
responsible for reviewing and determining the annual salary and other
compensation of the executive officers and key employees of the Company. The
goals of the Company are to align compensation with business objectives and
performance and to enable the Company to attract, retain and reward executive
officers and other key employees who contribute to the long-term success of the
Company. The Company provides base salaries to its executive officers and key
employees sufficient to provide motivation to achieve certain operating goals.
Although salaries are not specifically tied to performance, incentive bonuses
are available to certain executive officers and key employees. In the future,
executive compensation may include without limitation cash bonuses, stock option
grants and stock reward grants. In addition, the Company may set up a pension
plan or similar retirement plans.
SUMMARY OF PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma financial information for the Company is
based on the historical financial statements of the Company (which appear in the
Annual Report to Stockholders which accompanies this Information Statement) and
of Ideas (which are attached to this Information Statement as Exhibit C) and has
been prepared on a pro forma basis to give effect to the Reorganization and the
Stock Purchase under the purchase method of accounting, as if the transaction
had occurred at October 1, 2001, for each operating period presented. The pro
forma information was prepared based upon certain assumptions described below
and may not be indicative of results that actually would have occurred had the
Reorganization occurred at the beginning of the last full fiscal year presented
or of results which may occur in the future. The unaudited pro forma
consolidated financial data and accompanying notes should be read in conjunction
with the annual financial statements and notes thereto of Ideas appearing at
Exhibit C in this Information Statement.
The unaudited pro forma consolidated balance sheet as of September 30, 2001,
presents the financial position of the Company as if the Reorganization had
occurred and the Stock Purchase had been closed on that date and was prepared
utilizing the unaudited balance sheets as of September 30, 2001, of both the
Company and Ideas. The pro forma consolidated statements of operations data
presented assumes the Reorganization occurred at the beginning of the periods
presented. It should not be assumed that the Company and Ideas would have
achieved the
<PAGE 19>
unaudited pro forma consolidated results if they had actually been combined
during the periods shown.
The Reorganization is expected to be accounted for as a purchase.
The unaudited pro forma consolidated results are based on estimates and
assumptions, which are preliminary and have been made solely for the purposes of
developing such pro forma information. The unaudited pro forma consolidated
results are not necessarily an indication of the results that would have been
achieved had such transactions been consummated as of the dates indicated or
that may be achieved in the future.
The unaudited pro forma combined results should be read in conjunction with
the historical consolidated financial statements and notes thereto set forth
herein, and other financial information pertaining to the Company and Ideas,
including "Management's Discussion and analysis of Financial Condition and
Results of Operations" for each of the Company and Ideas. Pro forma financial
information is set forth in greater detail in the Pro Forma Financial
Statements beginning on Exhibit C of this Information Statement.
The unaudited pro forma consolidated financial statements reflect the
conversion between Canadian dollars and U.S. dollars at a conversion rate of
1.4995 Canadian dollars for each U.S. dollars which is the exchange rate as of
the most recent practicable date.
PRO FORMA INCOME STATEMENT: For the Period Ended
September 30, 2001
---------------------------
Revenues $ 2,923,219
Expenses 2,721,312
Income before provision for taxes 201,907
Provision for income taxes 68,064
Net Income (Loss) 133,843
Net Income (Loss) Per Share(1) 0.012
PRO FORMA BALANCE SHEET: As of
September 30, 2001
---------------------------
Total Assets $ 1,581,645
Total Liabilities 985,855
Stockholders' Equity 301,548
Book Value Per Share(1) $ 0.027
(1) based upon 11,000,000 shares
outstanding after the Reorganization
<PAGE 20>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements of Ideas and related notes included as Exhibit C herein.
The consolidated financial statements of Ideas have been prepared in accordance
with Canadian generally accepted accounting principles and also comply, in all
material respects, with United States generally accepted accounting principles.
Historical results and percentage relationships are not necessarily
indicative of the operating results for any future period. Within this
discussion and analysis, all dollar amounts have been converted from Canadian
dollars to U.S. dollars at a conversion rate of 1.4995 Canadian dollars per one
U.S. dollar which is the exchange rate as of the most recent practicable date.
Revenues
Ideas derives revenues generally from sale of its services as described
herein. Ideas had revenues of $2,895,955 for the nine month period ended
September 30, 2001 and revenues of $2,068,068 and $210,299 for the years ended
2000 and 1999 (seven months), respectively. The increase in revenue was mainly
as a result in Ideas expanding its sales efforts and an increase in the number
of client engagements Ideas was retained to perform. While Ideas expects gross
revenues to continue to increase, however, Ideas can give no assurance that
revenues will continue to do so.
Cost of Revenues and Expenses
As a services company, Ideas' cost of revenue is its employee's salaries
and benefits as well as its other sales, general and administrative expenses.
Ideas had total expenses of $2,599,203 for the nine month period ended September
30, 2001 and revenues of $1,658,884 and $161,453 for the years ended 2000 and
1999 (seven months), respectively. The increase in expenses were mainly the
result of increases in variable costs associated in providing services to
clients as Ideas revenues have increased.
Income Taxes
Ideas had reserved $69,398 for Canadian income taxes for the nine month period
ended September 30, 2001 and paid $49,184 and $48,846 in Canadian income taxes
for the years ended 2000 and 1999 (seven months), respectively. The increase in
Canadian income taxes was related to the increase in net revenues over the
respective periods.
<PAGE 21>
Results of Operations
Ideas had net earnings of $228,687 for the nine month period ended September
30, 2001 and net earnings of $292,793 and $42,377 for the years ended 2000 and
1999 (seven months), respectively. The net margins were 7.90% for the nine month
period ended September 30, 2001, 14.16%, 20.15% for the years ended 2000 and
1999 (seven months), respectively. The increases in net earnings have been a
result of increases in revenue over the respective periods while expenses for
the respective periods have not increased in proportion to the increases in
revenue. However, the increases in revenue have resulted in a decrease in net
margin which were mainly as a result of the increased administrative costs
associated with the growth of revenues. While Ideas net earnings have
historically increased, no assurance can be given that net earnings can continue
to increase.
Liquidity and Capital Resources
As of September 30, 2001, Ideas had retained earnings of $563,857, an
increase of $228,687 over the retained earnings as of December 31, 2001 of
$335,170. This increase was mainly due to Ideas' net earnings during the first
nine months of year 2001.
Ideas net cash provided by operating activities for the year ended December
31, 2000 was $308,526 compared to net cash provided by operating activities of
$63,801 for the year ended December 31, 1999 (seven months). The increase in
the net cash provided by operating activities was mainly due to the increase in
net earnings over the respective periods.
Ideas net cash used by financing activities was $13,837 for the year ended
December 31, 2000 compared to net cash provided of $14,504 for the year ended
December 31, 1999 (seven months). Net cash provided for the year ended December
31, 2000 was mainly due to the payment by Ideas of a loan to a director.
Ideas net cash used from investing activities was $224,900 for the year
ended December 31, 2000 compared to net cash used from investing activities of
$36,840 for the year ended December 31, 1999 (seven months). Net cash used from
investing activities during the year ended December 31, 2000 was mainly due to
capital expenditures of $216,295.
Ideas' capital requirements are dependent on several factors, including
its ability to procure new client engagements. At September 30, 2001, Ideas had
cash and cash equivalents totaling $947,596.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Company has not sought an opinion as to the tax consequences of the
Reorganization, however, because the Reorganization will be treated for tax
purposes as an acquisition of all of the stock of Ideas in an exchange for
shares of Common Stock, the Company believes that the Reorganization will
constitute a tax-free reorganization under Section 368(a) (1) (B) of the
Internal Revenue Code of 1986, as amended (the "Code), and accordingly, the
Company will not recognize any gain or loss on such exchange.
<PAGE 22>
The Reorganization will, however, significantly limit the Company's ability
to utilize on an annual basis its net operating loss carryforward ("NOL)
currently available to the Company. Under Section 382 of the Code, limitations
are imposed on the use of NOL's in the event of a substantial change in the
stock ownership of a corporation. The Reorganization will result in such an
ownership change because, among other reasons, the percentage of voting stock
owned by the existing stockholders of the Company after the Reorganization will
be less than 50% of their ownership prior to the Reorganization and the Stock
Purchase. As a result, the amount of the Company's annual taxable income that
could be offset by the pre-Reorganization NOL will be limited to an amount
determined by multiplying the value of the issued and outstanding shares of
Common Stock on the date of the Reorganization and the Stock Purchase by the
federal long term tax exempt rate. The value of Common Stock has not yet been
ascertained for purposes of determining the limitation on use of the NOL. To the
extent the value of the Common Stock is determined to be equal to stockholders'
equity, the use of the NOL will be significantly limited. The possibility exists
that the Company's NOL may be eliminated completely if the Company is not
considered during the two-year period following the Reorganization to have
continued the Company's historic business or to have used a significant portion
of the Company's assets.
INFORMATION CONCERNING IDEAS
HISTORY OF IDEAS
Established in 1999 by Eric Nanni, Ideas is an information technology company
specializing in the development of Internet-based business applications.
DESCRIPTION OF SERVICES
Ideas offers its clients consulting services designed to meet their needs
for custom software development (including Web site development), database
development and data mining, deployment of packaged application software and
information technology planning. Ideas also provides marketing consulting
related to client's e-business initiatives such as strategic consulting,
marketing strategies and ad server management. Ideas' service offerings include
strategy consulting, systems architecture and design, application and technology
infrastructure development, and e-business management. Ideas' services are
designed to improve a client's competitive position and increase efficiency
through the development of innovative business strategies enabled by the
integration of emerging and existing technologies. During 2000 and 2001, Ideas
conducted approximately 20 separate client engagements.
In addition to its custom software development services, Ideas intends to
develop a set of proprietary industry specific software products. These
pre-packaged solutions will allow Ideas to attempt to leverage its experience in
creating applications software and create additional revenue sources. Ideas can
give no assurance that it will be successful in this regard.
<PAGE 23>
Ideas' Methodology
Ideas has developed a professional services methodology, a well-defined
process that helps it efficiently and successfully deliver Ideas' services. This
methodology provides a framework that facilitates the distribution of knowledge
within a client engagement. The Ideas methodology called "Dynamic Team
Management" ("DTM"), is designed to allow it to provide consistent quality
across engagements and to deliver high value to clients in all aspects of Ideas'
services. Included as part of DTM is "Risk Managed Project Based Development"
("RMPBD"), a process designed to reduce the business risks normally associated
with IT projects. The key to Ideas' methodologies is the iterative improvement
of the innovations that it delivers. Because the needs of its clients are
dynamic, it has designed its methodologies with built-in feedback and iteration
processes in order to improve the services delivered to clients.
SALES AND MARKETING
Ideas currently sells its services directly to clients by direct sales
efforts of its management. Ideas expects to expand its direct sales force in the
US by hiring experienced sales persons, and by developing relationships with
partner companies to accelerate its sales penetration into its target markets.
Ideas sales efforts are supported by its marketing efforts which are focused
on forming substantive relationships with key influencers to achieve its goals
and believes that its objectives are extremely complimentary with the
initiatives of the Canadian Government, academic institutions and industry
groups that will help pave the way for wider acceptance of its products and
services. Core to the Ideas' marketing strategy is its strategic relationship
with the Canadian Government to promote its services.
Ideas sales efforts will also be supplemented by marketing and communications
activities which it pursues further build Ideas' brand name and recognition in
the marketplace. These activities will include direct mail campaigns targeting
corporate executives, public speaking opportunities, attendance at industry
conferences and business events, a public relations program, sales and marketing
materials.
COMPETITION
Ideas markets are intensely competitive. Customer requirements and the
technology available to satisfy those requirements continually change. Ideas
competitors include large information technology consulting companies such as
Accenture, Cambridge Technology Partners, Inc., Electronic Data Systems
Corporation, IBM Global Services and KPMG LLP; companies focused primarily on
Web site development such as Razorfish, Viant and Sapient Corporation and
numerous other companies the size of Ideas and smaller. Many of these companies
have greater financial resources and larger customer bases than Ideas does and
may have larger technical, sales, and marketing resources than Ideas does.
Ideas' expects to encounter additional competition as we address new markets and
as the computing and communications markets converge.
Ideas must frequently compete with its clients' own internal information
technology capability, which may constitute a fixed cost for the client. This
may increase pricing pressure on Ideas. If Ideas is forced to lower our pricing
or if demand for its services decreases, its business, financial condition, and
results of operations will be materially and adversely affected.
Ideas competes on the basis of a number of factors, including the
attractiveness of the business strategy and services that it offers, breadth of
services it offers, pricing, technological innovation, quality of service, and
ability to invest in or acquire assets of potential customers. Some of these
factors are outside of Ideas' control. Ideas cannot be sure that it will compete
successfully against its competitors in the future.
GOVERNMENT REGULATION
Ideas' products and services are not generally subject to local, state and
federal regulations. While Ideas believes it is in compliance with all
applicable regulations, there can be no assurances that from time to time
unintentional violations of such regulations will not occur. Government
regulation results in added costs for compliance activities and the risk of
losing revenues should regulations change.
RESEARCH AND DEVELOPMENT
As a services company, Ideas research and development efforts have been
focused on the improvement of its software development methodologies which it
utilizes in its client engagements. This is an on-going process with its
methodologies being refined from feedback from client engagements. Currently,
Ideas has not separate budget for, or employees dedicated solely to, research
and development. Ideas intends, in the future, to devote efforts "productizing"
some of the software applications it has developed in connection with client
engagements. Once "productized", Ideas intends to market such applications to
potential clients on a licensing basis. There are no assurances that Ideas'
will be able to license such applications or that such licensing arrangements
would be profitable.
PROPRIETARY RIGHTS
Ideas relies on a combination of trade secret laws, nondisclosure and other
contractual agreements and technical measures to protect its proprietary rights
in its products. Ideas believes that its products, trademark and other
proprietary rights do not infringe on the proprietary rights of third parties.
EMPLOYEES
As of November 30, 2001, Ideas had 50 full time employees.
FACILITIES
Ideas is located in a 7,000 square foot facility in Montreal, Canada at 2050
de Bleury Street, Montreal, QC H3A 2J5. This facility lease, which is from a
non-affiliated party, expires during 2006. Ideas pays a base monthly rent of
approximately $13,000. The rent is subject to an annual increase of
approximately 2% per year.
<PAGE 26>
INDEMNIFICATION
Our Certificate of Incorporation and our By-laws limit the liability of
directors and officers to the maximum extent permitted by the General Corporate
Law of Delaware. We carry no director or officer liability insurance. The
Company has been advised that it is the position of the SEC that insofar as the
foregoing provisions may be invoked to disclaim liability for damages arising
under the Securities Act, that such provisions are against public policy as
expressed in the Securities Act and are therefore unenforceable.
INDEPENDENT ACCOUNTANTS
The Company's current auditor is Michael Johnson & Co. of Denver, Colorado.
Prior to June 1, 2001, the Company's auditors were Grant Thornton, LLP. During
the past two years there have been no changes in, or disagreements with,
accountants on accounting. It is contemplated that upon Closing of the
Reorganization, the auditors of Ideas, KPMG will become the Company's auditors.
FORWARD-LOOKING STATEMENTS
Certain statements included in this Information Statement regarding the
Company and Ideas which are not historical facts are forward-looking statements,
including the information provided with respect to the future business
operations and anticipated agreements and projects of the Company and Ideas
after the Reorganization. These forward-looking statements are based on current
expectations, estimates, assumptions and beliefs of management; and words such
as "expects," 'anticipates,' "intends," "plans," "believes," "estimates" and
similar expressions are intended to identify such forward-looking statements.
These forward-looking statements involve risks and uncertainties, including, but
not limited to, the success of Ideas' sales strategies, market acceptance of
Ideas' products and services, Ideas' ability to obtain a larger number and size
of contracts, the timing of contract awards, work performance and customer
response, the impact of competitive products and pricing, and technological
developments by Ideas' competitors. Accordingly, actual results may differ
materially from those expressed in the forward-looking statements.
EXHIBITS
EXHIBITS
A Amendment to the Certificate of Incorporation of FreeSoftwareClub.com, Inc.
B Agreement and Plan of Reorganization
C Audited Financial Statements for Ideas and Associates
For the years ended December 31, 2000 and December 31, 1999
and unaudited for the period ended September 30, 2001.
<PAGE 26>
EXHIBIT A
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
FREESOFTWARECLUB.COM, INC.
_____________________________________________________________________
It is hereby certified that:
1. The name of the corporation (hereby called the "Corporation") is
FREESOFTWARECLUB.COM, INC.
2. The Certificate of Incorporation of the Corporation is hereby amended
by replacing Article "FIRST" with the following:
"FIRST: The name of the corporation (hereby called the "Corporation") is IDEAS
AND ASSOCIATES, INC."
3. The Certificate of Incorporation of the Corporation is hereby amended
by adding the following new paragraph to Article "FOURTH":
FOURTH: That, effective as of 5 p.m., eastern time, on the filing date of
this Certificate of Amendment of this Certificate of Incorporation (the
"Effective Time"), a one-for-8.93 reverse stock split of the Corporation's
common stock shall become effective, pursuant to which each 8.93 shares
of common stock outstanding and held of record by each stockholder of the
Corporation (including treasury shares) immediately prior to the Effective
Time shall be reclassified and combined into one share of common stock
automatically and without any action by the holder thereof upon the
Effective Time and shall represent one share of common stock from and
after the Effective Time. No factional shares shall be issued as a result of
such reclassification and combination and all fractional shares shall be
rounded to the next highest whole number.
4. This amendment of the Certificate of Incorporation herein certified has
been duly adopted in accordance with the provisions of Section 242 of the
General Corporation Law of the State of Delaware.
<PAGE 28>
IN WITNESS WHEREOF, the
Corporation has caused this
Certificate to be signed by its
President and attested by its
Secretary this ___ day of January,
2002.
FreeSoftwareClub.com, Inc.
By: _____________________________
Name: Richard Miles
Title: President
Attest:
By: _____________________________
Secretary
EXHIBIT B
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (hereinafter the "Agreement") is
entered into effective as of this 4th day of December 2001, by and among
FreeSoftwareClub.com, Inc., a Delaware corporation (hereinafter
"FreeSoftwareClub"); 3608948 Canada, Inc., a Canadian numbered corporation,
doing business as "Ideas and Associates" ("Ideas") and the owners of the
outstanding shares of common stock of Ideas set forth on Exhibit "A" attached
hereto (hereinafter the "Ideas Stockholders").
RECITALS:
WHEREAS, the Ideas Stockholders own all of the issued and outstanding
common stock of Ideas (the "Ideas Shares");
WHEREAS, FreeSoftwareClub desires to acquire all the issued and outstanding
Ideas Shares, in exchange for common stock of FreeSoftwareClub, making Ideas a
wholly-owned subsidiary of FreeSoftwareClub;
WHEREAS, the Ideas Stockholders desire to acquire common stock of
FreeSoftwareClub in exchange for their Ideas common stock, as more fully set
forth herein;
WHEREAS, FreeSoftwareClub will conduct a 1 for 8.9286 reverse stock split,
with a "record date" prior to the closing of the transaction contemplated
herein, to occur upon the receipt of shareholder approval (the "Reverse Stock
Split");
WHEREAS, the Ideas Stockholders have, simultaneously herewith, executed a
certain Stock Purchase Agreement pursuant to which the Ideas Stockholders have
purchased 7,000,000 newly issued shares of FreeSoftwareClub common stock.
NOW THEREFORE, for the mutual consideration set out herein and other good
and valuable consideration, the legal sufficiency of which is hereby
acknowledged, the parties agree as follows:
AGREEMENT
1. Plan of Reorganization. Upon the terms and subject to the conditions
hereof, upon the Closing, as defined below, all the Ideas Shares shall be
acquired by FreeSoftwareClub in exchange for shares of FreeSoftwareClub common
stock (the "FSWC Shares"). It is the intention of the parties hereto that all
of the issued and outstanding shares of capital stock of Ideas shall be acquired
by FreeSoftwareClub in exchange solely for FreeSoftwareClub common stock and
that this entire transaction qualify as a corporate reorganization under Section
368(a)(1)(B) and/or Section 351 of the Internal Revenue Code of 1986, as
amended, and related or other applicable sections thereunder.
<PAGE 30>
2. Exchange of Shares. Subject to the terms and conditions set forth herein,
FreeSoftwareClub and the Ideas Stockholders agree, that at the Closing, as
defined below, all of the Ideas Shares shall be delivered to FreeSoftwareClub in
exchange for an aggregate of Three Million (3,000,000) newly issued
(post-Reverse Stock Split) shares of FreeSoftwareClub common stock (after giving
effect to the Reverse Stock Split), as defined below.
3. Conditions to Closing. The Closing is subject to the following:
(a) FreeSoftwareClub shall have authorized 100,000,000 shares of $.00001
par value common stock.
(b) At or prior to the Closing, FreeSoftwareClub shall have entered into
an agreement to sell the current operating business and all related assets
(including the cash and notes received by the Company pursuant to the Stock
Purchase) to certain current shareholders of FreeSoftwareClub (the "Purchasing
Shareholders") and for the assumption of all liabilities of the current
operating business to be assumed by the same in exchange for 898,120 shares
(post-Reverse Stock Split) of FreeSoftwareClub.
(c) FreeSoftwareClub shall have no material assets and no liabilities
contingent or fixed except for those assets and liabilities which have been
respectively acquired and assumed by the Purchasing Shareholders, as set forth
in subsection (b) above.
(d) FreeSoftwareClub shall have received shareholder approval to:
(i) conduct the Reverse Stock Split;
(ii) to change the corporate name of FreeSoftwareClub to "Ideas and
Associates, Inc."; and
(iii) execute and consummate an agreement to purchase the assets and
liabilities of the current operating business as specified in subsection (b)
above, in a form reasonably acceptable to the parties.
(e) FreeSoftwareClub shall have effected and conducted the Reverse Stock
Split.
(f) Except for this Agreement, there shall be no other agreements, obligations,
outstanding options, warrants or other rights to purchase FreeSoftwareClub
securities.
(g) The Quebec Securities Commission shall have granted an exemption from the
prospectus and registration requirements set forth in Titles II and V of the
Quebec Securities Act (the "Exemption") for the transaction contemplated herein
and the transaction contemplated under the Stock Purchase Agreement.
<PAGE 30>
(h) Ideas will have provided to the Company such information and cooperation as
may be necessary to prepare and file an Information Statement in a form
satisfactory to the Securities and Exchange Commission.
(i) FreeSoftwareClub shall not have outstanding any options, warrants or other
rights to purchase shares of FreeSoftwareClub except for 95,750 options which
have been granted by FreeSoftwareClub at an exercise price of $0.39 per share
and 2,000 which have been granted by FreeSoftwareClub at an exercise price of
$0.41 per share.
4. Exchange of Securities. As of the Closing Date, each of the following
shall occur:
(a) All shares of Ideas common stock issued and outstanding on the Closing
Date shall be exchanged for the FSWC Shares. The exchange ratio shall be 2.88
FreeSoftwareClub Shares for each outstanding Ideas Share, resulting in a total
of 3,000,000 FSWC Shares being issued in exchange for all of the Ideas Shares.
All such outstanding shares of Ideas common stock shall be deemed, after
Closing, to be owned by FreeSoftwareClub. The holders of such certificates
previously evidencing shares of Ideas Common Stock outstanding immediately prior
to the Closing Date shall cease to have any rights with respect to such shares
of Ideas Common Stock except as otherwise provided herein or by law.
(b) Any shares of Ideas Common Stock held in the treasury of Ideas immediately
prior to the Closing Date shall automatically be canceled and extinguished
without any conversion thereof and no payment shall be made with respect
thereto.
5. Other Events Occurring at Closing. At Closing, the following shall be
accomplished:
(a) FreeSoftwareClub shall file an amendment to its Articles of Incorporation
with the Secretary of State of the State of Delaware effecting an amendment to
its Articles of Incorporation to reflect (1) a name change of the company to
"Ideas and Associates, Inc." and (2) to effect and put of record the Reverse
Stock Split.
(b) The resignation of the existing FreeSoftwareClub officers and directors
and appointment of new officers and directors as directed by Ideas.
6. Delivery of Shares. On or as soon as practicable after the Closing Date,
Ideas will use its best efforts to cause the Ideas Stockholders to surrender for
cancellation certificates representing the Ideas Shares against delivery of
certificates representing the FSWC Shares.
7. Representations of Ideas Stockholders. Each Ideas Stockholder hereby
represents and warrants, each only as to its own Ideas Shares, effective this
date and the Closing Date, as follows:
(a) The Ideas Shares are free from claims, liens, or other encumbrances,
and at the Closing Date said Ideas Stockholder will have good title and the
unqualified right to transfer and dispose of such Ideas Shares.
<PAGE 31>
(b) Said Ideas Stockholder is the sole owner of the issued and outstanding
Ideas Shares as set forth in Exhibit "A";
(c) Said Ideas Stockholder has no present intent to sell or dispose of the
FSWC Shares and is not under a binding obligation, formal commitment, or
existing plan to sell or otherwise dispose of the FSWC Shares.
8. Representations of Ideas. Ideas hereby represents and warrants as
follows, which warranties and representations shall also be true as of the
Closing Date:
(a) The Ideas Stockholders listed on the attached Exhibit "A" are the
sole record and beneficial owners of the issued and outstanding common stock of
Ideas.
(b) Ideas has no outstanding or authorized capital stock, warrants, options or
convertible securities.
(c) The audited financial statements as of and for the periods ended
December 31, 1999 and 2000 and unaudited financial statements as of and for the
period ended September 30, 2001, which have been (or will be prior dissemination
of an Information Statement by FreeSoftwareClub) delivered to FreeSoftwareClub
(hereinafter referred to as the "Ideas Financial Statements") fairly present the
financial condition of Ideas as of the dates thereof and the results of its
operations for the periods covered. There are no material liabilities or
obligations, either fixed or contingent, not disclosed in the Ideas Financial
Statements or in any exhibit thereto or notes thereto other than liabilities,
contracts or obligations incurred in the ordinary course of business; and no
such liabilities, contracts or obligations in the ordinary course of business
constitute liens or other liabilities which materially alter the financial
condition of Ideas as reflected in the Ideas Financial Statements. Ideas has
good title to all assets shown on the Ideas Financial Statements subject only to
dispositions and other transactions in the ordinary course of business, the
disclosures set forth therein and liens and encumbrances of record. The Ideas
Financial Statements have been prepared in accordance with generally accepted
accounting principles consistently applied (except as may be indicated therein
or in the notes thereto).
(d) Since the date of the Ideas Financial Statements, there have not been
any material adverse changes in the financial position of Ideas except changes
arising in the ordinary course of business, which changes will in no event
materially and adversely affect the financial position of Ideas.
(e) Ideas is not a party to any material pending litigation or, to its
best knowledge, any governmental investigation or proceeding, not reflected in
the Ideas Financial Statements, and to its best knowledge, no material
litigation, claims, assessments or any governmental proceedings are threatened
against Ideas.
(f) Ideas is in good standing in its jurisdiction of incorporation, and
is in good standing and duly qualified to do business in each jurisdiction where
required to be so qualified except where the failure to so qualify would have no
material negative impact on Ideas.
<PAGE 33>
(g) Ideas has (or, by the Closing Date, will have) filed all material tax,
governmental and/or related forms and reports (or extensions thereof) due or
required to be filed and has (or will have) paid or made adequate provisions for
all taxes or assessments which have become due as of the Closing Date.
(h) Ideas has not materially breached any material agreement to which it
is a party. Ideas has previously given FreeSoftwareClub copies or access
thereto of all material contracts, commitments and/or agreements to which Ideas
is a party including all relationships or dealings with related parties or
affiliates.
(i) Ideas has no subsidiaries other than Ideas and Associates, Inc., a
Maryland corporation.
(j) Ideas has made all material corporate financial records, minute books, and
other corporate documents and records available for review to present management
of FreeSoftwareClub prior to the Closing Date, during reasonable business hours
and on reasonable notice.
(k) The execution of this Agreement does not materially violate or breach
any material agreement or contract to which Ideas is a party and has been duly
authorized by all appropriate and necessary corporate action under other
applicable law and Ideas, to the extent required, has obtained all necessary
approvals or consents required by any agreement to which Ideas is a party.
(l) All disclosure information provided by Ideas which is to be set forth in
disclosure documents of FreeSoftwareClub or otherwise delivered to
FreeSoftwareClub by Ideas for use in connection with the transaction described
herein is true, complete and accurate in all material respects.
9. Representations of FreeSoftwareClub. FreeSoftwareClub hereby represents and
warrants as follows, each of which representations and warranties shall continue
to be true as of the Closing Date:
(a) As of the Closing Date, the FSWC Shares, to be issued and delivered
to the Ideas Stockholders hereunder will, when so issued and delivered,
constitute, duly authorized, validly and legally issued shares of
FreeSoftwareClub common stock, fully-paid and non-assessable. FreeSoftwareClub
shall have completed the Reverse Stock Split wherein each holder of
FreeSoftwareClub Shares shall have received 1 share of the FreeSoftwareClub
Shares for each 8.9286 FreeSoftwareClub Shares previously held.
(b) FreeSoftwareClub has the corporate power and authority to enter into
this Agreement and to perform its respective obligations hereunder. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action, including the board of directors and shareholders of
FreeSoftwareClub. The execution and performance of this Agreement will not
constitute a material breach of any agreement, indenture, mortgage, license or
other instrument or document
<PAGE 33>
to which FreeSoftwareClub is a party or by which its assets and properties are
bound, and will not violate any judgment, decree, order, writ, rule, statute, or
regulation applicable to FreeSoftwareClub or its properties. The execution and
performance of this Agreement will not violate or conflict with any provision of
the Articles of Incorporation or by-laws of FreeSoftwareClub.
(c) FreeSoftwareClub has delivered to Ideas a true and complete copy of Form
10-KSB for the fiscal years 2000 and 1999 and its Form 10-QSB for the period
ended September 30, 2001 (the "FSWC Financial Statements"). The FSWC Financial
Statements are complete, accurate and fairly present the financial condition of
FreeSoftwareClub as of the dates thereof and the results of its operations for
the periods then ended. There are no liabilities or obligations either fixed or
contingent not reflected therein. The FSWC Financial Statements have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis (except as may be indicated therein or in the notes thereto)
and fairly present the financial position of FreeSoftwareClub as of the dates
thereof and the results of its operations and changes in financial position for
the periods then ended.
(d) Since September 30, 2001, there have not been any material adverse changes
in the financial condition of FreeSoftwareClub.
(e) FreeSoftwareClub is not a party to or the subject of any pending
litigation, claims, decrees, orders, stipulations or governmental investigation
or proceeding not reflected in the FSWC Financial Statements or otherwise
disclosed herein, and there are no lawsuits, claims, assessments,
investigations, or similar matters, against or affecting FreeSoftwareClub, its
management or its properties. FreeSoftwareClub has complied in all material
respects with all laws, statutes, ordinances, regulations, rules, decrees or
orders applicable to it.
(f) FreeSoftwareClub is duly organized, validly existing and in good standing
under the laws of the State of Delaware; has the corporate power to own its
property and to carry on its business as now being conducted and is duly
qualified to do business in any jurisdiction where so required except where the
failure to so qualify would have no material negative impact on it.
(g) FreeSoftwareClub has filed all federal, state, county and local income,
excise, property and other tax, governmental and/or related returns, forms, or
reports, which are due or required to be filed by it prior to the date hereof,
except where the failure to do so would have no material adverse impact on
FreeSoftwareClub, and has paid or made adequate provision in the FSWC Financial
Statements for the payment of all taxes, fees, or assessments which have or may
become due pursuant to such returns or pursuant to any assessments received.
FreeSoftwareClub is not delinquent or obligated for any tax, penalty, interest,
delinquency or charge.
Each such tax return or report has been duly filed on a timely basis and
all such returns and reports are correct and complete in all material respects
and fully discloses and does not understate the income, taxes, expenses,
deductions and credits for the period to which it relates. Up to and including
the Closing Date, no claim has been made against FreeSoftwareClub by any
authority in a jurisdiction in which it does not file a return that it is or may
be subject to any taxes in that jurisdiction. FreeSoftwareClub has not received
notice of any actions, suits,
<PAGE 34>
proceedings, investigations or claims pending or threatened against
FreeSoftwareClub in respect of any taxes nor are any matters relating to any
taxes under discussion with any governmental authority.
FreeSoftwareClub has withheld from each payment made to any of its past or
present employees, officers and directors or to any other person in respect of
whom withholding therefrom is required, the amount of all taxes and other
deductions required to be withheld therefrom and has paid the same to the proper
tax authorities or other receiving officers in all material respects within the
time required under any applicable legislation. FreeSoftwareClub has collected
all taxes it is required to collect and has remitted all such taxes it is
required to remit to the proper tax authority when required to do so all.
(h) There are no existing options, calls, warrants, preemptive rights or
commitments of any character relating to the issued or unissued capital stock or
other securities of FreeSoftwareClub, except as contemplated in this Agreement
and there exist no liens or other securities interests in any assets of
FreeSoftwareClub.
(i) The corporate financial records, minute books, and other documents and
and records of FreeSoftwareClub have been made available to Ideas prior to the
Closing, shall be delivered to new management of FreeSoftwareClub at Closing and
are correct and accurate in all material respects and reflect all decisions made
by the Board of Directors and the shareholders of FreeSoftwareClub.
(j) FreeSoftwareClub has not breached, nor is there any pending, or to the
knowledge of management, any threatened claim that FreeSoftwareClub has
breached, any of the terms or conditions of any agreements, contracts or
commitments to which it is a party or by which it or its assets are is bound.
The execution and performance hereof will not violate any provisions of
applicable law or any agreement to which FreeSoftwareClub is subject.
FreeSoftwareClub hereby represents that it has no business operations or
material assets and it is not a party to any material contract or commitment
other than appointment documents with its transfer agent, and that it has
disclosed to Ideas all relationships or dealings with related parties or
affiliates.
(k) FreeSoftwareClub common stock is currently approved for quotation on
the OTC Bulletin Board under the symbol "FSWC" and there are no stop orders in
effect or contemplated with respect thereto and no facts exist which may give
raise there. FreeSoftwareClub filed all reports required to be filed by
FreeSoftwareClub pursuant to the Securities Act of 1934, as amended.
FreeSoftwareClub has provided Ideas with copies of all correspondence between
FreeSoftwareClub and NASDAQ and FreeSoftwareClub and NASD. FreeSoftwareClub has
not been informed, and has no reason to believe, that its common stock will be
delisted or suspended by the NASD. FreeSoftwareClub has fully complied will all
applicable securities laws and regulations and is not in default of any of its
obligations thereunder.
(l) All information regarding FreeSoftwareClub which has been provided to
Ideas or otherwise disclosed in connection with the transactions contemplated
herein, is true, complete and accurate in all material respects.
FreeSoftwareClub has provided to Ideas all material information regarding
FreeSoftwareClub.
<PAGE 35>
(m) As of Closing, the outstanding capitalization of FreeSoftwareClub shall
consist of 1,898,120 shares of common stock giving effect to all matters
contemplated herein including the Reverse Stock Split and pending the return of
898,120 shares of common stock pursuant to the Asset Purchase Agreement, all of
which shares are duly issued, fully paid and non-assessable and were issued in
compliance with applicable securities laws.
(n) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (a) constitute a
violation (with or without the giving of notice or lapse of time, or both) of
any provision of law or any judgment, decree, order, regulation or rule of any
court or other governmental authority applicable to FreeSoftwareClub, (b)
require any consent, approval or authorization of, or declaration, filing or
registration with, any person, except for compliance with applicable securities
laws and the filing of all documents necessary to consummate the transaction
with any governmental entity, (c) result in a default (with or without the
giving of notice or lapse of time, or both) under, acceleration or termination
of, or the creation in any party of the right to accelerate, terminate, modify
or cancel, any agreement, lease, note or other restriction, encumbrance,
obligation or liability to which FreeSoftwareClub is a party or by which either
is bound or to which any of their assets are subject, (d) result in the creation
of any material lien or encumbrance upon the assets of FreeSoftwareClub or the
funds being delivered in connection herewith, or (e) conflict with or result in
a breach of or constitute a default under any provision of the charter documents
of FreeSoftwareClub.
(o) FreeSoftwareClub does not have any agreements of any nature to acquire,
directly or indirectly, any shares of capital stock, or other equity or
ownership interest in, any person, firm or corporation, or its assets (except
pursuant to the Asset Purchase Agreement),
(p) There is no requirement to make any filing, give any notice to or obtain
any license, permit, certificate, regulation, authorization, consent or approval
of, any governmental or regulatory authorities as a condition to the lawful
consummation of the transactions contemplated by this Agreement except for the
filings, notifications, consents and approvals described in this Agreement.
(q) FreeSoftwareClub has in compliance in all material respects with applicable
Federal, state and local laws, statutes, regulations, orders, directives and
decisions rendered by any legislature, department, administrative or regulatory
agency ("Environmental Laws") relating to the protection of the environment,
occupational health and safety or the use, storage, disposal, transport,
handling, remediation or corrective action of any pollutants, contaminants,
chemicals, deleterious substances or industrial, toxic or hazardous wastes or
substances ("Hazardous Substances").
FreeSoftwareClub has not used or permitted to be used, except in compliance in
all material respects with all Environmental Laws, its office space, to store,
deposit, dispose or of handle any Hazardous Substances.
<PAGE 36>
FreeSoftwareClub has obtained all permits, licenses and other authorizations
which are required in connection with the conduct of its business under all
applicable Environmental Laws.
FreeSoftwareClub has never received any notice of any civil, criminal or
administrative actions, suits, demands, claims, hearings, notices of demand
letters, requests for information, notices of violation, investigations or
proceedings pending or threatened against FreeSoftwareClub in connection with
the conduct of its business relating in any way to any Environmental Laws.
(r) FreeSoftwareClub shall apply the cash and notes received by the Company
pursuant to the Stock Purchase as may be necessary to pay the liabilities of the
Company, as of the date of the Closing),
(s) All disclosure information provided by FreeSoftwareClub which was delivered
to Ideas by Ideas for use in connection with the transaction described herein is
true, complete and accurate in all material respects.
10. Closing. The Closing of the transactions contemplated herein shall occur
as soon as possible after the completion of the conditions to Closing set forth
herein. The "Closing Date" of the transactions described herein (the
"Acquisition"), shall be that date on which all conditions set forth herein have
been met.
11. Conditions Precedent to the Obligations of Ideas. All obligations of
Ideas under this Agreement are subject to the fulfillment, prior to or as of the
Closing and/or the Closing Date, as indicated below, of each of the following
conditions:
(a) The representations and warranties by or on behalf of FreeSoftwareClub
contained in this Agreement or in any certificate or document delivered pursuant
to the provisions hereof shall be true in all material respects at and as of the
Closing and Closing Date as though such representations and warranties were made
at and as of such time.
(b) FreeSoftwareClub shall have performed and complied with all covenants,
agreements, and conditions set forth in, and shall have executed and delivered
all documents required by this Agreement to be performed or complied with or
executed and delivered by it prior to or at the Closing.
(c) On or before the Closing, the board of directors, and shareholders
representing a majority interest the outstanding common stock of
FreeSoftwareClub, shall have approved in accordance with applicable state
corporation law and Federal securities laws (i) the execution and delivery of
this Agreement, (ii) the consummation of the transactions contemplated herein,
(iii) the Reverse Stock Split; and (iv) the consummation of the transactions
contemplated in the Asset Purchase Agreement.
(d) On or before the Closing Date, FreeSoftwareClub shall have delivered to
Ideas certified copies of resolutions of the board of directors and shareholders
of FreeSoftwareClub approving and authorizing the execution, delivery and
performance of this Agreement and authorizing all of the necessary and proper
action to enable FreeSoftwareClub to comply with the terms of this Agreement
including the election of Ideas' nominees to the Board of Directors of
FreeSoftwareClub and all matters outlined herein.
<PAGE 37>
(e) The Acquisition shall be permitted by applicable law and FreeSoftwareClub
shall have sufficient shares of its capital stock authorized to complete the
Acquisition.
(f) As of the Closing, the existing officers and directors of FreeSoftwareClub
shall have resigned in writing from all positions as directors and officers of
FreeSoftwareClub effective upon the election and appointment of the Ideas
nominees.
(g) At the Closing, all instruments and documents delivered to Ideas and Ideas
Stockholders pursuant to the provisions hereof shall be reasonably satisfactory
to legal counsel for Ideas.
(h) The shares of restricted FreeSoftwareClub capital stock to be issued to
the Ideas Stockholders will be validly issued, nonassessable and fully-paid
under Delaware corporation law and will be issued in compliance with all
federal, state and applicable corporation and securities laws.
(i) Ideas shall have received all necessary and required approvals and
consents from required parties and its shareholders.
(j) At the Closing, FreeSoftwareClub shall have delivered to Ideas an
opinion of its counsel dated as of the Closing in a form reasonably acceptable
to the parties.
12. Conditions Precedent to the Obligations of FreeSoftwareClub. All
obligations of FreeSoftwareClub under this Agreement are subject to the
fulfillment, prior to or at the Closing, of each of the following conditions:
(a) The representations and warranties by Ideas and the Ideas Stockholders
contained in this Agreement or in any certificate or document delivered pursuant
to the provisions hereof shall be true in all material respects at and as of the
Closing as though such representations and warranties were made at and as of
such time.
(b) Ideas shall have performed and complied with, in all material respects,
all covenants, agreements, and conditions required by this Agreement to be
performed or complied with by it prior to or at the Closing;
(c) Ideas shall deliver on behalf of the Ideas Stockholders a letter commonly
known as an "Investment Letter," signed by each of said shareholders, in
substantially the form attached hereto as Exhibit "D", acknowledging that the
FSWC Shares are being acquired for investment purposes.
(d) Ideas shall deliver an opinion of its counsel dated as of the Closing in a
form reasonably acceptable to the parties.
<PAGE 38>
13. Indemnification. For a period of one year from the Closing,
FreeSoftwareClub agrees to indemnify and hold harmless Ideas and the Ideas
Shareholders, and Ideas agrees to indemnify and hold harmless FreeSoftwareClub,
at all times after the date of this Agreement against and in respect of any
liability, damage or deficiency, all actions, suits, proceedings, demands,
assessments, judgments, costs and expenses including attorney's fees incident to
any of the foregoing, resulting from any material misrepresentations made by an
indemnifying party to an indemnified party, an indemnifying party's breach of
covenant or warranty or an indemnifying party's nonfulfillment of any agreement
hereunder, or from any material misrepresentation in or omission from any
certificate furnished or to be furnished hereunder.
To secure its obligations pursuant to the provisions of this Section,
FreeSoftwareClub agrees to pledge the promissory notes issued to
FreeSoftwareClub by Ideas in connection with the Stock Purchase Agreement (the
"Notes"). In the event of an indemnity claim raised by Ideas and the Ideas
Stockholders prior to the dates set forth in the Notes for the payment of the
principal balances thereof, the indemnity obligations of FreeSoftwareClub
hereunder shall be satisfied, in whole or in part, by the cancellation of such
portion of the Notes as shall be necessary to satisfy such obligation. In the
event indemnity claim raised by the Ideas Stockholders (a) which cannot be fully
satisfied by the cancellation of the Notes or (b) which is raised after the
payment of the Notes, the Ideas Stockholders shall be entitled to the issuance
of additional shares of FreeSoftwareClub common stock based on its fair market
value at the time in such amount as to equal any claim or liability which may
arise.
14. Nature and Survival of Representations. All representations, warranties
and covenants made by any party in this Agreement shall survive the Closing and
the consummation of the transactions contemplated hereby for one year from the
Closing. All of the parties hereto are executing and carrying out the
provisions of this Agreement in reliance solely on the representations,
warranties and covenants and agreements contained in this Agreement and not
upon any investigation upon which it might have made or any representation,
warranty, agreement, promise or information, written or oral, made by the other
party or any other person other than as specifically set forth herein.
15. Documents at Closing. At the Closing, the following documents shall
be delivered:
(a) Ideas will deliver, or will cause to be delivered, to FreeSoftwareClub the
following:
(i) a certificate executed by the President and Secretary of Ideas to the
effect that all representations and warranties made by Ideas under this
Agreement are true and correct as of the Closing, the same as though originally
given to FreeSoftwareClub on said date;
(ii) a certificate from the jurisdiction of incorporation of Ideas dated at
or about the Closing to the effect that Ideas is in good standing under the laws
of said jurisdiction;
(iii) Investment Letters in the form attached hereto as Exhibit "C" executed
by each Ideas Stockholder;
39
(iv) such other instruments, documents and certificates, if any, as are
required to be delivered pursuant to the provisions of this Agreement;
(v) certified copies of resolutions adopted by the shareholders and directors
of Ideas authorizing this transaction; and
(vi) all other items, the delivery of which is a condition precedent to the
obligations of Ideas as set forth herein.
(vii) the legal opinion required by Section 12(d) hereof.
(b) FreeSoftwareClub will deliver or cause to be delivered to Ideas:
(i) stock certificates representing the FreeSoftwareClub Shares to be issued
as a part of the stock exchange as described herein;
(ii) a certificate of the President of FreeSoftwareClub, to the effect that
all representations and warranties of FreeSoftwareClub made under this Agreement
are true and correct as of the Closing, the same as though originally given to
Ideas on said date;
(iii) certified copies of resolutions adopted by FreeSoftwareClub's board of
directors and FreeSoftwareClub's Stockholders authorizing the Acquisition and
all related matters described herein;
(iv) certificate from the jurisdiction of incorporation of FreeSoftwareClub
dated at or about the Closing Date that FreeSoftwareClub is in good standing
under the laws of said state;
(v) opinion of FreeSoftwareClub's counsel as described in Section 11(j)
above;
(vi) such other instruments and documents as are required to be delivered
pursuant to the provisions of this Agreement;
(vii) resignation of the existing officers and directors of FreeSoftwareClub;
and
(viii) all corporate and financial records of FreeSoftwareClub.
16. Miscellaneous.
(a) Public Announcement. Until the Closing, the Company shall not make or
issue, or cause to be made or issued, any announcement or written statement
concerning this Agreement or the transactions contemplated hereby for
dissemination to the general public without the prior consent of Ideas except as
required by law.
(b) Further Assurances. At any time, and from time to time, after the Closing
Date, each party will execute such additional instruments and take such action
as may be reasonably requested by the other party to confirm or perfect title to
any property transferred hereunder or otherwise to carry out the intent and
purposes of this Agreement.
<PAGE 40>
(c) Waiver. Any failure on the part of any party hereto to comply with any of
its obligations, agreements or conditions hereunder may be waived in writing by
the party to whom such compliance is owed.
(d) Amendment. This Agreement may be amended only in writing as agreed to by
all parties hereto.
(e) Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been given if delivered in person or sent by
prepaid first class registered or certified mail, return receipt requested.
(f) Headings. The section and subsection headings in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) Counterparts. This Agreement may be executed in two or more ounterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
(h) Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of California.
(i) Binding Effect. This Agreement shall be binding upon the parties hereto
and inure to the benefit of the parties, their respective heirs, administrators,
executors, successors and assigns.
(j) Entire Agreement. This Agreement and the attached Exhibits constitute the
entire agreement of the parties covering everything agreed upon or understood in
the transaction. There are no oral promises, conditions, representations,
understandings, interpretations or terms of any kind as conditions or
inducements to the execution hereof.
(k) Severability. If any part of this Agreement is deemed to be unenforceable
the balance of the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and year
first above written.
FreeSoftwareClub.com, Inc.
By:_______________________
Title:
Ideas and Associates
By:_______________________
Title:
<PAGE 41>
EXHIBIT C
kpmg
Financial Statements of
3608948 CANADA INC.
Seven-month period ended December 31, 1999
<PAGE 42>
AUDITORS' REPORT TO THE BOARD OF DIRECTORS AND TO THE SHAREHOLDERS
We have audited the balance sheet of 3608948 Canada Inc. as at December 31, 1999
and the statements of earnings and retained earnings and cash flows for the
seven-month period then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with Canadian generally accepted auditing
standards and United States generally accepted auditing standards. Those
standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 1999 and the
results of its operations and its cash flows for the seven month period then
ended in accordance with Canadian generally accepted accounting principles and
also comply, in all material respects, with United States generally accepted
accounting principles.
Chartered Accountants
Montreal, Canada
May 2, 2000
<PAGE 43>
3608948 CANADA INC.
Balance Sheet
December 31, 1999
Assets
Current assets:
Cash CD$ 62,178
Accounts receivable 14,847
-------
77,025
Capital assets (note 2) 46,166
-------
CD$ 123,191
========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities CD$ 28,197
Income taxes payable 9,700
Advance from a shareholder, without interest 20,750
--------
58,647
Shareholders' equity:
Share capital (note 3) 1,000
Retained earnings 63,544
---------
64,544
---------
CD$ 123,191
=========
See accompanying notes to financial statements.
<PAGE 44>
3608948 CANADA INC.
Statement of Earnings and Retained Earnings
Seven-month period ended December 31, 1999
Revenue CD$ 315,343
--------
Expenses:
Website development contracts 175,637
Salaries and benefits 21,860
Professional fees 11,071
Amortization 9,077
Travel and representation 7,590
Telephone 6,659
Office expenses 5,464
Car rental 2,324
Internet access 1,343
Other expenses 824
Taxes and license 250
-------
242,099
--------
Earnings before income taxes 73,244
Income taxes 9,700
--------
Net earnings 63,544
Retained earnings, beginning of period -
--------
Retained earnings, end of period CD$ 63,544
========
See accompanying notes to financial statements.
<PAGE 45>
3608948 CANADA INC.
Statement of Cash Flows
Seven-month period ended December 31, 1999
Cash flows from operating activities:
Net earnings CD$ 63,544
Adjustments for:
Amortization 9,077
Change in non-cash working capital:
Accounts receivable (14,847)
Accounts payable 28,197
Income taxes payable 9,700
---------
95,671
Cash flows from financing activities:
Increase in advance from a director 20,750
Issue of share capital 1,000
---------
21,750
Cash flows from investing activities:
Capital assets (55,243)
---------
Increase in cash during the period 62,178
---------
Cash, end of period CD$ 62,178
========
See accompanying notes to financial statements.
<PAGE 46>
3608948 CANADA INC.
Notes to Financial Statements
Seven-month period ended December 31, 1999
The Company was incorporated on June 7, 1999 under the provisions of the
Canada Business Corporations Act and its principal business activity comprises
the design of web sites.
Significant accounting policies:
(a) Basis of presentation:
The Company's accounting policies are in accordance with accounting
principles generally accepted in Canada ("Canadian GAAP") which are
consistent with accounting principles generally accepted in the United
States ("US GAAP") in all material respects. The preparation of financial
statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The following policies are
considered to be significant.
(b) Capital assets:
Capital assets are carried at cost. Amortization is provided using the
straight-line method and following annual rates:
Rate
Asset
Office furniture and equipment 20%
Computer hardware 30%
Computer software 50%
(c) Recognition of revenue:
Revenues are generated from short-term contracts that typically require less
than 30 days to complete and are recognized when the services are rendered
and the contract is completed.
The contracts do not provide any warranties, guarantees or rights of
returns.
<PAGE 47>
3608948 CANADA INC.
Notes to Financial Statements, Continued
Seven-month period ended December 31,1999
2. Capital assets:
Accumulated Net book
Cost depreciation value
---------- ------------- -------
Office furniture and equipment CD$ 10,147 CD $ 1,015 CD $ 9,132
Computer hardware 41,386 6,208 35,178
Computer software 3,710 1,854 1,856
-------- ------- -------
CD $ 55,243 CD $ 9,077 CD $ 46,166
======== ======= ========
3. Share capital:
Authorized in an unlimited number of:
Class A common shares, voting, participating
Class B common shares, non-voting
Class C preferred shares, voting, redeemable
Class D preferred shares, non-voting, retractable,
preferential and non-cumulative dividend
Class E preferred shares, non-voting, retractable, preferential
and non-cumulative dividend, non-participating
Class F preferred shares, non-voting, preferential
and noncumulative dividend, retractable, non-participating
Class G preferred shares, non-voting, preferential
and noncumulative dividend
Issued:
1,000 Class A common shares CD $ 1,000
======
<PAGE 48>