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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 12, 2001
REGISTRATION NO. 333-52118
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM SB-2
ON
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FUTURELINK CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-4763404
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2 SOUTH POINTE DRIVE
LAKE FOREST, CA 92630
(949) 672-3000
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
HOWARD E. TAYLOR
CHIEF EXECUTIVE OFFICER
FUTURELINK CORP.
2 SOUTH POINTE DRIVE
LAKE FOREST, CA 92630
(949) 672-3000
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
COPIES TO:
JOHN F. DELLA GROTTA, ESQ. THOMAS R. POLLOCK, ESQ.
STEPHEN D. COOKE, ESQ. PAUL, HASTINGS, JANOFSKY & WALKER LLP
PAUL, HASTINGS, JANOFSKY & WALKER LLP 399 PARK AVENUE, 31ST FLOOR
695 TOWN CENTER DRIVE, 17TH FLOOR NEW YORK, NEW YORK 10022-4697
COSTA MESA, CALIFORNIA 92626 TEL: (212) 318-6000
TEL: (714) 668-6200 FAX: (212) 319-4090
FAX: (714) 979-1921
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2)
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Common Stock, par value $0.0001 per
share................................ 60,830,378 $1.00 $58,000,030
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TITLE OF EACH CLASS OF AMOUNT OF
SECURITIES TO BE REGISTERED REGISTRATION FEE(3)
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Common Stock, par value $0.0001 per
share................................ $15,611
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(1) Includes 12,892,012 shares represent stock to be issued upon exercise of
certain outstanding common stock warrants and convertible securities and
other convertible securities which may become outstanding upon the exercise
of certain outstanding preferred stock warrants. We are also registering
such additional shares of common stock as may be issued as a result of the
anti-dilution provisions contained in such securities. Pursuant to Rule 429
under the Securities Act, this Registration Statement includes 2,830,348
shares being carried forward from the Registrant's Registration Statement
No. 333-46778. Also includes 58,000,030 shares covered by this Registration
Statement that are not presently covered by any other registration
statement.
(2) Estimated solely for the purpose of computing the registration fee required
by Section 6(b) of the Securities Act for the 58,000,030 shares covered by
this Registration Statement that are not presently covered by any other
registration statement, and computed pursuant to Rule 457(c) under the
Securities Act based upon the average of the high and low prices of the
common stock on December 18, 2000, as reported on the Nasdaq National
Market.
(3) A filing fee in the amount of $15,611 was paid with the original filing
filed with the Securities and Exchange Commission on December 19, 2000 to
cover the 59,132,576 shares initially covered by this Registration Statement
that are not presently covered by any other registration statement. A filing
fee of $3,211 was previously paid by the Registrant under Registration
Statement No. 333-46778 covering the 3,025,350 shares originally registered
thereunder, which fee relates to the 2,830,348 shares being carried forward
from that registration statement which had a proposed maximum offering price
per share of $4.02.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
PURSUANT TO RULE 429, THIS REGISTRATION STATEMENT CONTAINS A COMBINED
PROSPECTUS THAT COVERS 2,830,348 SHARES BEING CARRIED FORWARD FROM THE
REGISTRANT'S REGISTRATION STATEMENT NO. 333-46778, IN ADDITION TO THE 58,000,030
SHARES BEING REGISTERED FOR THE FIRST TIME HEREUNDER.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE
THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION DATED FEBRUARY 12, 2001
PROSPECTUS
60,830,378 SHARES
[FUTURELINK LOGO]
COMMON STOCK
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This prospectus relates to an aggregate 60,830,378 shares of common stock
of FutureLink Corp., which may be offered for sale by persons who have acquired
such shares in certain acquisitions of businesses by us or in certain other
private transactions and by persons who may acquire shares of common stock upon
exercising warrants or converting convertible securities. Included in the
aggregate number of shares are: 8,120,619 shares of common stock, which may be
offered for sale by certain selling stockholders who may acquire them if they
exercise outstanding common stock warrants we issued to them; 1,428,571 shares
of common stock, which may be offered for sale by a selling stockholder upon
conversion of shares of Series A preferred stock; 1,142,857 shares of common
stock, which may be offered for sale by a selling stockholder who may acquire
them if it converts shares of Series A preferred stock that it may acquire if it
exercises preferred stock warrants we issued to it; and 2,199,965 shares of
common stock, which may be offered for sale by certain selling stockholders who
may acquire them in exchange for shares of one of our subsidiaries held by them.
We have registered the aggregate number of shares under the Securities Act of
1933 on behalf of these stockholders so that they can sell them in a public
offering or other distribution. We will not receive any of the proceeds from the
offer and sale of the shares. If the warrants related to the shares of common
stock offered for sale pursuant to this prospectus are exercised in full, we
will receive proceeds from such exercises of $101,280,845.
Our common stock currently trades on the Nasdaq National Market under the
symbol "FTRL."
SEE "RISK FACTORS" BEGINNING ON PAGE 3 TO READ ABOUT RISKS THAT YOU SHOULD
CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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The date of this prospectus is February , 2001
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THE COMPANY
You should read the entire prospectus carefully, especially the risks of
investing in our common stock discussed under "Risk Factors." In addition, you
should also read the documents we have referred you to in "Incorporation of
Certain Documents by Reference" on page 29 for information on our company and
our financial statements.
We provide professional computing services and are an application service
provider, or ASP. Our services enable software applications to be deployed,
managed, supported and upgraded from centrally located data centers, rather than
on individual desktop computers. Our professional computing services include
server-based computing services, which involve installing and integrating
software applications on our customers' servers, remote monitoring of Citrix
servers located at our customers' facilities, maintenance of our customers'
computing systems, technical support, training, technical staffing, video
conferencing and other related services. For our ASP customers, we host
applications on our servers at our data centers, rent computing services to our
customers for a monthly fee, and perform remote management and maintenance of
our customers' servers from our network operations centers. Our ASP customers
connect to our facilities over the Internet, through a dedicated
telecommunications line or by wireless connection.
We are the largest integrator in North America of server-based computing
systems using Citrix software. Citrix software is one of the leading
technologies for delivering software applications from remote locations. We
typically install Citrix software along with Windows NT Terminal Server software
from Microsoft. Customers for our server-based computing services have included
Cisco Systems, The Walt Disney Company, Allied Signal, General Motors, Ford
Motor Company, Bank of America, Apple Computer and Delta Airlines. We are
building upon our server-based computing expertise to develop our ASP services.
In addition to our operations in the United States, we currently conduct
business in Canada and the United Kingdom.
Our goal is to provide our ASP services with the speed, simplicity and
reliability of a utility service. By outsourcing all or part of their
information technology needs, our customers can reduce their information
technology staff and focus on their core competencies. Our secure, reliable and
high-performance system for delivering software applications to multiple users
over a variety of hardware systems provides a flexible, cost-effective solution
for our customers.
The address of our principal executive office is 2 South Pointe Drive, Lake
Forest, California 92630. Our telephone number is (949) 672-3000. Our website
address is www.futurelink.net. Information contained on our website does not
constitute part of this prospectus and our address should not be used as a
hyperlink to our website.
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RISK FACTORS
An investment in our common stock involves a high degree of risk. You
should read the following risk factors carefully before purchasing our common
stock. The risks and uncertainties described below are not the only ones we
face. Other risks and uncertainties, including those that we do not currently
consider material, may impair our business. If any of the risks discussed below
actually occur, our business, financial condition, operating results or cash
flows could be materially adversely affected. This could cause the trading price
of our common stock to decline, and you may lose all or part of your investment.
WE HAVE A HISTORY OF SUBSTANTIAL LOSSES AND NEGATIVE CASH FLOWS. WE EXPECT THESE
LOSSES AND NEGATIVE CASH FLOWS TO CONTINUE IN THE FUTURE. IF WE ARE UNABLE TO
GENERATE SUFFICIENT REVENUE FROM OUR OPERATIONS OR RAISE ADDITIONAL OPERATING
CAPITAL, WE MAY NOT BE ABLE TO CONTINUE TO OPERATE OUR BUSINESS, AND YOU MAY
LOSE YOUR INVESTMENT.
We have experienced net losses and negative cash flows and our net losses
and our negative cash flows will continue for the foreseeable future. Unless we
increase our revenues or are able to obtain additional operating capital, we may
not be able to operate profitably in the future or generate positive cash flows.
If we cannot operate profitably or generate positive cash flows, we may have
trouble meeting our obligations to our vendors, we may fail to comply with our
loan covenants, we may be unable to continue to operate our business, and you
may lose your investment.
IN ORDER TO EXECUTE OUR BUSINESS PLAN, WE WILL NEED TO RAISE ADDITIONAL CAPITAL.
IF WE ARE UNABLE TO RAISE ADDITIONAL CAPITAL, WE WILL NOT BE ABLE TO ACHIEVE OUR
BUSINESS PLAN AND YOU COULD LOSE YOUR INVESTMENT.
We need to raise additional funds through public or private debt or equity
financings to be able to fully execute our business plan. Any additional capital
raised through the sale of equity may dilute your ownership interest. We may not
be able to raise additional funds on favorable terms, or at all. If we are
unable to obtain additional funds, we will be unable to execute our business
plan and you could lose your investment.
IF ALL OR A SUBSTANTIAL PORTION OF THE SHARES OF OUR COMMON STOCK OFFERED FOR
SALE BY THIS PROSPECTUS ARE SOLD IN A SHORT PERIOD OF TIME, OUR STOCK PRICE MAY
BE ADVERSELY AFFECTED. OUR STOCK PRICE MAY ALSO BE ADVERSELY AFFECTED BY THE
PERCEPTION THAT SUCH SALES COULD OCCUR.
The shares of common stock offered for sale by this prospectus represent a
majority of our outstanding common stock. We cannot control when the selling
stockholders will sell their shares. If all or a substantial portion of the
shares of common stock offered for sale by this prospectus are sold in a short
period of time, the common stock available for sale may exceed the demand and
the stock price may be adversely affected. In addition, the mere perception that
such sales could occur may depress the price of our common stock.
RECENT REDUCTIONS IN FORCE AND THE DEPRESSED MARKET VALUE OF OUR COMMON STOCK
MAY MAKE IT DIFFICULT FOR US TO RETAIN OUR KEY EMPLOYEES. IF WE ARE UNABLE TO
RETAIN OUR KEY EMPLOYEES AT ALL LEVELS OF OUR BUSINESS, WE WILL NOT BE ABLE TO
GROW OUR BUSINESS AND ACHIEVE OUR BUSINESS PLAN. IF WE FAIL TO ACHIEVE OUR
BUSINESS PLAN WE WILL NOT BE ABLE TO CONTINUE TO OPERATE OUR BUSINESS AND YOU
MAY LOSE YOUR INVESTMENT.
We recently completed the second reduction in force in a four month period.
In addition, the price of our common stock has dropped significantly in the last
nine months. The combination of these events may have an adverse effect on the
morale of our key employees. Our success depends in significant part on the
continued services of our key employees. Losing one or more of our key personnel
will seriously impair our ability or could cause us to fail to successfully
implement our business plan. This will have a material adverse effect on our
business, results of operations and financial condition, and you may lose your
investment.
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WE OPERATE IN AN INDUSTRY WHERE IT IS DIFFICULT TO ATTRACT AND RETAIN QUALIFIED
PERSONNEL. IF WE ARE UNABLE TO ATTRACT AND RETAIN QUALIFIED PERSONNEL, OUR
OPERATIONS WOULD SUFFER AND WE COULD LOSE OUR CUSTOMERS OR FAIL TO ATTRACT NEW
CUSTOMERS.
Our business is labor-intensive, and our success depends in large part upon
our ability to attract, develop, motivate and retain highly skilled personnel.
We believe that we will need to hire additional qualified personnel. Some of
these individuals are in great demand and are likely to remain a limited
resource for the foreseeable future. We may not be able to engage the services
of such personnel or retain our current personnel. If we do not succeed in
attracting new, qualified personnel or successfully retaining our current
personnel, our business will suffer.
OUR INTERNAL ACCOUNTING AND FINANCIAL CONTROLS HAVE WEAKNESSES. IF WE ARE UNABLE
TO RECRUIT AND RETAIN QUALIFIED ACCOUNTING AND FINANCIAL STAFF, WE MAY CONTINUE
TO EXPERIENCE WEAKNESSES IN THESE MANAGEMENT SYSTEMS AND OUR BUSINESS, RESULTS
OF OPERATIONS AND FINANCIAL CONDITION COULD BE MATERIALLY ADVERSELY AFFECTED.
When auditing our consolidated financial statements for the year ended
December 31, 1999, our independent auditors reported to us conditions they
believed to be material weaknesses in our system of internal accounting and
financial controls related to the financial statement close process and the
reconciliation and analysis of general ledger account balances. We have
identified and have taken measures to improve our system of internal controls,
implement more rigorous internal accounting policies, procedures and controls,
and conduct accounting systems training. However, the success of these measures
will depend in large part upon our having qualified accounting and financial
staff to implement them. We have lost several key personnel in our accounting
and finance departments in recent months. If we are unable to recruit and retain
qualified accounting and financial staff, we may be not be successful in
correcting the noted deficiencies. If we are unable to establish and maintain
effective internal accounting and financial controls, we will not be able to
timely and accurately account for and monitor the operations of our business and
we therefore may not be able to properly execute our business plan, which could
materially adversely affect our business, results of operations and financial
condition.
OUR PAST FINANCIAL RESULTS MAY NOT BE REPRESENTATIVE OF OUR FUTURE FINANCIAL
RESULTS AND THEREFORE INVESTORS WILL HAVE DIFFICULTY EVALUATING US AND OUR
PROSPECTS.
We commenced our current business plan in September 1998 and since that
time have grown our business rapidly through acquisitions. Because we have grown
through acquisitions, our pro forma financial results cover periods when we did
not control or manage our subsidiaries and may not be indicative of our future
financial results. Investors will have difficulty evaluating us and our
prospects and therefore our stock price may be adversely affected as well as our
ability to raise money in the future.
THE ASP MARKET HAS NOT DEVELOPED AS WE ANTICIPATED AND WE MAY NOT BE ABLE TO
BENEFIT FROM THE ASP MARKET WHEN, AND IF, IT DEVELOPS.
To date, most of our revenues have come from computer consulting, software
integration, hardware installation and training services. We introduced our ASP
services in March 1999, and it still does not account for a significant portion
of our revenues. The market for ASP services has grown more slowly than we
anticipated. Accordingly, for the near term, we will focus on our core computer
consulting, software integration, hardware installation and training services
business while continuing to position ourselves to take advantage of the ASP
services market when, and if, it develops. The market for ASP services is
evolving. Future demand for these services and the timing of when such future
demand may occur is highly uncertain. We believe that many of our potential
customers are not fully aware of the benefits of ASP services. We must educate
potential customers regarding these benefits and convince them of our ability to
provide complete and reliable services. The market for ASP services may never
become viable or grow further. If the market for our ASP services does not grow
or grows more slowly than we currently
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anticipate, our business, financial condition and operating results will be
materially adversely affected. If the market for our ASP services does grow as
we originally anticipated, it is uncertain whether we will have the financial
resources and the personnel necessary to benefit from such growth.
IF THE ASP MARKET DEVELOPS, WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY WITH NEW
ENTRANTS INTO THE ASP MARKET.
To the extent that the ASP market develops and begins to grow, we believe
established companies in complementary industries, such as telecommunications,
consulting services and computer networking, could be future competitors. We may
not be able to compete successfully against either current or future
competitors. Increased competition could result in significant price erosion,
reduced revenue, lower margins or loss of market share, any of which would
significantly harm our business. Furthermore, larger companies in other related
industries, such as the telecommunications industry, may apply their significant
resources, including their distribution channels existing infrastructure,
personnel, other resources, and brand name recognition, to capture significant
market share.
WE ARE SUSCEPTIBLE TO FLUCTUATIONS IN THE ECONOMY. IF OUR CLIENTS REDUCE CAPITAL
EXPENDITURES RELATING TO INFORMATION TECHNOLOGY IN RESPONSE TO SLOWDOWNS IN
THEIR BUSINESSES DUE TO A GENERAL SLOWING OF THE ECONOMY, OUR BUSINESS COULD BE
ADVERSELY AFFECTED.
Demand for our professional computing and ASP services will be affected by
the general health of the domestic and international economies. Some of our
clients may reduce capital expenditures relating to information technology if
they suffer slowdowns in their businesses due to a general slowing of the
economy. This reduction in capital spending may require some of our clients to
delay or cancel information technology projects that we have been engaged to
manage or on which our personnel may have been staffed. Fluctuations in the
general economy which adversely impact the capital expenditure or other budgets
of our clients may adversely affect our business.
OUR INDUSTRY IS CHARACTERIZED BY RAPIDLY CHANGING TECHNOLOGY WITH CONTINUOUS
IMPROVEMENTS IN BOTH COMPUTER HARDWARE AND SOFTWARE. IF WE DO NOT RESPOND
EFFECTIVELY AND ON A TIMELY BASIS TO RAPID TECHNOLOGICAL CHANGE IN OUR INDUSTRY,
WE WILL NOT BE ABLE TO EFFECTIVELY SELL OUR SERVICES AND OUR SALES WILL
MATERIALLY DECLINE.
We must continually buy or lease new computer hardware and license new
computer software systems to effectively compete in our industry. In addition,
our software delivery applications must be able to support changes in the
underlying software applications that are delivered to our customers. The rapid
development of new technologies increases the risk that current or new
competitors could develop products or services that would reduce the
competitiveness of our products or services. We rely on software providers to
produce software applications that keep pace with our customers' demands.
We may not successfully develop or adopt new technologies, introduce new
services or enhance our existing services on a timely basis and new
technologies, new services or enhancements we use or develop may never achieve
market acceptance. If we fail to address these developments, we will lose sales
to our competitors and our business, operating results and financial condition
will be materially adversely affected.
WE RELY ON SOFTWARE APPLICATION AND SOFTWARE SYSTEMS INTEGRATION COMPANIES TO
REFER MANY OF OUR CLIENTS TO US. ANY FAILURE BY THESE THIRD PARTIES TO PROVIDE
US WITH THESE REFERRALS WILL CAUSE OUR SALES TO MATERIALLY DECLINE.
We rely on referrals from software application and technology integrators
for a portion of our business. These software application and technology
integrators refer their customers to us because we can provide an array of
services which complement the products and services they offer. However, these
software application and technology integrators may stop or substantially
diminish referring business to us or they
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may decide to cooperate with our competitors and thereby adversely impact or
eliminate the amount of referrals made to us. If these third-party referrals
cease or materially decline, our sales will materially decline and our business,
results of operations and financial condition will be materially adversely
affected.
WE MUST LICENSE THE SOFTWARE APPLICATIONS WE PROVIDE TO OUR CUSTOMERS FROM THIRD
PARTIES. IF WE CANNOT OBTAIN THESE SOFTWARE APPLICATIONS WE WILL NOT BE ABLE TO
OFFER ASP SERVICES RELATED TO SUCH SOFTWARE APPLICATIONS.
We depend on third-party software manufacturers agreeing to allow their
software applications to be hosted or run at our data centers and provided to
our customers. We have entered into non-exclusive agreements with Microsoft,
Onyx, Great Plains, SalesLogix and others that allow us to host some of their
software applications at our data centers or re-license their software
applications to our customers. Under most of these agreements, the software
manufacturer can terminate its relationship with us for any reason by giving us
as little as 30 days notice. In these instances, the software manufacturer is
not liable to us or our customers for any damages resulting from termination. If
our relationships with these software manufacturers are terminated or if these
or other software manufacturers do not allow our customers to obtain a license
to operate the software application on our data centers, our business, operating
results and financial condition could be materially adversely affected.
IF WE ARE UNABLE TO OBTAIN CITRIX OR MICROSOFT PRODUCTS, AS WELL AS OTHER KEY
HARDWARE COMPONENTS AND SOFTWARE APPLICATIONS FROM OTHER VENDORS, WE WOULD BE
UNABLE TO DELIVER OUR SERVICES, AND UNTIL WE REPLACE THESE PRODUCTS, OUR
BUSINESS WOULD BE MATERIALLY ADVERSELY AFFECTED.
We depend on third-party suppliers to provide us with key hardware
components and software applications for our infrastructure and with sufficient
communications lines to allow our customers to access their software
applications. Some components or applications are only available from limited
sources. Citrix Systems, Inc. and Microsoft Corporation are our key suppliers of
software that we utilize to connect our customers to software applications.
Although there are other competing software applications on the market, we
believe that Citrix software, deployed with Windows NT Terminal Server software
from Microsoft, is currently best suited to serve this function. If we are
unable to obtain these products or services such as telecommunications services
from other vendors, in a timely manner, at an acceptable cost or at all, we
would be unable to deliver our services. Until we replace these products, our
business, results from operations and financial condition will be materially
adversely affected.
IF THE SOFTWARE WE UTILIZE CONTAINS DEFECTS, OUR CUSTOMERS' SERVICE COULD BE
DISRUPTED AND THEIR DATA COULD BE LOST. THIS COULD RESULT IN OUR INCURRING
LIABILITY AND LOSING CUSTOMERS FOR OUR SERVICES, WHICH WOULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR OPERATIONS.
Our service offerings depend on complex software which may contain defects,
particularly when first introduced or when new versions are released. Although
we test software applications prior to deployment, we may not discover software
defects that affect our new or current services or enhancements until after they
are deployed. These defects could cause service interruptions or data loss which
could damage our reputation or increase our service costs, cause us to lose
revenue, delay market acceptance or divert our development resources. Any
software modifications we perform as part of our integration services could
cause problems in application delivery. Also, because we offer a one-source
solution to our customers, they are likely to hold us accountable for any
problems associated with their software, even if the problem results from
software defects the manufacturer causes. Typically, software manufacturers
disclaim liability for any damages suffered as a result of software defects or
provide only limited warranties. As a result, we may have no recourse against
the providers of defective software applications.
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OUR CURRENT DATA CENTERS ARE LOCATED IN ONLY FOUR LOCATIONS, LAKE FOREST,
CALIFORNIA, CALGARY AND TORONTO, CANADA, AND NEWBURY, UNITED KINGDOM, WHICH
LEAVES US VULNERABLE TO DISRUPTIONS THAT AFFECT OUR DATA CENTERS. IF ONE OR MORE
OF OUR DATA CENTERS ARE DISRUPTED, WE COULD LOSE OUR CUSTOMERS AND FAIL TO
ATTRACT NEW CUSTOMERS, WHICH COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS,
RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
Our ASP business strategy depends on the consistent performance of our four
data centers located in Lake Forest, California, Calgary and Toronto, Canada,
and Newbury, United Kingdom. We offer back-up storage of data for customers that
elect this service. Although our current data centers all have back-up
generators and other safety systems, all are vulnerable to interruption from
fire, earthquake, flood, extended power loss, telecommunications failure,
break-ins and other events beyond our control. If a data center is damaged, a
customer storing its data on that data center may lose its data if it is not
backed up. If one of our data centers was damaged, the loss of data may affect a
significant portion of our customers. We have experienced periodic systems
disruptions in the past and anticipate that such disruptions will occur in the
future. In the event that we experience significant disruptions that affect one
or more of our data centers, we could lose customers and fail to attract new
customers, and our business, results of operations and financial condition would
be materially adversely affected.
BREACHES OF OUR SECURITY COULD DISRUPT THE OPERATION OF OUR DATA CENTERS AND
JEOPARDIZE OUR SECURE TRANSMISSION OF CONFIDENTIAL INFORMATION. THESE BREACHES
COULD CAUSE OUR CUSTOMERS TO LOSE CONFIDENCE IN OUR SERVICES AND CANCEL THEIR
CONTRACTS WITH US OR PROSPECTIVE CUSTOMERS NOT TO PURCHASE OUR SERVICES.
The growth of our business depends upon our ability to securely transmit
confidential information to and from our data centers or the servers of our
customers. Despite our design and implementation of a variety of delivery system
security measures, unauthorized access, computer viruses and accidental or
intentional disturbances could occur. We may need to devote substantial capital
and resources to protect against the threat of unauthorized penetration of our
delivery system or to remedy any problems that the penetration of our delivery
system security creates. The occurrence of any of these events could cause us to
lose customers and expose us to liability, all of which could have a material
adverse effect on us.
OUR ASP SERVICE CONTRACTS GUARANTEE CERTAIN SERVICE LEVELS. IF WE DO NOT MEET
SUCH SERVICE LEVELS, WE MAY BE REQUIRED TO GIVE OUR CUSTOMERS CREDIT FOR FREE
SERVICE AND OUR CUSTOMERS MAY BE ENTITLED TO CANCEL THEIR ASP SERVICE CONTRACTS,
WHICH COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS.
Our ASP contracts contain service level guarantees which obligate us to
provide our hosted applications at a guaranteed level of performance. To the
extent we fail to meet those service levels, we may be obligated to provide our
customers credit for free service. If we continue to fail to meet these service
levels, our ASP customers may have the right to cancel their contracts with us.
These credits or cancellations will cost us money, damage our reputation with
our customers and prospective customers and could materially adversely affect
our business, results of operations and financial condition.
MANY COMPANIES USE THE NAME "FUTURELINK." INTELLECTUAL PROPERTY INFRINGEMENT
CLAIMS AGAINST US FOR THE USE OF THE "FUTURELINK" NAME, EVEN IF WITHOUT MERIT,
COULD BE EXPENSIVE TO DEFEND AND DIVERT MANAGEMENT'S ATTENTION FROM OUR
BUSINESS. IF A CLAIM TO STOP US FROM USING OUR NAME IS SUCCESSFUL, WE WILL HAVE
TO EITHER BUY THE RIGHT TO USE OUR NAME OR CHANGE OUR NAME, WHICH IN EITHER CASE
MAY BE EXPENSIVE.
We are aware that other companies have claimed prior use of the name
"FutureLink" for products or services similar to our own. We are in the process
of investigating the rights, if any, others may have to the name. In addition,
we are attempting to register "FutureLink" as a service mark in the United
States, Canada and the United Kingdom. However, we may not be able to obtain
proprietary rights to the use of this name. We will incur expenses if called to
defend our use of the "FutureLink" name. Any litigation, even if without merit,
may be time consuming and expensive to defend. It also could divert management's
7
9
attention and resources and require us to enter into costly royalty or licensing
agreements. In addition, if any company in our industry is able to establish a
use of the "FutureLink" name that is prior to our use, we could be liable for
damages and could be forced to stop using the name unless we are able to buy the
right to use the name. If we are unable to buy the right to use our name after
we lose an infringement claim, we would have to change our name, which may
require us to spend money to build new brand recognition and incur other costs.
Third parties may assert other infringement claims against us. Any of these
events could have a material adverse effect on our business, financial condition
and results of operations.
WE ARE A TECHNOLOGY COMPANY. HOWEVER, OUR PREVIOUS BUSINESS ACTIVITIES INCLUDED
NATURAL RESOURCE MINING AND EXPLORATION. AS A RESULT WE MAY BE EXPOSED TO
UNKNOWN ENVIRONMENTAL LIABILITY THAT COULD REQUIRE US TO EXPEND OUR FINANCIAL
RESOURCES AND MATERIALLY ADVERSELY AFFECT OUR FINANCIAL CONDITION.
We merged with a publicly-traded company that prior to 1992 was engaged in
the natural resource exploration and development business, including mining and
oil and gas. The mining, mineral processing and oil and gas industries are
subject to extensive governmental regulations for the protection of the
environment, including regulations relating to air and water quality, site
reclamation, solid and hazardous waste handling and disposal and the promotion
of occupational safety. We could be held responsible for any liabilities
relating to our previous involvement in mining or oil and gas exploration and
development, which liabilities would result in our spending our cash resources
and could have a material adverse effect on our business, financial condition
and results of operations.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. We have identified
forward-looking statements in this prospectus using words such as "believes,"
"intends," "expects," "may," "will," "should," "plan," "projected,"
"contemplates," "anticipates," and similar statements. These statements are
based on our beliefs as well as assumptions we made using information currently
available to us. Because these statements reflect our current views concerning
future events, these statements involve risks, uncertainties and assumptions.
Actual future results may differ significantly from the results discussed in the
forward-looking statements. Some, but not all, of the factors that may cause
these differences include those discussed in the Risk Factors section of this
prospectus. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this prospectus.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the shares offered
and sold for the accounts of the selling stockholders. In order for certain
selling stockholders to sell 9,263,476 shares of common stock offered for sale
pursuant to this prospectus, they must exercise outstanding warrants for the
purchase of common stock or Series A preferred stock. If all of those warrants
are exercised, we will receive proceeds of $101,280,845. Since we do not have
any control over when or to what extent the warrants will be exercised,
management intends to use any proceeds received upon exercise for working
capital and general corporate purposes. Since we have not made any specific
allocation for any proceeds, our management will have significant flexibility in
applying such proceeds.
The selling stockholders will not pay any of the expenses that are incurred
in connection with the registration of the shares, but they will pay all
commissions, discounts, and other compensation to any securities broker-dealers
through whom they sell any of the shares.
8
10
SELLING STOCKHOLDERS
The following table sets forth the names of each selling stockholder, the
aggregate number of shares of common stock beneficially owned by each selling
stockholder as of January 26, 2001, and the aggregate number of shares of common
stock that each selling stockholder may offer and sell pursuant to this
prospectus. Because each selling stockholder may offer all or a portion of the
shares of common stock offered by this prospectus at any time and from time to
time after the date hereof, no estimate can be made of the number of shares that
each selling stockholder may retain upon completion of this offering. However,
assuming all of the shares offered by this prospectus are sold by the selling
stockholders, then unless otherwise noted, after completion of this offering,
none of the selling stockholders will own more than one percent of the shares of
common stock outstanding.
Of the 60,830,378 shares of common stock offered by this prospectus,
47,938,366 shares are issued and outstanding as of January 26, 2001 and
12,892,012 shares have been reserved for issuance by us to certain selling
stockholders upon (i) the exercise of outstanding common stock warrants, (ii)
the conversion of shares of outstanding Series A preferred stock, (iii) the
conversion of outstanding shares of one of our foreign subsidiaries and (iv) the
conversion of shares of Series A preferred stock to be issued upon the exercise
of an outstanding warrant to purchase shares of Series A preferred stock. We
have also registered as part of this offering an additional indeterminate number
of shares of our common stock that we may be required to issue to the selling
stockholders upon the exercise or conversion of the outstanding common stock
warrants, the Series A preferred stock and the Series A preferred stock issuable
upon exercise of an outstanding warrant to purchase Series A preferred stock, in
each case as a result of the anti-dilution provisions of the respective
securities. We are registering all of the shares of common stock offered for
sale pursuant to this prospectus pursuant to certain registration rights
obligations.
In the following table, we have calculated shares of common stock
beneficially owned based upon 68,104,791 shares of common stock outstanding on
January 26, 2001, together with options, warrants or other convertible
securities that are exercisable within 60 days of January 26, 2001 for each
stockholder. Under the rules of the Securities and Exchange Commission,
beneficial ownership includes shares over which the named stockholder exercises
voting and/or investment power. Unless otherwise indicated in the footnotes
below, we believe that the persons and entities named in the table have sole
voting and investment power with respect to all shares beneficially owned,
subject to applicable community property laws. The information with respect to
beneficial ownership of common stock held by each person is based upon record
ownership data provided by our transfer agent, information as supplied or
confirmed by selling stockholders, based upon statements filed with the
Securities and Exchange Commission, or based upon our actual knowledge.
In addition to the registration rights described in the footnotes to the
table below, in connection with a number of our recent acquisitions, we have
granted registration rights to the stockholders of the companies that we
acquired. The effective registration statement of which this prospectus is a
part satisfies our obligations with respect to these shares.
Except as noted in the footnotes to the table below, within the past three
years, none of the selling stockholders have held any position or office with us
or entered into a material relationship with us.
NUMBER OF SHARES NUMBER OF
BENEFICIALLY SHARES
OWNED PRIOR TO OFFERED
NAME OFFERING HEREBY
---- ---------------- ---------
The Holmes Trust Dated July 22, 1997(1)..................... 8,400,000 8,400,000
Pequot Private Equity Fund II, L.P.(2)...................... 5,698,060 5,698,060
SmallCaps OnLine Group LLC(3)............................... 2,981,677 2,981,677
Dimensional Partners, Ltd................................... 2,760,139 2,760,139
Microsoft Corporation(4).................................... 2,571,428 2,571,428
Commonwealth Associates, L.P.(5)............................ 2,539,221 2,456,634
Pequot International Fund, Inc.(2).......................... 1,726,263 1,726,263
Pequot Partners Fund, L.P.(2)............................... 1,726,263 1,726,263
9
11
NUMBER OF SHARES NUMBER OF
BENEFICIALLY SHARES
OWNED PRIOR TO OFFERED
NAME OFFERING HEREBY
---- ---------------- ---------
Pequot Endowment Fund, L.P.(2).............................. 1,108,810 1,108,810
William and Janet Botti Living Trust Dated 3/26/98(6)....... 996,753 996,753
Robert Priddy(7)............................................ 3,498,815 959,594
Gerard Klauer Mattison & Co., Inc........................... 1,151,552 953,263
Edmund Shea................................................. 1,524,441 896,173
Matthew J. Schumacher(8).................................... 894,512 894,512
Adam Silverman(9)........................................... 861,813 861,813
Ira Silverman(10)........................................... 861,813 861,813
Michael S. Falk(11)......................................... 3,603,427 747,424
Flynn Investment Corporation(12)............................ 726,873 726,873
John Henry Bennett, Richard Bennett, Colin Ainslie
Matthissen and Quadrangle Trustee Company as trustee of
the various family settlements established by John
Bennett(13)............................................... 701,367 701,367
Dimensional Partners, L.P.(14) ............................. 690,035 690,035
J.F. Shea & Co. Inc. ....................................... 628,268 628,268
David Fung(15).............................................. 585,035 585,035
Curtis Eshelman(8).......................................... 513,158 513,158
James C. Harvey(16)......................................... 513,158 513,158
Inder Tallur................................................ 406,516 406,516
Richard Bennett, John Henry Bennett, Colin Ainslie
Matthissen and Quadrangle Trustee Company as trustee of
the various family settlements established by Richard
Bennett(13)............................................... 346,207 346,207
Arron Fu(8)................................................. 334,458 334,458
Wolfson Equities(17)........................................ 330,294 330,294
Gallagher Investment Corporation............................ 320,112 320,112
Cameron Chell(18)........................................... 754,733 314,828
Porter Partners, L.P.(19)................................... 305,263 305,263
Wexford Clearing CF Michael S. Falk IRA(11)................. 266,782 266,782
Keith M. Rosenbloom(20)..................................... 2,800,319 261,098
Bank Morgan Stanley AG...................................... 238,486 238,486
A.G. Rappaport.............................................. 222,382 222,382
Nigel A.A. Hawley(8)........................................ 221,500 221,500
Rajan Mehta(8).............................................. 221,500 221,500
Yuri Pasea(21).............................................. 221,500 221,500
Charon Employees Trust(22).................................. 219,997 219,997
Mulkey II Limited Partnership(23)........................... 210,937 210,937
Richard Silverman(8)........................................ 196,666 196,666
Michael A. Singer........................................... 187,379 187,379
Reese-Cole Partnership, Ltd. ............................... 186,789 186,789
GKM Partners I, L.P.(24).................................... 180,107 180,107
C.E. Unterberg Towbin Capital Partners I, L.P.(25).......... 177,968 177,968
Edward Chi Wai Fung(8)...................................... 169,667 169,667
Ho Wai Fung(8).............................................. 169,667 169,667
Mark Palangio(8)............................................ 169,667 169,667
Douglas N. Runckel & Evelyn L. Runckel JT TEN(26)........... 167,709 167,709
Hans C. Bodmer.............................................. 165,147 165,147
Conzett Europa Invest Ltd. ................................. 165,147 165,147
S. Marcus Finkle............................................ 165,147 165,147
Marshall Geller(27)......................................... 165,147 165,147
Kabuki Partners(28)......................................... 165,147 165,147
Jed Manocherian TTEE FM Grandchildren's Trust DTD
7/18/96(29)............................................... 165,147 165,147
Raskin Cramer Associate Family Partners(30)................. 165,147 165,147
Walter F. Toombs............................................ 165,147 165,147
Allan Sherk(9).............................................. 161,597 161,597
10
12
NUMBER OF SHARES NUMBER OF
BENEFICIALLY SHARES
OWNED PRIOR TO OFFERED
NAME OFFERING HEREBY
---- ---------------- ---------
Raghunath Kilambi(31)....................................... 570,563 160,563
Carl Kleidman............................................... 159,093 159,093
Pharos Fund Limited......................................... 152,632 152,632
Frederick B. Epstein........................................ 150,570 150,570
Michael Bollag.............................................. 149,730 149,730
Paul Russo & Sally Russo JT TEN(26)......................... 140,375 140,375
CPQ Holdings, Inc.(32)...................................... 112,590 112,590
Jay J. Shrager & Carole Shrager JT TEN(26).................. 112,473 112,473
BNB Investment Associates, L.P.(33)......................... 109,803 109,803
Michael A. Poujol & Angela G. Poujol JTROS(26).............. 102,901 102,901
Davis Polk & Wardwell....................................... 102,817 102,817
Foothill Capital Corporation(34)............................ 100,000 100,000
Valor Capital Management, L.P.(35).......................... 95,394 95,394
Jonathan L. Glashow......................................... 95,368 95,368
Joe DaSilva(8).............................................. 90,491 90,491
Robert O'Sullivan........................................... 130,543 89,256
L. Wayne Johnson............................................ 88,984 88,984
David L. Cohen.............................................. 88,450 88,450
Alexandra Salas............................................. 88,418 88,418
David R. Nelson and Donna L. Nelson JT TEN(26).............. 87,918 87,918
James R. Malone............................................. 83,824 83,824
Richard N. Abrams........................................... 83,202 83,202
ComVest Capital Partners, LLC(36)........................... 82,587 82,587
Howard Balter............................................... 82,574 82,574
John W. Beiser & Maureen W. Beiser JT TEN(26)............... 82,574 82,574
J.A. Cardwell............................................... 82,574 82,574
Edward R. Downe, Jr. ....................................... 82,574 82,574
Joseph Esformes............................................. 82,574 82,574
Fleming (Jersey) Ltd. TTEE Gerlach and Company(37).......... 82,574 82,574
Mark Hatten................................................. 82,574 82,574
Peggy S. Jordan............................................. 82,574 82,574
Manhattan Group Funding(38)................................. 82,574 82,574
Stephen J. Meringoff........................................ 82,574 82,574
Amy L. Newmark.............................................. 82,574 82,574
Gregory P. Norman........................................... 82,574 82,574
George F. Pickett & Elizabeth H. Pickett JT TEN(26)......... 82,574 82,574
Mark Reichenbaum............................................ 82,574 82,574
RHL Ventures LLC............................................ 82,574 82,574
Kim M. Schwenke............................................. 139,805 82,574
John J. McCarthy & Donna P. McCarthy JTROS(26).............. 81,322 81,322
Rodney A. Abrams............................................ 81,294 81,294
Wayne Harris(9)............................................. 80,799 80,799
Edward Matheson(8).......................................... 80,799 80,799
Jason Yetman(8)............................................. 80,799 80,799
Richard Rosenblatt.......................................... 79,444 79,444
EDJ Limited................................................. 76,315 76,315
Tropical Cave (Bahamas) Ltd. ............................... 76,314 76,314
Richard Corbin.............................................. 115,603 74,316
Peter Joseph Crozier........................................ 74,187 74,187
Michael John Dorward........................................ 74,187 74,187
Anthony P.M. Harrison-Wallace............................... 74,187 74,187
Robert Kell................................................. 74,187 74,187
Ron Moschetta............................................... 73,635 73,635
Kensington Partners, L.P.(39)............................... 73,358 73,358
11
13
NUMBER OF SHARES NUMBER OF
BENEFICIALLY SHARES
OWNED PRIOR TO OFFERED
NAME OFFERING HEREBY
---- ---------------- ---------
Alliance Equities, Inc. .................................... 72,469 72,469
Garo A. Partoyan............................................ 71,156 71,156
Wasson Capital Advisors Limited............................. 68,664 68,664
Vincent L. Romano, Jr.(40).................................. 118,079 68,000
Allen Notowitz.............................................. 67,807 67,807
Jeffrey Markowitz........................................... 61,931 61,931
Richard Friedman............................................ 61,930 61,930
Bruce Glaser................................................ 61,460 61,460
Carmen Pecord............................................... 60,989 60,989
Kurt V. Reichelt & Laura M. Reichelt JT TEN(26)............. 60,364 60,364
Rodney Schorlemmer & Vikki Schorlemmer TTEES Rodney &
Vikki Schorlemmer Trust DTD 10/29/93(41).................. 60,364 60,364
Joel L. Spivak.............................................. 60,364 60,364
Robert Bettlinger........................................... 60,314 60,314
Gary D. Shultz & Barbara A. Schultz JT TEN(26).............. 60,046 60,046
Anna M. Pocisk.............................................. 57,801 57,801
John Piccolo................................................ 56,863 56,863
Jim G. Aukstuolis........................................... 56,550 56,550
Jeffrey Blomstedt & Susan La Scala.......................... 56,221 56,221
Robert A. McCleeary......................................... 56,221 56,221
Michael K. Schumacher....................................... 55,710 55,710
Adam Fox(9)................................................. 54,878 54,878
Sicola, Martin, Koons & Frank, Inc. (42).................... 53,552 53,552
Robert J. Jahn.............................................. 52,106 52,106
F. Andrew Morfesis & Gail Morfesis JTROS(26)................ 52,106 52,106
James A. Davenport & Rebecca C. Davenport JT TEN(26)........ 51,450 51,450
Jerome Drefuss.............................................. 50,956 50,956
Ferdinand F. Anderson, Jr................................... 50,825 50,825
Kim M. Beretta TTEE Kim M. Beretta Trust DTD 10/12/94(43)... 50,825 50,825
Joseph T. Bolognue.......................................... 50,825 50,825
Ira Goldberg................................................ 50,825 50,825
Richard Palmer & Lynne Marie Palmer JT TEN(26).............. 50,825 50,825
James H. Rion............................................... 50,825 50,825
Stephen T. Skoly............................................ 50,825 50,825
Robert J. Spencer........................................... 50,825 50,825
Tom P. Briggs Profit Sharing Plan(44)....................... 48,793 48,793
Jayakumar Patil & Purnima J. Patil JT TEN(26)............... 47,697 47,697
Brian C. Lerner............................................. 47,338 47,338
Dennis Santolo & Thomas Santolo JT TEN(26).................. 47,010 47,010
Anthony M. Spigarelli & Nancy M. Spigarelli JT TEN(26)...... 45,501 45,501
David De Atkine, Jr......................................... 43,849 43,849
K and K Development(45)..................................... 43,849 43,849
Childhood Resource Corp. ................................... 42,567 42,567
Avtar Sandhu................................................ 41,963 41,963
Stuart Allen & Vivian Allen JT TEN(26)...................... 41,287 41,287
Michael Astor............................................... 41,287 41,287
Aulis & Co.................................................. 41,287 41,287
Harold Blue................................................. 41,287 41,287
Robert Blue & Ruth Blue JT TEN(26).......................... 41,287 41,287
James A. Cardwell, Jr. ..................................... 41,287 41,287
Grainne Coen................................................ 119,222 41,287
Wexford Clearing Services CF Richard Corbin IRA(46)......... 41,287 41,287
Richard Feldman............................................. 41,287 41,287
William O.E. Henry.......................................... 41,287 41,287
12
14
NUMBER OF SHARES NUMBER OF
BENEFICIALLY SHARES
OWNED PRIOR TO OFFERED
NAME OFFERING HEREBY
---- ---------------- ---------
S. Maurice Hicks, Jr. ...................................... 41,287 41,287
Andre W. Iseli.............................................. 41,287 41,287
Joan S. Kirsner TTEE Joan S. Kirsner Trust U/A DTD
7/10/85(47)............................................... 41,287 41,287
Lloyd A. Moriber............................................ 41,287 41,287
Nano-Cap Hyper Growth Partnership, L.P.(48)................. 41,287 41,287
Robert O'Sullivan & David O'Sullivan Co-TTEES Robert
O'Sullivan Family Trust U/A DTD 3/14/96(49)............... 41,287 41,287
Howard Rosenbloom & Michelle G. Rosenbloom JT TEN(26)....... 41,287 41,287
Adam Ross & Lisa Falk-Ross JT TEN(26)(50)................... 41,287 41,287
Monroe H. Schenker.......................................... 41,287 41,287
SJG Management Inc. Profit Sharing Plan(51)................. 41,287 41,287
William Smith............................................... 40,913 40,913
James Adametz TTEE Revocable Trust of James Adametz, DTD
2/27/97(52)............................................... 40,660 40,660
Bill Arnett(53)............................................. 155,262 40,262
Beth Lipman................................................. 39,346 39,346
Melanie Berry(8)............................................ 38,961 38,961
Dataspec Telecom Multimedia, Inc............................ 38,776 38,776
John C. Clifford & Helen G. Clifford TTEES Esperanza Trust
U/A DTD 1/27/86(54)....................................... 38,157 38,157
Gerald B. Cramer............................................ 38,157 38,157
Philip Friedman............................................. 38,157 38,157
Victor Friedman............................................. 38,157 38,157
Lighthouse Partners USA, L.P.(55)........................... 38,157 38,157
Charles J. Loegering........................................ 38,157 38,157
Radix Associates(56)........................................ 38,157 38,157
Dale Rosenbloom............................................. 38,157 38,157
Donnie H. Russell........................................... 38,157 38,157
John J. Shaw................................................ 38,157 38,157
Kenneth B. Skolnick & Melissa S. Skolnick JT TEN(26)........ 38,157 38,157
EMC(2) Corporation(57)...................................... 38,043 38,043
TBCC Funding Trust II(58)................................... 37,600 37,600
Vladik Vainberg............................................. 37,223 37,223
Mark Banninger(8)........................................... 36,970 36,970
Michael Appelbaum........................................... 41,963 36,240
Jeffrey A. Brambir(8)....................................... 35,714 35,714
Sharon L. Hutchins(8)....................................... 35,714 35,714
David F. Kenney(9).......................................... 35,714 35,714
Cindy D. Roberts............................................ 34,953 34,953
Peter Fulton................................................ 34,688 34,688
Burton R. Abrams............................................ 34,685 34,685
Mark Kerridge............................................... 32,420 32,420
Nicola Kerridge............................................. 32,420 32,420
Charles L. Friedlander...................................... 34,310 34,310
Fred B. Sheats.............................................. 34,310 34,310
Wexford Clearing Services CF Norman Kane IRA(59)............ 33,529 33,529
John Belway................................................. 33,029 33,029
Felix Campos & Joyce Campos JT TEN(26)...................... 33,029 33,029
Edwin M. Glazier............................................ 33,029 33,029
Paul D. Goldenheim.......................................... 33,029 33,029
Patrick Keating............................................. 33,029 33,029
P. Tony Polyviou............................................ 33,029 33,029
William G. Sybesma & M. Jane Sybesma JT TEN(26)............. 33,029 33,029
Jane Vandewalle TTEE Jane Vandewalle DOT DTD 2/18/93(60).... 33,029 33,029
13
15
NUMBER OF SHARES NUMBER OF
BENEFICIALLY SHARES
OWNED PRIOR TO OFFERED
NAME OFFERING HEREBY
---- ---------------- ---------
Net Perceptions, Inc.(61)................................... 32,000 32,000
William O'Neill & Linda O'Neill............................. 31,436 31,436
Edwin J. Beattie............................................ 30,996 30,996
Birchtree Investments(62)................................... 30,182 30,182
August Piccolo.............................................. 28,901 28,901
Joseph P. Wynne............................................. 28,808 28,808
William C. Radichel......................................... 28,618 28,618
Jeffrey S. Cameron.......................................... 26,303 26,303
Louise Bell................................................. 26,053 26,053
Oliver T. Clark & Sharon L. Clark JT TEN(26)................ 26,053 26,053
George C. Sivak............................................. 26,053 26,053
Syd Verbin TTEE Syd Verbin Trust FBO Syd Verbin U/A DTD
12/20/88(63).............................................. 26,053 26,053
William R. Schoen & Barbara Schoen JT TEN(26)............... 25,147 25,147
Ilya Gaba & Alice Gaba JT TEN(26)........................... 24,797 24,797
Bryon Voigt & Jacelyn Voigt JT TEN(26)...................... 24,773 24,773
Lincoln Edward Black........................................ 24,772 24,772
Richard Dold................................................ 24,772 24,772
Hugh W. Downe............................................... 24,772 24,772
Burtt R. Ehrlich............................................ 43,849 24,772
Dave Morley & Gary Peter Bellot Co-TTEES The Lenox Trust U/A
DTD 6/29/98(64)........................................... 24,772 24,772
Paul Gubitosa & Linda Gubitosa JTROS(26).................... 24,772 24,772
M. Ponder Harrison.......................................... 24,772 24,772
Neekianund Khulpateea....................................... 24,772 24,772
Burjis N. Shroff............................................ 24,772 24,772
Jaswant Singh Pannu & Debra Bogner Pannu JTROS(26).......... 24,146 24,146
Timothy J. Herrmann......................................... 23,242 23,242
George Tsamutalis........................................... 22,377 22,377
Sloan d'Autremont........................................... 21,367 21,367
Annie Falk TTEE The Gianna Falk Trust DTD 7/9/96(65)........ 20,644 20,644
Annie Falk TTEE The Mikaela Falk Trust DTD 2/16/94(65)...... 20,644 20,644
Edward Ketcham.............................................. 20,644 20,644
Rong-Chung Lin.............................................. 20,332 20,332
Basil Ascuitto.............................................. 20,125 20,125
Seymour Wasserstrum......................................... 19,648 19,648
Charles Schwab FutureLink Corporation 401(k) Employee
Retirement Plan(66)....................................... 19,612 19,612
Howard Bernstein & Sandra Bernstein JT TEN(26).............. 19,077 19,077
Jack Bloom.................................................. 19,077 19,077
Burtt R. Ehrlich IRA(67).................................... 19,077 19,077
Jay J. Garcia & Loraine Garcia JT TEN(26)................... 19,077 19,077
Roger H. Grace.............................................. 19,077 19,077
Roland F. Hartman........................................... 19,077 19,077
Nasrollah Jahdi & Farahnaz Jahdi JT TEN(26)................. 19,077 19,077
Wexford Securities CF James R. Landers(68).................. 19,077 19,077
Stuart J. Levy.............................................. 19,077 19,077
Greg A. Nowak & Lynn M. Nowak TEN ENT(26)................... 19,077 19,077
Samuel R. Nussbaum.......................................... 19,077 19,077
Randy Prude................................................. 19,077 19,077
James A. Rasnick & Mary Ann Rasnick JT TEN(26).............. 19,077 19,077
RML Burwick Family L.P...................................... 19,077 19,077
Schwenke, LLC............................................... 19,077 19,077
Kim M. Schwenke & Paula F. Todd TEN ENT(26)................. 19,077 19,077
14
16
NUMBER OF SHARES NUMBER OF
BENEFICIALLY SHARES
OWNED PRIOR TO OFFERED
NAME OFFERING HEREBY
---- ---------------- ---------
Lawrence Seftel & Rosylin Seftel JTROS(26).................. 19,077 19,077
Harlan B. Smith............................................. 19,077 19,077
Michael D. Steele........................................... 19,077 19,077
William G. Sybesma.......................................... 52,106 19,077
Paula F. Todd & Kerry R. Schwenke TTEES Kim M. Schwencke
1989 Irrevocable Trust(69)................................ 19,077 19,077
Charles P. Wilkins.......................................... 19,077 19,077
Charles H. Reynolds......................................... 18,620 18,620
Charles A. Barnes, Jr....................................... 18,433 18,433
Gerard Klauer Mattison & Co., Inc., Profit Sharing
Plan(70).................................................. 18,182 18,182
Jodi Abrams Engfer.......................................... 18,067 18,067
Karen A. Fox................................................ 17,920 17,920
Anthony J. Giardina......................................... 17,497 17,497
The Bald Eagle Fund Ltd. ................................... 17,458 17,458
Peter Palmieri.............................................. 17,098 17,098
Wexford Clearing Services CF Gerald I. Falke IRA(71)........ 16,765 16,765
Mark Goldberg & Joanna Goldberg JT TEN(26).................. 16,765 16,765
Wexford Clearing CF William R. Schoen(72)................... 41,912 16,765
Marc G. Berman.............................................. 16,515 16,515
Ronald E. Bloom............................................. 16,515 16,515
Robert Burr & Catherine Burr TTEES The Burr Family Trust U/A
DTD 9/26/93(73)........................................... 16,515 16,515
Bruce Corbin................................................ 16,515 16,515
Tony Di Fatta............................................... 16,515 16,515
John & Helen Fattorusso..................................... 16,515 16,515
Kevin Jackson............................................... 16,515 16,515
Jeffers Family Limited Partnership(74)...................... 16,515 16,515
Stephen Mallis.............................................. 16,515 16,515
Thomas M. Malone & Susan R. Malone JT TEN(26)............... 16,515 16,515
Richard B. Mateer & Margaret J. Mateer JT TEN(26)........... 16,515 16,515
Alan J. Meinershagen........................................ 16,515 16,515
Paul F. Petrus.............................................. 16,515 16,515
Fedele Staropoli............................................ 16,515 16,515
David B. Waxman............................................. 16,515 16,515
Blair Collins(8)............................................ 16,136 16,136
Donald Berglund............................................. 15,263 15,263
Daniel J. Dietrick(8)....................................... 12,987 12,987
Traci A. Gilli-Milheim(9)................................... 12,987 12,987
James A. Paull(8)........................................... 12,987 12,987
Hilaire F. Fernandes & Sandra Fernandes JT TEN(26).......... 12,387 12,387
Ed Jordan................................................... 12,387 12,387
Claude Moraes & Roshan Moraes JT TEN(26).................... 12,387 12,387
Merrill Lynch Canada Inc. ITF Doug Evans(75)................ 102,079 12,079
Ronald Pobiel............................................... 12,074 12,074
Ventana Partners, L.P. ..................................... 11,860 11,860
Steven Hart................................................. 11,614 11,614
Jonathan R. Cohen & Nancy D. Shapiro JT TEN(26)............. 11,446 11,446
Mark Giannini(8)............................................ 10,996 10,996
Robert Missig(8)............................................ 10,996 10,996
Mark Oldani(8).............................................. 10,996 10,996
John Gruber................................................. 10,664 10,664
Kevin Voigt & Cindy Voigt JTROS(26)......................... 10,493 10,493
Brian Beauchemin............................................ 10,229 10,229
Hui Zhu..................................................... 9,987 9,987
15
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NUMBER OF SHARES NUMBER OF
BENEFICIALLY SHARES
OWNED PRIOR TO OFFERED
NAME OFFERING HEREBY
---- ---------------- ---------
Mody K. Boatright & Frances Boatright JT TEN(26)............ 9,909 9,909
Jody Nelson................................................. 9,906 9,906
Roderick Beck............................................... 9,900 9,900
John A. Carver(8)........................................... 9,740 9,740
Kenneth Christ(8)........................................... 9,740 9,740
David A. Moscoe(9).......................................... 9,740 9,740
Richard A. Nash(8).......................................... 9,740 9,740
Bradley L. Tompkins(8)...................................... 9,740 9,740
Craig Blitz................................................. 10,619 9,621
Fiona McKone................................................ 9,603 9,603
Alya Al-Bahar............................................... 9,538 9,538
Shanthamalappa A. Ashok..................................... 9,538 9,538
Ben Franklin Financial, Inc................................. 9,538 9,538
Gary Blum................................................... 9,538 9,538
Michael Brummer & Mary Jo Brummer JT TEN(26)................ 9,538 9,538
C. Wyllys Cass IV & Ellen M. Cass JTROS(26)................. 9,538 9,538
Wexford Securities CF Bruce Cunningham(76).................. 9,538 9,538
Stephen Cunningham & Wendall Fleming JT TEN(26)............. 9,538 9,538
Wexford Securities CF Irving Curtis(77)..................... 9,538 9,538
Dominick Di Cesare.......................................... 9,538 9,538
Paul R. Doering............................................. 9,538 9,538
Richard W. Graves & Mary J. Graves JT TEN(26)............... 9,538 9,538
Heinecken & Associates Ltd. Profit Sharing Plan(78)......... 9,538 9,538
Kimber Johnson & Susan Johnson JT TEN(26)................... 9,538 9,538
Gary Kanuit................................................. 9,538 9,538
Lindsay Lewis............................................... 9,538 9,538
Leo F. Mazzocchi & Nancy T. Mazzocchi JT TEN(26)............ 9,538 9,538
Gerald Jay Millstein........................................ 9,538 9,538
Vijaykumar S. Monie......................................... 9,538 9,538
Ryan Cassidy Morrow......................................... 9,538 9,538
Sanjiv M. Patel............................................. 9,538 9,538
Nagaraja Patil & Shantha Patil JTROS(26).................... 9,538 9,538
Gerald Richmond & Amy Richmond JT TEN(26)................... 9,538 9,538
John F. Scalo & Carole M. Scalo JT TEN(26).................. 9,538 9,538
Douglas C. Schwarzwaelder................................... 9,538 9,538
Robert Silverman............................................ 9,538 9,538
Sirhc Holdings Limited...................................... 9,538 9,538
Cheryl R. Sivak & Gary E. Sivak JT TEN(26).................. 9,538 9,538
Melvin Spielman............................................. 9,538 9,538
Patrick Sutton.............................................. 9,538 9,538
Glen Tachibana.............................................. 9,538 9,538
George L. Thompson.......................................... 9,538 9,538
John Joos Vandewalle........................................ 9,538 9,538
Richard Campanella.......................................... 12,497 9,240
May Shubash................................................. 8,895 8,895
Ora Zabloski(79)............................................ 28,895 8,895
Anders Carlegren............................................ 8,257 8,257
Sam E. Todywala & Lyla Todywala JT TEN(26).................. 8,257 8,257
Wexford Securities CF Richard Campanella IRA(80)............ 8,257 8,257
Craig D. Leppla............................................. 8,050 8,050
Thomas D'Avanzo & Marie D'Avanzo JTROS(26).................. 7,631 7,631
Charles L. Wisseman III..................................... 7,631 7,631
Jerome Messana.............................................. 7,188 7,188
Salvatore Trupiano.......................................... 7,103 7,103
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NUMBER OF SHARES NUMBER OF
BENEFICIALLY SHARES
OWNED PRIOR TO OFFERED
NAME OFFERING HEREBY
---- ---------------- ---------
Mark C. Tansey.............................................. 6,922 6,922
Sheldon Misher.............................................. 6,750 6,750
Brian Cambier(8)............................................ 6,494 6,494
R. Michael Foster(8)........................................ 6,494 6,494
Duane Travis(8)............................................. 6,494 6,494
Michael Appelbaum & Fran Appelbaum JT TEN(26)............... 5,723 5,723
Samuel M. Dell, III & Geraldine M. Dell JT TEN(26).......... 5,723 5,723
Timothy W. Hartman.......................................... 5,723 5,723
Edward L. Parrish........................................... 5,723 5,723
Manu Kalia.................................................. 5,150 5,150
Thomas J. Keegan............................................ 4,960 4,960
Zachary Malone.............................................. 4,931 4,931
Bette Jordan................................................ 4,769 4,769
Susan Hoffman............................................... 4,632 4,632
Kensington Partners II, L.P.(39)............................ 4,577 4,577
Eugene Mascarenhas.......................................... 4,448 4,448
M. Frank & Barbara J. Shrager JTROS(26)..................... 4,375 4,375
Alan Ferraro................................................ 4,129 4,129
Edward M. Gaines & Marsha Gaines JT TEN(26)................. 3,817 3,817
Kenneth E. Higgins, Jr. .................................... 3,817 3,817
Eric Erdinch Ozada.......................................... 3,817 3,817
Brian Coventry.............................................. 3,250 3,250
Jennifer Bacus(9)........................................... 3,247 3,247
Jason Beers(9).............................................. 3,247 3,247
Joslyn Bush(8).............................................. 3,247 3,247
Gayle Morence(8)............................................ 3,247 3,247
Adnan Namou(8).............................................. 3,247 3,247
Chadwick Stayton(8)......................................... 3,247 3,247
Peter Weinbach.............................................. 2,670 2,670
Katelyn LoBue............................................... 2,350 2,350
Marlene Layne............................................... 2,130 2,130
Malcolm Robins(8)........................................... 2,077 2,077
Canaccord Capital Corporation ITF Kyle B.A. Scott
RRSP(81).................................................. 47,014 2,014
Karen Kelly Dacey........................................... 2,013 2,013
Cassandra R. Lim............................................ 2,013 2,013
Linda Easterwood............................................ 1,956 1,956
Thomas Waye & Vanessa Waye JT TEN(26)....................... 1,907 1,907
Joseph Defini............................................... 1,587 1,587
Jeanine Ianazzi............................................. 1,587 1,587
Diana O'Toole............................................... 1,587 1,587
Nicole Swiatek.............................................. 1,587 1,587
Lorraine Verdino............................................ 1,587 1,587
Joseph J. Pallotta, Jr. .................................... 1,432 1,432
Jaimee Stecker.............................................. 1,254 1,254
Christopher Priddy.......................................... 1,000 1,000
Craig Blitz & Annette Blitz JT TEN(26)...................... 998 998
Joseph Anzalone............................................. 983 983
Evelyn Apploff.............................................. 983 983
Else Falk................................................... 983 983
Richard C. Perreira......................................... 983 983
Dennis Fulton............................................... 950 950
James Fulton................................................ 950 950
Lindy Sin................................................... 920 920
Alvin Shrager, Deceased..................................... 853 853
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NUMBER OF SHARES NUMBER OF
BENEFICIALLY SHARES
OWNED PRIOR TO OFFERED
NAME OFFERING HEREBY
---- ---------------- ---------
David Stein................................................. 675 675
Audrey Jiminez.............................................. 542 542
Thomas Waye................................................. 2,407 500
Peter Latour................................................ 437 437
Robert Beuret............................................... 108 108
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(1)Glen C. Holmes is one of our directors. He previously served as our
President and Chief Operating Officer. Mr. Holmes has sole voting and
investment power over the securities held by The Holmes Trust. On May 26,
2000, Mr. Holmes granted to us an option to purchase 600,000 shares of
common stock at $5.50 per share, the fair market value at the date of grant.
We may only exercise this option to the extent employees to whom we granted
reciprocal options exercise those options.
(2)Pequot Capital Management, Inc. has sole voting and investment power over
the securities held by the funds noted. Gerald A. Poch and James P. McNiel,
who serve as two of our directors, are a Managing Director and a Senior Vice
President of Pequot Capital Management, Inc., respectively. Howard E.
Taylor, our President and Chief Executive Officer, was a venture operating
partner with Pequot Capital Management, Inc. from September 2000 to November
2000. In a Securities Purchase Agreement we entered into with Pequot Private
Equity Fund II, L.P. and other investors on October 15, 1999 relating to a
private placement of equity securities, we granted Pequot Private Equity
Fund II, L.P. and the other investors in such financing the right to appoint
two directors as long as they hold 50% or more of the common stock purchased
in the private placement. Pequot Private Equity Fund II, L.P. and these
investors will lose the right to appoint two directors if their ownership
falls below 50% of the common stock purchased in the private placement. In
such instance, Pequot Private Equity Fund II, L.P. and these investors will
retain the right to appoint one director as long as they hold 25% or more of
the common stock purchased in the private placement. Pequot Private Equity
Fund II, L.P. and these investors can transfer these rights to other
investors that purchased our common stock from us under the Securities
Purchase Agreement of October 15, 1999. The two securities purchase
agreements we have entered into with the Pequot funds and two other
institutional investors restrict us and our material subsidiaries without
the prior written consent of the Pequot funds from (i) completing any
merger, acquisition or sale of assets if our assets or revenues are likely
to be increased or decreased by 25% or more, (ii) buying any of our equity
securities with a fair market value in excess of $5.0 million, or (iii)
changing the business in which we are currently engaged. These restrictions
will no longer apply at the earliest to occur of: (i) the investors under
these securities purchase agreements hold less than 5% of our fully-diluted
common stock, (ii) the investors under these securities purchase agreements
no longer have the right to nominate any of our directors under these
agreements, and (iii) October 15, 2002. In connection with our October 1999
and April 2000 private placements of common stock and common stock purchase
warrants we granted registration rights to Pequot Private Equity Fund II,
L.P. and the other investors. The effective registration statement of which
this prospectus is a part satisfies our obligations with respect to these
shares.
(3)On February 11, 2000, we settled a lawsuit filed against us by SmallCaps
OnLine Group, LLC, seeking to recover fees we allegedly owed SmallCaps for
advisory and investor relations services. As part of the settlement, we paid
SmallCaps $5.0 million in March 2000 and issued to SmallCaps warrants to
purchase an aggregate of 3,000,000 shares of our common stock at exercise
prices ranging from $8.50 to $22.50 per share, subject to anti-dilution
protection. Since the issuance of these warrants, their exercise prices have
been adjusted and now range from $8.33 to $22.05 per share and these
warrants currently entitle the holder to acquire 3,061,379 shares of our
common stock. We granted registration rights to SmallCaps OnLine Group LLC
with respect to 3,084,494 shares of our common stock underlying warrants we
originally issued to SmallCaps. The effective registration statement of
which this prospectus is a part satisfies our obligations with respect to
these shares.
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(4)Microsoft Corporation is one of our largest software manufacturers. We have
entered into a strategic partnership with Microsoft to develop a terminal
services certification lab. In an Investor Rights Agreement we entered into
with Microsoft Corporation on July 6, 2000, relating to a private placement
of equity securities, we granted Microsoft Corporation the right to have one
person designated by it nominated to the Board of Directors as long as
Microsoft Corporation and its affiliates hold 50% or more of the preferred
stock (or the common stock issued upon conversion of the preferred stock)
purchased in the private placement. We also granted Microsoft Corporation
the right to appoint a person to attend and speak at the meetings of the
Board of Directors as an observer if a nominee of Microsoft Corporation is
not serving on the Board of Directors. We granted Microsoft Corporation
certain registration rights with respect to the common stock issuable upon
conversion of the 1,428,571 shares of Series A preferred stock and upon the
conversion of the shares of Series A preferred stock issuable upon the
exercise of a warrant to acquire an additional 1,142,857 shares of Series A
convertible preferred stock. The effective registration statement of which
this prospectus is a part satisfies our obligations with respect to these
shares.
(5)Commonwealth Associates, L.P., has acted as placement agent for two of our
recent private offerings. Michael S. Falk, one of our directors, Keith
Rosenbloom and Robert Priddy each have shared voting and investment power
over these securities. In an Agency Agreement we entered into with
Commonwealth Associates, L.P. on April 14, 1999, we granted Commonwealth
Associates, L.P. the right, until April 2001, to appoint one person to serve
on our board of directors. Michael Falk, Chief Executive Officer of
Commonwealth Associates, L.P. was appointed to our board of directors on May
7, 1999 following the consummation of the private placement of our
securities concluded in April 1999 for which we retained Commonwealth
Associates as our placement agent. As compensation for acting as the
placement agent, we paid Commonwealth Associates nearly $1,350,000 in
commissions and issued to Commonwealth Associates warrants to acquire
225,000 shares of common stock at an exercise price of $8.50 per share. We
also paid Commonwealth Associates an additional $50,575 to cover their
expenses of the private placement. A portion of the warrants were divided
among the staff members of Commonwealth Associates, and Mr. Falk received a
portion which allowed him to acquire 24,452 shares of common stock. We also
retained Commonwealth Associates under a services agreement in September
1999 to assist us with an offer made to holders of convertible securities to
encourage them to convert their securities to common stock. Under that
agreement, Commonwealth Associates was paid $55,859 for fees and expenses.
We also paid Commonwealth Associates $30,000 in April 1999, pursuant to an
advisory agreement for services that Commonwealth Associates provided to us
from May 1999 to November 1999. Under the terms of certain other
subscription agreements, we agreed to file a registration statement by April
1, 2000 covering securities issued in July 1999 to Commonwealth Associates,
L.P. and various other investors, and to use our best efforts to cause such
registration statement to become effective as soon as practicable
thereafter. The effective registration statement of which this prospectus is
a part satisfies our obligations with respect to these shares.
(6)William R. Botti, who serves as our Senior Vice President Professional
Services West, has sole voting and investment power over the securities held
by the William and Janet Botti Living Trust Dated 3/26/98.
(7)Robert Priddy is a senior officer of Commonwealth Associates, L.P., one of
our major shareholders and the placement agent for two of our recent private
offerings.
(8)Currently employed by us or one of our subsidiaries in a position other than
as an officer
(9)Formerly employed by us or one of our subsidiaries in a position other than
as an officer.
(10)Ira Silverman is our Senior Vice President, Professional Services East.
(11)Michael S. Falk is one of our directors and is also the Chairman and Chief
Executive Officer of Commonwealth Associates, L.P., one of our major
shareholders and the placement agent for two of our recent private
offerings. Mr. Falk has sole voting and investment power over these
securities.
(12)Timothy Flynn, one of our directors, is the sole shareholder and President
of Flynn Investment Corporation.
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21
(13)John Henry Bennett, Richard Bennett, Colin Ainslie Matthissen and Quadrangle
Trustee Company each have shared voting and investment power over these
securities.
(14)JDS Capital Management has sole voting and investment power over these
securities.
(15)David Fung serves as the President and Chief Operating Officer of our
Canadian Operations.
(16)James C. Harvey, currently an employee, previously served as our Senior Vice
President, U.S. Sales.
(17)Aaron Wolfson, as general partner, has sole voting and investment power over
these securities.
(18)Cameron Chell formerly served as our Chief Executive Officer and as a
director. On August 12, 1998, Mr. Chell loaned us approximately $145,000 at
an annual interest rate of 8%. On February 22, 1999, we issued Mr. Chell a
convertible debenture in the principal amount of approximately $150,000, the
outstanding balance of his loan to us. This convertible debenture was
convertible at $2.00 per share after adjustment for our five-for-one reverse
stock split, for a total of 75,310 shares. Mr. Chell also received a warrant
to acquire 75,310 shares at $2.00 per share for the first year, $3.00 per
share for the second year, and $4.00 per share for the third year. On April
29, 1999, Mr. Chell surrendered his debenture having an outstanding balance
of approximately $153,000, our notes payable having an outstanding balance
of approximately $67,000 and our trade loans payable having an outstanding
balance of $30,000 in return for a $250,000 aggregate principal amount 8%
convertible note convertible at $1.50 per share and a warrant to acquire
125,000 shares at $1.50 per share. We reduced the conversion and exercise
prices for these securities from $1.50 per share to $1.335 per share due to
the effect of anti-dilution provisions. Mr. Chell has exercised and
converted all of these securities. As of December 31, 1999, we had provided
$550,000 in services and products to Willson Stationers Ltd. and e-Supplies
Inc. At December 31, 1999, $543,000 remained due from these entities. An
allowance for doubtful accounts was recorded for the entire amount because
of the uncertainty of collection. We settled this account in June 2000 for
$400,000. Mr. Chell was a director of both companies at the time some of the
transactions took place. In addition, we have reason to believe that Mr.
Chell was a principal of e-Supplies Inc. at the time of the transactions. On
January 20, 2000, the Company commenced a proceeding in Canada against Mr.
Chell, various other former employees of and consultants to the Company and
various other defendants alleging that these defendants misappropriated a
corporate opportunity in breach of fiduciary and contractual obligations.
Most of these defendants made counterclaims seeking, among other things,
damages for interference with their economic interests and for severance
compensation in the form of cash and stock options. The Company entered into
a settlement agreement with the defendants effective April 26, 2000 that has
the following key terms:
- Mr. Chell will be entitled to exercise options to acquire 175,000
shares of common stock that were scheduled to vest June 1, 2000,
- Mr. Chell or his nominee shall pay to us $400,000 in settlement of a
related party debt that involved Mr. Chell, and
- All other claims have been dropped by all parties, who have provided
mutual releases, with the claim and counterclaims to be discontinued.
(19)Jeffrey H. Porter has sole voting and investment power over these
securities.
(20)Keith M. Rosenbloom is a senior officer of Commonwealth Associates, one of
our major shareholders and the placement agent for two of our recent private
offerings.
(21)Yuri Pasea serves as the President and Managing Director of our European
Operations.
(22)Arron Fu, Mark Palangio and David Fung each have shared voting and
investment power over these securities.
(23)David A. Mulkey, as general partner, has sole voting and investment power
over these securities.
(24)Gerard Klauer Mattison & Co., Inc., the managing member of GKM I LLC, the
general partner of GKM Partners I, L.P. has sole voting and investment power
over these securities.
(25)C.E. Unterberg Towbin Capital Partners I, L.P., is an affiliate of C.E.
Unterberg Towbin, one of the underwriters in our recent public offering of
common stock. Bob Matluck, as general partner, has sole voting and
investment power over these securities.
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(26)The designations JT TEN, TEN ENT or JTROS indicate that the securities are
held by both named individuals jointly and that each have shared voting and
investment power over the securities held by both of them.
(27)Marshall Geller is one of our directors.
(28)Greg Manocherian, and Douglas Levine, as general partners, each have shared
voting and investment power over these securities.
(29)Jed Manocherian, as trustee, has sole voting and investment power over these
securities.
(30)Gerald B. Cramer, as general partner, has sole voting and investment power
over these securities.
(31)Until December 2000, Raghunath Kilambi served as our Executive Vice
President and Chief Financial Officer and as a director. He is no longer
employed by us in any capacity.
(32)CPQ Holdings is a party to a Master Lease Agreement with us pursuant to
which CPQ Holdings has extended us a lease line of credit.
(33)Benjamin Bolag, as president of Prime Parcels Two, Inc., the general partner
of BNB Investment Associates, L.P., has sole voting and investment power
over these securities.
(34)Foothill Capital Corporation is a party to a Loan and Security Agreement
with us pursuant to which Foothill Capital has extended us a line of credit.
Foothill Capital Corporation is also a party to a loan and security
agreement with our UK subsidiaries pursuant to which it has extend us,
through our subsidiaries, a line of credit. We granted Foothill Capital
Corporation certain registration rights with respect to 100,000 shares of
common stock issuable upon the exercise of a warrant to acquire common stock
that we issued to Foothill Capital. The effective registration statement of
which this prospectus is a part satisfies our obligations with respect to
these shares.
(35)John M. Kretky III, as general partner, has sole voting and investment power
over these securities.
(36)Michael Falk, Keith Rosenbloom and Robert Priddy, as managers, each have
shared voting and investment power over the securities.
(37)Fleming (Jersey) Ltd., as trustee, has sole voting and investment power over
these securities.
(38)Ronald Heller, as general partner, has sole voting and investment power over
these securities.
(39)Grainne Cohen, as general partner, has sole voting and investment power over
these securities.
(40)Vincent L. Romano previously served as our Executive Vice President, Special
Projects. He is no longer employed by us. Mr. Romano had a three-year
employment agreement commencing August 1999 that provided for an annual base
salary of $180,000. He was eligible to earn an annual bonus of up to
$180,000. Upon commencement of his employment, Mr. Romano received a signing
bonus of $95,000, a one time payment of $5,000 to cover certain fees
relating to his joining us, and 250,000 stock options. His employment
agreement provided for a separate loan agreement between us and Mr. Romano
under which we loaned Mr. Romano $2.0 million at an annual interest rate of
5.625% to purchase 232,829 shares of our common stock. The loan was to be
forgiven in quarterly installments of $250,000. In October 1999, we forgave
the first installment of $250,000 of this loan, comprising most of Mr.
Romano's "other compensation" in 1999. On June 30, 2000, the Company and Mr.
Romano agreed to terminate the loan agreement and cancel the issuance of any
further shares. In addition, Mr. Romano returned 14,212 of these shares to
the Company valued at the then current market price of $129,000 in
settlement of an employee advance. On July 31, 2000, the Company and Mr.
Romano agreed to terminate the employment agreement for a settlement amount
of $30,000.
(41)Rodney Schorlemmer and Vikki Schorlemmer, as co-trustees, each have shared
voting and investment power over these securities.
(42)Sicola, Martin, Koons & Frank, Inc. previously served as our public
relations firm.
(43)Kim M. Beretta, as trustee, has sole voting and investment power over these
securities.
(44)Tom P. Briggs has sole voting and investment power over these securities.
(45)Kim Schwickert and Kent Schwickert each have shared voting and investment
power over these securities.
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(46)Richard Corbin has sole voting and investment power over these securities.
(47)Joan S. Kirsner, as trustee, has sole voting and investment power over these
securities.
(48)Ailon Z. Grushkin has sole voting and investment power over these
securities.
(49)Robert O'Sullivan and David O'Sullivan, as co-trustees, each have shared
voting and investment power over these securities.
(50)Lisa Falk-Ross is the sister of Michael Falk, one of our directors.
(51)Sydney Goldstein, as trustee, has sole voting and investment power over
these securities.
(52)James Adametz, as trustee, has sole voting and investment power over these
securities.
(53)Bill Arnett previously served as the Chief Operating Officer of our Canadian
operations, however, he is no longer employed by us.
(54)John C. Clifford and Helen G. Clifford, as co-trustees, each have shared
voting and investment power over these securities.
(55)Erinch Ozada, as Chairman and Chief Executive Officer of Archery Capital,
the general partner of Lighthouse Partners USA, L.P., has sole voting and
investment power over these securities.
(56)Stuart Schapiro, as general partner, has sole voting and investment power
over these securities.
(57)EMC(2) Corporation is a party to a Lease Agreement with us pursuant to which
CPQ Holdings has extended us a line of credit.
(58)TBCC Funding Trust II is an affiliate of Transamerica Bank which currently
provides us with equipment financing. TransAmerica Finance Corp., its
sponsor, has sole voting and investment power over these securities.
(59)Norman Kane has sole voting and investment power over these securities.
(60)Jane Vandewalle, as trustee, has sole voting and investment power over these
securities.
(61)In March 1999, FutureLink Distribution Corp., our predecessor in interest,
entered into a software reseller agreement with Net Perceptions, Inc.
(62)Richard R. Martella, as general partner, has sole voting and investment
power over these securities.
(63)Syd Verbin, as trustee, has sole voting and investment power over these
securities.
(64)Dave Morley and Gary Peter Bellot, as co-trustees, each have shared voting
and investment power over these securities.
(65)Annie Falk is the wife of Michael Falk, one of our directors. Ms. Falk, as
trustee, has sole voting and investment power over these securities.
(66)The Charles Schwab FutureLink Corporation 401(k) Employee Retirement Plan is
an employee benefit plan for the benefit of our employees. We are permitted,
but not required to make matching contributions to the Plan. In August 2000
we issued 19,612 shares of our common stock as matching contributions under
the Plan. Security Trust Company, as trustee of the Plan, has sole voting
and investment power over these securities.
(67)Burtt R. Ehrlich has sole voting and investment power over these securities.
(68)James R. Landers has sole voting and investment power over these securities.
(69)Paul F. Todd and Kerry R. Schwenke, as co-trustees each have shared voting
and investment power over these securities
(70)Manual Gerard, Jerry Klauer and Chuck Vghetta, as trustees, each have shared
voting and investment power over these securities.
(71)Gerald I. Falke has sole voting and investment power over these securities.
(72)William R. Schoen has sole voting and investment power over these
securities.
(73)Robert Burr and Catherine Burr, as co-trustees, each have shared voting and
investment power over these securities.
(74)Robert G. Jeffers, as general partner, has sole voting and investment power
over these securities.
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(75)Doug Evans previously served as Vice President of Business Practices of our
Canadian operations; however, he is no longer employed by us. Mr. Evans has
sole voting and investment power over these securities.
(76)Bruce Cunningham has sole voting and investment power over these securities.
(77)Irving Curtis has sole voting and investment power over these securities.
(78)Theodore Heinecken, as trustee, has sole voting and investment power over
these securities.
(79)Ora Zabloski previously served as Vice President of Human Resources;
however, she is no longer employed by us.
(80)Richard Campanella has sole voting and investment power over these
securities.
(81)Kyle Scott has sole voting and investment power over these securities. Mr.
Scott is the former general counsel and secretary of the Company.
23
25
PLAN OF DISTRIBUTION
We are registering the shares of common stock offered for sale by this
prospectus on behalf of the selling stockholders. As used in this section,
"selling stockholders" includes donees, pledgees, distributees, transferees or
other successors-in-interest, including, without limitation, their respective
affiliates and limited or general partners, all of which are referred to as a
group below as transferees, or certain counterparties to derivative transactions
with the selling stockholders or transferees. The selling stockholders will act
independently of us in making decisions with respect to the timing, manner and
size of each sale. We will pay all costs, expenses and fees in connection with
the registration of the shares. The selling stockholders will pay all brokerage
commissions, underwriting discounts, commissions, transfer taxes and other
similar selling expenses, if any, associated with the sale of the shares of
common stock by them.
Shares of common stock may be sold by the selling stockholders from time to
time in one or more types of transactions (which may include block transactions)
on Nasdaq or on any other market on which our common stock may from time to time
be trading, in the over-the-counter market, in privately-negotiated
transactions, through put or call options transactions relating to the shares,
through short sales of such shares, or a combination of such methods of sale, at
market prices prevailing at the time of sale, fixed prices, varying prices
determined at the time of sale or at negotiated prices. The selling stockholders
will have the sole discretion not to accept any purchase offer or make any sale
of shares if they deem the purchase price to be unsatisfactory at any particular
time. Such transactions may or may not involve brokers or dealers. To the best
of our knowledge, none of the selling stockholders have entered into any
agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their securities, nor is there an
underwriter or coordinating broker acting in connection with the proposed sale
of shares of common stock offered by this prospectus; however, the selling
stockholders may enter into agreements, understandings or arrangements with an
underwriter or broker-dealer regarding the sale of their shares in the future.
The selling stockholders may effect such transactions by selling shares of
common stock directly to purchasers or to or through broker-dealers, which may
act as agents or principals, or other agents. Such broker-dealers or other
agents may receive compensation in the form of discounts, concessions, or
commissions from the selling stockholders and/or the purchasers of shares of
common stock for whom such broker-dealers or other agents may act as agents or
to whom they sell as principal, or both (which compensation as to a particular
broker-dealer or other agent might be in excess of customary commissions).
Market makers and block purchasers purchasing the shares will do so for their
own account and at their own risk. It is possible that a selling stockholder
will attempt to sell shares of common stock in block transactions to market
makers or other purchasers at a price per share which may be below the then
market price. There can be no assurance that all or any part of the shares
offered hereby will be sold by the selling stockholders.
The selling stockholders may enter into hedging transactions with
broker-dealers or other financial institutions with respect to the shares. In
connection with these transactions, broker-dealers or other financial
institutions may engage in short sales of the shares in the course of hedging
the positions they assume with the selling stockholders. The selling
stockholders may also sell the shares short and redeliver the shares to close
out the short positions. The selling stockholders may also enter into option or
other transactions with broker-dealers or other financial institutions which
require the delivery to the broker-dealer or other financial institutions of the
shares. The selling stockholders may also loan or pledge the shares to a
financial institution or a broker-dealer and the financial institution or the
broker-dealer may sell the shares loaned or upon a default the financial
institution or the broker-dealer may effect sales of the pledged shares.
The selling stockholders and any brokers, dealers or agents that
participate in connection with the sale of shares of common stock might be
deemed to be "underwriters" within the meaning of the Securities Act of 1933,
and any commissions received by such brokers, dealers or agents and any profit
on the resale of the shares sold by them while acting as principals might be
deemed to be underwriting discounts or
24
26
commissions under the Securities Act. We have agreed to indemnify some of the
selling stockholders against certain liabilities, including liabilities arising
under the Securities Act. The selling stockholders may agree to indemnify any
agent, dealer, broker-dealer or underwriter that participates in transactions
involving sales of the shares of common stock offered pursuant to this
prospectus against certain liabilities, including liabilities arising under the
Securities Act.
Because the selling stockholders may be deemed to be "underwriters" within
the meaning of the Securities Act, the selling stockholders will be subject to
the prospectus delivery requirements of the Securities Act and the rules
promulgated thereunder and they may be subject to certain statutory liabilities
under the Securities Act, including, but not limited to, Sections 11, 12 and 17
of the Securities Act and Rule 10b-5 under the Securities Exchange Act. In
addition, the selling stockholders and any other person participating in the
offering will be subject to applicable provisions of the Securities Exchange Act
and the rules and regulations thereunder, including Regulation M under the
Securities Exchange Act, which may limit the timing of purchases and sales.
These restrictions may affect the marketability of the common stock and the
ability of any person to engage in market-making activities with respect to the
common stock.
Any shares of common stock covered by this prospectus which qualify for
sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144
rather than under the terms of this prospectus. In addition, subject to
applicable state and foreign laws, the selling stockholders may sell their
common stock outside the United States pursuant to Rules 903 and 904 of
Regulation S under the Securities Act.
To comply with the securities laws of certain jurisdictions, the shares of
common stock offered by this prospectus may need to be offered or sold only
through registered or licensed brokers or dealers. In addition, in certain
jurisdictions, the shares of common stock may not be offered or sold unless they
have been registered or qualified for sale or an exemption is available and
complied with.
If a selling stockholder notifies us that any material arrangement has been
entered into with a broker-dealer for the sale of shares of common stock through
a block trade, special offering, exchange distribution or secondary distribution
or a purchase by a broker, dealer or underwriter, we will file a supplement to
this prospectus, if required, pursuant to Rule 424(b) under the Securities Act.
In addition, to the extent required, we will amend or supplement this prospectus
to disclose other material arrangements regarding the plan of distribution.
25
27
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of a substantial amount of our common stock in the public
market, or the perception that such sales could occur, could adversely affect
the market price of our common stock. A reduction in the market price of our
common stock could lower the value of our common stock or other securities and
could impair our future ability to raise capital through the sale of equity
securities.
The following is a discussion of when and how most of our stock may become
publicly tradable in the future. Except as otherwise noted, all of the following
information is as of January 26, 2001.
OUTSTANDING COMMON STOCK
As of January 26, 2001, approximately 50.0 million shares of our
outstanding common stock were freely trading or eligible to trade. Another 18.1
million shares of outstanding common stock were considered "restricted
securities" under the Securities Act; however, substantially all of these shares
are being registered for resale pursuant to the effective registration statement
of which this prospectus is a part. Therefore, substantially all 68.1 million
shares of our outstanding common stock are eligible to trade, although
approximately 2.7 million of those shares are subject to lock-up restrictions
limiting their resale in the public market. The 2.7 million shares that are
subject to lock-up restrictions will be released from these restrictions from
time-to-time over the next three years, as set forth in the following table:
DATES NUMBER OF SHARES
----- ----------------
February 28, 2001........................................... 987,585
January 19, 2002............................................ 342,105
February 28, 2002........................................... 493,792
January 19, 2003............................................ 342,105
February 28, 2003........................................... 493,793
COMMON STOCK ISSUABLE UPON EXCHANGE OF SUBSIDIARY SHARES
Pursuant to the terms of the acquisition agreement for Charon Systems Inc.,
2.2 million shares of our common stock may be issued upon the exchange of shares
of our foreign subsidiary. These shares of common stock are "restricted
securities" under the Securities Act and are contractually restricted. They
represent a portion of the consideration we paid for such acquisition. Of these
shares, approximately 440,000 have been released from contractual restrictions;
approximately 550,000 shares will be released from contractual restrictions on
each of May 1, 2001 and May 1, 2002, and the balance will be released from
contractual restrictions on May 1, 2003. We are required to register these
shares for resale as they are released from this restriction or until they are
eligible for resale under Rule 144 whichever occurs first. Therefore,
immediately upon release, all the shares will be freely trading or eligible to
trade.
WARRANTS FOR COMMON STOCK
We have outstanding warrants entitling holders to purchase 8.1 million
shares of our common stock at exercise prices between $1.05 and $24.38 per
share, with a weighted average exercise price of $11.48 per share. Substantially
all of the shares of common stock underlying the warrants, are offered for
resale under this prospectus.
The common stock underlying the common stock warrants offered for resale
under this prospectus may not be sold until the warrants are exercised and the
underlying shares are issued. The shares of common stock issued pursuant to the
exercise of the warrants are considered "restricted securities" under the
Securities Act. We do not anticipate that the warrant holders will exercise
their warrants unless and until the market price of our common stock exceeds the
exercise price of their respective warrants. Most of these warrants have
exercise prices above the trading price of our common stock on January 26, 2001.
However, the exercise price for most of the warrants may be reduced under
certain circumstances based upon various anti-dilution protections applicable to
most of the warrants.
26
28
The following table sets forth the distribution of the current exercise
prices for the warrants for the purchase of the common stock offered for sale
pursuant to this prospectus. The exercise price for most of the warrants may be
reduced under certain circumstances based upon various antidilution protections
applicable to most of the warrants.
TOTAL
NUMBER OF PROCEEDS
EXERCISE PRICE SHARES TO COMPANY
- -------------- --------- -----------
Less than $2.50............................................. 234,533 $ 253,336
$2.50 to $4.99.............................................. 20,000 $ 80,000
$5.00 to $7.49.............................................. 5,418 $ 35,976
$7.50 to $9.99.............................................. 5,272,213 $44,213,236
$10.00 or more.............................................. 2,588,455 $48,698,298
--------- -----------
Total............................................. 8,120,619 $93,280,846
========= ===========
Only 15,000 shares of common stock underlying other warrants, which are
exercisable at $7.00 per share, do not have registration rights. Upon issuance,
they will be considered "restricted securities" under the Securities Act and may
only be sold pursuant to an exemption from registration, such as Rule 144.
COMMON STOCK ISSUABLE UPON CONVERSION OF SERIES A PREFERRED
There are 2,571,428 shares of Series A preferred stock which are either
outstanding or are issuable upon the exercise of warrants for the purchase of
Series A preferred stock shares. The 2.6 million shares of our common stock
issuable upon conversion of this preferred stock are offered for resale under
this prospectus.
OPTIONS
We have outstanding options to purchase 12.6 million shares of common stock
pursuant to employee benefit plans. However, these options may not be exercised
until vested. Options to purchase 3.5 million shares are currently exercisable.
The remaining options will vest and become exercisable from time to time prior
to January 2006. All of the shares of our common stock issuable upon exercise of
these options are registered, or will be registered, under the Securities Act
and, upon exercise, will be freely tradable, subject to certain limitations
under Rule 144 for our affiliates.
RULE 144
In general, under Rule 144 as currently in effect, a person who has
beneficially owned restricted securities for at least one year, including
persons who may be deemed our "affiliates", would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of 1% of
the number of shares of common stock then outstanding or the average weekly
trading volume of the common stock on all exchanges and/or reported through the
automated quotation system of a registered securities association during the
four calendar weeks immediately preceding the SEC filing with respect to such
sale. Manner of sale provisions, notice requirements and the availability of
current public information about us also apply to these sales. These limitations
apply to both restricted and unrestricted shares held by persons who are our
affiliates. If a person is not deemed to have been our affiliate at any time
during the 90 days immediately preceding the sale, he or she may sell his or her
restricted shares under Rule 144(k) without regard to the limitations described
above if at least two years have elapsed since the later of the date the shares
were acquired from us or from our affiliate. This paragraph summarizes Rule 144
and is not intended to be a complete description of it.
27
29
LEGAL MATTERS
Paul, Hastings, Janofsky & Walker LLP, Costa Mesa, California, will pass
upon the validity of the shares of common stock being registered under this
prospectus for us.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at December 31, 1998 and 1999, and for each of the two
years in the period ended December 31, 1999, as set forth in their report. We
have included our financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on their
authority as experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited Vertical Software,
Inc.'s financial statements at December 31, 1997, 1998 and 1999, and for each of
the three years in the period ended December 31, 1999, as set forth in their
report herein incorporated by reference. We have herein incorporated by
reference these financial statements in reliance on such report given on the
authority of that firm as experts in accounting and auditing.
Joel E. Sammet & Co., independent auditors, have audited Madison Consulting
Resources, Inc. and MicroLAN Systems, Inc. dba Madison Technology Group's
financial statements at December 31, 1998 and 1999, and for each of the two
years in the period ended December 31, 1999 and Madison Consulting Resources NJ,
Inc.'s financial statements at December 31, 1998, its initial year of
operations, as set forth in their reports herein incorporated by reference. We
have herein incorporated by reference these financial statements in reliance on
such report given on the authority of that firm as experts in accounting and
auditing.
Ernst & Young LLP, independent auditors, have audited Executive LAN
Management, Inc. dba Micro Visions' financial statements at December 31, 1997
and 1998, and for each of the two years in the period ended December 31, 1998
and at September 30, 1999 and for the nine months ended September 30, 1999, as
set forth in their reports herein incorporated by reference. We have herein
incorporated by reference these financial statements in reliance on such report
given on the authority of that firm as experts in accounting and auditing.
Moreland & Davis, C.P.A.s, independent auditors, have audited CN Networks,
Inc.'s financial statements at December 31, 1997 and 1998, and for each of the
two years in the period ended December 31, 1998, as set forth in their report
herein incorporated by reference. We have herein incorporated by reference these
financial statements in reliance on such report given on the authority of that
firm as experts in accounting and auditing.
M. Jevahirian & Co., independent auditors, have audited Async Technologies,
Inc. and Async Technical Institute, Inc.'s combined financial statements at
December 31, 1997 and 1998, and for each of the two years in the period ended
December 31, 1998, as set forth in their report herein incorporated by
reference. We have herein incorporated by reference these financial statements
in reliance on such report given on the authority of that firm as experts in
accounting and auditing.
Ernst & Young, independent auditors, have audited KNS Holdings Limited's
financial statements at February 28, 1998 and 1999, and for each of the two
years in the period ended February 28, 1999, as set forth in their report herein
incorporated by reference. We have herein incorporated by reference these
financial statements in reliance on such report given on the authority of that
firm as experts in accounting and auditing.
28
30
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus. Any statement, including financial
statements, contained in any of the documents that we incorporate by reference
shall be deemed to be modified or superseded to the extent that a statement,
including financial statements, contained in any later incorporated document
modifies or supersedes that statement. We incorporate by reference the documents
listed below and any future filings made by us with the SEC under Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until the
offering of securities under this prospectus is terminated.
The following documents are incorporated by reference into this prospectus:
- Annual Report on Form 10-KSB for the fiscal year ended December 31,
1999, as amended by Form 10-KSB/A filed May 31, 2000;
- Quarterly Report on Form 10-QSB for the fiscal quarter ended March
31, 2000;
- Quarterly Report on Form 10-QSB for the fiscal quarter ended June
30, 2000;
- Quarterly Report on Form 10-QSB for the fiscal quarter ended
September 30, 2000;
- Amendment to Current Report on Form 8-K filed on November 23, 1999,
filed on Form 8-K/A on January 6, 2000;
- Current Report on Form 8-K, filed January 6, 2000;
- Current Report on Form 8-K, filed February 9, 2000;
- Current Report on Form 8-K, filed February 14, 2000, as amended by
Form 8-K/A filed February 15, 2000;
- Current Report on Form 8-K, filed March 8, 2000;
- Current Report on Form 8-K, filed March 15, 2000;
- Current Report on Form 8-K, filed May 10, 2000;
- Current Report on Form 8-K, filed June 9, 2000;
- Proxy Statement filed June 13, 2000;
- Current Report on Form 8-K, filed June 30, 2000 (Date of Report: June
19, 2000);
- Current Report on Form 8-K, filed June 30, 2000 (Date of Report:
June 29, 2000);
- Current Report on Form 8-K, filed February 9, 2001; and
- The financial statements contained in our Prospectus dated October
23, 2000 and filed October 24, 2000 pursuant to Rule 424(b) under the
Securities Act.
- The description of our common stock contained in our Registration
Statement on Form 8-A (File No. 000-24833), filed with the Securities
and Exchange Commission on October 25, 1998, including any amendment
or reports filed for the purpose of updating such description.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
FutureLink Corp.
2 South Pointe Drive
Lake Forest,CA 92630
(949) 672-3000
29
31
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form SB-2, of which this prospectus is a part, under the Securities
Act with respect to the shares of common stock being registered by this
prospectus. This prospectus does not contain all of the information included in
the registration statement. Statements contained in this prospectus concerning
the provisions of any document are not necessarily complete. You should refer to
the copy of these documents filed as an exhibit to the registration statement or
otherwise filed by us with the Securities and Exchange Commission for a more
complete understanding of the matter involved. Each statement concerning these
documents is qualified in its entirety by such reference.
We must comply with the informational requirements of the Securities
Exchange Act of 1934. In accordance with the Exchange Act, we file reports,
proxy statements and other information with the Securities and Exchange
Commission. The registration statement, including the attached exhibits and
schedules, may be inspected and copied at the public reference facilities
maintained by the Securities and Exchange Commission, Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional
offices of the SEC located at Seven World Trade Center, New York, New York
10048, and 500 West Madison Street, Chicago, Illinois 60661. Please call the
Securities and Exchange Commission at 1-800-SEC-0330 for further information
about the public reference rooms. The Securities and Exchange Commission
maintains a website that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Securities and Exchange Commission. Copies of the registration statement and the
reports, proxy and information statements and other information that we file
with the Securities and Exchange Commission may be obtained from the Securities
and Exchange Commission's Internet address at http://www.sec.gov.
You may request a copy of these documents, at no cost, by writing or
telephoning us at the following address:
FutureLink Corp.
2 South Pointe Drive
Lake Forest, CA 92630
(949) 672-3000
30
32
INDEX TO FINANCIAL STATEMENTS
PAGE
-----
FINANCIAL STATEMENTS OF FUTURELINK CORP.
Consolidated Financial Statements, December 31, 1998 and
1999................................................... F-2
Report of Independent Auditors......................... F-3
Consolidated Balance Sheets............................ F-4
Consolidated Statements of Operations.................. F-5
Consolidated Statements of Stockholders' Equity........ F-6
Consolidated Statements of Cash Flows.................. F-7
Notes to Consolidated Financial Statements............. F-8
Unaudited Pro Forma Condensed Consolidated Financial
Information For the Year Ended December 31, 1999 and
the Nine Months Ended September 30, 2000............... F-30
Unaudited Pro Forma Condensed Consolidated Balance
Sheet as of September 30, 2000........................ F-31
Unaudited Pro Forma Condensed Consolidated Statements
of Operations For the Nine Months Ended September 30,
2000.................................................. F-32
Unaudited Pro Forma Condensed Consolidated Statements
of Operations For the Year Ended December 31, 1999.... F-33
Notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements.................................. F-34
F-1
33
FUTURELINK CORP.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1999
F-2
34
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
FutureLink Corp.
We have audited the accompanying consolidated balance sheets of FutureLink
Corp. as of December 31, 1998 and 1999, and the related consolidated statements
of operations, stockholders' equity, and cash flows for each of the two years in
the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
Since the date of completion of our audit of the accompanying consolidated
financial statements and initial issuance of our report thereon dated March 14,
2000, the Company, as discussed in Note 1, has experienced continuing net losses
and significantly increased cash outflows that adversely affect the Company's
current liquidity. Note 1 describes management's plans to address these issues.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of FutureLink
Corp. at December 31, 1998 and 1999, and the consolidated results of its
operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Orange County, California
March 14, 2000,
except for Note 13, as to which the date is
April 29, 2000,
Note 16, as to which the date is
June 29, 2000,
and Note 1, as to which the date is
December 15, 2000
F-3
35
FUTURELINK CORP
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
-------------------
1998 1999
------- --------
ASSETS
Current assets:
Cash and cash equivalents................................... $ 7 $ 19,185
Restricted cash............................................. -- 3,099
Accounts receivable, less allowance for doubtful accounts of
$115 and $1,363 in 1998 and 1999, respectively............ 1,532 14,284
Inventory................................................... 22 4,964
Prepaid expenses............................................ 116 536
------- --------
Total current assets.............................. 1,677 42,068
Property and equipment, less accumulated depreciation of
$203 and $2,276 in 1998 and 1999, respectively............ 1,123 10,972
Goodwill and other intangibles, less accumulated
amortization of $668 and $6,033 in 1998 and 1999,
respectively.............................................. 7,846 186,866
Deposits for acquisitions................................... -- 543
Other assets................................................ -- 229
------- --------
Total assets...................................... $10,646 $240,678
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit............................................. $ 819 $ 1,657
Accounts payable and accrued liabilities.................... 3,595 15,811
Settlement payable.......................................... -- 5,000
Current portion of long-term debt........................... -- 8,554
Deferred revenue............................................ -- 1,330
------- --------
Total current liabilities......................... 4,414 32,352
Long-term debt, less current portion........................ 30 4,116
Convertible debentures, net................................. 2,153 874
Deferred taxes.............................................. 1,212 588
------- --------
Total liabilities................................. 7,809 37,930
Commitments and contingencies...............................
Stockholders' equity:
Preferred stock, no par value, 20,000,000 shares
authorized,
no shares issued and outstanding in 1998 and 1999...... -- --
Common stock, $.0001 par value, 300,000,000 shares
authorized,
4,908,072 and 52,743,169 shares issued and outstanding
at December 31, 1998 and 1999, respectively............ 2 7
Common stock issuable; 1,639,850 shares................... 2,600 42,636
Additional paid-in capital................................ 7,662 146,150
Issuable warrants......................................... -- 60,000
Deferred compensation..................................... -- (1,393)
Loan receivable from officer.............................. -- (1,500)
Accumulated other comprehensive loss:
Cumulative foreign currency translation adjustment..... (96) (77)
Accumulated deficit....................................... (7,331) (43,075)
------- --------
Total stockholders' equity........................ 2,837 202,748
------- --------
Total liabilities and stockholders' equity........ $10,646 $240,678
======= ========
See notes to consolidated financial statements.
F-4
36
FUTURELINK CORP
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
YEAR ENDED DECEMBER 31,
-------------------------
1998 1999
---------- -----------
Revenue:
Hardware and software....................................... $ 966 $ 6,748
Service delivery............................................ 1,471 6,852
---------- -----------
2,437 13,600
Expenses:
Cost of hardware and software............................... 880 7,013
Cost of service delivery.................................... 1,548 10,527
Selling, general and administration......................... 3,064 12,611
Goodwill and other intangibles amortization................. 668 4,981
Depreciation and amortization............................... 203 1,709
---------- -----------
6,363 36,841
---------- -----------
Loss from operations........................................ (3,926) (23,241)
Interest expense............................................ 1,333 12,095
Interest income............................................. -- (437)
Equity in loss of investee.................................. 826 --
---------- -----------
Loss before income taxes and extraordinary item............. (6,085) (34,899)
Provision (benefit) for income taxes........................ (205) --
---------- -----------
Loss before extraordinary item.............................. (5,880) (34,899)
Extraordinary item.......................................... -- (845)
---------- -----------
Net loss.................................................... $ (5,880) $ (35,744)
========== ===========
Loss per share -- basic and diluted
Loss before extraordinary item............................ $ (1.86) $ (2.44)
Extraordinary item........................................ -- (0.06)
---------- -----------
Net loss.................................................... $ (1.86) $ (2.50)
========== ===========
Weighted average shares..................................... 3,169,413 14,279,647
========== ===========
See notes to consolidated financial statements.
F-5
37
FUTURELINK CORP.
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
LOAN ACCUMULATED
COMMON STOCK COMMON ADDITIONAL RECEIVABLE OTHER
------------------- STOCK PAID-IN ISSUABLE DEFERRED FROM COMPREHENSIVE
SHARES AMOUNT ISSUABLE CAPITAL WARRANTS COMPENSATION OFFICER LOSS
---------- ------ -------- ---------- -------- ------------ ---------- -------------
BALANCE AT JANUARY 1, 1998..... 2,040,700 $1 $ -- $ 1,425 $ -- $ -- $ -- $ --
Issuance of common stock on
acquisitions................ 1,158,000 -- 2,550 15 -- -- -- --
Forgiveness of stockholder
debt........................ -- -- -- 70 -- -- -- --
Issuance of common stock...... 751,163 -- -- 2,963 -- -- -- --
Warrants issued with issuance
of convertible debt......... -- -- -- 563 -- -- -- --
Common stock issued, net...... 133,752 -- -- 763 -- -- -- --
Common stock to be issued upon
conversion of loan.......... -- -- 733 -- -- -- -- --
Issuance of common stock...... 824,457 1 (683) 1,907 -- -- -- --
Financing fees associated with
converted debentures........ -- -- -- (44) -- -- -- --
Foreign currency translation
adjustment.................. -- -- -- -- -- -- -- (96)
Net loss for the year......... -- -- -- -- -- -- -- --
---------- -- ------- -------- ------- ------- ------- -----
BALANCE AT DECEMBER 31, 1998... 4,908,072 2 2,600 7,662 -- -- -- (96)
Exchange of exchange shares... 424 -- (2,550) 2,550 -- -- -- --
Shares issued or issuable for
acquisitions................ 13,542,490 1 42,636 109,568 -- -- -- --
Shares issued for cash........ 9,203,499 1 -- 48,317 -- -- -- --
Shares issued upon conversion
of debt..................... 15,859,796 2 -- 22,496 -- -- -- --
Shares issued for services.... 95,431 -- (50) 525 -- -- -- --
Exercise of warrants.......... 8,648,256 1 -- 300 -- -- -- --
Equity components of
convertible debentures and
warrants.................... -- -- -- 7,290 -- -- -- --
Value of warrants issued with
convertible debentures...... -- -- -- 5,649 -- -- -- --
Value of options and warrants
issued for services......... -- -- -- 923 -- -- -- --
Shares issued under loan
agreement to officer........ 232,829 -- -- 2,000 -- -- (1,500) --
Shares issued upon exercise of
employee stock options...... 252,372 -- -- 1,103 -- -- -- --
Cost of warrants to be issued
on settlement............... -- -- -- (65,000) 60,000 -- -- --
Deferred compensation......... -- -- -- 2,767 -- (2,767) -- --
Amortization of deferred
compensation................ -- -- -- -- -- 1,374 -- --
Foreign currency translation
adjustment.................. -- -- -- -- -- -- -- 19
Net loss for the year......... -- -- -- -- -- -- -- --
---------- -- ------- -------- ------- ------- ------- -----
BALANCE AT DECEMBER 31, 1999... 52,743,169 $7 $42,636 $146,150 $60,000 $(1,393) $(1,500) $ (77)
========== == ======= ======== ======= ======= ======= =====
TOTAL
ACCUMULATED STOCKHOLDERS' COMPREHENSIVE
DEFICIT EQUITY LOSS
----------- ------------- -------------
BALANCE AT JANUARY 1, 1998..... $ (1,451) $ (25) $ --
Issuance of common stock on
acquisitions................ -- 2,565 --
Forgiveness of stockholder
debt........................ -- 70 --
Issuance of common stock...... -- 2,963 --
Warrants issued with issuance
of convertible debt......... -- 563 --
Common stock issued, net...... -- 763 --
Common stock to be issued upon
conversion of loan.......... -- 733 --
Issuance of common stock...... -- 1,225 --
Financing fees associated with
converted debentures........ -- (44) --
Foreign currency translation
adjustment.................. -- (96) (96)
Net loss for the year......... (5,880) (5,880) (5,880)
-------- -------- --------
BALANCE AT DECEMBER 31, 1998... (7,331) 2,837 (5,976)
========
Exchange of exchange shares... -- -- --
Shares issued or issuable for
acquisitions................ -- 152,205 --
Shares issued for cash........ -- 48,318 --
Shares issued upon conversion
of debt..................... -- 22,498 --
Shares issued for services.... -- 475 --
Exercise of warrants.......... -- 301 --
Equity components of
convertible debentures and
warrants.................... -- 7,290 --
Value of warrants issued with
convertible debentures...... -- 5,649 --
Value of options and warrants
issued for services......... -- 923 --
Shares issued under loan
agreement to officer........ -- 500 --
Shares issued upon exercise of
employee stock options...... -- 1,103 --
Cost of warrants to be issued
on settlement............... -- (5,000) --
Deferred compensation......... -- -- --
Amortization of deferred
compensation................ -- 1,374 --
Foreign currency translation
adjustment.................. -- 19 19
Net loss for the year......... (35,744) (35,744) (35,744)
-------- -------- --------
BALANCE AT DECEMBER 31, 1999... $(43,075) $202,748 $(35,725)
======== ======== ========
See notes to consolidated financial statements.
F-6
38
FUTURELINK CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31,
-----------------------
1998 1999
------- --------
OPERATING ACTIVITIES
Net loss.................................................... $(5,880) $(35,744)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................... 871 6,690
Deferred income taxes....................................... (205) --
Amortization of deferred compensation....................... -- 1,374
Warrants issued with convertible debt....................... -- 5,649
Common stock, warrants and options issued for services...... 2,125 1,898
Non-cash interest expense................................... 1,294 7,290
Loss on sale of assets...................................... 48 --
Change in operating assets and liabilities,
net of effect from business acquisitions:
Accounts receivable....................................... (1,406) 574
Inventory................................................. (22) (2,393)
Prepaid expenses.......................................... (116) (247)
Other assets.............................................. -- (229)
Accounts payable and accrued expenses..................... 2,302 (2,556)
Deferred revenue.......................................... -- 1,330
------- --------
Net cash used in operating activities..................... (989) (16,364)
------- --------
INVESTING ACTIVITIES
Purchases of property and equipment......................... (819) (3,244)
Disposition of assets....................................... 33 --
Business acquisitions, net of cash balances acquired........ (2,019) (28,413)
Deposits for acquisitions................................... (110) (543)
Cash advances to investees.................................. (990) --
Restricted cash............................................. -- (3,099)
Other....................................................... (69) --
------- --------
Net cash used in investing activities..................... (3,974) (35,299)
------- --------
FINANCING ACTIVITIES
Net cash advanced (paid) under lines of credit.............. 819 (119)
Proceeds from issuance of common shares, net................ 681 48,318
Proceeds from exercise of employee stock options............ -- 1,103
Proceeds from exercise of warrants.......................... -- 301
Repayment of capital lease obligations...................... (67) --
Issuance of common shares upon debt conversion, net of
costs..................................................... 2,447 22,498
Repayment of convertible debentures and promissory notes.... -- (1,279)
Other financing fees........................................ 89 --
Advances from stockholders.................................. 1,097 --
------- --------
Net cash provided by financing activities................. 5,066 70,822
------- --------
Effect of currency rate changes............................. (96) 19
------- --------
Increase in cash............................................ 7 19,178
Cash at beginning of period................................. -- 7
------- --------
CASH AT END OF PERIOD....................................... $ 7 $ 19,185
======= ========
NON CASH INVESTING AND FINANCING ACTIVITIES
Business acquisitions:
Assets acquired........................................... $ 8,999 $189,756
Liabilities assumed....................................... 2,934 2,453
Notes payable issued...................................... 436 6,685
Common stock and options issued........................... 3,610 152,205
------- --------
Cash paid for acquisitions.............................. $ 2,019 $ 28,413
======= ========
SmallCaps settlement payable................................ $ -- $ 5,000
Capital lease obligations................................... -- 5,763
Loan to officer for common stock............................ -- 2,000
SUPPLEMENTAL INFORMATION, CASH PAID FOR:
Interest.................................................... $ 38 $ 1,007
Income taxes................................................ 37 --
See notes to consolidated financial statements.
F-7
39
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. BASIS OF PRESENTATION
THE COMPANY
FutureLink Corp. (the "Company") is a Delaware corporation headquartered in
Irvine, California. The Company provides server-based computing services, and is
an application services provider, or ASP. The Company's services enable software
applications to be deployed, managed, supported and upgraded from centrally
located servers, rather than on individual desktop computers. For server-based
computing customers, the Company installs and integrates software applications
on customers' servers. For our ASP customers, the Company hosts software
applications on servers at data centers, and rents computing services to
customers for a monthly fee. ASP customers connect to facilities over the
Internet, through a dedicated telecommunications line or by wireless connection.
ASP services were introduced in March 1999.
The Company has experienced net losses over the past two years and had an
accumulated deficit of approximately $43.1 million at December 31, 1999. Such
losses are attributable to both cash losses resulting from costs incurred in the
development of the Company's services and infrastructure, interest expense and
non cash amortization charges. The Company expects operating losses to continue
for the foreseeable future as it continues to develop and promote its services.
The Company's future liquidity will depend on its ability to successfully
restructure operations and to reduce operating losses. In October 2000,
consistent with the Company's plan to integrate recently acquired companies and
achieve more efficient operations, the Company closed 6 branch offices and
eliminated an aggregate of 75 positions company-wide through a combination of
reduction in force and attrition. As a result of these actions, the Company
expects to realize annualized cost savings of approximately $12 million by the
end of the fourth quarter of 2000. The Company is continuing to evaluate all
aspects of its operations with a view to reducing operating losses. This may
include: the elimination of certain unprofitable lines of business; further
staff and overhead reductions and the curtailment of further expansion of the
ASP business and infrastructure until such time as product becomes more readily
accepted by the market. The Company is also refocusing its efforts to improve
its margins in the server based computing business. The Company believes that
its available cash, cash equivalents, and available borrowings under its lease
and bank credit facilities may not be sufficient to meet anticipated cash needs
to fund operating losses, working capital, and capital expenditures through
2001, unless the Company is successful in raising additional debt or equity
financing and in continuing to reduce operating losses.
In November 2000, the Company entered into a loan and security agreement
with a financial institution relating to a revolving credit facility for
borrowings up to a maximum of $25 million. The amount the Company may borrow
will vary from time-to-time based on a percentage of eligible accounts
receivable. The credit facility is secured by substantially all the assets of
the Company, and has an initial term of three years. At December 15, 2000 the
maximum amount the Company could borrow under the credit facility was $6.5
million.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
F-8
40
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company generates revenue from ASP services, information technology
services, outsourcing contract services, and from the resale of computer
hardware and software. Service revenue is recognized when the service is
delivered, or over the term of the applicable contracts. Payments received in
advance, even if non-refundable, are recorded as deferred revenue. ASP
implementation fees are generally paid in advance, and are deferred and
recognized ratably over the term of the ASP service contract, generally two to
five years. Revenue from the resale of computer hardware and software is
recorded upon shipment, or upon installation when required under contract terms.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments consisting principally of cash, accounts receivable,
payables, accrued liabilities, and short-term and long-term obligations, and
their carrying values in the accompanying consolidated balance sheets
approximate their fair value. It is management's opinion that the Company is not
exposed to significant currency or credit risks arising from these financial
instruments.
CONCENTRATION OF CREDIT RISK AND KEY SUPPLIER
The Company sells the majority of its services and products throughout
North America. Sales to the Company's recurring customers are generally made on
an open account while sales to occasional customers may be made on a prepaid
basis. The Company performs periodic credit evaluations of its ongoing customers
and generally does not require collateral. Reserves are maintained for potential
credit losses.
Citrix Systems, Inc. ("Citrix") is one of the Company's key suppliers. The
Company uses Citrix software almost exclusively to connect its customers to
software applications.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of money market accounts and other
short-term investments with a maturity of three months or less when purchased.
INVENTORY
Inventory, consisting of computer hardware and software held for resale, is
recorded at the lower of cost (first in, first out) or market.
SOFTWARE LICENSES
The Company capitalizes the costs associated with the purchase of licenses
for major business process application software used in providing ASP services.
The licenses specify the maximum number of users permitted to utilize the
license in connection with the Company's service. All amounts are
non-refundable,
F-9
41
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
regardless of the actual number of users assigned a license in connection with
ASP services. The licenses are amortized over the life of the contract.
PROPERTY AND EQUIPMENT
Property and equipment is carried at cost. Depreciation and amortization
are provided using the straight-line method over the assets' estimated useful
lives ranging from two to five years. Assets recorded under capital leases are
depreciated over the shorter of their estimated useful lives or the related
lease terms using the straight-line method. This depreciation is included in
depreciation and amortization in the accompanying consolidated financial
statements.
LONG-LIVED ASSETS
The Company follows Financial Accounting Standards Board Statement ("FAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present.
Long-lived assets and certain identifiable intangibles held and used by the
Company are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The
recoverability test is performed at the individual entity level based on
undiscounted cash flows. Based upon its analysis, the Company believes that no
impairment of the carrying value of its long-lived assets, inclusive of
goodwill, existed at December 31, 1999. The Company's analysis was based on an
estimate of future undiscounted cash flows using forecasts contained in the
Company's strategic plan. It is at least reasonably possible that the Company's
estimate of future undiscounted cash flows may change during 2000. If the
Company's estimate of future undiscounted cash flows should change or if the
strategic plan is not achieved, future analyses may indicate insufficient future
undiscounted cash flows to recover the carrying value of the Company's
long-lived assets, in which case such assets would be written down to estimated
fair value.
GOODWILL
Goodwill is recorded at cost and is being amortized using the straight-line
method over five years. The recoverability of goodwill is assessed periodically
based on management estimates of undiscounted future operating cash flows from
each of the acquired businesses to which the goodwill relates.
ASSEMBLED WORKFORCE
Assembled workforce represents the valuation placed on the knowledge,
expertise, and contacts of employees and consultants upon acquisition, and is
being amortized using the straight-line method over three years.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of the Company's foreign operations are
generally translated into U.S. dollars at current exchange rates. Revenue and
expenses are translated at average exchange rates in effect for the year. The
resulting cumulative translation adjustments have been recorded as a separate
component of consolidated stockholders' equity. Foreign currency transaction
gains and losses, if any, are included in the consolidated net loss.
F-10
42
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INCOME TAXES
The Company utilizes the liability method of accounting for income taxes as
set forth in FAS No. 109, "Accounting for Income Taxes." Under this method,
deferred tax assets and liabilities are recognized based on the anticipated
future tax effects arising from the differences between the financial statement
carrying amounts of assets and liabilities and their respective tax bases of
assets and liabilities using enacted tax rates.
STOCK-BASED COMPENSATION
The Company accounts for stock-based awards to employees in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations and has adopted the disclosure-only
alternative of FAS No. 123, "Accounting for Stock-Based Compensation." Options
granted to consultants, independent representatives and other non-employees are
accounted for using the fair value method as prescribed by FAS No. 123.
STOCK SPLIT
On June 1, 1999, the Company completed a 5 for 1 reverse stock split of its
common stock. Accordingly, all share and per share amounts have been
retroactively restated in the consolidated financial statements to reflect this
split.
LOSS PER SHARE
Basic loss per share is calculated by dividing the net loss by the average
number of common shares outstanding during the year. Diluted loss per share is
calculated by adjusting outstanding shares, assuming any dilutive effects of
options, warrants, and convertible securities. For all years presented, the
effect of stock options, warrants, and convertible securities were not included
as the results would be anti-dilutive. Consequently, there is no difference
between the basic and dilutive net loss per share.
SEGMENTS OF A BUSINESS ENTERPRISE
FAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," establishes standards for the way that public business enterprises
report information about operating segments in annual consolidated financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports. FAS No. 131 also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. The Company operates in one segment, information technology
solutions.
COMPREHENSIVE INCOME
FAS No. 130, "Reporting Comprehensive Income," establishes standards for
reporting and displaying comprehensive income and its components in the
consolidated financial statements. Comprehensive loss includes cumulative
translation adjustments for the years ended December 31, 1998 and 1999. These
adjustments are accumulated within the accompanying Consolidated Statements of
Stockholders' Equity under the caption "Comprehensive Loss."
F-11
43
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RECLASSIFICATIONS
Certain amounts in the 1998 consolidated financial statements have been
reclassified to conform to the current year presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, FAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued, which establishes new standards for recording
derivatives in interim and annual financial statements. This statement requires
recording all derivative instruments as assets or liabilities, measured at fair
value. Statement No. 133, as amended, is effective for all fiscal quarters of
all fiscal years beginning after June 15, 2000. Management does not anticipate
the adoption of the new statement will have a significant impact on the
consolidated results of operations or financial position of the Company.
3. ACQUISITIONS
The Company completed the following acquisitions during the years ended
December 31, 1998 and 1999.
EXECUTIVE LAN MANAGEMENT, INC.
On October 15, 1999, the Company finalized an Agreement and Plan of
Reorganization and Merger with Executive LAN Management Inc. ("Micro Visions").
The agreement provided for a merger of Micro Visions with a subsidiary of the
Company such that all of Micro Visions' outstanding stock was sold to the
Company in exchange for total consideration of $86.0 million, consisting of
$12.0 million cash, 6,000,000 common shares issued upon closing, and a further
2,400,000 common shares earned during 1999 as contingent consideration valued in
the aggregate at $71.2 million and options to acquire 475,000 shares of common
stock valued at $2.8 million. Of the contingent shares, 1,200,000 were earned as
of December 31, 1999 but had not been issued. The value of the contingent
shares, determined based on the share price of $31.2 million when earned, is
included in stockholder's equity as common stock issuable. The acquisition was
accounted for by the purchase method of accounting, and the excess purchase
price of $85.9 million over the estimated fair value of net assets acquired was
allocated to goodwill and is being amortized over five years.
CN NETWORKS, INC.
On November 5, 1999, the Company finalized an Agreement and Plan of
Reorganization and Merger with CN Networks, Inc. ("CNI"). The agreement provides
for a merger of CNI with a subsidiary of the Company such that all of CNI's
outstanding stock was sold to the Company in exchange for total consideration of
$19.9 million consisting of $3.9 million cash and 1,181,816 common shares of the
Company's common stock valued at $9.1 million, and options to acquire 500,000
shares of common stock valued at $6.9 million. The acquisition was accounted for
by the purchase method of accounting, and the excess purchase price of $20.4
million over the estimated fair value of net assets acquired was allocated to
goodwill and is being amortized over five years.
ASYNC TECHNOLOGIES, INC.
On November 26, 1999, FutureLink finalized an Agreement and Plan of
Reorganization and Merger with Async Technologies, Inc. and Async Technical
Institute, Inc. The Agreement provides for an initial merger between Async
Technologies, Inc. and Async Technical Institute, Inc., with Async Technologies,
F-12
44
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Inc. ("Async") being the surviving entity, and then a subsequent merger of Async
with a subsidiary of the Company such that Async's outstanding stock was sold to
the Company in exchange for total consideration of $35.0 million consisting of
$6.0 million cash, 1,298,705 common shares issued upon closing, and a further
439,850 common shares earned during 1999 as contingent consideration valued in
the aggregate at $21.4 million, and options to acquire 500,000 shares of common
stock valued at $7.6 million. The contingent shares were earned as of December
31, 1999 but had not yet been issued. The value of the contingent shares of
$11.4 million, determined based on the share price when earned, has been
included in stockholders' equity as common stock issuable. The acquisition was
accounted for by the purchase method of accounting, and the excess purchase
price of $36.2 million over the estimated fair value of net assets acquired was
allocated to goodwill and is being amortized over five years.
KNS HOLDINGS LIMITED
On December 22, 1999, the Company finalized an Agreement for the Sale and
Purchase of the entire issued share capital of United Kingdom based KNS Holdings
Limited ("KNS"). The Agreement provided for a merger of KNS with a subsidiary of
the Company such that all of KNS' outstanding stock was sold to the Company. The
total purchase price was $44.0 million consisting of $5.0 million cash,
2,160,307 shares of the Company's common stock valued at $32.3 million and notes
payable in the amount of $2.7 million and $4.0 million due April 2000 and June
2000, respectively. The acquisition was accounted for by the purchase method of
accounting, and the excess purchase price of $42.7 million over the estimated
fair value of net assets acquired was allocated to goodwill and is being
amortized over five years.
FUTURELINK ALBERTA
On January 20, 1998 the Company issued 308,000 common shares in exchange
for 1,540,000 common shares (46%) of FutureLink Alberta. The total value
ascribed to the investment was $15,400. Effective November 23, 1998, the Company
issued 334,755 common shares in exchange for an additional 1,673,775 common
shares (50.4%) of FutureLink Alberta. The total value ascribed to the investment
was $987,527.
On February 26, 1999, FutureLink Alberta became a wholly owned subsidiary
when the Company purchased the remaining 117,500 shares (3.6%) of FutureLink
Alberta in exchange for 23,500 common shares of the Company. FutureLink Alberta
was consolidated from November 24, 1998. From January 20, 1998 to November 23,
1998 the Company's share in FutureLink Alberta's loss, accounted for using the
equity method, was $860,000.
The following pro forma results of operations give effect to the
acquisition of the above companies as if the transactions had occurred January
1, 1998 (in thousands, except per share data):
YEAR ENDED DECEMBER 31,
------------------------
1998 1999
---------- ----------
Revenue................................................ $ 46,112 $ 64,778
Net loss............................................... $(42,058) $(68,681)
Loss per share......................................... $ (13.27) $ (4.81)
4. DEPOSITS ON ACQUISITIONS
On December 2, 1999, the Company entered into an Agreement and Plan of
Reorganization and Merger with Vertical Software, Inc. ("VSI"). The agreement
provides for a merger of VSI with a subsidiary of the Company such that all of
VSI's outstanding stock will be sold to the Company in
F-13
45
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
exchange for consideration of $27.6 million consisting of $8.1 million cash and
1,026,316 common shares of the Company's common stock valued at $19.5 million.
The transaction closed on January 31, 2000 (see Note 16). At December 31, 1999,
the Company paid $543,000 relating to deposits and acquisition costs on the
proposed acquisition of VSI.
5. PROPERTY AND EQUIPMENT
Property and equipment are comprised of the following at December 31, 1998
and 1999 (in thousands):
1998 1999
------ -------
Computers and equipment................................... $ 606 $ 3,932
Software licenses......................................... 185 678
Office and other equipment................................ 181 1,136
Equipment under capital lease............................. 136 6,937
Leasehold improvements.................................... 218 565
------ -------
1,326 13,248
Less accumulated depreciation and amortization............ (203) (2,276)
------ -------
$1,123 $10,972
====== =======
Included in accumulated depreciation at December 31, 1998 and 1999 is
$19,000 and $735,000 respectively, related to equipment under capital leases.
6. GOODWILL AND OTHER INTANGIBLES
Goodwill and other intangible assets are comprised of the following at
December 31, 1998 and 1999 (in thousands):
1998 1999
------ --------
Goodwill................................................. $5,314 $189,699
Assembled workforce...................................... 3,200 3,200
------ --------
8,514 192,899
Less accumulated amortization............................ (668) (6,033)
------ --------
$7,846 $186,866
====== ========
7. LINE OF CREDIT AGREEMENTS
The Company and its subsidiaries have various lines of credit allowing
aggregate borrowings of $5.4 million. The lines bear interest at various rates
ranging from prime (8.5% at December 31, 1999) plus 1% to prime plus 3% per
annum, and mature at various intervals through November 30, 2000. The lines are
secured by certificates of deposits aggregating $3.1 million (reflected as
restricted cash on the accompanying consolidated balance sheet at December 31,
1999) and receivables and other assets of certain subsidiaries of the Company.
Aggregate borrowings under the line of credit agreements at December 31, 1998
and 1999 were $819,000 and $1.7 million, respectively. At December 31, 1999, the
aggregate unused amount under the agreements was approximately $3.7 million.
F-14
46
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1998 and 1999 (in
thousands):
1998 1999
---- -------
Capital lease obligations, net of original issue discount of
$727...................................................... $30 $ 5,985
Note payable to former KNS stockholders..................... -- 6,685
--- -------
30 12,670
Less current portion of long-term debt...................... -- 8,554
--- -------
Long-term debt.............................................. $30 $ 4,116
=== =======
Capital lease obligations are for the lease of up to $22.5 million of
computer hardware and related infrastructure costs. Aggregate monthly payments
are currently $195,000 and are based upon thirty-six to forty-one month
amortization periods, including interest implicit in the lease at rates ranging
from 9% to 14% per annum. As of December 31, 1999, the Company had available
borrowings of $19.4 million under the various lease lines. In addition to the
lease payments, the Company issued to the lessors warrants valued at $727,000 to
acquire 42,553 shares of common stock at $8.50 per share. The value of the
warrants has been reflected as a discount of the related debt, and is being
amortized to interest expense over the life of the debt.
Notes payable to KNS consist of notes of $2.7 million and $4.0 million and
are due April 6, 2000 and June 30, 2000, respectively. The notes are unsecured
and bear interest at LIBOR plus 1% per annum which is payable at maturity.
Principal maturities of long-term debt outstanding, including original
issue discount of $727,000, at December 31, 1999 occur as follows (in
thousands):
YEARS ENDING
DECEMBER 31, AMOUNT
- ------------ -------
2000............................................ $ 8,706
2001............................................ 2,147
2002............................................ 2,177
2003............................................ 367
-------
Total........................................... $13,397
=======
9. CONVERTIBLE DEBENTURES
Convertible debentures consist of the following at December 31, 1998 and
1999 (in thousands);
1998 1999
------ ----
10% TK convertible debentures............................... $2,153 $ --
8% Senior subordinated convertible promissory notes......... -- 629
10% Convertible debentures.................................. -- 245
------ ----
$2,153 $874
====== ====
F-15
47
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10% TK CONVERTIBLE DEBENTURES
During 1998, the Company entered into a 10% convertible debenture agreement
with Thomson Kernaghan & Co. Ltd. ("TK") as agent, to provide up to $5.0 million
of financing. The financing included the issuance of 208,333 share purchase
warrants at an exercise price of $4.80 per share. During 1998, the Company
received an aggregate $2.7 million under the financing arrangement, and $500,000
of this debt plus accrued interest was converted into 374,955 common shares.
During 1999, the Company amended the terms of the 10% TK convertible
debentures which increased the total available financing from $5.0 million to
$6.0 million, of which the Company received an additional $3.3 million in 1999
bringing aggregate borrowings under the agreement to $5.5 million. An additional
129,534 warrants at an exercise price of $4.80 per share were issued in
connection with the increase in available funding. The fair value of these
warrants of $129,500 was recorded as additional paid-in capital with an
offsetting entry to original issue discount on debt.
Of the total principal amount of the debentures, approximately $1.7 million
has been attributed to the intrinsic value of the beneficial conversion option.
Of this amount, $911,990 related to debentures received during the year ended
December 31, 1999. The amount attributed to the beneficial conversion option has
been included in interest expense as the option was exercisable upon issuance.
On April 26, 1999, the Company amended the terms of the 10% TK convertible
debenture agreement. Previously, the debenture holders had the right to convert
the debentures at a price equal to the lower of $3.75 per share and 78% of the
average closing bid price of the Company's common stock for the three trading
days immediately preceding the conversion. Following the amendment, the
debenture conversion price was fixed at $1.00 per common share. In addition, the
previously issued warrants were re-priced such that the exercise price of $4.80
became $1.25 per common share. An amount of $1.2 million has been included in
additional paid-in capital as the estimated value attributed to the warrants as
they were exercisable upon issuance. The Company also issued an additional
warrant to purchase 862,132 shares of common stock at an exercise price of $1.25
per share such that a total of 1,200,000 warrants were outstanding related to
this convertible debenture agreement. An amount of $1.0 million attributable to
the intrinsic value of the conversion feature of the amended debt was included
as interest expense with a corresponding credit to additional paid-in capital as
the conversion option was exercisable upon issuance.
During 1999, $4.0 million of the convertible debentures were converted into
4,018,602 shares of common stock. In addition, the Company paid approximately
$1.9 million as consideration for the cancellation of $1.5 million of the
principal balance. The extinguishment of this debt resulted in an $844,552
extraordinary item during the year ended December 31, 1999. This amount includes
charges of $259,318 for unamortized finance fees, $174,000 for unamortized debt
discount associated with the $3.5 million of debt existing at the time, and
$411,000 relating to the cost of settling $1.5 million of debt.
During the year ended December 31, 1999, 1,291,921 shares of common stock
were issued on the exercise of all the outstanding warrants issued to TK. In
connection with the exercise of the warrants, the Company issued an additional
125,000 shares to the note holders for agreeing to a lock up provision.
8% SENIOR SUBORDINATED CONVERTIBLE PROMISSORY NOTES
During 1999, the Company completed an $8.0 million financing of 8% senior
subordinated convertible promissory notes, of which management and directors of
the Company purchased $433,000. The notes were convertible at the option of the
note holders at a conversion price of $1.00 per share, except those issued to
management and directors, that were convertible at $1.50 per share, subject to a
12-month lock up provision. Issue costs of $780,000 were paid relating to the
issuance of the debentures and were
F-16
48
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
recorded as original issue discount on debt. $7.4 million of the notes were
converted during the year ended December 31, 1999 into 8,579,019 shares of
common stock. The remaining balance of the notes due at December 31, 1999 of
$620,000 plus accrued interest is due April 30, 2000. An amount of $4.9 million
was attributed to the intrinsic value of the beneficial conversion option and
has been included in additional paid-in capital with an offsetting entry to
interest expense.
Upon entering into the agreement, the Company issued warrants to purchase
3,802,750 shares of common stock at $1.25 per share to the external holders of
the debentures and warrants to purchase 216,500 shares of common stock at $1.50
per share to directors and management of the Company. An amount of $2.4 million
based on the Black Scholes pricing model has been included in additional paid-in
capital as the estimated value of the warrants. During the year ended December
31, 1999, the board of directors offered the warrant holders an option to
exchange 100 warrants for 95 shares on a cashless basis. As such, 3,696,500 of
these warrants were exercised on a cashless basis and exchanged for 3,517,933
shares of common stock.
In addition, warrants to purchase 2,000,000 shares at an exercise price of
$1.25 per share were provided to the agent as a placement fee. An amount of $1.8
million based on the Black Scholes pricing model has been attributed to the
value of the warrants and has been recorded to additional paid-in capital. The
placement fee is attributable to the equity portion of the debt and, therefore,
this issue cost has also been recorded as a charge against additional paid-in
capital. On May 1, 1999, the Company entered into an agreement to retain the
holder of the majority of the notes as a financial advisor for a period of one
year. Compensation for the services received under the agreement include payment
of $5,000 per month and issuance of warrants to purchase 2,000,001 shares of
common stock at par value. A value of $1.2 million, based on the Black Scholes
pricing model, has been assigned as the estimated value of the warrants, which
is being amortized to consulting expense at the rate of $100,000 per month over
the one-year contract term. During the year ended December 31, 1999, the board
of directors offered the warrant holders an option to exchange 100 warrants for
95 shares on a cashless basis. As such, 4,000,001 warrants were exercised on a
cashless basis and exchanged for 3,799,974 shares of common stock.
The initial terms of the notes contained certain anti-dilution provisions.
The subsequent issuance of securities at terms and conditions preferential to
that of the promissory notes resulted in an additional 289,599 shares issued to
those noteholders. An amount of $246,000 was attributed to these additional
shares and has been included in contributed capital with an offsetting entry to
interest expense. These anti-dilution privileges also resulted in the remaining
$620,000 of unconverted notes at December 31, 1999 having a conversion price of
$0.89 for noteholders and $1.34 for management.
10% CONVERTIBLE DEBENTURE
During 1999, the Company issued a $275,000 promissory note that was
subsequently converted into a 10% debenture that can be converted into shares of
the Company's common stock at $1.15 per share. The note matures on April 20,
2002, and the Company may prepay upon 30 days advance notice. Accrued interest
of $18,000 at December 31, 1999 is due at maturity. In the accompanying
consolidated financial statements as of December 31, 1999, the balance due on
the convertible debt and the accrued interest is reflected net of $50,000
unamortized debt discount and finder's fee, which is being amortized to interest
expense over the life of the debenture.
An amount of $79,821 was attributed to the intrinsic value of the
beneficial conversion option and has been reflected as interest expense during
the year and included in additional paid-in capital. Upon entering the
agreement, the Company issued warrants to purchase 44,505 shares of common stock
of the Company at $1.25 per share to the holder of the debenture. The warrants
expire April 30, 2001. An amount of
F-17
49
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$41,800 has been included in additional paid-in capital as the estimated value
of the warrants and debt discount.
10. STOCKHOLDERS' EQUITY
On October 15, 1999, the Company amended its authorized preferred shares
from 5,000,000 to 20,000,000 and its authorized common shares from 100,000,000
to 300,000,000.
ISSUANCE OF COMMON STOCK AND WARRANTS FOR CASH
During 1999, the Company completed a private placement which resulted in
net proceeds to the Company of $46.1 million through the issuance of 9,090,909
common shares and warrants to purchase 2,401,041 shares of common stock. The
warrants are exercisable for up to five years at an exercise price of $8.50 per
share. A finance fee of $3.0 million was paid to the placement agent. The
Company also issued 909,091 warrants to purchase shares of common stock to the
placement agent. The warrants are exercisable for up to five years at an
exercise price of $8.50 per share. Subsequent to year end, the warrant holders
exercised all the outstanding warrants (see Note 16).
During 1998, the Company issued 51,163 common shares and 51,163 warrants
for $847,000 cash. Of the warrants, 16,667 are exercisable at $15.50 on or
before January 29, 2000 (which have subsequently expired); 21,163 are
exercisable at $20.00 on or before April 20, 2000; and 13,333 are exercisable at
$16.25 on or before April 22, 2000. At December 31, 1999, none of the warrants
have been exercised.
ISSUANCE OF COMMON STOCK UPON CONVERSION OF CONVERTIBLE DEBT
During 1999, the Company issued $301,241 aggregate principal amount of its
10% convertible debentures, due on June 30, 1999 in exchange for stockholders'
advances of $289,000 including interest existing at December 31, 1998. Upon
entering into the convertible debenture agreement, the Company issued warrants
to purchase 150,621 shares of common stock to the holders of the debentures.
Each warrant gives the holder the right to purchase one common share of the
Company for $2.00 per share on or before February 22, 2000, for $3.00 per share
between February 23, 2000 and February 22, 2001 and $4.00 per share between
February 23, 2001 and February 22, 2002. An amount of $20,000 has been included
in additional paid-in capital as the estimated value attributed to the 150,621
warrants. During 1999, the Company repaid $253,000 of the principal amount and
$55,000 of principal and interest was converted into 27,431 common shares such
that the full principal and interest relating to the note has been settled.
During 1999, the Company issued $500,000 aggregate principal amount of its
8% convertible debentures, due February 28, 2002, convertible at $1.51 per
share. An amount of $125,000 was attributed to the intrinsic value of the
conversion option and was included in additional paid-in capital. Upon entering
into the 8% convertible debenture agreement, the Company issued warrants to
purchase 26,553 of common stock of the Company to the holder of the 8%
convertible debentures at $1.88 per share. The warrants expire on February 28,
2001. An amount of $36,000 was reflected as original issue discount and included
in additional paid-in capital as the estimated value of the warrants. On August
21, 1999, $500,000 of principal and $37,000 of accrued interest and other fees
were converted into 355,836 common shares.
During 1999, the Company issued 8% senior subordinated convertible
promissory notes and warrants for gross proceeds of $15.0 million. In addition,
warrants to purchase 2,250,000 shares of common stock were issued to note
holders at an exercise price of $8.50 per common share. The notes were initially
due on the earlier of (i) July 19, 2001; (ii) the consummation of a public
offering of the Company's securities;
F-18
50
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(iii) the completion of a private placement resulting in gross proceeds of at
least $15.0 million; and (iv) the consummation of a merger, combination or the
sale of substantially all of the Company's assets, or the purchase by a single
entity or person of more than 50% of the Company's voting stock. The notes were
initially convertible into common stock at an exercise price of $8.50 per common
share. However, if prior to maturity, the Company completed a private placement
of debt or equity securities resulting in gross proceeds of at least $15.0
million, and the terms of this subsequent placement are acceptable to the agent
and the noteholders, the notes will automatically convert as payment for an
investment into the securities sold in the subsequent conversion, and were to be
converted at the same price and terms as that private placement. Concurrent with
the private placement described above, the notes were converted into 2,727,172
common shares. Additional warrants to purchase 711,818 shares of common stock
were also issued. The warrants are exercisable for up to five years at an
exercise price of $8.50 per common share. As part of the transaction, the
Company paid $1.4 million cash and issued 225,000 warrants to the placement
agent as a finance fee. These warrants are exercisable at $8.50 per share and
expire July 27, 2001. Additional issue costs of $42,592 were incurred. The
warrants to purchase 2,475,000 shares of common stock initially issued under
this offering were recorded as a component of equity since it was known that the
notes would convert into the securities of a subsequent offering. Accordingly,
no amount has been recorded to additional paid-in capital.
During 1999, the Company issued $8.0 million of 8% Senior Convertible
Promissory notes, of which $7.4 million of notes were converted into 8,579,019
shares of common stock. In addition, 7,696,501 warrants related to these notes
were exercised during 1999.
During 1998, a stockholder advanced the Company $729,802. Interest incurred
on the loan to July 2, 1998 in the amount of $2,849 was added to the principal
amount owing. $350,000 of the loan was assigned to another stockholder on July
2, 1998. On the same date, both portions of the loan were converted into 225,448
common shares with an ascribed value of $732,651, and an equal number of
warrants. Each warrant entitles the holders to purchase one common share at
$5.00 on or before June 30, 1999 and $6.25 on or before June 30, 2000. At
December 31, 1999, none of the warrants have been exercised.
LOAN RECEIVABLE FROM OFFICER
On August 1, 1999, the Company loaned $2.0 million to an executive with
recourse which was then used by the executive to purchase 232,829 common shares
of the Company. The loan receivable has been recorded as a reduction of
stockholders' equity (deficit). The shares have been escrowed. On October 1,
1999, 29,129 shares were released from escrow. An additional 29,100 shares will
be released from escrow on a quarterly basis commencing January 1, 2000. So long
as the executive remains employed by the Company, $250,000 of the principal
amount of the loan shall be forgiven on a quarterly basis. The loan bears
interest at 5.625% per year. Interest is payable annually; however, should the
executive be employed at the end of each annual period, the interest will be
forgiven at such time. During the year ended December 31, 1999, the Company
recognized $500,000 as salary expense relating to the services received from the
employee in relation to the loan agreement.
ISSUANCE OF COMMON STOCK FOR SERVICES
On July 27, 1998, the Company issued 700,000 shares of common stock to
employees, officers and directors of the Company for $3,500. The fair value of
these shares at that time was approximately $2.1 million. The difference between
the fair value and the cash consideration received has been included as
additional paid-in capital and as salary expense for the year ended December 31,
1998.
F-19
51
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During 1998, the Company entered into an agreement for consulting services
which provided for the settlement of fees with shares of the Company's common
stock. The number of shares issued was based on 95% of the average closing price
of the Company's stock during the trading days for the month in question as
quoted on the NASD Over the Counter Bulletin Board. At December 31, 1998,
$50,000 was owing for consulting services in relation to this agreement,
equating to 23,051 shares. During 1999, the 23,051 shares were issued along with
an additional 41,652 shares relating to services performed in 1999.
STOCK OPTION PLAN
The Company's Stock Option Plan (the "Plan") became effective on June 29,
1998, and was amended on November 30, 1998, September 23, 1999, November 17,
1999 and December 10, 1999. The Plan provides for the issuance of incentive and
non-qualified stock options. The aggregate number of shares which may be issued
pursuant to options under the Plan may not exceed twenty percent of our shares
of common stock issued and outstanding on a fully diluted basis. The maximum
number of shares which may be issued pursuant to options was fixed at 11,000,000
by the Company's board of directors.
The Plan is administered by the Company's board of directors. Generally,
the board may amend or terminate the Plan if it does not cause any adverse
effect on any then outstanding options or unexercised portions thereof. The
board of directors must obtain the consent of the stockholders to increase the
number of shares covered by the Plan, to change the class of persons eligible to
receive options, or to extend the term of the Plan beyond 10 years. The board of
directors sets the consideration for each option award. All options must
generally have an exercise price equal to at least 85% of the fair market value
of the underlying common stock on the date of the grant. Incentive stock options
must have an exercise price equal to at least 100% of the fair market value of
the underlying common stock on the date of the grant, and options granted to a
person who owns more than 10% of the voting power of our outstanding stock and
any outstanding stock of our subsidiaries must have an exercise price equal to
at least 110% of the fair market value of the underlying common stock on the
date of the grant.
Activity under the Plan is as follows:
OPTIONS OUTSTANDING
------------------------------
NUMBER WEIGHTED
OF PRICE PER AVERAGE
SHARES SHARE EXERCISE PRICE
--------- ------------ --------------
Balance at January 1, 1998.................................. -- -- --
Options granted............................................. 872,500 $2.25-$ 5.85 $4.05
Options canceled............................................ (40,000) $3.80-$ 5.85 $4.31
--------- ------------ -----
Balance at December 31, 1998................................ 832,500 $2.25-$ 5.85 $4.05
Options granted............................................. 6,559,000 $1.40-$23.13 $7.90
Options expired............................................. (117,900) $1.40-$ 8.50 $3.90
Options exercised........................................... (252,600) $1.40-$ 5.85 $4.39
--------- ------------ -----
Balance at December 31, 1999................................ 7,021,000 $1.40-$23.13 $8.01
========= ============ =====
F-20
52
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The weighted average remaining contractual life and weighted average
exercise price of options outstanding and of options exercisable as of December
31, 1999 were as follows:
WEIGHTED OPTIONS
WEIGHTED AVERAGE EXERCISABLE AT WEIGHTED
RANGE OF OPTIONS AVERAGE REMAINING DECEMBER 31, AVERAGE
EXERCISE PRICES OUTSTANDING EXERCISE PRICE CONTRACTUAL LIFE 1999 EXERCISE PRICE
- --------------- ----------- -------------- ---------------- -------------- --------------
$ 1.40-$ 3.80 2,893,500 $ 3.10 2.81 1,054,166 $3.38
$ 5.00-$ 8.97 2,857,500 $ 6.76 4.11 672,500 $6.28
$ 14.69 500,000 $14.69 4.84 -- --
$22.69-$23.13 770,000 $23.01 4.94 -- --
The price at which options were granted during 1998 and 1999 were generally
based upon the market value of the Company's common stock at the time of the
grants. At December 31, 1999, there were options to purchase 11,000,000 shares
of common stock available to grant.
The weighted average fair value of options granted during 1998 and 1999 was
$2.49 and $8.02 per share, respectively. Pursuant to FAS No. 123, the Company
has elected to continue using the intrinsic value method of accounting for
stock-based awards granted to employees and directors in accordance with APB
Opinion No. 25 and related Interpretations in accounting for its stock option
and purchase plans.
The Company recorded approximately $1.6 million of net deferred
compensation in the year ended December 31, 1999, for the difference between the
exercise price of certain of the Company's stock options granted under the Plan
and the fair market value of the underlying common stock. Such amount has been
presented as a reduction of stockholders' equity and is being amortized ratably
over the vesting period of the applicable options. The Company amortized an
aggregate of $524,000 of deferred compensation during 1999.
Accordingly, no compensation cost has been recognized for its stock option plans
and its stock purchase plan other than that described above. For pro forma
purposes, the estimated value of the Company's stock options to employees is
amortized over the vesting period of the underlying instruments. The results of
applying FAS No. 123 to the Company's options to employees would approximate the
following:
1998 1999
---------- -----------
Net loss
As reported...................................... $ (5,880) $ (35,744)
Pro forma........................................ $ (7,197) $ (89,041)
Basic and fully diluted loss per share:
As reported...................................... $ (1.86) $ (2.50)
Pro forma........................................ $ (2.27) $ (6.23)
Basic and diluted weighted average common shares... 3,169,413 14,279,647
The pro forma effect on net loss for 1998 and 1999 is not likely to be
representative of the effects on reported net loss for future years.
F-21
53
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The fair value of options granted under the Company's stock option plan
during 1998 and 1999 was estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions:
1998 1999
---------- ----------
Weighted average risk-free interest rates............. 5.03% 5.03%
Expected years from vest date to exercise date........ 2.1 to 3.5 2.1 to 3.5
Expected stock volatility............................. 135.5% 135.5%
Dividend yield........................................ None None
WARRANTS
The Company has issued warrants to purchase the Company's common stock to
certain individuals or organizations at December 31, 1999 as follows:
Warrants to acquire 225,448 shares of common stock. Each warrant entitles
the holders to purchase one common share at $6.25 by June 30, 2000.
Warrants to acquire 51,163 shares of common stock. 16,667 of the warrants
entitles the holders to purchase one common share at $15.50 by January 29, 2000
(which have subsequently expired); 21,163 of the warrants entitles the holders
to purchase one common share at $20.00 per share by April 20, 2000, and; 13,333
of the warrants entitle the holders to purchase one common share at $16.25 per
share by April 22, 2000.
Warrants to acquire 2,401,041 shares of common stock. Each warrant
initially entitled the holders to purchase one common share at $8.50 by June 30,
2000. However, to induce holders to exercise such warrants, subsequent to
December 31, 1999, the Company offered to pay each holder $0.95 per underlying
share of common stock to compensate such holders for committing their capital to
an early exercise of their warrants per share for aggregate net proceeds to the
Company of $18,008,000 (see Note 16).
Warrants to acquire 2,475,000 shares of common stock. Each warrant entitles
the holders to purchase one common share at $8.50 by July 27, 2001.
Warrants to acquire 310,250 shares of common stock, of which 27,750 are
owned by members of management. Each warrant entitles the holders to purchase
one common share at $1.11 or $1.34 by April 6, 2000, by management.
Warrants to acquire 1,620,909 shares of common stock. Each warrant entitles
the holders to purchase one common share at $8.50 by October 15, 2001.
Warrants to acquire 150,621 shares of common stock. Each warrant entitles
the holders to purchase one common share at $2.00 by February 23, 2013.
Warrants to acquire 261,124 shares of common stock. Each warrant entitles
the holders to purchase one common share at prices ranging from $1.25 to $8.50
through 2004.
F-22
54
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
COMMON STOCK ISSUABLE
At December 31, 1999, the following shares of common stock are issuable
for:
Warrants.................................................... 7,495,556
Common stock options........................................ 7,021,000
Convertible debentures...................................... 918,283
Acquisitions................................................ 4,074,426
----------
19,509,265
==========
11. INCOME TAXES
The income tax benefit differs from the amount computed by applying the
U.S. federal statutory rate to the loss before income taxes as follows (in
thousands):
YEAR ENDED DECEMBER 31,
-----------------------
1998 1999
--------- ----------
Tax benefit at U.S. statutory rate (34%).................... $(2,069) $(11,866)
Increase (decrease) in taxes resulting from:
Valuation allowance....................................... 1,690 3,240
State taxes............................................... (121) --
Non deductible expenses................................... 541 5,717
Foreign tax rate differences and foreign losses without
benefit................................................ (258) 2,909
Other..................................................... 12 --
------- --------
Provision (benefit) for income taxes........................ $ (205) $ --
======= ========
F-23
55
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of the assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the deferred taxes are as follows at December 31, 1998 and 1999
(in thousands):
1998 1999
------- -------
Deferred tax liability:
Assembled workforce....................................... $(1,212) $ (808)
Depreciation.............................................. -- (467)
Cash to accrual adjustment................................ -- (392)
------- -------
Total deferred tax liability........................... (1,212) (1,667)
------- -------
Deferred tax asset:
Net operating loss carryforwards.......................... 1,905 7,084
Bad debt reserve.......................................... -- 475
Inventory reserve......................................... -- 100
Deferred compensation..................................... -- 224
Other..................................................... 368 293
------- -------
Deferred tax assets......................................... 2,273 8,176
Valuation allowance......................................... (2,273) (7,097)
------- -------
-- 1,079
------- -------
Net deferred tax liability.................................. $(1,212) $ (588)
======= =======
The Company has recorded a valuation allowance for the full amount of
deferred tax assets in light of its history of operating losses since its
inception. When recognized, $288,000 of the valuation allowance will reduce
goodwill. The remaining balance may be available to offset future tax expense.
The net change in the valuation allowance for deferred tax assets was an
increase of approximately $4.8 million resulting primarily from an increase in
net operating losses.
The Company has U.S. net operating losses carryforward of $8.7 million
which begins to expire in 2012. Certain Company ownership changes can
significantly limit the utilization of net operating loss carryforwards in the
period following the ownership change. The Company has not determined whether
such changes have occurred and the effect such changes could have on its ability
to carry forward all or some of the U.S. net operating losses.
The Company has non-capital losses carried forward for Canadian income tax
purposes of $10.6 million. These losses expire beginning in 2001.
12. RELATED PARTY TRANSACTIONS
On August 1, 1999, the Company loaned $2.0 million to an officer of the
Company that was used to purchase 232,829 shares of common stock (see Note 10).
During the year ended December 31, 1999, management of the Company
participated in the 8% senior subordinated convertible promissory note offering
by purchasing notes totaling $433,000 (see Note 9).
F-24
56
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During the year ended December 31, 1999, the Company provided services and
products of $78,000 to Jaws Technologies Inc., an entity of which a Director was
also a Director of the Company. An amount of $57,000 is owing from Jaws
Technologies Inc. at December 31, 1999. In addition, the Company obtained
services from Jaws Technologies Inc. in the amount of $12,000. At December 31,
1999, $2,000 remains owing by the Company.
During the year ended December 31, 1998, the Company provided services and
products of $40,000 to Jaws Technologies Inc. An amount of $37,000 was owing
from Jaws Technologies Inc. at December 31, 1998.
During the year ended December 31, 1999, the Company provided services and
products of $550,000 to Willson Stationers Ltd. and e-Supplies Inc., related
entities of which a previous Director was also a Director of these companies. At
December 31, 1999, $543,000 remained due from these entities. An allowance for
doubtful accounts has been recorded for the entire amount due to the uncertainty
of collection.
During the year ended December 31, 1998, the Company provided services and
products of $64,000 to Willson Stationers Ltd. At December 31, 1998, an amount
of $59,000 was owing from Willson Stationers Ltd. In addition, the Company
obtained $21,000 of products from Willson Stationers Ltd. during the period. At
December 31, 1999, $25,000 remains due to this entity.
During 1998, two of the Company's stockholders advanced the Company
$289,000. In addition, one of the Company's stockholders advanced the Company an
additional $17,000 which was outstanding at December 31, 1998. These amounts
were repaid during 1999.
13. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
The Company has various leases for office premises which expire on various
dates through 2004. The future minimum lease payments at December 31, 1999 under
operating leases are as follows (in thousands):
2000........................................................ $1,515
2001........................................................ 1,081
2002........................................................ 399
2003........................................................ 165
2004........................................................ 71
------
Total future minimum lease payments......................... $3,231
======
Rent expense was $118,000 and $937,000 for the years ended December 31,
1998 and 1999, respectively.
CONTINGENCIES
From time to time the Company is a defendant or plaintiff in litigation
arising in the ordinary course of business. To date, other than litigation
SmallCaps OnLine Group LLC brought and the subsequent settlement of that action,
no litigation has had a material effect on the Company and, the Company is not a
party to any material litigation except as described below.
In the past, persons formerly associated with the Company, which may
include one or more of our former executive officers or directors, may have
engaged in activities as part of an effort to profit from unlawful trading
activity in our stock. As a result, the Company may be subject to civil or
criminal actions, fines or penalties. If any proceedings are commenced against
the Company, the Company will need to spend significant money and management
time in the Company's defense. If a court determined
F-25
57
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
that the Company participated in these activities, the Company could be liable
for damages or penalties that would have a material adverse effect on the
Company's financial condition and results of operation.
SmallCaps OnLine Group LLC, previously known as Bridge Technology Group
LLC, sued the Company on January 12, 2000 in the New York County Supreme Court
to recover fees the Company allegedly owed for advisory and investor relations
services. SmallCaps' complaint requested compensation for fees totaling $5.1
million, as well as warrants to purchase an aggregate of 3,289,689 shares of
common stock at exercise prices ranging from $1.00 to $8.50 per share. The total
value of the damages SmallCaps claimed was $110.0 million. On February 11, 2000,
the Company settled SmallCaps' complaint by agreeing to pay SmallCaps $5.0
million on or before March 14, 2000, and to issue to SmallCaps warrants to
purchase an aggregate of 3,000,000 shares of our common stock at exercise prices
ranging from $8.50 to $22.50 per share, subject to anti-dilution protection.
Since the issuance of these warrants, their exercise prices have been adjusted
and now range from $8.33 to $22.05 per share and these warrants currently
entitle the holder to acquire 3,061,379 shares of our common stock. The Company
issued the warrants to SmallCaps on March 1, 2000 and paid SmallCaps the $5.0
million on March 14, 2000. The total value of the settlement on February 11,
2000 was $65.0 million which has been recorded in the accompanying consolidated
balance sheets as a charge to paid-in capital.
On November 6, 1998, the Company's former Chief Executive Officer and a
director, Mr. Cameron Chell, entered into a Settlement Agreement with The
Alberta Stock Exchange to resolve a pending investigation into Mr. Chell's
alleged breaches of Alberta Stock Exchange rules and by-laws. As part of the
Settlement Agreement, Mr. Chell acknowledged that he had breached certain duties
of supervision, disclosure, or compliance relating to various offers and sales
of securities, and Mr. Chell was prohibited from receiving Alberta Stock
Exchange approval in any capacity for a five year period, subjected to a
CDN$25,000 fine and a three year period of enhanced supervision. The Company
cannot be certain that the Settlement Agreement with the Alberta Stock Exchange
ends all proceedings with regard to these matters.
On January 20, 2000, the Company commenced a proceeding in Canada against
Mr. Chell, various other former employees of and consultants to the Company and
various other defendants alleging that these defendants misappropriated a
corporate opportunity in breach of fiduciary and contractual obligations. Most
of these defendants made counterclaims seeking, among other things, damages for
interference with their economic interests and for severance compensation in the
form of cash and stock options. The Company entered into a settlement agreement
with the defendants effective April 26, 2000 that has the following key terms:
- Mr. Chell will be entitled to exercise options to acquire 175,000 shares
of common stock that were scheduled to vest June 1, 2000,
- Mr. Chell or his nominee shall pay to us $400,000 in settlement of a
related party debt that involved Mr. Chell, and
- All other claims have been dropped by all parties, who have provided
mutual releases, with the claim and counterclaims to be discontinued.
On January 7, 2000, Tony Bryson, an individual who had previously been
employed by the Company, filed a lawsuit against the Company seeking $180,000
for the value of lost stock options, salary and benefits the Company allegedly
promised him, and other damages he allegedly sustained as a result of alleged
actions by the Company. This lawsuit has been filed under Canadian law. Canadian
law provides for severance pay to any employee of the Company Canadian
operations in an amount that is appropriate based on, among other things, the
nature of the position held by the employee and the length of time the employee
worked for the company, unless the employer can establish that the termination
was for just
F-26
58
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
cause. The exact amount of severance pay is often disputed between employers and
employees in Canada. Accordingly, there is a risk that in addition to this
lawsuit, one or more other former employees will make claims for cash severance
pay as well as options.
On January 26, 2000, Michael Chan filed a suit in the Court of Queen's
Bench of Alberta, Judicial District of Calgary alleging that FutureLink Alberta
breached its contract to deliver him options to purchase 250,000 shares of
FutureLink Alberta at $1.00 per share. Mr. Chan seeks 50,000 shares of common
stock or, alternatively, damages of approximately $1.5 million in cash, general
damages of approximately $200,000 and punitive damages of approximately
$200,000. We have filed a statement of defense in this action refuting Mr.
Chan's claims.
Under certain California State regulatory requirements, the Company was to
offer a rescission of certain options granted to California employees. The
Company applied for and has received an order from the State of California
approving the proposed terms of the rescission offer. The rescission offer was
made with respect to 1,240,500 options at an exercise price of $8.50, and 40,000
shares issued in relation to other options exercised to date which offer will
remain open subsequent to December 31, 1999. In light of market prices for the
Company's common stock recently being significantly in excess of the exercise
price, the Company received rescission notices from only three option holders in
January 2000 for a total of 29,000 options. The Company paid $31,800 plus
interest to these option holders in exchange for cancellation of their options
under the rescission offer.
A claim has been filed against the Company in the amount of approximately
$340,000 plus costs for damages from alleged Company misrepresentations and
interference with contractual relations regarding a sale transaction between two
third parties involving shares of the Company's common stock. The Company has
entered into an indemnity agreement with a former principal of the Company
whereby the former principal defends this action on behalf of the Company, bears
the costs of legal counsel and agrees to indemnify the Company for any losses.
Management believes the claim is without merit.
A claim has been filed against the Company's subsidiary, FutureLink Alberta
in the amount of $194,000 plus costs for damages and loss of rent related to a
purported lease agreement with respect to a building in Calgary, Alberta,
Canada. The Company is counter claiming an amount of approximately $266,000
against the claimant. The plaintiff has now leased the premises in question to a
third party, thereby mitigating its alleged losses. However, it is impossible at
this time for the Company to predict with any certainty the outcome of such
litigation. Management believes the claim is without merit and will defend the
Company's position vigorously.
A claim was filed against the Company's subsidiary, SysGold (now merged
into FutureLink Alberta) by TAP Consulting Ltd. in the amount of approximately
$102,000 for damages and loss of compensation relating to services provided to
the Company. Management believes the claim is without merit. An indemnity
agreement has been obtained from the previous stockholders of SysGold.
The Company is currently aware of other former employees and consultants
who may make claims against the Company that represent, in the aggregate, $1.5
million in damages which includes approximately 95,000 stock options and
monetary damages. At this time, management is unable to determine an amount, if
any, it may ultimately be required to pay to settle these issues.
The Company's pending lawsuits involve complex questions of fact and law
and could require the expenditure of significant costs and diversion of
resources to defend. Although management believes the outcome of the Company's
outstanding legal proceedings, claims and litigation will not have a material
adverse effect on the Company's business, results of operations or financial
position, the results of litigation are inherently uncertain. The Company is
unable to make an estimate of the range of possible loss from outstanding
litigation, except as noted, and no amounts have been provided for such matters
in the consolidated financial statements.
F-27
59
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. SEGMENT INFORMATION
The Company's activities are conducted in one operating segment with all
activities relating to the sales and support of information technology
solutions. These activities for all of 1998 and virtually all of 1999 were
carried out in two geographic segments, Canada and the United States. On
December 22, 1999, the Company acquired KNS which is located in the United
Kingdom.
DECEMBER 31, 1998
----------------------------------------
CANADA U.S. EUROPE TOTAL
------ -------- ------ --------
Revenue..................................... $2,437 $ -- $ -- $ 2,437
Long-lived assets........................... $8,966 $ 3 $ -- $ 8,969
DECEMBER 31, 1999
----------------------------------------
CANADA U.S. EUROPE TOTAL
------ -------- ------ --------
Revenue..................................... $7,178 $ 6,215 $207 $ 13,600
Long-lived assets........................... $9,556 $187,560 $722 $197,838
Long-lived assets consist of property and equipment, goodwill, and
assembled workforce.
15. 401(k) PLAN
The Company assumed several 401(k) plans in connection with the
acquisitions in 1999. Pursuant to these plans, employees may elect to reduce
their current compensation by up to the statutorily prescribed annual limit and
to have the amount of such reduction contributed to these plans. These plans
permit the Company, but do not require, additional matching contributions to
these plans on behalf of all participants in these plans. Through December 31,
1999, the Company has not made any contributions to these plans.
16. SUBSEQUENT EVENTS
On January 31, 2000, the Company completed the acquisition of Vertical
Software, Inc. and on February 29, 2000 the Madison Technology Group of
Companies for an aggregate purchase price of $85.1 million consisting of cash of
$14.6 million, a promissory note of $7.3 million due July 2000; and 3,001,486
shares of common stock valued at $63.2 million. The acquisitions will be
accounted for by the purchase method, and the estimated excess purchase price
over the estimated fair value of net assets acquired of $82.9 million will be
allocated to goodwill and amortized over five years.
On February 11 and February 29, 2000, warrant holders exercised their
rights to acquire 2,401,041 shares of common stock at an effective price of
$7.50 per share for aggregate net proceeds to the Company of $18.0 million. The
warrants had an adjusted (for anti-dilution) exercise price of $8.40 per share
and the holders of these warrants effectively paid $7.50 per share after
adjustment for a warrant exercise fee of $0.90 for each warrant exercised.
On April 28, 2000, the Company completed a private placement of
approximately $15 million of common equity with institutional private equity
investors. As part of this private placement, the Company issued to the
investors 1,764,704 shares of common stock and warrants to purchase 441,176
shares of common stock at $9.25 per share.
From January 1, 2000 through April 29, 2000, certain note holders of
convertible debt converted $796,000 of debt into 865,568 shares of common stock
in accordance with the terms contained in the convertible debt agreements.
On May 26, 2000, Glen Holmes, the Company's President and Chief Operating
Officer and one of its directors, granted to the Company an option to purchase
600,000 shares of the Company's common stock
F-28
60
FUTURELINK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
at $5.50 per share, the fair market value at the date of grant. The Company may
only exercise this option to the extent employees to whom the Company granted
reciprocal options exercise those options. On the same date, Mr. Holmes also
granted to two of the Company's employees options to purchase 2,400,000 shares
of the Company's common stock at $5.50 per share, the fair market value at the
date of grant. The options were granted covering shares personally owned by Mr.
Holmes to employees who were formerly employed at Executive LAN Management, Inc.
On June 19, 2000 the Company acquired Charon Systems Inc. for $0.7 million
in cash, a note payable in the amount of $4.3 million due the earlier of
December 31, 2000, or the completion of a placement of equity securities by the
Company in excess of $50 million, and exchangeable shares convertible into
2,199,973 shares of common stock.
On June 29, 2000, the Company entered into a definitive agreement with
Microsoft Corporation pursuant to which Microsoft will purchase 1,428,571 shares
of FutureLink Series A preferred stock, for a price of $7.00 per share. We will
also issue to Microsoft a warrant with a five-year term to purchase up to an
additional 1,142,857 shares of preferred stock at an exercise price of $7.00 per
share. The preferred stock will provide for the voluntary and, under certain
circumstances, mandatory conversion of the preferred stock into shares of common
stock on a one-for-one basis, subject to anti-dilution adjustments. In addition,
Microsoft will have the right to nominate one director for election to
FutureLink's Board of Directors. The Company expects to consummate the sale of
the preferred stock to Microsoft in July 2000.
F-29
61
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following Unaudited Pro Forma Condensed Consolidated Statement of
Operations (the "Pro Forma Statement of Operations") for the year ended December
31, 1999 and the nine months ended September 30, 2000 gives effect to our
completed acquisitions as if each had occurred as of January 1, 1999.
The Pro Forma Balance Sheet gives effect to the following as if each had
occurred as of September 30, 2000:
- Receipt of $4.4 million borrowed from a financial institution pursuant to
a new credit facility in November 2000; and
- Repayment of $4.4 million of outstanding indebtedness under our prior
credit facility which allowed for borrowings of up to $10 million in
November 2000.
The Pro Forma Condensed Consolidated Balance Sheet does not give effect to
the proceeds to us which would result from the exercise of common stock warrants
or the Series A preferred stock warrants relating to this prospectus.
Pro forma adjustments are described in the accompanying Notes to Unaudited
Pro Forma Condensed Consolidated Financial Information.
The Unaudited Pro Forma Condensed Consolidated Statement of Operations does
not necessarily indicate the actual results of operations that we would have
reported if the events described above had occurred as of January 1, 1999, nor
does it necessarily indicate the results of our future operations. Furthermore,
the pro forma results do not give effect to any cost savings or incremental
costs that may occur as a result of the integration and consolidation of our
completed acquisitions. In the opinion of management, we have made all
adjustments necessary to fairly present this pro forma financial information.
We have accounted for all of our acquisitions using the purchase method of
accounting.
The Unaudited Pro Forma Financial Information should be read with the
related notes, the financial statements and the notes to financial statements
for us and our completed acquisitions incorporated by reference into or included
elsewhere in this prospectus, and the other documents incorporated by reference
into this prospectus.
F-30
62
FUTURELINK CORP.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000
(DOLLARS IN THOUSANDS)
PRO FORMA
FUTURELINK CORP. ADJUSTMENTS PRO FORMA
---------------- ------------ ---------
ASSETS
Cash and cash equivalents.......................... $ 21,877 $ --(A) $ 21,877
Restricted cash.................................... 562 562
Accounts receivable, net........................... 25,309
Inventory.......................................... 5,018
Prepaid expenses and other current assets.......... 2,791 2,791
-------- -------- --------
Total current assets..................... 55,557 55,557
Property and equipment, net........................ 29,108 29,108
Goodwill and other intangibles..................... 254,112 254,112
Other long-term assets............................. 950 950
-------- -------- --------
Total assets............................. $339,727 $ -- $339,727
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Line of credit..................................... $ 5,464 $ --(B) $ 5,424
Accounts payable and accrued liabilities........... 28,417 28,417
Current portion of long-term debt.................. 6,875 6,875
Deferred revenue................................... 1,380 1,380
-------- -------- --------
Total current liabilities................ 42,136 42,136
Long-term debt, net of current of portion.......... 11,764 11,764
Convertible debentures, net........................ -- --
Deferred taxes..................................... 588 588
Stockholders' equity............................... 285,239 285,239
-------- -------- --------
Total liabilities and stockholders'
equity................................. $339,727 $ -- $339,727
======== ======== ========
F-31
63
FUTURELINK CORP.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
COMPLETED ACQUISITIONS(1)
-------------------------------------------------
MADISON
FUTURELINK VERTICAL GROUP CHARON PRO FORMA
CORP. SOFTWARE, INC. HOLDINGS(2) SYSTEMS INC.(3) ADJUSTMENTS PRO FORMA
----------- -------------- ----------- ---------------- ----------- -----------
Revenue:
Hardware and software........ $ 66,043 $ 588 $ 2,294 $ 5,515 $ -- $ 74,440
Service delivery............. 25,321 471 1,160 2,405 -- 29,357
----------- -------- -------- ---------- ---------- -----------
91,364 1,059 3,454 7,920 -- 103,797
Operating expenses:
Cost of hardware and
software................... 55,009 453 1,573 4,329 -- 61,364
Cost of service delivery..... 17,546 19 240 2,054 -- 19,859
Selling, general and
administrative............. 51,428 218 2,003 1,686 -- 55,335
Depreciation and amortization
of goodwill and other
intangible assets.......... 47,464 4 20 127 4,719(A) 52,334
----------- -------- -------- ---------- ---------- -----------
Income (loss) from
operations................... (80,083) 365 (382) (276) (4,719) (85,095)
Interest expense, net.......... 1,356 1 -- 11 -- 1,368
----------- -------- -------- ---------- ---------- -----------
Income (loss) before provision
for income taxes............. (81,439) 364 (382) (287) (4,719) (86,463)
Provision for income taxes..... 27 -- -- 7 -- 34
----------- -------- -------- ---------- ---------- -----------
Income (loss) from continuing
operations................... $ (81,466) $ 364 $ (382) $ (294) $ (4,719) $ (86,497)
=========== ======== ======== ========== ========== ===========
Income (loss) from continuing
operations before preferred
stock dividends.............. $ (81,466) $ 364 $ (382) $ (294) $ (4,719) $ (86,497)
Dividends for Series A
preferred stock.............. (437) -- -- -- -- (437)
----------- -------- -------- ---------- ---------- -----------
Net loss applicable to common
stock........................ $ (81,903) $ 364 $ (382) $ (294) $ (4,719) $ (86,934)
=========== ======== ======== ========== ========== ===========
Loss per common share from
continuing operations --basic
and diluted.................. $ (1.32) $ (1.24)
=========== ===========
Weighted average shares........ 62,054,083 116,116 432,519 1,372,971 6,084,141 70,059,830
=========== ======== ======== ========== ========== ===========
- -------------------------
(1) Balances represent the statements of operations from January 1, 2000 to date
of acquisition.
(2) Reflects a combination of MicroLAN Systems, Inc. "DBA" Madison Technology
Group, Madison Consulting Resources, Inc. and Madison Consulting Resources
NJ, Inc. All material intercompany transactions have been eliminated.
(3) The functional currency of Charon Systems Inc. is the Canadian Dollar.
Accordingly, we have translated the assets and liabilities into U.S. dollars
at an exchange rate of CDN $1.4741 per US $1.00, the average exchange rate
in effect for the nine months ended September 30, 2000.
F-32
64
FUTURELINK CORP.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
COMPLETED ACQUISITIONS(1)
------------------------------------------------------------------
EXECUTIVE
LAN CN ASYNC KNS
FUTURELINK MANAGEMENT, NETWORKS, TECHNOLOGIES, HOLDINGS
CORP. INC. INC. INC. LIMITED(2)
----------- ----------- --------- ------------- ----------
Revenue:
Hardware and software................ $ 6,748 $ 11,204 $ 5,706 $ 6,540 $ 19,082
Service delivery..................... 6,852 6,181 1,233 1,232 --
---------- --------- ------- --------- ---------
13,600 17,385 6,939 7,772 19,082
Operating expenses:
Cost of hardware and software........ 7,013 9,576 4,446 4,884 15,560
Cost of service delivery............. 10,527 1,720 414 696 --
Selling, general and
administrative..................... 12,611 6,913 1,946 1,477 2,686
Depreciation and amortization of
goodwill and other intangible
assets............................. 6,690 84 -- 35 --
---------- --------- ------- --------- ---------
Income (loss) from operations......... (23,241) (908) 133 680 836
Interest expense, net(5).............. 11,658 12 35 36 --
---------- --------- ------- --------- ---------
Income (loss) before provision for
income taxes......................... (34,899) (920) 98 644 836
Provision for income taxes............ -- -- 27 -- --
---------- --------- ------- --------- ---------
Income (loss) from continuing
operations........................... $ (34,899) $ (920) $ 71 $ 644 $ 836
========== ========= ======= ========= =========
Loss per share from continuing
operations -- basic and diluted...... $ (2.44)
Weighted average shares(6)............ 14,279,647 6,623,077 999,998 1,585,715 2,106,893
COMPLETED ACQUISITIONS(1)
------------------------------------
VERTICAL MADISON CHARON
SOFTWARE, GROUP SYSTEMS PRO FORMA
INC. HOLDINGS(3) INC.(4) ADJUSTMENTS PRO FORMA
---------- ----------- --------- ----------- ----------
Revenue:
Hardware and software................ $ 8,357 $ 10,133 $ 9,807 $ -- $ 77,577
Service delivery..................... 4,761 13,454 3,669 -- 37,382
--------- --------- --------- ---------- ----------
13,118 23,587 13,476 -- 114,959
Operating expenses:
Cost of hardware and software........ 6,657 8,277 8,353 -- 64,766
Cost of service delivery............. 316 8,957 2,163 -- 24,793
Selling, general and
administrative..................... 4,822 6,166 2,669 -- 39,290
Depreciation and amortization of
goodwill and other intangible
assets............................. 50 -- 41 56,977(C) 63,877
--------- --------- --------- ---------- ----------
Income (loss) from operations......... 1,273 187 250 (56,977) (77,767)
Interest expense, net(5).............. 3 131 5 -- 11,880
--------- --------- --------- ---------- ----------
Income (loss) before provision for
income taxes......................... 1,270 56 245 (56,977) (89,647)
Provision for income taxes............ -- 19 80 -- 126
--------- --------- --------- ---------- ----------
Income (loss) from continuing
operations........................... $ 1,270 $ 37 $ 165 $ (56,977) $ (89,773)
========= ========= ========= ========== ==========
Loss per share from continuing
operations -- basic and diluted...... $ (2.12)
==========
Weighted average shares(6)............ 1,026,316 1,975,170 2,199,973 11,510,570 42,307,351
==========
- -------------------------
(1) For acquisitions completed prior to December 31, 1999, the amounts represent
the statements of operations from January 1, 1999 to the date of
acquisition.
(2) The functional currency of KNS Holdings Limited is the United Kingdom Pound
Sterling. Accordingly, we have translated the revenue and expenses into U.S.
dollars at an exchange rate of L0.6189 per U.S. $1.00, the average exchange
rate during the period translated.
(3) The Statement of Operations for Madison Group Holdings reflects a
combination of MicroLAN Systems, Inc., doing business as Madison Technology
Group, Madison Consulting Resources, Inc., and Madison Consulting Resources
NJ, Inc. All material intercompany transactions have been eliminated.
(4) The functional currency of Charon Systems Inc. is the Canadian Dollar.
Accordingly, we have translated the revenue and expenses into U.S. dollars
at an exchange rate of CDN $1.4854 per U.S. $1.00, the average exchange rate
in effect for the year ended December 31, 1999.
(5) Interest expense includes amortization of deferred financing fees and debt
discount.
(6) The weighted average number of shares outstanding and the loss per share
have been adjusted to reflect a 5 for 1 reverse stock split on June 1, 1999.
F-33
65
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL INFORMATION
BALANCE SHEETS
The accompanying Pro Forma Balance Sheet as of September 30, 2000 reflects
the following pro forma adjustments:
(A) Pro forma adjustments to assets consist of the following (in millions):
ASSETS
------
Capital Financing Adjustments:
Receipt of funds from new credit facility, net of
expenses............................................... $4.4
----
Total capital financing adjustments............... 4.4
----
Use of Proceeds Adjustments:
Cash paid for repayment of bank debt...................... 4.4
----
Total use of proceeds adjustment.................. 4.4
----
Total pro forma adjustments....................... $ --
====
(B) Pro forma adjustments to liabilities and stockholders' equity consist of the
following (in millions):
CURRENT STOCKHOLDERS'
LIABILITIES EQUITY
----------- -------------
Use of Proceeds Adjustments:
Repayment of bank debt.................................... $(4.4) $ --
----- -----
Total use of proceeds adjustments................. (4.4) --
----- -----
Capital Financing Adjustments:
Record receipt of funds from new credit facility.......... 4.4
----- -----
Total capital financing adjustments............... 4.4
----- -----
Total pro forma adjustments....................... $ (--) $
===== =====
STATEMENT OF OPERATIONS
The accompanying Pro Forma Statement of Operations reflects the following
pro forma adjustments (in millions):
DECEMBER 31, 1999 SEPTEMBER 30, 2000
EXPENSES EXPENSES
----------------- ------------------
(C) To adjust goodwill amortization based on an
amortization rate of five years for the 12 months ended
December 31, 1999 and nine months ended September 30,
2000 for completed acquisitions........................ $57.0 $4.7
F-34
66
PRO FORMA AVERAGE SHARES
The weighted average number of shares outstanding has been adjusted to give
effect to the shares issued upon the acquisitions of Vertical Software, Inc.,
Madison Group Holdings and Charon Systems Inc. as though the shares had been
outstanding from the beginning of the period. The weighted average number of
shares outstanding has also been adjusted for the exercise of warrants related
to the October 1999 Pequot private placement and the April 2000 Pequot private
placement as though the shares had been outstanding from the beginning of the
period or the date of issuance, if later. The weighted average number of shares
outstanding includes all contingent share consideration as if all performance
criteria had been met. The weighted average shares -- basic and diluted, has
been calculated as follows:
NUMBER OF SHARES
NUMBER OF SHARES FOR NINE MONTHS
FOR YEAR ENDED ENDED
DECEMBER 31, 1999 SEPTEMBER 30, 2000
----------------- ------------------
FutureLink......................................... 14,279,647 62,054,083
Executive LAN Management, Inc...................... 6,623,077 --
CN Networks, Inc. ................................. 999,998 --
Async Technologies, Inc. .......................... 1,585,715 --
KNS Holdings Limited............................... 2,106,893 --
Vertical Software, Inc. ........................... 1,026,316 116,116
Madison Group Holdings............................. 1,975,170 432,519
Warrant exercises.................................. 2,545,783 572,014
April 2000 Pequot private placement................ 1,764,704 766,422
Conversion convertible debt........................ 950,083 468,332
Charon Systems Inc................................. 2,199,965(1) 1,372,971(1)
Public offering.................................... 6,250,000 4,277,373
---------- ----------
Total.................................... 42,307,351 70,059,830
========== ==========
- -------------------------
(1) Represents common shares of FutureLink Canada Corp., one of our Canadian
subsidiaries. These shares were issued in connection with our acquisition of
Charon Systems Inc. and are exchangeable for shares of our common stock.
F-35
67
- ------------------------------------------------------
- ------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT
OR ADDITIONAL INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT
SEEKING AN OFFER TO BUY SHARES OF OUR COMMON STOCK IN ANY JURISDICTION WHERE THE
OFFER OR SALE IS NOT PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS
CORRECT ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF THE
DELIVERY OF THIS PROSPECTUS OR ANY SALE OF OUR COMMON STOCK.
-------------------------
TABLE OF CONTENTS
-------------------------
PAGE
----
The Company........................... 2
Risk Factors.......................... 3
Forward-Looking Statements............ 8
Use of Proceeds....................... 8
Selling Stockholders.................. 9
Plan of Distribution.................. 24
Shares Eligible for Future Sale....... 26
Legal Matters......................... 28
Experts............................... 28
Incorporation of Certain Documents by
Reference........................... 29
Where You Can Find More Information... 30
Index to Financial Statements......... F-1
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
[FUTURELINK LOGO]
60,830,378 SHARES
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
February , 2001
- ------------------------------------------------------
- ------------------------------------------------------
68
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
SEC registration fee........................................ $ 15,611
Attorneys' fees and expenses................................ 160,000
Accountants' fees and expenses.............................. 30,000
Printing and engraving fees................................. 75,000
--------
Total............................................. $280,611
========
The amounts set forth above are estimates except for the SEC registration
fee. We will pay substantially all costs and expenses associated with the
registration of the shares of common stock covered by this registration
statement. The selling stockholders will pay all underwriting discounts,
commissions, transfer taxes and other expenses associated with the sale of
common stock by them.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law provides, in summary,
that directors and officers of Delaware corporations are entitled, under certain
circumstances, to be indemnified against all expenses and liabilities, including
attorneys' fees, incurred by them as a result of suits brought against them in
their capacity as a director or officer, if they acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests of
the Company, and, with respect to any criminal action or proceeding, if they had
no reasonable cause to believe their conduct was unlawful; provided that no
indemnification may be made against expenses in respect of any claim, issue or
matter as to which they shall have been adjudged to be liable to the Company,
unless and only to the extent that the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, they are fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper. Any such indemnification may be made by the Company only as authorized
in each specific case upon a determination by the shareholders or disinterested
directors that indemnification is proper because the indemnitee has met the
applicable standard of conduct.
The Company's Certificate of Incorporation provides that to the fullest
extent permitted by the laws of the State of Delaware, as the same may be
amended from time to time, a director of the Company shall not be personally
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director.
The Certificate of Incorporation and By-Laws provide for indemnification of
its directors and officers to the fullest extent permitted by Delaware law, as
the same may be amended from time to time.
In addition, the Company maintains liability insurance for its directors
and officers.
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ITEM 16. EXHIBITS.
(a) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.1** Share Purchase Agreement dated August 4, 1998 between
FutureLink Distribution Corp., a Colorado corporation,
Donald A. Bialik, Olivia B. Bialik, Bialik Family Trust,
Riverview Management Corporation, SysGold Ltd., and
FutureLink Distribution Corp., an Alberta corporation,
previously filed with the Commission on August 24, 1998 as
Exhibit 4.1.2 to the Company's Registration Statement on
Form SB-2, Registration No. 333-62133, which is incorporated
herein by reference.
2.2** Targetco Acquisition Agreement dated August 3, 1998 between
FutureLink Distribution Corp., a Colorado corporation, and
FutureLink Alberta, previously filed with the Commission on
August 24, 1998 as Exhibit 4.1.3 to the Company's
Registration Statement on Form SB-2, Registration No.
333-62133, which is incorporated herein by reference.
2.3** Amending Agreement to Share Purchase Agreement dated August
21, 1998 between FutureLink Distribution Corp., a Colorado
corporation, Donald A. Bialik, Olivia B. Bialik, Bialik
Family Trust, Riverview Management Corporation, SysGold
Ltd., and FutureLink Alberta, previously filed with the
Commission on November 24, 1998 as Exhibit 2.1 to Amendment
No. 2 to the Company's Registration Statement on Form SB-2,
Registration No. 333-62133, which is incorporated herein by
reference.
2.4** Agreement and Plan of Reorganization and Merger dated June
2, 1999 between FutureLink Distribution Corp., FutureLink
California Acquisition Corp., Executive LAN Management,
Inc., dba Micro Visions, and the selling shareholders of
Micro Visions, previously filed with the Commission as
Exhibit 10.1 to the Company's Current Report on Form 8-K, on
June 16, 1999, which is incorporated herein by reference.
2.5** Agreement and Plan of Merger dated August 1, 1999 between
FutureLink Distribution Corp. and FutureLink California
Acquisition Corporation, a Delaware corporation, previously
filed with the Commission on October 27, 1999 as Exhibit 2.1
to the Company's Current Report on Form 8-K, which is
incorporated herein by reference.
2.6** Agreement and Plan of Reorganization and Merger dated
September 7, 1999 between FutureLink Distribution Corp.,
FutureLink Pleasanton Acquisition Corp., CN Networks, Inc.,
and the selling shareholders of CN Networks, Inc.,
previously filed with the Commission on November 23, 1999 as
Exhibit 2.1 to the Company's Current Report on Form 8-K,
which is incorporated herein by reference.
2.7** Agreement and Plan of Reorganization and Merger dated
September 7, 1999 between FutureLink Distribution Corp.,
FutureLink Michigan Acquisition Corp., Async Technologies,
Inc., and the selling shareholders of Async Technologies,
Inc., previously filed with the Commission on December 8,
1999 as Exhibit 2.1 to the Company's Current Report on Form
8-K, which is incorporated herein by reference.
2.8** Certificate of Merger dated October 15, 1999 of FutureLink
Distribution Corp., a Colorado corporation, into FutureLink
California Acquisition Corp., a Delaware corporation,
previously filed with the Commission on October 27, 1999 as
Exhibit 2.2 to the Company's Current Report on Form 8-K,
which is incorporated herein by reference.
2.9** Amending Agreement dated October 15, 1999 to Agreement and
Plan of Reorganization and Merger between FutureLink Corp.,
FutureLink California Acquisition Corp., and the selling
shareholders of Executive LAN Management, Inc., previously
filed with the Commission on October 27, 1999 as Exhibit 2.3
to the Company's Current Report on Form 8-K, which is
incorporated herein by reference.
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EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.10** Amending Agreement dated October 29, 1999 to Agreement and
Plan of Reorganization and Merger, between FutureLink
Distribution Corp., FutureLink Michigan Acquisition Corp.,
Async Technologies, Inc., and the selling shareholders of
Async Technologies, Inc., previously filed with the
Commission on December 27, 1999 as Exhibit 2.2 to the
Company's Current Report on Form 8-K, which is incorporated
herein by reference.
2.11** Amending Agreement dated October 31, 1999 to Agreement and
Plan of Reorganization and Merger between FutureLink Corp.,
FutureLink Pleasanton Acquisition Corp., CN Networks, Inc.
and the selling shareholders of CN Networks, Inc.,
previously filed with the Commission on November 23, 1999 as
Exhibit 2.2 to the Company's Current Report on Form 8-K,
which is incorporated herein by reference.
2.12** Amending Agreement dated November 14, 1999 to Agreement and
Plan of Reorganization and Merger between FutureLink Corp.,
FutureLink Michigan Acquisition Corp., Async Technologies,
Inc., and the selling shareholders of Async Technologies,
Inc., previously filed with the Commission on December 8,
1999 as Exhibit 2.3 to the Company's Current Report on Form
8-K, which is incorporated herein by reference.
2.13** Agreement for the Sale and Purchase of the Entire Issued
Share Capital of KNS Holdings Limited dated November 15,
1999 between FutureLink Corp. and the selling shareholders
of KNS Holdings Limited, previously filed with the
Commission on January 6, 2000 as Exhibit 2.1 to the
Company's Current Report on Form 8-K, which is incorporated
herein by reference.
2.14** Amending Agreement dated November 26, 1999 to Agreement and
Plan of Reorganization and Merger between FutureLink Corp.,
FutureLink Michigan Acquisition Corp., Async Technologies,
Inc., and the selling shareholders of Async Technologies,
Inc., previously filed with the Commission on December 8,
1999 as Exhibit 2.4 to the Company's Current Report on Form
8-K, which is incorporated herein by reference.
2.15** Supplemental Agreement dated December 20, 1999 to Agreement
for Sale and Purchase of the Entire Issued Share Capital of
KNS Holdings Limited, between FutureLink Corp. and the
selling shareholders of KNS Holdings Limited, previously
filed with the Commission on January 6, 2000 as Exhibit 2.2
to the Company's Current Report on Form 8-K, which is
incorporated herein by reference.
2.16** The Agreement and Plan of Reorganization and Merger dated
December 2, 1999 by and among FutureLink Corp., FutureLink
Maryland Acquisition Corp., Vertical Software, Inc., Curtis
Eshelman and James C. Harvey, previously filed with the
Commission on February 14, 2000 as Exhibit 2.1 to the
Company's Current Report on Form 8-K, which is incorporated
herein by reference.
2.17** The Agreement and Plan of Reorganization and Merger dated
February 1, 2000 by and among FutureLink Corp., FutureLink
Delaware Acquisition Corp., MicroLAN Systems Inc., Madison
Consulting Resources Inc., Madison Consulting Resources (NJ)
Inc., Ira Silverman, Richard Silverman, Adam Silverman and
Adam Fox, previously filed with the Commission on May 15,
2000 as Exhibit 2.1 to the Company's Current Report on Form
8-K, which is incorporated herein by reference.
2.18** Acquisition and Amalgamation Agreement dated June 16, 2000
between and among FutureLink Corp., FutureLink Distribution
Corp. 3045207 Nova Scotia Company, 1423280 Ontario Inc.,
1423281 Ontario Inc., Charon Systems Inc., Allan Sherk,
Edward Mathewson, Joe Da Silva, Layne Harris, Jason Yetman,
David Fung, Blair Collins, Arron Fu, Mark Palangio, Ho Wai
Fung, Edward Chi Wai Fung, Malcolm Robins, Dataspec Telecom
Multimedia Inc. and The Charon Employee Trust, previously
filed with the Commission on June 30, 2000 as Exhibit 2.1 to
the Company's Current Report on Form 8-K, which is
incorporated herein by reference.
II-3
71
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1** Amended Certificate of Incorporation of FutureLink Corp.,
previously filed with the Commission on September 28, 2000
as Exhibit 3.1 to the Company's Registration Statement on
Form SB-2, Registration No. 333-46778, which is incorporated
herein by reference.
3.2** Bylaws of FutureLink Corp., previously filed with the
Commission on October 27, 1999 as Exhibit 3.2 to the
Company's Current Report on Form 8-K, which is incorporated
herein by reference.
5.1** Opinion of Paul, Hastings, Janofsky & Walker LLP with
respect to the validity of the securities being offered.
10.1** Stock Option Plan, previously filed with the Commission on
August 24, 1998 as Exhibit 10.1.29 to the Company's
Registration Statement on Form SB-2, Registration No.
333-62133, which is incorporated herein by reference.
10.2** First Amendment to Second Amended and Restated Stock Option
Plan, previously filed with the Commission on February 11,
2000 as Exhibit 10.2 to the Company's Registration Statement
on Form SB-2, Registration No. 333-30178, which is
incorporated herein by reference.
10.3** Second Amendment to Second Amended and Restated Stock Option
Plan, previously filed with the Commission on June 13, 2000
as Exhibit C to the Company's Definitive Proxy Statement
dated, which is incorporated herein by reference.
10.4** Agency Agreement dated April 14, 1999 between FutureLink
Distribution Corp. and Commonwealth, previously filed with
the Commission on May 23, 1999 as Exhibit 10.4 to the
Company's Quarterly Report on Form 10-QSB for the period
ended March 31, 1999, which is incorporated herein by
reference.
10.5** Letter Agreement dated December 6, 1999 between FutureLink
Distribution Corp. and Thomson Kernaghan & Co. Limited,
previously filed with the Commission on February 11, 2000 as
Exhibit 10.4 to the Company's Registration Statement on Form
SB-2, Registration No. 333-30178, which is incorporated
herein by reference.
10.6** Advisory Agreement dated May 1, 1999 between FutureLink
Distribution Corp. and Commonwealth Associates, L.P.,
previously filed with the Commission on June 13, 2000 as
Exhibit 10.6 to the Company's Quarterly Report on Form
10-QSB for the period ended March 31, 1999, which is
incorporated herein by reference.
10.7** Agency Agreement dated July 1, 1999 between FutureLink
Distribution Corp. and Commonwealth Associates, L.P.,
previously filed with the Commission on August 18, 1999 as
Exhibit 10.9 to the Company's Quarterly Report on Form
10-QSB for the period ended June 30, 1999, which is
incorporated herein by reference.
10.8** Loan Agreement dated August 1, 1999 between FutureLink Corp.
and Vincent L. Romano, previously filed with the Commission
on August 18, 1999 as Exhibit 10.10 to the Company's
Quarterly Report on Form 10-QSB for the period ended June
30, 1999, which is incorporated herein by reference.
10.9** First Amendment to Loan Agreement dated November 15, 1999
between FutureLink Corp. and Vincent L. Romano, previously
filed with the Commission on September 28, 2000 as Exhibit
10.9 to the Company's Registration Statement on Form SB-2,
Registration No. 333-46778, which is incorporated herein by
reference.
10.10** Loan Termination Agreement dated June 30, 2000 between
FutureLink Corp. and Vincent L. Romano, previously filed
with the Commission on September 28, 2000 as Exhibit 10.10
to the Company's Registration Statement on Form SB-2,
Registration No. 333-46778, which is incorporated herein by
reference.
10.11** Securities Purchase Agreement dated October 15, 1999 between
FutureLink Corp., Pequot Private Equity Investment Fund II,
L.P. and certain other investors, previously filed with the
Commission on October 27, 1999 as Exhibit 2.4 to the
Company's Current Report on Form 8-K, which is incorporated
herein by reference.
II-4
72
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.12** Amended and Restated Registration Rights Agreement dated
April 28, 2000 between FutureLink Corp., Pequot Private
Investment Fund II, L.P., and certain other investors
(blacklined to the Registration Rights Agreement dated
October 15, 1999 between the parties which was filed as an
Exhibit to the Registration Statement on Form SB-2 filed on
February 11, 2000), previously filed with the Commission on
May 3, 2000 as Exhibit 10.9 to Amendment No. 2 to the
Company's Registration Statement on Form SB-2, Registration
No. 333-30178, which is incorporated herein by reference.
10.13** Securities Purchase Agreement dated April 28, 2000 between
FutureLink Corp., Pequot Private Equity Investment Fund II,
L.P. and Pequot Endowment Fund, L.P., previously filed with
the Commission on May 3, 2000 as Exhibit 10.10 to Amendment
No. 2 to the Company's Registration Statement on Form SB-2,
Registration No. 333-30178, which is incorporated herein by
reference.
10.14** Form of Warrant to Purchase Shares of Common Stock,
previously filed with the Commission on May 3, 2000 as
Exhibit 10.11 to Amendment No. 2 to the Company's
Registration Statement on Form SB-2, Registration No.
333-30178, which is incorporated herein by reference.
10.15** Registration Rights Agreement dated December 6, 1999 between
FutureLink Corp. and CPQ Holdings, Inc., previously filed
with the Commission on February 11, 2000 as Exhibit 10.10 to
the Company's Registration Statement on Form SB-2,
Registration No. 333-30178, which is incorporated herein by
reference.
10.16** Securities Purchase Agreement dated December 6, 1999 between
FutureLink Corp. and CPQ Holdings, Inc., previously filed
with the Commission on February 11, 2000 as Exhibit 10.11 to
the Company's Registration Statement on Form SB-2,
Registration No. 333-30178, which is incorporated herein by
reference.
10.17** Employment Agreement dated June 1, 1999 between Philip R.
Ladouceur and FutureLink Distribution Corp., previously
filed with the Commission on February 11, 2000 as Exhibit
10.12 to the Company's Registration Statement on Form SB-2,
Registration No. 333-30178, which is incorporated herein by
reference.(1)
10.18** Employment Agreement dated September 30, 1999 between Glenn
C. Holmes and FutureLink Corp., previously filed with the
Commission on February 11, 2000 as Exhibit 10.13 to the
Company's Registration Statement on Form SB-2, Registration
No. 333-30178, which is incorporated herein by reference.
10.19** Employment Agreement dated August 1, 1999 between Vincent L.
Romano and FutureLink Corp., previously filed with the
Commission on February 11, 2000 as Exhibit 10.14 to the
Company's Registration Statement on Form SB-2, Registration
No. 333-30178, which is incorporated herein by reference.
10.20** First Amendment to Employment Agreement dated November 15,
2000 between Vincent L. Romano and FutureLink Corp.,
previously filed with the Commission on September 28, 2000
as Exhibit 10.20 to the Company's Registration Statement on
Form SB-2, Registration No. 333-46778, which is incorporated
herein by reference.
10.21** Termination of Employment Agreement dated July 31, 2000
between Vincent L. Romano and FutureLink Corp., previously
filed with the Commission on September 28, 2000 as Exhibit
10.21 to the Company's Registration Statement on Form SB-2,
Registration No. 333-46778, which is incorporated herein by
reference.
10.22** Client/Agency Agreement dated August 7, 1999 between Sicola,
Martin, Koons & Frank, Inc. and FutureLink Distribution
Corp., as revised, previously filed with the Commission on
February 11, 2000 as Exhibit 10.15 to the Company's
Registration Statement on Form SB-2, Registration No.
333-30178, which is incorporated herein by reference.
II-5
73
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.23** Master Loan and Security Agreement dated November 3, 1999
between Transamerica Business Credit Corporation, FutureLink
Corp. and FutureLink Micro Visions Corp., previously filed
with the Commission on February 11, 2000 as Exhibit 10.16 to
the Company's Registration Statement on Form SB-2,
Registration No. 333-30178, which is incorporated herein by
reference.
10.24** Security Agreement dated November 3, 1999 between
Transamerica Business Credit Corporation and FutureLink
Distribution Corp., previously filed with the Commission on
February 11, 2000 as Exhibit 10.17 to the Company's
Registration Statement on Form SB-2, Registration No.
333-30178, which is incorporated herein by reference.
10.25** Master Lease and Financing Agreement dated November 15, 1999
between Compaq Financial Services and FutureLink Corp.,
previously filed with the Commission on February 11, 2000 as
Exhibit 10.18 to the Company's Registration Statement on
Form SB-2, Registration No. 333-30178, which is incorporated
herein by reference.
10.26** Master Lease Agreement dated December 16, 1999 between
EMC(2) and FutureLink Corp., previously filed with the
Commission on February 11, 2000 as Exhibit 10.19 to the
Company's Registration Statement on Form SB-2, Registration
No. 333-30178, which is incorporated herein by reference.
10.27** Revised Offer to Lease dated March 24, 1998 between Bow
Valley Square Management Ltd. and SysGold, Ltd., as amended,
for 250 6th Avenue, Calgary, previously filed with the
Commission on August 24, 1998 as Exhibit 10.18 to the
Company's Registration Statement on Form SB-2, Registration
No. 333-62133, which is incorporated herein by reference.
10.28** Lease Agreement dated September 23, 1999 between Kilroy
Realty, L.P., Kilroy Realty Corporation, and FutureLink
Distribution Corporation for 220 Technology Drive, Irvine
and assignment of Lease Agreement dated October 15, 1999,
previously filed with the Commission on February 11, 2000 as
Exhibit 10.21 to the Company's Registration Statement on
Form SB-2, Registration No. 333-30178, which is incorporated
herein by reference.
10.29** Lease Agreement dated April 27, 2000 between Olen Commercial
Realty Corp. and Futurelink Micro Visions Corporation for 2
South Pointe Dr., Lake Forest, Ca. 92630, previously filed
with the Commission on September 28, 2000 as Exhibit 10.29
to the Company's Registration Statement on Form SB-2,
Registration No. 333-46778, which is incorporated herein by
reference.
10.30** Lease Agreement dated August 8, 2000 between Transwestern
Lexington, LLC and FutureLink Corp. for 360 Lexington
Avenue, New York, previously filed with the Commission on
September 28, 2000 as Exhibit 10.30 to the Company's
Registration Statement on Form SB-2, Registration No.
333-46778, which is incorporated herein by reference.
10.31** Microsoft Certified Solution Provider Agreement dated
January 28, 2000 between Microsoft Corporation and
FutureLink Corp., previously filed with the Commission on
April 14, 2000 as Exhibit 10.22 to Amendment No. 1 to the
Company's Registration Statement on Form SB-2, Registration
No. 333-30178, which is incorporated herein by reference.(2)
10.32** Microsoft Application Services Agreement dated December 23,
1999 between Microsoft Corporation and FutureLink Corp.,
previously filed with the Commission on February 11, 2000 as
Exhibit 10.23 to the Company's Registration Statement on
Form SB-2, Registration No. 333-30178, which is incorporated
herein by reference.(2)
10.33** Final Invoice/Enrollment Contract (MSCP) dated April 28,
1998 between Microsoft Corporation and FutureLink Corp.,
previously filed with the Commission on August 24, 1998 as
Exhibit 10.1.20 to the Company's Registration Statement on
Form SB-2, Registration No. 333-62133, which is incorporated
herein by reference.
10.34** Direct Commercial Service License Agreement dated May 21,
1999 between Microsoft Corporation and FutureLink
Distribution Corp., previously filed with the Commission on
February 11, 2000 as Exhibit 10.25 to the Company's
Registration Statement on Form SB-2, Registration No.
333-30178, which is incorporated herein by reference.(2)
II-6
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EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.35** Service Agreement dated June 1, 1998 between Willson
Stationers Ltd. and FutureLink Alberta, previously filed
with the Commission on August 24, 1998 as Exhibit 10.1.21 to
the Company's Registration Statement on Form SB-2,
Registration No. 333-62133, which is incorporated herein by
reference.
10.36** Solution Provider Contract dated July 27, 1998 between IBM
Canada Ltd. and FutureLink/SysGold Ltd., previously filed
with the Commission on August 24, 1998 as Exhibit 10.1.16 to
the Company's Registration Statement on Form SB-2,
Registration No. 333-62133, which is incorporated herein by
reference.
10.37** Hosting Services Distributor Agreement (version 4) dated
November 12, 1998 between Onyx Software Corp. and FutureLink
Distribution Corp., previously filed with the Commission on
February 11, 2000 as Exhibit 10.28 to the Company's
Registration Statement on Form SB-2, Registration No.
333-30178, which is incorporated herein by reference.
10.38** Onyx Software License Agreement dated August 5, 1998 between
Onyx Software Corp. and FutureLink Distribution Corp.,
previously filed with the Commission on February 11, 2000 as
Exhibit 10.29 to the Company's Registration Statement on
Form SB-2, Registration No. 333-30178, which is incorporated
herein by reference.
10.39** Alliance Partner Agreement dated October 26, 1998 between
Great Plains Software and FutureLink Distribution Corp.,
previously filed with the Commission on February 11, 2000 as
Exhibit 10.30 to the Company's Registration Statement on
Form SB-2, Registration No. 333-30178, which is incorporated
herein by reference.
10.40** Citrix Solutions Network Gold Renewal Membership Agreement
dated July 16, 1999 between Citrix Systems, Inc. and
FutureLink Distribution Corp., previously filed with the
Commission on February 11, 2000 as Exhibit 10.31 to the
Company's Registration Statement on Form SB-2, Registration
No. 333-30178, which is incorporated herein by reference.(2)
10.41** Citrix Solutions Network Platinum Renewal Membership
Agreement dated April 20, 1999 between Citrix Systems, Inc.
and Async Technologies, Inc., previously filed with the
Commission on February 11, 2000 as Exhibit 10.32 to the
Company's Registration Statement on Form SB-2, Registration
No. 333-30178, which is incorporated herein by reference.(2)
10.42** Information Systems Services Agreement dated January 19,
1999 between FutureLink Alberta and Numac Energy, Inc.,
previously filed with the Commission on February 11, 2000 as
Exhibit 10.33 to the Company's Registration Statement on
Form SB-2, Registration No. 333-30178, which is incorporated
herein by reference.
10.43** Information Systems Services Agreement dated July 1, 1999
between Canadian Natural Resources, Ltd. and FutureLink
Alberta, previously filed with the Commission on February
11, 2000 as Exhibit 10.34 to the Company's Registration
Statement on Form SB-2, Registration No. 333-30178, which is
incorporated herein by reference.
10.44** Master Consulting Agreement dated December 1, 1998 between
Ameriquest Mortgage Company and Micro Visions, previously
filed with the Commission on February 11, 2000 as Exhibit
10.36 to the Company's Registration Statement on Form SB-2,
Registration No. 333-30178, which is incorporated herein by
reference.
10.45** Internet Data Center Services Agreement dated May 7, 1999
between Exodus Communications, Inc. and Executive LAN
Management, Inc., previously filed with the Commission on
February 11, 2000 as Exhibit 10.37 to the Company's
Registration Statement on Form SB-2, Registration No.
333-30178, which is incorporated herein by reference.
10.46** Form of EMC(2) Corporation Software License Agreement,
previously filed with the Commission on February 11, 2000 as
Exhibit 10.38 to the Company's Registration Statement on
Form SB-2, Registration No. 333-30178, which is incorporated
herein by reference.
10.47** Securities Purchase Agreement dated June 29, 2000 between
FutureLink Corp. and Microsoft Corporation, previously filed
with the Commission on September 28, 2000 as Exhibit 10.50
to the Company's Registration Statement on Form SB-2,
Registration No. 333-46778, which is incorporated herein by
reference.
II-7
75
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.48** Debenture and Warrant Purchase Agreement dated March 2, 1999
between Augustine Fund, LP and FutureLink Distribution
Corp., previously filed with the Commission on September 28,
2000 as Exhibit 10.51 to the Company's Registration
Statement on Form SB-2, Registration No. 333-46778, which is
incorporated herein by reference.
10.49** Form of Warrant to Purchase Common Stock as issued in
connection with FutureLink Distribution Corp.'s April 1999
private placement, previously filed with the Commission on
September 28, 2000 as Exhibit 10.52 to the Company's
Registration Statement on Form SB-2, Registration No.
333-46778, which is incorporated herein by reference.
10.50** Form of Subscription Agreement between FutureLink
Distribution Corp. and certain investors as executed in
connection with FutureLink Distribution Corp.'s April 1999
private placement, previously filed with the Commission on
September 28, 2000 as Exhibit 10.53 to the Company's
Registration Statement on Form SB-2, Registration No.
333-46778, which is incorporated herein by reference.
10.51** Registration Rights Agreement dated September 8, 1999
between Sicola, Martin, Koons & Frank, Inc. and FutureLink
Distribution Corp., previously filed with the Commission on
September 28, 2000 as Exhibit 10.54 to the Company's
Registration Statement on Form SB-2, Registration No.
333-46778, which is incorporated herein by reference.
10.52** Warrant No. 1 to Purchase Common Stock issued to TBCC
Funding Trust II on November 3, 1999, previously filed with
the Commission on September 28, 2000 as Exhibit 10.55 to the
Company's Registration Statement on Form SB-2, Registration
No. 333-46778, which is incorporated herein by reference.
10.53** Warrant No. 2 to Purchase Common Stock issued to TBCC
Funding Trust II on November 3, 1999, previously filed with
the Commission on September 28, 2000 as Exhibit 10.56 to the
Company's Registration Statement on Form SB-2, Registration
No. 333-46778, which is incorporated herein by reference.
10.54** Registration Rights Agreement dated December 20, 1999
between certain selling shareholders of KNS Holdings Limited
and FutureLink Corp., previously filed with the Commission
on September 28, 2000 as Exhibit 10.57 to the Company's
Registration Statement on Form SB-2, Registration No.
333-46778, which is incorporated herein by reference.
10.55** Amendment No. 1 to Registration Rights Agreement dated June
19, 2000 between certain selling shareholders of KNS
Holdings Limited and FutureLink Corp., previously filed with
the Commission on September 28, 2000 as Exhibit 10.58 to the
Company's Registration Statement on Form SB-2, Registration
No. 333-46778, which is incorporated herein by reference.
10.56** Warrant to Purchase Common Stock issued to TBCC Funding
Trust II on July 11, 2000, previously filed with the
Commission on September 28, 2000 as Exhibit 10.59 to the
Company's Registration Statement on Form SB-2, Registration
No. 333-46778, which is incorporated herein by reference.
10.57** Warrant to Purchase Common Stock issued to EMC Corporation
on December 16, 1999, previously filed with the Commission
on September 28, 2000 as Exhibit 10.60 to the Company's
Registration Statement on Form SB-2, Registration No.
333-46778, which is incorporated herein by reference.
10.58** Warrant to Purchase Common Stock issued to EMC Corporation
on July 28, 2000, previously filed with the Commission on
September 28, 2000 as Exhibit 10.61 to the Company's
Registration Statement on Form SB-2, Registration No.
333-46778, which is incorporated herein by reference.
II-8
76
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.59** Warrant to Purchase Common Stock issued to EMC Corporation
on August 8, 2000, previously filed with the Commission on
September 28, 2000 as Exhibit 10.62 to the Company's
Registration Statement on Form SB-2, Registration No.
333-46778, which is incorporated herein by reference.
10.60** Loan and Security Agreement dated November 16, 2000 by and
among Foothill Capital Corporation, FutureLink Corp. and
certain of its Subsidiaries.
10.61** Amendment Number One to Loan and Security Agreement dated
December 14, 2000 by and among Foothill Capital Corporation,
FutureLink Corp. and certain of its Subsidiaries.
10.62** Warrant Agreement dated November 16, 2000 by and between
FutureLink Corp. and Foothill Capital Corporation.
10.63** Registration Rights Agreement dated November 16, 2000 by and
between FutureLink Corp. and Foothill Capital Corporation.
10.64** Stock Pledge Agreement dated November 16, 2000 by and among
Foothill Capital Corporation, FutureLink Corp. and certain
of its Subsidiaries.
10.65** General Security Agreement dated December 14, 2000 by and
between FutureLink Canada Corp. and Foothill Capital
Corporation.
10.66** Guarantee and Postponement of Claim dated December 14, 2000
by FutureLink Canada Corp. in favor of Foothill Capital
Corporation.
10.67** Share Pledge Agreement dated December 14, 2000 by and among
1423280 Ontario Inc., FutureLink Corp. and Foothill Capital
Corporation.
10.68** General Security Agreement dated December 14, 2000 by and
between 1423280 Ontario Inc. and Foothill Capital
Corporation.
10.69* Guarantee and Postponement of Claim dated December 14, 2000
by 1423280 Ontario Inc. in favor of Foothill Capital
Corporation.
10.70** Share Pledge Agreement dated December 14, 2000 by and among
FutureLink Canada Corp., 1423280 Ontario Inc. and Foothill
Capital Corporation.
10.71* Hypothec on Movable Property (General) dated December 14,
2000 by and between FutureLink Canada Corp. and Foothill
Capital Corporation.
10.72** General Security Agreement dated December 14, 2000 by and
between 3045207 Nova Scotia Company and Foothill Capital
Corporation.
10.73** Guarantee and Postponement of Claim dated December 14, 2000
by 3045207 Nova Scotia Company in favor of Foothill Capital
Corporation.
10.74** Share Pledge Agreement dated December 14, 2000 by and among
3045207 Nova Scotia Company, Foothill Capital Corporation
and 1423280 Ontario Inc.
10.75** Share Pledge Agreement dated December 14, 2000 by and among
FutureLink Corp., Foothill Capital Corporation and 3045207
Nova Scotia Company.
10.76** Loan Agreement dated December 13, 2000 by and between
FutureLink Europe Limited and Foothill Capital Corporation.
10.77** Debenture dated December 14, 2000 by and among Foothill
Capital Corporation, KNS Holdings Limited and FutureLink
Europe Limited.
10.78** General Continuing Guaranty dated December 13, 2000 by
FutureLink Corp. and certain of its Subsidiaries in favor of
Foothill Capital Corporation.
10.79** Share Charge dated December 14, 2000 by and between
FutureLink Corp. and Foothill Capital Corporation.
10.80* Security Agreement dated December 13, 2000 among Foothill
Capital Corporation, FutureLink Corp. and certain of its
Subsidiaries.
10.81* Employment Agreement dated December 4, 2000 between
FutureLink Corp. and Howard E. Taylor.
10.82** Employment Agreement dated January 3, 2000 between
FutureLink Corp. and Richard M. White.
10.83* Howard E. Taylor Year 2000 Stock Option Plan dated December
4, 2000.
II-9
77
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
15.1* Letter of Acknowledgement, Moreland & Davis, Alameda County,
California.
15.2* Letter of Acknowledgement, M. Jevahirian & Co., Birmingham,
Michigan.
21.0** List of Subsidiaries.
23.1** Consent of Paul, Hastings, Janofsky & Walker LLP (included
in Exhibit 5.1).
23.2* Consent of Ernst & Young LLP, Independent Auditors, Orange
County, California.
23.3* Consent of Ernst & Young LLP, Independent Auditors, McLean,
Virginia.
23.4* Consent of Joel E. Sammet & Co., Certified Public
Accountants.
23.5* Consent of Ernst & Young LLP, Independent Auditors, Orange
County, California with respect to the financial statements
of Executive LAN Management, Inc. dba Micro Visions.
23.6* Consent of Moreland & Davis, Alameda County, California.
23.7* Consents of M. Jevahirian and Co., Independent Auditors,
Birmingham, Michigan.
23.8* Consent of Ernst & Young, Independent Auditors, Reading,
England.
24.1** Power of Attorney (included in the signature page of the
initial filing of this Registration Statement on December
19, 2000).
- -------------------------
* Filed herewith.
** Previously filed.
(1) We entered into an employment agreement with Raghu Kilambi on June 1, 1999,
which we amended on October 8, 1999 that is substantially identical in all
material respects to our employment agreement with Mr. Ladouceur, except as
to salary and bonus provisions. Mr. Kilambi's base salary is $180,000 per
year and he is entitled to receive a performance bonus of up to $180,000.
(2) Some of our subsidiaries are parties to agreements with the same party that
are substantially identical in all material respects.
(b) FINANCIAL STATEMENT SCHEDULES.
None required.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in this Registration Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this Registration Statement
or any material change to such information in this Registration
Statement;
II-10
78
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) above do
not apply if the information required to be included in a post-effective
amendment by these paragraphs is contained in periodic reports filed with
or furnished to the Commission by the Registrant pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") that are
incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered herein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the Offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act that is incorporated by reference in this Registration Statement
shall be deemed to be a new registration statement relating to the securities
offered herein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 15 above, or
otherwise, the Registrant has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-11
79
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
its Registration Statement on Form SB-2 on Form S-3 to be signed on its behalf
by the undersigned, thereunto duly authorized, in Lake Forest, California on
February 12, 2001.
FUTURELINK CORP.
By: /s/ HOWARD E. TAYLOR
------------------------------------
Howard E. Taylor
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to its Registration Statement on Form SB-2 on Form S-3 has
been signed below by the following persons in the capacities and on the dates
indicated.
NAME TITLE DATE
---- ----- ----
* Executive Chairman and a Director
- ---------------------------------------------
Philip R. Ladouceur
/s/ HOWARD E. TAYLOR President and Chief Executive February 12, 2001
- --------------------------------------------- Officer (Principal Executive
Howard E. Taylor Officer)
* Executive Vice President, Chief
- --------------------------------------------- Financial Officer (Principal
Richard M. White Financial and Accounting Officer)
* Director
- ---------------------------------------------
Glen C. Holmes
* Director
- ---------------------------------------------
F. Bryson Farrill
* Director
- ---------------------------------------------
Timothy P. Flynn
* Director
- ---------------------------------------------
Michael S. Falk
* Director
- ---------------------------------------------
Gerald A. Poch
* Director
- ---------------------------------------------
James P. McNiel
* Director
- ---------------------------------------------
Marshall S. Geller
*By: /s/ HOWARD E. TAYLOR Attorney-in-fact February 12, 2001
---------------------------------------
Howard E. Taylor
II-12
80
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.1** Share Purchase Agreement dated August 4, 1998 between
FutureLink Distribution Corp., a Colorado corporation,
Donald A. Bialik, Olivia B. Bialik, Bialik Family Trust,
Riverview Management Corporation, SysGold Ltd., and
FutureLink Distribution Corp., an Alberta corporation,
previously filed with the Commission on August 24, 1998 as
Exhibit 4.1.2 to the Company's Registration Statement on
Form SB-2, Registration No. 333-62133, which is incorporated
herein by reference.
2.2** Targetco Acquisition Agreement dated August 3, 1998 between
FutureLink Distribution Corp., a Colorado corporation, and
FutureLink Alberta, previously filed with the Commission on
August 24, 1998 as Exhibit 4.1.3 to the Company's
Registration Statement on Form SB-2, Registration No.
333-62133, which is incorporated herein by reference.
2.3** Amending Agreement to Share Purchase Agreement dated August
21, 1998 between FutureLink Distribution Corp., a Colorado
corporation, Donald A. Bialik, Olivia B. Bialik, Bialik
Family Trust, Riverview Management Corporation, SysGold
Ltd., and FutureLink Alberta, previously filed with the
Commission on November 24, 1998 as Exhibit 2.1 to Amendment
No. 2 to the Company's Registration Statement on Form SB-2,
Registration No. 333-62133, which is incorporated herein by
reference.
2.4** Agreement and Plan of Reorganization and Merger dated June
2, 1999 between FutureLink Distribution Corp., FutureLink
California Acquisition Corp., Executive LAN Management,
Inc., dba Micro Visions, and the selling shareholders of
Micro Visions, previously filed with the Commission as
Exhibit 10.1 to the Company's Current Report on Form 8-K, on
June 16, 1999, which is incorporated herein by reference.
2.5** Agreement and Plan of Merger dated August 1, 1999 between
FutureLink Distribution Corp. and FutureLink California
Acquisition Corporation, a Delaware corporation, previously
filed with the Commission on October 27, 1999 as Exhibit 2.1
to the Company's Current Report on Form 8-K, which is
incorporated herein by reference.
2.6** Agreement and Plan of Reorganization and Merger dated
September 7, 1999 between FutureLink Distribution Corp.,
FutureLink Pleasanton Acquisition Corp., CN Networks, Inc.,
and the selling shareholders of CN Networks, Inc.,
previously filed with the Commission on November 23, 1999 as
Exhibit 2.1 to the Company's Current Report on Form 8-K,
which is incorporated herein by reference.
2.7** Agreement and Plan of Reorganization and Merger dated
September 7, 1999 between FutureLink Distribution Corp.,
FutureLink Michigan Acquisition Corp., Async Technologies,
Inc., and the selling shareholders of Async Technologies,
Inc., previously filed with the Commission on December 8,
1999 as Exhibit 2.1 to the Company's Current Report on Form
8-K, which is incorporated herein by reference.
2.8** Certificate of Merger dated October 15, 1999 of FutureLink
Distribution Corp., a Colorado corporation, into FutureLink
California Acquisition Corp., a Delaware corporation,
previously filed with the Commission on October 27, 1999 as
Exhibit 2.2 to the Company's Current Report on Form 8-K,
which is incorporated herein by reference.
2.9** Amending Agreement dated October 15, 1999 to Agreement and
Plan of Reorganization and Merger between FutureLink Corp.,
FutureLink California Acquisition Corp., and the selling
shareholders of Executive LAN Management, Inc., previously
filed with the Commission on October 27, 1999 as Exhibit 2.3
to the Company's Current Report on Form 8-K, which is
incorporated herein by reference.
2.10** Amending Agreement dated October 29, 1999 to Agreement and
Plan of Reorganization and Merger, between FutureLink
Distribution Corp., FutureLink Michigan Acquisition Corp.,
Async Technologies, Inc., and the selling shareholders of
Async Technologies, Inc., previously filed with the
Commission on December 27, 1999 as Exhibit 2.2 to the
Company's Current Report on Form 8-K, which is incorporated
herein by reference.
81
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.11** Amending Agreement dated October 31, 1999 to Agreement and
Plan of Reorganization and Merger between FutureLink Corp.,
FutureLink Pleasanton Acquisition Corp., CN Networks, Inc.
and the selling shareholders of CN Networks, Inc.,
previously filed with the Commission on November 23, 1999 as
Exhibit 2.2 to the Company's Current Report on Form 8-K,
which is incorporated herein by reference.
2.12** Amending Agreement dated November 14, 1999 to Agreement and
Plan of Reorganization and Merger between FutureLink Corp.,
FutureLink Michigan Acquisition Corp., Async Technologies,
Inc., and the selling shareholders of Async Technologies,
Inc., previously filed with the Commission on December 8,
1999 as Exhibit 2.3 to the Company's Current Report on Form
8-K, which is incorporated herein by reference.
2.13** Agreement for the Sale and Purchase of the Entire Issued
Share Capital of KNS Holdings Limited dated November 15,
1999 between FutureLink Corp. and the selling shareholders
of KNS Holdings Limited, previously filed with the
Commission on January 6, 2000 as Exhibit 2.1 to the
Company's Current Report on Form 8-K, which is incorporated
herein by reference.
2.14** Amending Agreement dated November 26, 1999 to Agreement and
Plan of Reorganization and Merger between FutureLink Corp.,
FutureLink Michigan Acquisition Corp., Async Technologies,
Inc., and the selling shareholders of Async Technologies,
Inc., previously filed with the Commission on December 8,
1999 as Exhibit 2.4 to the Company's Current Report on Form
8-K, which is incorporated herein by reference.
2.15** Supplemental Agreement dated December 20, 1999 to Agreement
for Sale and Purchase of the Entire Issued Share Capital of
KNS Holdings Limited, between FutureLink Corp. and the
selling shareholders of KNS Holdings Limited, previously
filed with the Commission on January 6, 2000 as Exhibit 2.2
to the Company's Current Report on Form 8-K, which is
incorporated herein by reference.
2.16** The Agreement and Plan of Reorganization and Merger dated
December 2, 1999 by and among FutureLink Corp., FutureLink
Maryland Acquisition Corp., Vertical Software, Inc., Curtis
Eshelman and James C. Harvey, previously filed with the
Commission on February 14, 2000 as Exhibit 2.1 to the
Company's Current Report on Form 8-K, which is incorporated
herein by reference.
2.17** The Agreement and Plan of Reorganization and Merger dated
February 1, 2000 by and among FutureLink Corp., FutureLink
Delaware Acquisition Corp., MicroLAN Systems Inc., Madison
Consulting Resources Inc., Madison Consulting Resources (NJ)
Inc., Ira Silverman, Richard Silverman, Adam Silverman and
Adam Fox, previously filed with the Commission on May 15,
2000 as Exhibit 2.1 to the Company's Current Report on Form
8-K, which is incorporated herein by reference.
2.18** Acquisition and Amalgamation Agreement dated June 16, 2000
between and among FutureLink Corp., FutureLink Distribution
Corp. 3045207 Nova Scotia Company, 1423280 Ontario Inc.,
1423281 Ontario Inc., Charon Systems Inc., Allan Sherk,
Edward Mathewson, Joe Da Silva, Layne Harris, Jason Yetman,
David Fung, Blair Collins, Arron Fu, Mark Palangio, Ho Wai
Fung, Edward Chi Wai Fung, Malcolm Robins, Dataspec Telecom
Multimedia Inc. and The Charon Employee Trust, previously
filed with the Commission on June 30, 2000 as Exhibit 2.1 to
the Company's Current Report on Form 8-K, which is
incorporated herein by reference.
3.1** Amended Certificate of Incorporation of FutureLink Corp.,
previously filed with the Commission on September 28, 2000
as Exhibit 3.1 to the Company's Registration Statement on
Form SB-2, Registration No. 333-46778, which is incorporated
herein by reference.
3.2** Bylaws of FutureLink Corp., previously filed with the
Commission on October 27, 1999 as Exhibit 3.2 to the
Company's Current Report on Form 8-K, which is incorporated
herein by reference.
82
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
5.1** Opinion of Paul, Hastings, Janofsky & Walker LLP with
respect to the validity of the securities being offered.
10.1** Stock Option Plan, previously filed with the Commission on
August 24, 1998 as Exhibit 10.1.29 to the Company's
Registration Statement on Form SB-2, Registration No.
333-62133, which is incorporated herein by reference.
10.2** First Amendment to Second Amended and Restated Stock Option
Plan, previously filed with the Commission on February 11,
2000 as Exhibit 10.2 to the Company's Registration Statement
on Form SB-2, Registration No. 333-30178, which is
incorporated herein by reference.
10.3** Second Amendment to Second Amended and Restated Stock Option
Plan, previously filed with the Commission on June 13, 2000
as Exhibit C to the Company's Definitive Proxy Statement
dated, which is incorporated herein by reference.
10.4** Agency Agreement dated April 14, 1999 between FutureLink
Distribution Corp. and Commonwealth, previously filed with
the Commission on May 23, 1999 as Exhibit 10.4 to the
Company's Quarterly Report on Form 10-QSB for the period
ended March 31, 1999, which is incorporated herein by
reference.
10.5** Letter Agreement dated December 6, 1999 between FutureLink
Distribution Corp. and Thomson Kernaghan & Co. Limited,
previously filed with the Commission on February 11, 2000 as
Exhibit 10.4 to the Company's Registration Statement on Form
SB-2, Registration No. 333-30178, which is incorporated
herein by reference.
10.6** Advisory Agreement dated May 1, 1999 between FutureLink
Distribution Corp. and Commonwealth Associates, L.P.,
previously filed with the Commission on June 13, 2000 as
Exhibit 10.6 to the Company's Quarterly Report on Form
10-QSB for the period ended March 31, 1999, which is
incorporated herein by reference.
10.7** Agency Agreement dated July 1, 1999 between FutureLink
Distribution Corp. and Commonwealth Associates, L.P.,
previously filed with the Commission on August 18, 1999 as
Exhibit 10.9 to the Company's Quarterly Report on Form
10-QSB for the period ended June 30, 1999, which is
incorporated herein by reference.
10.8** Loan Agreement dated August 1, 1999 between FutureLink Corp.
and Vincent L. Romano, previously filed with the Commission
on August 18, 1999 as Exhibit 10.10 to the Company's
Quarterly Report on Form 10-QSB for the period ended June
30, 1999, which is incorporated herein by reference.
10.9** First Amendment to Loan Agreement dated November 15, 1999
between FutureLink Corp. and Vincent L. Romano, previously
filed with the Commission on September 28, 2000 as Exhibit
10.9 to the Company's Registration Statement on Form SB-2,
Registration No. 333-46778, which is incorporated herein by
reference.
10.10** Loan Termination Agreement dated June 30, 2000 between
FutureLink Corp. and Vincent L. Romano, previously filed
with the Commission on September 28, 2000 as Exhibit 10.10
to the Company's Registration Statement on Form SB-2,
Registration No. 333-46778, which is incorporated herein by
reference.
10.11** Securities Purchase Agreement dated October 15, 1999 between
FutureLink Corp., Pequot Private Equity Investment Fund II,
L.P. and certain other investors, previously filed with the
Commission on October 27, 1999 as Exhibit 2.4 to the
Company's Current Report on Form 8-K, which is incorporated
herein by reference.
10.12** Amended and Restated Registration Rights Agreement dated
April 28, 2000 between FutureLink Corp., Pequot Private
Investment Fund II, L.P., and certain other investors
(blacklined to the Registration Rights Agreement dated
October 15, 1999 between the parties which was filed as an
Exhibit to the Registration Statement on Form SB-2 filed on
February 11, 2000), previously filed with the Commission on
May 3, 2000 as Exhibit 10.9 to Amendment No. 2 to the
Company's Registration Statement on Form SB-2, Registration
No. 333-30178, which is incorporated herein by reference.
83
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.13** Securities Purchase Agreement dated April 28, 2000 between
FutureLink Corp., Pequot Private Equity Investment Fund II,
L.P. and Pequot Endowment Fund, L.P., previously filed with
the Commission on May 3, 2000 as Exhibit 10.10 to Amendment
No. 2 to the Company's Registration Statement on Form SB-2,
Registration No. 333-30178, which is incorporated herein by
reference.
10.14** Form of Warrant to Purchase Shares of Common Stock,
previously filed with the Commission on May 3, 2000 as
Exhibit 10.11 to Amendment No. 2 to the Company's
Registration Statement on Form SB-2, Registration No.
333-30178, which is incorporated herein by reference.
10.15** Registration Rights Agreement dated December 6, 1999 between
FutureLink Corp. and CPQ Holdings, Inc., previously filed
with the Commission on February 11, 2000 as Exhibit 10.10 to
the Company's Registration Statement on Form SB-2,
Registration No. 333-30178, which is incorporated herein by
reference.
10.16** Securities Purchase Agreement dated December 6, 1999 between
FutureLink Corp. and CPQ Holdings, Inc., previously filed
with the Commission on February 11, 2000 as Exhibit 10.11 to
the Company's Registration Statement on Form SB-2,
Registration No. 333-30178, which is incorporated herein by
reference.
10.17** Employment Agreement dated June 1, 1999 between Philip R.
Ladouceur and FutureLink Distribution Corp., previously
filed with the Commission on February 11, 2000 as Exhibit
10.12 to the Company's Registration Statement on Form SB-2,
Registration No. 333-30178, which is incorporated herein by
reference.(1)
10.18** Employment Agreement dated September 30, 1999 between Glenn
C. Holmes and FutureLink Corp., previously filed with the
Commission on February 11, 2000 as Exhibit 10.13 to the
Company's Registration Statement on Form SB-2, Registration
No. 333-30178, which is incorporated herein by reference.
10.19** Employment Agreement dated August 1, 1999 between Vincent L.
Romano and FutureLink Corp., previously filed with the
Commission on February 11, 2000 as Exhibit 10.14 to the
Company's Registration Statement on Form SB-2, Registration
No. 333-30178, which is incorporated herein by reference.
10.20** First Amendment to Employment Agreement dated November 15,
2000 between Vincent L. Romano and FutureLink Corp.,
previously filed with the Commission on September 28, 2000
as Exhibit 10.20 to the Company's Registration Statement on
Form SB-2, Registration No. 333-46778, which is incorporated
herein by reference.
10.21** Termination of Employment Agreement dated July 31, 2000
between Vincent L. Romano and FutureLink Corp., previously
filed with the Commission on September 28, 2000 as Exhibit
10.21 to the Company's Registration Statement on Form SB-2,
Registration No. 333-46778, which is incorporated herein by
reference.
10.22** Client/Agency Agreement dated August 7, 1999 between Sicola,
Martin, Koons & Frank, Inc. and FutureLink Distribution
Corp., as revised, previously filed with the Commission on
February 11, 2000 as Exhibit 10.15 to the Company's
Registration Statement on Form SB-2, Registration No.
333-30178, which is incorporated herein by reference.
10.23** Master Loan and Security Agreement dated November 3, 1999
between Transamerica Business Credit Corporation, FutureLink
Corp. and FutureLink Micro Visions Corp., previously filed
with the Commission on February 11, 2000 as Exhibit 10.16 to
the Company's Registration Statement on Form SB-2,
Registration No. 333-30178, which is incorporated herein by
reference.
10.24** Security Agreement dated November 3, 1999 between
Transamerica Business Credit Corporation and FutureLink
Distribution Corp., previously filed with the Commission on
February 11, 2000 as Exhibit 10.17 to the Company's
Registration Statement on Form SB-2, Registration No.
333-30178, which is incorporated herein by reference.
84
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.25** Master Lease and Financing Agreement dated November 15, 1999
between Compaq Financial Services and FutureLink Corp.,
previously filed with the Commission on February 11, 2000 as
Exhibit 10.18 to the Company's Registration Statement on
Form SB-2, Registration No. 333-30178, which is incorporated
herein by reference.
10.26** Master Lease Agreement dated December 16, 1999 between
EMC(2) and FutureLink Corp., previously filed with the
Commission on February 11, 2000 as Exhibit 10.19 to the
Company's Registration Statement on Form SB-2, Registration
No. 333-30178, which is incorporated herein by reference.
10.27** Revised Offer to Lease dated March 24, 1998 between Bow
Valley Square Management Ltd. and SysGold, Ltd., as amended,
for 250 6th Avenue, Calgary, previously filed with the
Commission on August 24, 1998 as Exhibit 10.18 to the
Company's Registration Statement on Form SB-2, Registration
No. 333-62133, which is incorporated herein by reference.
10.28** Lease Agreement dated September 23, 1999 between Kilroy
Realty, L.P., Kilroy Realty Corporation, and FutureLink
Distribution Corporation for 220 Technology Drive, Irvine
and assignment of Lease Agreement dated October 15, 1999,
previously filed with the Commission on February 11, 2000 as
Exhibit 10.21 to the Company's Registration Statement on
Form SB-2, Registration No. 333-30178, which is incorporated
herein by reference.
10.29** Lease Agreement dated April 27, 2000 between Olen Commercial
Realty Corp. and Futurelink Micro Visions Corporation for 2
South Pointe Dr., Lake Forest, Ca. 92630, previously filed
with the Commission on September 28, 2000 as Exhibit 10.29
to the Company's Registration Statement on Form SB-2,
Registration No. 333-46778, which is incorporated herein by
reference.
10.30** Lease Agreement dated August 8, 2000 between Transwestern
Lexington, LLC and FutureLink Corp. for 360 Lexington
Avenue, New York, previously filed with the Commission on
September 28, 2000 as Exhibit 10.30 to the Company's
Registration Statement on Form SB-2, Registration No.
333-46778, which is incorporated herein by reference.
10.31** Microsoft Certified Solution Provider Agreement dated
January 28, 2000 between Microsoft Corporation and
FutureLink Corp., previously filed with the Commission on
April 14, 2000 as Exhibit 10.22 to Amendment No. 1 to the
Company's Registration Statement on Form SB-2, Registration
No. 333-30178, which is incorporated herein by reference.(2)
10.32** Microsoft Application Services Agreement dated December 23,
1999 between Microsoft Corporation and FutureLink Corp.,
previously filed with the Commission on February 11, 2000 as
Exhibit 10.23 to the Company's Registration Statement on
Form SB-2, Registration No. 333-30178, which is incorporated
herein by reference.(2)
10.33** Final Invoice/Enrollment Contract (MSCP) dated April 28,
1998 between Microsoft Corporation and FutureLink Corp.,
previously filed with the Commission on August 24, 1998 as
Exhibit 10.1.20 to the Company's Registration Statement on
Form SB-2, Registration No. 333-62133, which is incorporated
herein by reference.
10.34** Direct Commercial Service License Agreement dated May 21,
1999 between Microsoft Corporation and FutureLink
Distribution Corp., previously filed with the Commission on
February 11, 2000 as Exhibit 10.25 to the Company's
Registration Statement on Form SB-2, Registration No.
333-30178, which is incorporated herein by reference.(2)
10.35** Service Agreement dated June 1, 1998 between Willson
Stationers Ltd. and FutureLink Alberta, previously filed
with the Commission on August 24, 1998 as Exhibit 10.1.21 to
the Company's Registration Statement on Form SB-2,
Registration No. 333-62133, which is incorporated herein by
reference.
10.36** Solution Provider Contract dated July 27, 1998 between IBM
Canada Ltd. and FutureLink/SysGold Ltd., previously filed
with the Commission on August 24, 1998 as Exhibit 10.1.16 to
the Company's Registration Statement on Form SB-2,
Registration No. 333-62133, which is incorporated herein by
reference.
85
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.37** Hosting Services Distributor Agreement (version 4) dated
November 12, 1998 between Onyx Software Corp. and FutureLink
Distribution Corp., previously filed with the Commission on
February 11, 2000 as Exhibit 10.28 to the Company's
Registration Statement on Form SB-2, Registration No.
333-30178, which is incorporated herein by reference.
10.38** Onyx Software License Agreement dated August 5, 1998 between
Onyx Software Corp. and FutureLink Distribution Corp.,
previously filed with the Commission on February 11, 2000 as
Exhibit 10.29 to the Company's Registration Statement on
Form SB-2, Registration No. 333-30178, which is incorporated
herein by reference.
10.39** Alliance Partner Agreement dated October 26, 1998 between
Great Plains Software and FutureLink Distribution Corp.,
previously filed with the Commission on February 11, 2000 as
Exhibit 10.30 to the Company's Registration Statement on
Form SB-2, Registration No. 333-30178, which is incorporated
herein by reference.
10.40** Citrix Solutions Network Gold Renewal Membership Agreement
dated July 16, 1999 between Citrix Systems, Inc. and
FutureLink Distribution Corp., previously filed with the
Commission on February 11, 2000 as Exhibit 10.31 to the
Company's Registration Statement on Form SB-2, Registration
No. 333-30178, which is incorporated herein by reference.(2)
10.41** Citrix Solutions Network Platinum Renewal Membership
Agreement dated April 20, 1999 between Citrix Systems, Inc.
and Async Technologies, Inc., previously filed with the
Commission on February 11, 2000 as Exhibit 10.32 to the
Company's Registration Statement on Form SB-2, Registration
No. 333-30178, which is incorporated herein by reference.(2)
10.42** Information Systems Services Agreement dated January 19,
1999 between FutureLink Alberta and Numac Energy, Inc.,
previously filed with the Commission on February 11, 2000 as
Exhibit 10.33 to the Company's Registration Statement on
Form SB-2, Registration No. 333-30178, which is incorporated
herein by reference.
10.43** Information Systems Services Agreement dated July 1, 1999
between Canadian Natural Resources, Ltd. and FutureLink
Alberta, previously filed with the Commission on February
11, 2000 as Exhibit 10.34 to the Company's Registration
Statement on Form SB-2, Registration No. 333-30178, which is
incorporated herein by reference.
10.44** Master Consulting Agreement dated December 1, 1998 between
Ameriquest Mortgage Company and Micro Visions, previously
filed with the Commission on February 11, 2000 as Exhibit
10.36 to the Company's Registration Statement on Form SB-2,
Registration No. 333-30178, which is incorporated herein by
reference.
10.45** Internet Data Center Services Agreement dated May 7, 1999
between Exodus Communications, Inc. and Executive LAN
Management, Inc., previously filed with the Commission on
February 11, 2000 as Exhibit 10.37 to the Company's
Registration Statement on Form SB-2, Registration No.
333-30178, which is incorporated herein by reference.
10.46** Form of EMC(2) Corporation Software License Agreement,
previously filed with the Commission on February 11, 2000 as
Exhibit 10.38 to the Company's Registration Statement on
Form SB-2, Registration No. 333-30178, which is incorporated
herein by reference.
10.47** Securities Purchase Agreement dated June 29, 2000 between
FutureLink Corp. and Microsoft Corporation, previously filed
with the Commission on September 28, 2000 as Exhibit 10.50
to the Company's Registration Statement on Form SB-2,
Registration No. 333-46778, which is incorporated herein by
reference.
10.48** Debenture and Warrant Purchase Agreement dated March 2, 1999
between Augustine Fund, LP and FutureLink Distribution
Corp., previously filed with the Commission on September 28,
2000 as Exhibit 10.51 to the Company's Registration
Statement on Form SB-2, Registration No. 333-46778, which is
incorporated herein by reference.
10.49** Form of Warrant to Purchase Common Stock as issued in
connection with FutureLink Distribution Corp.'s April 1999
private placement, previously filed with the Commission on
September 28, 2000 as Exhibit 10.52 to the Company's
Registration Statement on Form SB-2, Registration No.
333-46778, which is incorporated herein by reference.
86
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.50** Form of Subscription Agreement between FutureLink
Distribution Corp. and certain investors as executed in
connection with FutureLink Distribution Corp.'s April 1999
private placement, previously filed with the Commission on
September 28, 2000 as Exhibit 10.53 to the Company's
Registration Statement on Form SB-2, Registration No.
333-46778, which is incorporated herein by reference.
10.51** Registration Rights Agreement dated September 8, 1999
between Sicola, Martin, Koons & Frank, Inc. and FutureLink
Distribution Corp., previously filed with the Commission on
September 28, 2000 as Exhibit 10.54 to the Company's
Registration Statement on Form SB-2, Registration No.
333-46778, which is incorporated herein by reference.
10.52** Warrant No. 1 to Purchase Common Stock issued to TBCC
Funding Trust II on November 3, 1999, previously filed with
the Commission on September 28, 2000 as Exhibit 10.55 to the
Company's Registration Statement on Form SB-2, Registration
No. 333-46778, which is incorporated herein by reference.
10.53** Warrant No. 2 to Purchase Common Stock issued to TBCC
Funding Trust II on November 3, 1999, previously filed with
the Commission on September 28, 2000 as Exhibit 10.56 to the
Company's Registration Statement on Form SB-2, Registration
No. 333-46778, which is incorporated herein by reference.
10.54** Registration Rights Agreement dated December 20, 1999
between certain selling shareholders of KNS Holdings Limited
and FutureLink Corp., previously filed with the Commission
on September 28, 2000 as Exhibit 10.57 to the Company's
Registration Statement on Form SB-2, Registration No.
333-46778, which is incorporated herein by reference.
10.55** Amendment No. 1 to Registration Rights Agreement dated June
19, 2000 between certain selling shareholders of KNS
Holdings Limited and FutureLink Corp., previously filed with
the Commission on September 28, 2000 as Exhibit 10.58 to the
Company's Registration Statement on Form SB-2, Registration
No. 333-46778, which is incorporated herein by reference.
10.56** Warrant to Purchase Common Stock issued to TBCC Funding
Trust II on July 11, 2000, previously filed with the
Commission on September 28, 2000 as Exhibit 10.59 to the
Company's Registration Statement on Form SB-2, Registration
No. 333-46778, which is incorporated herein by reference.
10.57** Warrant to Purchase Common Stock issued to EMC Corporation
on December 16, 1999, previously filed with the Commission
on September 28, 2000 as Exhibit 10.60 to the Company's
Registration Statement on Form SB-2, Registration No.
333-46778, which is incorporated herein by reference.
10.58** Warrant to Purchase Common Stock issued to EMC Corporation
on July 28, 2000, previously filed with the Commission on
September 28, 2000 as Exhibit 10.61 to the Company's
Registration Statement on Form SB-2, Registration No.
333-46778, which is incorporated herein by reference.
10.59** Warrant to Purchase Common Stock issued to EMC Corporation
on August 8, 2000, previously filed with the Commission on
September 28, 2000 as Exhibit 10.62 to the Company's
Registration Statement on Form SB-2, Registration No.
333-46778, which is incorporated herein by reference.
10.60** Loan and Security Agreement dated November 16, 2000 by and
among Foothill Capital Corporation, FutureLink Corp. and
certain of its Subsidiaries.
10.61** Amendment Number One to Loan and Security Agreement dated
December 14, 2000 by and among Foothill Capital Corporation,
FutureLink Corp. and certain of its Subsidiaries.
10.62** Warrant Agreement dated November 16, 2000 by and between
FutureLink Corp. and Foothill Capital Corporation.
10.63** Registration Rights Agreement dated November 16, 2000 by and
between FutureLink Corp. and Foothill Capital Corporation.
87
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.64** Stock Pledge Agreement dated November 16, 2000 by and among
Foothill Capital Corporation, FutureLink Corp. and certain
of its Subsidiaries.
10.65** General Security Agreement dated December 14, 2000 by and
between FutureLink Canada Corp. and Foothill Capital
Corporation.
10.66** Guarantee and Postponement of Claim dated December 14, 2000
by FutureLink Canada Corp. in favor of Foothill Capital
Corporation.
10.67** Share Pledge Agreement dated December 14, 2000 by and among
1423280 Ontario Inc., FutureLink Corp. and Foothill Capital
Corporation.
10.68** General Security Agreement dated December 14, 2000 by and
between 1423280 Ontario Inc. and Foothill Capital
Corporation.
10.69* Guarantee and Postponement of Claim dated December 14, 2000
by 1423280 Ontario Inc. in favor of Foothill Capital
Corporation.
10.70** Share Pledge Agreement dated December 14, 2000 by and among
FutureLink Canada Corp., 1423280 Ontario Inc. and Foothill
Capital Corporation.
10.71* Hypothec on Movable Property (General) dated December 14,
2000 by and between FutureLink Canada Corp. and Foothill
Capital Corporation.
10.72** General Security Agreement dated December 14, 2000 by and
between 3045207 Nova Scotia Company and Foothill Capital
Corporation.
10.73** Guarantee and Postponement of Claim dated December 14, 2000
by 3045207 Nova Scotia Company in favor of Foothill Capital
Corporation.
10.74** Share Pledge Agreement dated December 14, 2000 by and among
3045207 Nova Scotia Company, Foothill Capital Corporation
and 1423280 Ontario Inc.
10.75** Share Pledge Agreement dated December 14, 2000 by and among
FutureLink Corp., Foothill Capital Corporation and 3045207
Nova Scotia Company.
10.76** Loan Agreement dated December 13, 2000 by and between
FutureLink Europe Limited and Foothill Capital Corporation.
10.77** Debenture dated December 14, 2000 by and among Foothill
Capital Corporation, KNS Holdings Limited and FutureLink
Europe Limited.
10.78** General Continuing Guaranty dated December 13, 2000 by
FutureLink Corp. and certain of its Subsidiaries in favor of
Foothill Capital Corporation.
10.79** Share Charge dated December 14, 2000 by and between
FutureLink Corp. and Foothill Capital Corporation.
10.80* Security Agreement dated December 13, 2000 among Foothill
Capital Corporation, FutureLink Corp. and certain of its
Subsidiaries.
10.81* Employment Agreement dated December 4, 2000 between
FutureLink Corp. and Howard E. Taylor.
10.82** Employment Agreement dated January 3, 2000 between
FutureLink Corp. and Richard M. White.
10.83* Howard E. Taylor Year 2000 Stock Option Plan dated December
4, 2000.
15.1* Letter of Acknowledgement, Moreland & Davis, Alameda County,
California.
15.2* Letter of Acknowledgement, M. Jevahirian & Co., Birmingham,
Michigan.
21.0** List of Subsidiaries.
23.1** Consent of Paul, Hastings, Janofsky & Walker LLP (included
in Exhibit 5.1).
23.2* Consent of Ernst & Young LLP, Independent Auditors, Orange
County, California.
23.3* Consent of Ernst & Young LLP, Independent Auditors, McLean,
Virginia.
23.4* Consent of Joel E. Sammet & Co., Certified Public
Accountants.
23.5* Consent of Ernst & Young LLP, Independent Auditors, Orange
County, California with respect to the financial statements
of Executive LAN Management, Inc., dba Micro Visions.
23.6* Consent of Moreland & Davis, Alameda County, California.
23.7* Consents of M. Jevahirian and Co., Independent Auditors,
Birmingham, Michigan.
88
EXHIBIT
NUMBER DESCRIPTION
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23.8* Consent of Ernst & Young, Independent Auditors, Reading,
England.
24.1** Power of Attorney (included in the signature page of the
initial filing of this Registration Statement on December
19, 2000).
- -------------------------
* Filed herewith.
** Previously filed.
(1) We entered into an employment agreement with Raghu Kilambi on June 1, 1999,
which we amended on October 8, 1999 that is substantially identical in all
material respects to our employment agreement with Mr. Ladouceur, except as
to salary and bonus provisions. Mr. Kilambi's base salary is $180,000 per
year and he is entitled to receive a performance bonus of up to $180,000.
(2) Some of our subsidiaries are parties to agreements with the same party that
are substantially identical in all material respects.