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SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material under Rule 14a-12
FutureLink Corp.
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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FUTURELINK CORP.
2 SOUTH POINTE DRIVE
LAKE FOREST, CALIFORNIA 92630
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
------------------------
We cordially invite you to attend our 2001 Annual Meeting of Stockholders.
This Annual Meeting will be held at 9:00 A.M., California time, on Friday, June
8, 2001, at The Westin South Coast Plaza, located at 686 Anton Blvd., Costa
Mesa, California 92626, for the following purposes:
1. To elect seven (7) directors to the Board of Directors to hold
office for a term of one (1) year and until their respective successors are
elected and qualified.
2. To approve an amendment to the Company's Certificate of
Incorporation to effect a reverse stock split of all issued and outstanding
shares of the Company's common stock, whereby each [between five and ten,
with the exact ratio to be determined by the Company's Board of Directors
prior to filing of Definitive Proxy Statement] shares of common stock would
be combined, converted and changed into one share of common stock.
3. To consider a proposal to ratify the Company's appointment of Ernst
& Young LLP as the Company's independent auditors.
4. To transact such other business as may properly come before this
Annual Meeting or any adjournment thereof.
The Board of Directors has nominated Michael S. Falk, F. Bryson Farrill,
Marshall S. Geller, Glen C. Holmes, Philip R. Ladouceur, James P. McNiel and
Gerald A. Poch as the nominees for election to the Board of Directors.
The Board of Directors has fixed the close of business on April 20, 2001,
as the record date for the determination of stockholders entitled to notice of,
and to vote at, this Annual Meeting.
YOU ARE CORDIALLY INVITED TO BE PRESENT AND TO VOTE AT THIS ANNUAL MEETING
IN PERSON. HOWEVER, YOU ARE ALSO REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED
PROXY IN THE ENCLOSED POSTAGE-PAID AND ADDRESSED ENVELOPE, WHETHER OR NOT YOU
EXPECT TO ATTEND. IN THE EVENT YOU HAVE RETURNED A SIGNED PROXY, BUT ELECT TO
ATTEND THIS ANNUAL MEETING AND VOTE IN PERSON, YOU WILL BE ENTITLED TO VOTE.
By Order of the Board of Directors,
/s/ JEFFREY S. MARKS
--------------------------------------
Jeffrey S. Marks
Assistant Secretary
Lake Forest, California
April , 2001
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FUTURELINK CORP.
2 SOUTH POINTE DRIVE
LAKE FOREST, CALIFORNIA 92630
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PROXY STATEMENT
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The Board of Directors of FutureLink Corp. (the "Company") is soliciting
proxies to be voted at the Annual Meeting of Stockholders of the Company to be
held on Friday, June 8, 2001, at The Westin South Coast Plaza, located at 686
Anton Blvd., Costa Mesa, California, at 9:00 A.M., California time, and at any
adjournments thereof (the "Annual Meeting" or the "Meeting"), for the purposes
set forth in the accompanying Notice of Annual Meeting of Stockholders and
described herein. This Proxy Statement describes issues on which we would like
you, as a stockholder, to vote. It also gives you information on these issues so
that you can make an informed decision. The approximate date on which this Proxy
Statement and the enclosed form of proxy are first being sent or given to
stockholders is May 7, 2001.
VOTING INFORMATION
WHO MAY VOTE
The Board of Directors of the Company (the "Board of Directors" or the
"Board") has fixed the close of business on April 20, 2001, as the record date
for the determination of stockholders entitled to receive notice of, and to vote
at, the Annual Meeting (the "Record Date"). The outstanding stock of the Company
consists of its common stock, par value $0.0001 per share ("Common Stock") and
its Series A Preferred Stock, no par value (the "Series A Preferred Stock"). At
the Record Date, shares of Common Stock and [1,428,571] shares of
Series A Preferred Stock were outstanding. The Series A Preferred Stock will
vote together with the Common Stock at the Annual Meeting. Each holder of Common
Stock will be entitled to one vote for each share of Common Stock held by such
stockholder, and each holder of Series A Preferred Stock shall be entitled to
the number of votes equal to the whole number of shares of Common Stock into
which the Series A Preferred Stock held by such stockholder is convertible. With
respect to the election of directors only (Proposal 1), stockholders may vote in
favor of all nominees or withhold their votes as to all nominees or withhold
their votes as to specific nominees.
REVOCABILITY OF PROXY
You may revoke your proxy prior to its exercise. You may do this by (a)
delivering to the Assistant Secretary of the Company, Jeffrey S. Marks, at or
prior to the Annual Meeting, an instrument of revocation or another proxy
bearing a date or time later than the date or time of the proxy being revoked or
(b) voting in person at the Annual Meeting. Mere attendance at the Annual
Meeting will not serve to revoke your proxy.
HOW YOUR SHARES WILL BE VOTED
All proxies received and not revoked will be voted as directed. If no
directions are specified, such proxies will be voted "FOR": (a) election of each
of the Board's nominees for Directors; (b) approval of an amendment to our
Certificate of Incorporation to effect a one-for- [Note -- we anticipate that
this number will be between five and ten, with the exact ratio to be set by the
Board of Directors prior to the filing of the Definitive Proxy Statement]
reverse stock split; and (c) ratification of the appointment of Ernst & Young
LLP as the Company's independent auditors. As to any other business which may
properly come before the Annual Meeting, the persons named in such proxies will
vote in accordance with their best judgment, although the Company does not
presently know of any other such business.
VOTING, QUORUM AND BROKER NON-VOTES
Shares of Common Stock and Series A Preferred Stock will be counted as
present at the Annual Meeting if the stockholder is present and votes in person
at the Meeting or has properly submitted a proxy card. Stockholders holding at
least one-third of the Company's outstanding shares entitled to vote as of the
Record Date must be present at the Annual Meeting in order to hold the Meeting
and conduct business. This is called a quorum. Abstentions and non-votes will be
counted for purposes of determining the existence of a quorum at the Annual
Meeting. The seven nominees receiving the highest number of votes "FOR" a
director will be elected as directors. This number is called a plurality.
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The affirmative vote of the holders of a majority of the voting power of
the shares of Common Stock and Series A Preferred Stock outstanding and entitled
to vote is necessary to approve the reverse stock split. As a result,
abstentions and broker non-votes will have the same effect as negative votes.
The affirmative vote of a majority of the voting power of the shares of
Common Stock and Series A Preferred Stock present in person or by proxy at the
Annual Meeting and entitled to vote on each proposal (other than the election of
directors and the proposed reverse stock split) is required for the adoption of
each such proposal.
Abstentions will be counted as votes against any of the proposals as to
which a stockholder abstains, but non-votes will have no effect on the voting
with respect to any proposal as to which there is a non-vote. A non-vote may
occur when a nominee holding shares of Common Stock or Series A Preferred Stock
for a beneficial owner does not vote on a proposal because such nominee does not
have discretionary voting power and has not received instructions from the
beneficial owner.
EXPENSES AND METHOD OF SOLICITATION
The expenses of soliciting proxies for the Annual Meeting are to be paid by
the Company. Solicitation of proxies may be made by means of personal calls
upon, or telephonic or telegraphic communications with, stockholders or their
personal representatives by directors, officers and employees of the Company who
will not be specially compensated for such services. Although there is no formal
agreement to do so, the Company may reimburse banks, brokerage houses and other
custodians, nominees and fiduciaries for their reasonable expenses in forwarding
this Proxy Statement to stockholders whose Common Stock is held of record by
such entities.
NOMINATIONS FOR DIRECTORS FOR ANNUAL MEETING
The Bylaws of the Company (the "Bylaws") set forth certain procedures
relating to the nomination of directors (the "Nomination Bylaw") and no person
will be eligible for election as a director unless nominated in accordance with
the provisions of the Nomination Bylaw. Under the terms of the Nomination Bylaw,
to be timely for the Annual Meeting, a stockholder's notice must have been
delivered to or mailed and received at the principal executive offices of the
Company not later than April 25, 2001. The presiding officer of the Annual
Meeting will, if the facts warrant, determine that a nomination was not made in
accordance with the procedures prescribed by the Nomination Bylaw, and if he
should so determine, he will so declare to the Meeting and the defective
nomination will be disregarded. Notwithstanding the provisions of the Nomination
Bylaw, a stockholder also must comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in the Nomination Bylaw. For information related to
application of the Nomination Bylaw for the 2002 Annual Meeting, see the
discussion in this Proxy Statement under the caption "Submission of Stockholder
Proposals and Director Nominations for the 2002 Annual Meeting."
STOCKHOLDER PROPOSALS FOR THE ANNUAL MEETING
The deadline for submitting a stockholder proposal for inclusion in the
Company's proxy statement and form of proxy card for the Annual Meeting pursuant
to Rule 14a-8 of the Securities and Exchange Commission (the "SEC") was February
13, 2001.
The Bylaws set forth certain procedures relating to the procedures for
properly bringing business before an annual meeting of the stockholders (the
"Stockholder Proposal Bylaw"). Under the terms of the Stockholder Proposal
Bylaw, to be timely for Annual Meeting, a stockholder must have delivered a
notice regarding a proposal delivered to the principal executive offices of the
Company by no later than April 25, 2001. The presiding officer of the meeting
shall, if the facts warrant, determine and declare to the meeting that business
was not properly brought before the meeting in accordance with the provisions of
the Stockholder Proposal Bylaw, and if he should so determine, he shall so
declare to the meeting and any such business not properly brought before the
meeting shall not be transacted. For information related to the application of
the Stockholder Proposal Bylaw for the 2002 Annual Meeting, see the discussion
in this Proxy Statement under the caption "Submission of Stockholder Proposals
and Director Nominations for the 2002 Annual Meeting."
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
BENEFICIAL OWNERSHIP TABLE
NOTE: ALL SECURITY OWNERSHIP INFORMATION FOR THE PRELIMINARY PROXY
STATEMENT IS AS OF DECEMBER 4, 2000. SUCH INFORMATION WILL BE UPDATED AS OF THE
RECORD DATE FOR THE DEFINITIVE PROXY STATEMENT. The following table contains
certain information as of the Record Date regarding all persons who were the
beneficial owners of more than 5% of the outstanding shares of Common Stock,
each of the directors of the Company, each nominee for election to become a
director, each of the executive officers named in the Summary Compensation Table
set forth herein under the caption "Compensation of Executive Officers" (we
refer to all these officers as the "Named Executive Officers") and all directors
and executive officers as a group. The persons named hold sole voting and
investment power with respect to the shares shown opposite their respective
names, unless otherwise indicated. The information with respect to each person
specified is as supplied or confirmed by such person, based upon statements
filed with the SEC, or based upon the actual knowledge of the Company.
AMOUNT AND NATURE
OF BENEFICIAL OWNERSHIP(1)
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NUMBER OF
SHARES RIGHT TO PERCENT OF
NAME AND ADDRESS OWNED(2) ACQUIRE(3) CLASS(1)(2)(3)
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COMMON STOCK
Principal Stockholders:
The Holmes Trust(4)(5)................................ 8,400,000 -- 12.3%
Glen C. Holmes(4)(5)(6)............................... 8,400,000 75,000 12.4%
Pequot Capital Management, Inc.(7).................... 9,806,480 452,916 15.0%
James P. McNiel(7)(8)................................. 9,806,480 502,916 15.0%
Gerald A. Poch(7)(9).................................. 9,806,480 502,916 15.0%
Michael S. Falk(10)................................... 3,414,321 189,106 5.3%
Director Nominees:
Michael S. Falk(10)................................... 3,414,321 189,106 5.3%
F. Bryson Farrill..................................... -- 75,000 *
Marshall S. Geller.................................... -- -- --
Glen Holmes(4)(5)(6).................................. 8,400,000 75,000 12.4%
Philip R. Ladouceur(11)............................... 48,000 1,100,000 1.7%
James P. McNiel(7)(8)................................. 9,806,480 502,916 15.0%
Gerald A. Poch(7)(9).................................. 9,806,480 502,916 15.0%
Named Executive Officers:
Howard E. Taylor...................................... -- 250,000 *
Philip R. Ladouceur(11)............................... 48,000 1,100,000 1.7%
Richard M. White...................................... 1,700 109,416 *
Roger Gallego......................................... -- -- --
William Botti(12)..................................... 997,753 -- 1.5%
James A. Smith, Jr. .................................. -- 34,828 *
Glen C. Holmes........................................ 8,400,000 75,000 12.4%
Raghu N. Kilambi...................................... 220,563 350,000 *
All directors and executive officer as a group (16
persons)............................................ %
SERIES A PREFERRED STOCK
Microsoft Corporation(13)............................. 1,428,571 1,142,857 100%
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* Less than one percent.
(1) Subject to applicable community property and similar statutes.
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(2) Includes shares beneficially owned, whether directly or indirectly,
individually or together with associates.
(3) Shares that can be acquired through stock option exercises through February
2, 2001 (within 60 days of December 4, 2000) [June 19, 2001 (within 60 days
of the Record Date)]. These shares are referred to herein as "Stock Option
Shares."
(4) The business address of Glen C. Holmes, the trustee of The Holmes Trust, is
2 South Pointe Drive, Lake Forest, California 92630.
(5) On May 26, 2000, The Holmes Trust granted to us an option to purchase up to
600,000 shares of our Common Stock held by it at a purchase price of $5.50
per share (the fair market value on the date of the grant). On the same
date, The Holmes Trust granted two of our employees options to purchase
2,400,000 shares of our Common Stock at a purchase price of $5.50 per
share. The 3,000,000 shares shall continue to be beneficially held by The
Holmes Trust until the options are exercised.
(6) Includes 8,400,000 shares of common stock held by The Holmes Trust as a
result of Mr. Holmes' power to control The Holmes Trust.
(7) Shares beneficially owned by Pequot Capital Management, Inc. represents
9,806,480 shares held of record by Pequot Private Equity Fund II, L.P.,
Pequot Partners Fund, L.P., Pequot International Fund, Inc., and Pequot
Endowment Fund, L.P. and the 452,916 shares issuable upon the exercise of
warrants held of record by Pequot Private Equity Fund II, L.P. and Pequot
Endowment Fund, L.P. These funds are managed by Pequot Capital Management,
Inc. Pequot Capital Management, Inc. holds voting and dispositive power for
all shares held by the Funds and the address of Pequot Capital Management
and each of the Funds is 500 Nyala Farm Road, Westport, Connecticut 06880.
(8) Mr. McNiel is a Principal of Pequot Capital Management, Inc. and may be
deemed to beneficially own 9,806,480 shares held of record by the Pequot
funds, 452,916 shares issuable upon the exercise of warrants held of record
by Pequot Private Equity Fund II, L.P. and Pequot Endowment Fund, L.P., and
50,000 shares that can be acquired through the exercise of stock options
within 60 days of the date of this Proxy Statement. Mr. McNiel disclaims
beneficial ownership of these shares except to the extent of his pecuniary
interest. The business address of Mr. McNiel is 500 Nyala Farm Road,
Westport, Connecticut 06880.
(9) Mr. Poch is a Managing Director of Pequot Capital Management, Inc. and may
be deemed to beneficially own 9,806,480 shares held of record by the Pequot
funds, 452,916 shares issuable upon the exercise of warrants held of record
by Pequot Private Equity Fund II, L.P. and Pequot Endowment Fund, L.P., and
50,000 shares that he can acquire through the exercise of stock options
within 60 days of the date of this Proxy Statement. Mr. Poch disclaims
beneficial ownership of these shares except to the extent of his pecuniary
interest. The business address of Mr. Poch is 500 Nyala Farm Road,
Westport, Connecticut 06880.
(10) Includes 266,782 shares attributable to Mr. Falk as a result of his control
of the Michael Falk IRA. Also includes 2,434,554 shares of common stock and
104,667 shares issuable upon the exercise of warrants currently exercisable
or exercisable through February 2, 2001 [the Record Date] (subject to
further anti-dilution adjustments) that Commonwealth Associates, L.P.
beneficially holds. Mr. Falk is Chairman and Chief Executive Officer of
Commonwealth Associates, L.P. Mr. Falk disclaims beneficial ownership of
the shares and warrants that Commonwealth Associates, L.P. holds.
(11) Includes 48,000 shares attributable to Mr. Ladouceur as a result of his
power to control Mardale Investments Ltd. The business address of Mr.
Ladouceur is 2 South Pointe Drive, Lake Forest, California 92630.
(12) Consists of shares held by the William R. Botti and Janet M. Botti Living
Trust, over which Mr. Botti has control.
(13) None of our directors or executive officers beneficially owns any shares of
Preferred Stock. The business address of Microsoft Corporation is One
Microsoft Way, Redmond, Washington 98052-6399.
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ELECTION OF DIRECTORS
(PROPOSAL 1)
Under the Company's Certificate of Incorporation and Bylaws, seven persons,
Michael S. Falk, F. Bryson Farrill, Marshall S. Geller, Glen C. Holmes, Philip
R. Ladouceur, James P. McNiel and Gerald A. Poch, have been nominated by the
Board of Directors for election at the Annual Meeting to serve a one year term
expiring at the annual meeting in 2002 and until their respective successors are
elected and qualified. Directors shall be elected by a plurality of the votes of
shares of Common Stock present in person or represented by proxy at the Annual
Meeting and entitled to vote on such election.
The Bylaws allow us to have no less than three and up to eleven directors.
We currently have seven directors, all of whose terms expire at the Annual
Meeting. Each of the nominees presently serves as a director and has served
continuously as a director of the Company since the date indicated in his
biography below. In the event any nominee is unable to or declines to serve as a
director at the time of the Annual Meeting (which is not anticipated), the
persons named in the proxy will vote for the election of such person or persons
as may be designated by the present Board of Directors.
UNLESS OTHERWISE DIRECTED IN THE ACCOMPANYING PROXY, THE PERSONS NAMED
THEREIN WILL VOTE FOR THE ELECTION OF THE SEVEN NOMINEES LISTED BELOW. THE BOARD
OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION OF MICHAEL S. FALK,
F. BRYSON FARRILL, MARSHALL S. GELLER, GLEN C. HOLMES, PHILIP R. LADOUCEUR,
JAMES P. MCNIEL AND GERALD A. POCH AS DIRECTORS.
APPOINTMENT OF DIRECTORS
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 May
7, 2001, to appoint one person to serve on our board of directors. Mr. Falk was
initially appointed as a director pursuant to this agreement.
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 nominate 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 nominate 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
nominate 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. Pursuant to the terms of this Agreement, Pequot Private Equity Fund II and
the other investors currently have the right to nominate two directors. Messrs.
Poch and McNiel were initially appointed pursuant to this agreement, and have
been nominated to satisfy the Company's obligations thereunder.
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. To date,
Microsoft Corporation has not designated any director nominee nor appointed any
observer.
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INFORMATION ABOUT THE DIRECTOR NOMINEES
The following table sets forth information regarding the nominees,
including age on the date of the Annual Meeting and business experience during
the past five years.
DIRECTOR
NAME AGE SINCE PRINCIPAL OCCUPATION AND OTHER INFORMATION
---- --- -------- ------------------------------------------
Michael S. Falk....... 39 1999 Mr. Falk has been a director since May 1999. Mr.
Falk is the co-founder of Commonwealth Associates,
a New York-based merchant bank and investment bank
established in May 1988 that specializes in early
stage investments in Internet, technology and
telecommunications businesses. Mr. Falk has served
as Commonwealth Associate's Chairman and Chief
Executive Officer since 1995. Mr. Falk currently
serves as a director of Intellispan Inc.
F. Bryson Farrill..... 72 1998 Mr. Farrill has been a director since January 1998.
Since April 1989, Mr. Farrill has been a consultant
and advisor to various companies unrelated to us.
Since May 1996, Mr. Farrill has served as a
director of Devine Entertainment, LTD. From January
1978 to March 1989, Mr. Farrill held various
positions with Scotia McLoed and McLoed Young Weir,
including acting as Chairman of Scotia McLoed (USA)
Inc. and McLoed Young Weir Ltd. Since July 1997,
Mr. Farrill has held the position of President and
Chairman of Solar Pharmaceuticals Ltd. Mr. Farrill
is currently a director of Power Technology, Inc.,
Devine Entertainment Inc. and Home Life Inc.
Marshall S. Geller.... 61 2000 Mr. Geller has been a director since December 2000.
Since 1995, he has been the Chairman, Chief
Executive Officer and Founding Partner of Geller &
Friend Capital Partners, Inc. and Brighton Venture
Partners, two venture capital firms. From February
1991, to October 1995, Mr. Geller served as Senior
Managing Partner of Golenberg & Geller, Inc., a
merchant banking investment company which he
founded. From April 1988 to December 1990, he was
Vice Chairman of Gruntal & Company, a New York
Stock Exchange investment banking firm. From July
1967 to March 1988, Mr. Geller served as Senior
Managing Director of Bear, Stearns & Co. Inc. Mr.
Geller currently serves as a director of Hexcel
Corp., Concepts Direct, Inc., drkoop.com, Inc.,
ValueVision International, Inc., and Ballantyne of
Omaha, Inc.
Glen C. Holmes........ 44 1999 Mr. Holmes has served as a director since September
1999. Mr. Holmes served as our President and Chief
Operating Officer from September 1999 to November
2000. Mr. Holmes is the founder of Micro Visions, a
leading server-based computing integrator, and
served as its Chairman and President from 1987
until our acquisition of Micro Visions in October
1999. Mr. Holmes is the brother-in-law of Roger J.
Gallego, our Senior Vice President -- Strategy and
Corporate Development
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DIRECTOR
NAME AGE SINCE PRINCIPAL OCCUPATION AND OTHER INFORMATION
---- --- -------- ------------------------------------------
Philip R. Ladouceur... 60 1998 Mr. Ladouceur has served as our Executive Chairman
since June 1, 1999, and as a director since August
1998. Mr. Ladouceur served as our Chief Executive
Officer from August 1999 through November 2000.
From October 1996 to April 1998, Mr. Ladouceur was
President, Chairman and Chief Executive Officer of
MetroNet Communications Corp. and served as
MetroNet's Executive Chairman until its merger with
AT&T Canada in June, 1999. From February 1995 to
October 1996, Mr. Ladouceur was Executive Vice
President of Operations at Bell Canada
International Inc. From October 1992 to February
1995, Mr. Ladouceur was the founding President and
Chief Executive Officer of ISM Information Systems
Management (Alberta) Ltd., a computer and network
management outsourcing company that IBM Global
Services acquired. Mr. Ladouceur founded, and from
June 1990 to October 1992, was the Managing
Director of, HDL Capital Corporation, a private
merchant bank specializing in business turnarounds,
management buyouts and financing for companies in
the telecommunications, technology, software and
retail sectors. From 1986 to 1989, Mr. Ladouceur
was Senior Vice President, Finance, Chief Financial
Officer and a director of Rogers Communications
Inc., one of the largest cable, cellular and
broadcasting companies in North America. Mr.
Ladouceur currently serves as a director of AT&T
Canada, Cell-Loc Inc., DataWire Corporation and
Intellispan, Inc.
James P. McNiel....... 38 1999 Mr. McNiel has been a director since October 1999.
Mr. McNiel has been a principal of Pequot Capital
Management, Inc., an investment funds group since
July 1999. From 1996 to July 1999, Mr. McNiel
served as President of McNiel Ltd. From 1997 to
1998, Mr. McNiel served as an Executive Vice
President and Director for Spike Technologies,
Inc., a semiconductor design consulting company.
From 1996 to 1997, Mr. McNiel served as an
Executive Vice President of USWeb, an internet
professional services company. From 1990 to 1996,
Mr. McNiel founded and served in various positions
at Cheyenne Software, Inc., a provider of software
products for desktops and personal networks,
including serving as Executive Vice President of
Corporate Development from 1992 to 1996.
Gerald A. Poch........ 54 1999 Mr. Poch has been a director since October 1999.
Mr. Poch has served as Managing Director and
co-manager of Pequot Capital Management, Inc., an
investment funds group, since August 1998. From
August 1996 to June 1998, Mr. Poch acted as
Chairman, President and Chief Executive Officer of
GE Capital Information Technology Solutions. From
September 1992 to August 1996, he served as
Co-Chairman and Co-President of AmeriData
Technologies, Inc. Mr. Poch is Co-Chairman and
director of MessageMedia, Inc. and serves as a
director of BriteSmile, Inc. and Elastic Networks,
Inc.
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INFORMATION WITH RESPECT TO OUR EXECUTIVE OFFICERS
The executive officers of the Company are Philip R. Ladouceur, Howard E.
Taylor, Richard M. White, William R. Botti, Ira Silverman, Roger J. Gallego, Ken
Phelan, James A. Smith, Jr., Yuri M. Pasea, and David Fung. Mr. Ladouceur is
also a director of the Company, and his business biography is referenced above.
The business experience of the other executive officers are described below.
Executive officers are elected by, and serve at the pleasure of, the Board of
Directors.
NAME AGE PRINCIPAL OCCUPATION AND OTHER INFORMATION
---- --- ------------------------------------------
Howard E. Taylor...... 51 Mr. Taylor has served as our Chief Executive Officer and
President since December 2000. From September 2000 to
November 2000, he was a venture operating partner at Pequot
Capital Management, Inc. From June 1999 to September 2000,
Mr. Taylor served as Chairman and Chief Executive Officer of
OnSite Access, Inc., a building-centric communications
company. From November 1996 to June 1999, he served as
President and Chief Operating Officer of WinStar Broadband
Services, a business unit of WinStar Communications. From
September 1994 to November 1996, Mr. Taylor served as
President of the Customer Business Group of Southern New
England Telephone. Mr. Taylor currently serves as a director
of Cybernostics, Skyonline and Bays Village of Connecticut.
Richard M. White...... 56 Mr. White has served as our Executive Vice President and
Chief Financial Officer since November 2000. He served as
our Senior Vice President, Corporate, from August 2000 to
November 2000, as our Senior Vice President, Administration
from May 2000 to August 2000, and as our Vice President,
Administration from January 2000 to May 2000. From August
1997 to January 2000, he served as Vice President
Administration -- Telecommunications for AT&T Canada, which
was formerly MetroNet Communications Corp. From October 1995
to August 1997, he served as Executive Vice President and
Chief Financial Officer for American Louver of Canada. From
April 1994 to September 1995, he was a partner of Core Plus
International. Mr. White is Chartered Accountant (Canada)
and was previously a partner with KPMG.
William R. Botti...... 50 Mr. Botti has served as our Senior Vice President,
Professional Services West since December 2000. He served as
our Senior Vice President, Operations from August 2000 to
November 2000, as our Senior Vice President, Application
Service Provision from May 2000 to August 2000, and as our
Senior Vice President, Server Based-Computing from November
1999 to May 2000. Mr. Botti founded CN Networks, Inc. in
November 1991, and, until we acquired that company in
November 1999, he served as its President and Chief
Executive Officer and as a director.
Ira Silverman......... 36 Mr. Silverman has served as our Senior Vice President,
Professional Services East, since December 2000. He served
as our Regional Director, North East Region form March 2000
to November 2000. Mr. Silverman founded MicroLAN Systems,
Inc., a leading server-based computing integrator, and
served as its President from April 1991 until we acquired
that company in February 2000.
Roger J. Gallego...... 32 Mr. Gallego has served as our Senior Vice President,
Strategy and Corporate Development since November 2000, as
our Senior Vice President, Corporate Development, from
August 2000 to November 2000 and served as our Senior Vice
President, Strategic Business Unit, from October 1999 to
August 2000. From June 1992 to October 1999, he served in a
variety of roles with Micro Visions, including Executive
Vice President. Mr. Gallego is the brother-in-law of Glen C.
Holmes, one of our directors and our former President and
Chief Operating Officer.
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NAME AGE PRINCIPAL OCCUPATION AND OTHER INFORMATION
---- --- ------------------------------------------
Ken Phelan............ 35 Mr. Phelan has served as our Senior Vice President,
Technology and Operations since February 2001. He served as
our Regional Director, Technology from March 2000 to January
2001. Mr. Phelan served as Vice President, Technology, of
MicroLAN Systems, Inc., a leading server-based computing
integrator, from September 1998 until we acquired that
company in February 2000. Between February 1993 and August
1998, Mr. Phelan served as the Director, Technical Services
for OmniTech Corporate Solutions, Inc.
James A. Smith, 51 Mr. Smith has served as our Senior Vice President,
Sr. ................ Operations since December 2000. He served as our Senior Vice
President, Product Delivery from August 2000 to November
2000, and as our Senior Vice President, Operations from
February 2000 to August 2000. From May 1998 until joining
us, Mr. Smith was the Senior Vice President of Operations
for AT&T Canada, which was formerly MetroNet Communications
Corp. From October 1996 until May 1998, Mr. Smith was Senior
Vice President of West Coast Operations and Senior Vice
President of Long Distance Operations for Brooks Fiber
Communications Inc. From October 1985 to October 1996, Mr.
Smith served as the President of Execuline Inc., a long
distance telephone company.
Yuri M. Pasea......... 39 Mr. Pasea has served as President and Managing Director of
our European operations since December 1999. From March 1998
to December 1999, he served as Director for KNS Holdings,
Limited, and from January 1992 to February 1998, Mr. Pasea
served as Associate Director for Kerridge Computer Company.
David Fung............ 47 Mr. Fung has served as President and Chief Operating Officer
of our Canadian operations since June 2000. Mr. Fung founded
Charon System Inc. in August 1991 and, until we acquired the
company in June 2000, he served as its President.
INFORMATION ABOUT THE BOARD OF DIRECTORS AND
COMMITTEES OF THE BOARD
The Board of Directors manages our business. It establishes overall
policies and standards for the Company and reviews the performance of
management. In addition, the Board has established an Audit Committee, a
Compensation Committee, and an Executive Committee whose functions are briefly
described below. The Board has not established a Nominating Committee. The
directors are kept informed of our operations at meetings of the Board and its
committees through reports and analyses from, and discussions with, management.
During the fiscal year ended December 31, 2000 (the "Fiscal Year" or
"Fiscal 2000"), the Board of Directors met on eight (8) occasions and took
action by Unanimous Written Consent on fourteen (14) occasions.
Audit Committee. The Audit Committee consists of Gerald A. Poch, who serves
as Chairman, F. Bryson Farrill and Marshall Geller. The Audit Committee has the
authority to review our financial reporting and financial statements and to
approve quarterly and annual financial statements on behalf of the Board of
Directors. The Audit Committee acts on and reports to the Board of Directors
with respect to various auditing and accounting matters, including the
engagement of our auditors, the scope of the annual audits, the reasonableness
of fees to be paid to the auditors, the performance of our independent auditors
and our accounting practices. The Audit Committee operates under a written
charter adopted by the Board of Directors which is included in this proxy
statement as Appendix A. With the exception of Gerald A. Poch, each of the
members of the Audit Committee is independent, as defined in Rule 4200(a)(15) of
the National Association of Securities Dealers' ("NASD") listing standards. Mr.
Poch does not qualify as an independent director under such definition due to
his ownership interest and management position in Pequot Capital Management,
Inc., an investment funds group that is our largest stockholder and that has the
right to
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nominate two members of our board of directors. The Board of Directors appointed
Mr. Poch to the Audit Committee in accordance with Section 4310(c)(26)(B)(ii) of
the NASD's listing standards, which allows for the appointment of one director
to the Audit Committee who is not independent. In so doing, the Board determined
that Mr. Poch's professional training and experience in private equity and
investment banking, and his involvement and understanding of the Company's past
acquisitions, give him a valuable perspective on the Company's history and
operations and make him uniquely qualified to analyze and understand the
financial and accounting issues with which the Company is presented from time to
time, and to advise the other Committee members on the accounting and financial
reporting functions of the Company. During the Fiscal Year, the Audit Committee
met on six (6) occasions.
Compensation Committee. The Compensation Committee consists of F. Bryson
Farrill, who serves as Chairman, James P. McNiel and Marshall S. Geller. The
Compensation Committee has the authority to review and approve executive
compensation, make recommendations for the appointment of executive officers and
to act as the plan administrator of our stock option plan. During the Fiscal
Year, the Compensation Committee met on six (6) occasions.
Executive Committee. The Executive Committee consists of Gerald A. Poch,
who serves as Chairman, Philip R. Ladouceur, Glen C. Holmes and Michael S. Falk.
The Executive Committee has the authority to approve our daily operational
matters and corporate policies and strategy. The Executive Committee is required
to approve contractual commitments of funds of $2.0 million or more. During the
Fiscal Year, the Executive Committee met on two (2) occasions.
Each of the incumbent directors attended at least 75% of the aggregate of
the total number of meetings of the Board of Directors held during the Fiscal
Year (held during the period for which he has been a director). Each of the
other incumbent directors who were members of a Board Committee, attended at
least 75% of the aggregate of the total number of meetings held by all
committees of the Board on which he served during the Fiscal Year (held during
the period that he served).
COMPENSATION OF DIRECTORS
We have granted options to each of the outside directors of the Company
upon their election to our Board of Directors. We granted Mr. Falk, Mr. Farrill,
Mr. Poch, Mr. McNiel and Mr. Geller options to purchase 100,000 shares of common
stock with exercise prices ranging from $0.84 to $8.97 per share. We expect to
grant additional options to outside directors upon their joining the Board of
Directors for the first time. Directors who are employees of the Company are not
paid any fees or remuneration, as such, for their service on the Board or any
Board Committee.
APPROVAL OF REVERSE STOCK SPLIT
(PROPOSAL 2)
NOTE -- THE RATIO FOR THE REVERSE STOCK SPLIT IS EXPECTED TO BE BETWEEN
ONE-FOR-FIVE AND ONE-FOR-TEN. THE EXACT RATIO TO BE SUBMITTED TO THE
STOCKHOLDERS OF THE COMPANY FOR APPROVAL WILL BE SET BY THE BOARD OF DIRECTORS
PRIOR TO THE FILING OF THE DEFINITIVE PROXY STATEMENT.
INTRODUCTION
The Company's Board of Directors has approved a proposal to amend our
Certificate of Incorporation to effect a one-for- reverse stock split of our
Common Stock. We are submitting the proposal to you, the stockholders, for
approval. The proposed reverse stock split will take effect, if at all, after it
is approved by you and after we file a Certificate of Amendment, in the form
attached hereto as Appendix B, with the Secretary of State of the State of
Delaware. We expect that, if the proposal is approved by you, the Certificate of
Amendment will be filed promptly following the Annual Meeting.
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PURPOSE OF REVERSE STOCK SPLIT
The proposed one-for- reverse stock split has been approved by the
Board of Directors to reduce the number of issued and outstanding shares of the
Common Stock in order to increase the trading price of our shares on the Nasdaq
National Market. The Board took this action because the Common Stock has failed,
for more than 30 consecutive days, to maintain the $1.00 minimum bid price
required by Nasdaq Marketplace Rule 4450(a)(5) (the "Rule").
On March 26, 2001, Nasdaq formally notified the Company of its failure to
comply with the Rule. Pursuant to Nasdaq Marketplace Rule 4310(c)(8)(b), Nasdaq
has given the Company 90 calendar days, or until June 25, 2001, to regain
compliance with the Rule. If the minimum bid price for the Company's Common
Stock is at least $1.00 for at least ten consecutive trading days prior to June
25, 2001, the Company will be deemed to have regained compliance with the Rule.
However, Nasdaq has notified us that, if we are unable to demonstrate
compliance with the Rule on or before June 25, 2001, the Nasdaq staff will
provide the Company with written notification that its securities will be
delisted. At that time, we may appeal the Nasdaq staff's decision to a Nasdaq
Listing Qualifications Panel (the "Panel"). If the Company does not regain
compliance with the Rule before June 25, 2001, the Company intends to request a
hearing before the Panel and request a stay of the delisting of the Common Stock
pending resolution of the appeal.
Since the Nasdaq Small Cap Market also has a $1.00 minimum bid requirement,
if the Common Stock is delisted from the Nasdaq National Market, trading in the
Common Stock, if any, would have to be conducted in the over-the-counter market
(also known as the pink sheet market). In such an event, an investor could find
it more difficult to dispose of, or to obtain accurate quotations as to the
market value of, the Common Stock.
In addition, if the Common Stock were to become delisted from trading on
the Nasdaq National Market and the trading price were to remain below $5.00 per
share, trading in the Common Stock may also be subject to the requirements of
certain rules promulgated under the Securities Exchange Act of 1934, which
require additional disclosures by broker-dealers in connection with any trades
involving a stock defined as a "penny stock" (generally, any non-Nasdaq equity
security that has a market price of less than $5.00 per share, subject to
certain exceptions). The additional burdens imposed upon broker-dealers by these
requirements could discourage broker-dealers from facilitating trades in the
Common Stock, which could severely limit the market liquidity of the stock and
the ability of investors to trade the Common Stock.
The Board of Directors believes that the proposed one-for- reverse
stock split, if approved, will result in an increase in the minimum bid price of
the Common Stock to above the $1.00 per share minimum bid requirement mandated
by the Nasdaq continued listing requirements and help enable the Common Stock to
continue to trade on the Nasdaq National Market. However, there can be no
assurance that the Company's stock price will remain above the $1.00 minimum bid
after the proposed one-for- reverse stock split. Moreover, the Company would
also need to continue to satisfy all other maintenance criteria. There can be no
assurance that we will be successful in meeting and maintaining these
maintenance criteria or that, even if these criteria are met, the Company's
Common Stock will continue to be traded on the Nasdaq National Market.
Accordingly, the Board of Directors is asking that the stockholders approve
the proposed amendment to the Company's Certificate of Incorporation to
effectuate a one-for- reverse stock split of the Common Stock. A vote in
favor of Proposal Two (the "Reverse Stock Split Proposal") will be a vote for
approval of the proposed one-for- reverse stock split and for granting
authority to the Board of Directors to effectuate the reverse stock split.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR OF THE
REVERSE STOCK SPLIT PROPOSAL.
EFFECTS OF REVERSE STOCK SPLIT
A reverse stock split is a reduction in the number of outstanding shares of
a corporation's common stock, which is accomplished by the corporation calling
in all the outstanding common stock shares and reissuing a
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proportionately fewer number of shares. For example, if our Board of Directors
implements the proposed one-for- reverse stock split, then someone holding
shares of the Common Stock would receive 100 shares of the Common Stock in
exchange for such shares. This will also result in an increase in the number of
authorized but unissued shares of the Common Stock. However, each stockholder's
proportionate ownership of the issued and outstanding shares of the Common Stock
would remain the same, except for minor changes which may result from the
provisions of the Reverse Stock Split Proposal, as described below, which
require the rounding of any resulting fractional shares up to the nearest whole
share.
The primary purpose of the proposed one-for- reverse stock split is to
combine the issued and outstanding shares of the Common Stock into a smaller
number of shares so that the shares of the Common Stock will trade at a higher
price per share than their recent trading prices.
The reverse stock split, if implemented, may also reduce the number of
round lot stockholders (round lot stockholders are holders of 100 shares or more
of the Common Stock) of the Company's Common Stock. The Nasdaq National Market
Continued Listing Requirements also require that the Company have at least 400
round lot stockholders to maintain its Nasdaq National Market listing. While
there can be no assurance, based upon information currently available to us from
our transfer agent, we do not believe that the implementation of the reverse
stock split will result in there being less than 400 round lot holders of the
Common Stock.
Finally, the reverse stock split, if implemented, will affect the
outstanding stock options of the Company and certain other presently outstanding
convertible securities issued by the Company, such as stock purchase warrants
and the Series A Preferred Stock which contain anti-dilution provisions. All of
our stock option plans include provisions requiring proportionate adjustments to
the number of shares covered by, and the exercise prices of, outstanding options
granted under said plans, in the event of a reverse stock split. For example, in
a one-for- reverse stock split, each of the outstanding options would
thereafter evidence the right to purchase that number of shares of the Common
Stock following the reverse stock split equal to % of the shares of the
Common Stock previously covered by the options (with fractional shares rounded
up to the nearest whole share) and the exercise price per share would be
times the previous exercise price. Similar adjustments would also be made to all
other convertible securities issued by us and outstanding on the effective date
of the reverse stock split.
NO FRACTIONAL SHARES
In order that we may avoid the expense and inconvenience of issuing and
transferring fractional shares of the Common Stock as a result of the reverse
stock split, we will round any fractional shares resulting from the reverse
stock split up to the nearest whole share. This means that stockholders who
would otherwise be entitled to receive a fractional share of the Common Stock
following the reverse stock split will receive a whole share in lieu of the
fraction. For example, if any stockholder owns, in total, 100 shares, that
stockholder's shares would be converted into shares if the proposed reverse
stock split is implemented.
IMPLEMENTATION OF REVERSE STOCK SPLIT
If the stockholders approve the Reverse Stock Split Proposal, the Board
would direct management of the Company, as soon thereafter as is practicable, to
file an Amendment to the Company's Certificate of Incorporation, substantially
in the form attached hereto as Appendix B, with the Secretary of State of the
State of Delaware (the "Reverse Split Amendment"). The Reverse Split Amendment
specifies that, on the effective date specified in the Reverse Split Amendment,
each of the issued and outstanding shares of the Common Stock would
automatically be combined and converted into one- of a share of the Common
Stock, and the par value of the Common Stock would be automatically increased
from $0.0001 per share to $0.000 per share.
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REASONS FOR REVERSE STOCK SPLIT -- ADVANTAGES
The Board of Directors believes that a reverse stock split is desirable for
the following reasons:
- If shares of the Common Stock continue to trade below $1.00 per share,
the Common Stock will be delisted from the Nasdaq National Market.
Delisting could decrease the marketability, liquidity and transparency of
the Common Stock (which could, in turn, further depress our stock price).
Our Board believes that the anticipated increase in the market price per
share resulting from a reverse stock split will lift the price of the
Common Stock above the $1.00 minimum bid threshold that currently
threatens our continued listing on Nasdaq.
- The anticipated increase in the per share market price of the Common
Stock may also enhance the acceptability of the Common Stock by the
financial community and the investing public.
- Additionally, a variety of brokerage house policies and practices tend to
discourage individual brokers within those firms from dealing with lower
priced stocks. Some of the policies and practices pertain to the payment
of broker's commissions and to time consuming procedures that function to
make the handling of lower priced stock economically unattractive to
brokers. The expected increase in the per share price of the Common Stock
may help alleviate some of such problems.
- In addition, the structure of trading commissions also tends to have an
adverse impact upon holders of lower priced stock because the brokerage
commission on a sale of lower priced stock generally represents a higher
percentage of the sales prices than the commission on a relatively higher
priced issue. A reverse stock split could result in a price level for the
Common Stock that may reduce, to some extent, the effect of these
policies and practices of brokerage firms and diminish the adverse impact
of trading commissions on the market for the Common Stock.
- The increase in the portion of the Company's authorized shares of Common
Stock that would be unissued after the reverse stock split is effectuated
could be used for any proper corporate purpose approved by the Board of
Directors. The increased number of authorized but unissued shares of
Common Stock will provide the Company with additional flexibility to
issue additional shares in connection with future financings or other
transactions. However, the Board of Directors does not currently have any
plans to utilize the increase in the number of the authorized but
unissued shares of the Common Stock that would result from approval and
implementation of the proposed reverse stock split. The following table
sets forth the approximate effects of the proposed reverse stock split on
the authorized and the outstanding shares of the Common Stock and the
number of shares of the Common Stock that will be available for issuance
after implementation of the proposed reverse stock split (without
considering any additional decrease in available shares that may result
from rounding up fractional shares):
[NOTE: THE FOLLOWING TABLE SETS FORTH THE DATA BASED ON OUTSTANDING SHARES,
OPTIONS AND CONVERTIBLE SECURITIES AS OF FEBRUARY , 2001. THESE NUMBERS WILL
BE UPDATED TO THE RECORD DATE FOR THE DEFINITIVE PROXY STATEMENT.]
PRIOR TO AFTER 1-FOR-
REVERSE STOCK SPLIT REVERSE STOCK SPLIT
------------------- -------------------
Authorized Shares.......................... 300,000,000 300,000,000
Outstanding Shares......................... 68,874,848
Reserved for Issuance(1)................... 25,507,012
Shares Issuable in Private Placement(2).... 146,931,384
Shares Available for Issuance.............. 58,686,756
- ---------------
(1) Represents (a) Shares issuable upon conversion of exchangeable Shares of one
of our subsidiaries; (b) Shares issuable upon exercise of outstanding stock
options; (c) Shares issuable upon exercise of outstanding warrants; (d)
Shares issuable upon conversion of outstanding Series A Preferred Stock; and
(e) Shares issuable upon conversion of Series A Preferred Stock issuable
upon exercise of Series A Preferred Stock Purchase Warrants. Does not
include Shares issuable in connection with the Private Placement.
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(2) Represents shares of Common Stock underlying the convertible securities
constituting the Units, calculated based upon a conversion price of $0.2250
per share (the average closing trading price for the five days preceding
[April 5, 2001] [the Record Date].
REASONS AGAINST REVERSE STOCK SPLIT -- DISADVANTAGES
Even though the Board of Directors believes that the potential advantages
of a reverse stock split outweigh any disadvantages that might result, the
following are the possible disadvantages of a reverse stock split:
- Despite the potential increase in liquidity discussed above, the reduced
number of shares resulting from a reverse stock split could adversely
affect the liquidity of the Common Stock because there will be fewer
shares trading in the open market.
- A reverse stock split may leave stockholders with "odd lots" of the
Common Stock (stock holdings in amounts of less than 100 shares). These
odd lots may be more difficult to sell than shares in even multiples of
100. Additionally, any reduction in brokerage commissions resulting from
the reverse stock split, as discussed above, may be offset, in whole or
in part, by increased brokerage commissions required to be paid by
stockholders selling odd lots created by the reverse stock split.
- Because a reverse stock split would result in an increased number of
authorized but unissued shares of the Common Stock, it may be construed
as having an anti-takeover effect, although neither the Board of
Directors nor our management views this proposal in that perspective.
However, the Board of Directors could use the increased number of
authorized but unissued shares to frustrate persons seeking to take over
or otherwise gain control of the Company by, for example, privately
placing shares with purchasers who might side with the Board of Directors
in opposing a hostile takeover bid. Shares of the Common Stock could also
be issued to a holder that would thereafter have sufficient voting power
to assure than any proposal to amend or repeal the Company's by-laws or
certain provisions of the Company's Certificate of Incorporation would
not receive the requisite vote. Such uses of the Common Stock could
render more difficult, or discourage, an attempt to acquire control of
the Company if such transaction were opposed by the Board of Directors.
- Further, the increased number of authorized but unissued shares of the
Common Stock could be issued by the Board of Directors without further
stockholder approval, which could result in further dilution to the
holders of the Common Stock.
EXCHANGE OF STOCK CERTIFICATES
If the reverse stock split is implemented, our stockholders will be
required to exchange their stock certificates for new certificates representing
the new, post-split shares of the Common Stock. Stockholders of record at the
effective time of the reverse stock split will be furnished the necessary
materials and instructions for the surrender and exchange of share certificates
at the appropriate time by our transfer agent.
Stockholders will not have to pay a transfer fee or other fee in connection
with the exchange of certificates. Stockholders should not submit any
certificates until requested to do so.
As soon as practicable after the effective time of the reverse stock split,
the transfer agent will send a letter of transmittal to each stockholder
advising such holder of the procedure for surrendering stock certificates in
exchange for new certificates representing the ownership of the new shares of
the Common Stock. No certificates representing fractional shares will be issued.
Instead, any fractional shares resulting from the reverse stock split will be
rounded up to the nearest whole share.
Until they have surrendered their stock certificates for exchange,
stockholders will not be entitled to receive any dividends or other
distributions that may be declared and payable to holders of record of the new
shares of the Common Stock. Upon the surrender of certificates representing
shares of the Common Stock issued and outstanding prior to the reverse stock
split, certificates representing the new, post-split shares of the
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Common Stock, together with any such withheld dividends or other distributions,
without interest, will be delivered.
Any stockholder whose certificate for the Common Stock has been lost,
destroyed or stolen will be entitled to issuance of a certificate representing
the new, post-split shares of the Common Stock into which such shares will have
been converted upon compliance with such requirements as we and our transfer
agent customarily apply in connection with lost, stolen or destroyed
certificates.
FORM OF CERTIFICATE OF AMENDMENT TO CERTIFICATE OF INCORPORATION
The form of the Reverse Stock Split Amendment to the Certificate of
Incorporation is included as Appendix B to this Proxy Statement.
FEDERAL INCOME TAX CONSEQUENCES
The following summary of the federal income tax consequences of a reverse
stock split is based on current law, including the Internal Revenue Code of
1986, as amended, and is for general information only. The tax treatment of a
stockholder may vary depending upon the particular facts and circumstances of
such stockholder, and the discussion below may not address all the tax
consequences for a particular stockholder. For example, foreign, state and local
tax consequences are not discussed below. Accordingly, each stockholder should
consult his or her tax advisor to determine the particular tax consequences to
him or her of a reverse stock split, including the application and effect of
federal, state, local and/or foreign income tax and other laws.
Generally, a reverse stock split will not result in the recognition of gain
or loss for federal income tax purposes. The adjusted basis of the new shares of
the Common Stock will be the same as the adjusted basis of the Common Stock
exchanged for such new shares. The holding period of the new, post-split shares
of the Common Stock resulting from implementation of the reverse stock split
will include the stockholder's respective holding periods for the pre-split
shares of the Common Stock exchanged for the new shares. This treatment should
also apply with respect to additional shares received for fractional shares.
NO DISSENTERS' RIGHTS
The holders of shares of the Common Stock have no dissenters' rights of
appraisal under Delaware law, our Certificate of Incorporation or our by-laws
with respect to the proposed Amendment to the Company's Certificate of
Incorporation or the one-for- reverse stock split.
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
(PROPOSAL 3)
SELECTION OF INDEPENDENT AUDITORS
The Board has selected Ernst & Young, LLP as the Company's independent
auditors for the fiscal year ending December 31, 2001 and has further directed
that management submit the selection of independent auditors for ratification by
the stockholders at the Annual Meeting. Representatives of Ernst & Young, LLP
are expected to be present at the Annual Meeting, will have an opportunity to
make a statement if they so desire and will be available to respond to
appropriate questions.
Stockholder ratification of the selection of Ernst & Young, LLP as the
Company's independent auditors is not required by the Company's By-laws or
otherwise. However, the Board is submitting the selection of Ernst & Young, LLP
to the stockholders for ratification as a matter of good corporate practice. If
the stockholders fail to ratify the selection, the Board will reconsider whether
or not to retain that firm. Even if the selection is ratified, the Board may, in
its discretion, direct the appointment of different independent auditors at any
time during the year if it determines that such a change would be in the best
interests of the Company and its stockholders.
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The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the Annual Meeting will
be required to ratify the selection of Ernst & Young, LLP as the Company's
independent auditors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR OF THE
RATIFICATION OF APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT
AUDITORS.
RELATIONSHIP OF THE COMPANY WITH INDEPENDENT PUBLIC ACCOUNTANTS
During Fiscal 2000, Ernst & Young also was engaged by the Company to
provide certain consulting services.
Audit Fees. Fees billed by Ernst & Young LLP for the audit of the Company's
consolidated financial statements as of and for the year ended December 31, 2000
totaled $825,000.
All Other Fees. All other fees billed to the Company by Ernst & Young LLP
were approximately $1,400,000, including audit related services of $815,000 and
nonaudit services of $585,000. The Company did not make any payments to Ernst &
Young LLP in connection with financial information systems design and
implementation services.
The Audit Committee has considered and determined that the fees paid to
Ernst & Young LLP for other audit-related services is compatible with Ernst &
Young LLP's independence.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
Notwithstanding anything to the contrary set forth in any of the Company's
previous or future filings under the Securities Act or the Exchange Act that
might incorporate this Proxy Statement or future filings with the SEC, in whole
or in part, the following report shall not be deemed to be incorporated by
reference into any such filing.
The Audit Committee has reviewed and discussed the audited financial
statements of the Company for the fiscal year ended December 31, 2000 with the
Company's management. The Audit Committee has discussed with Ernst & Young LLP,
the Company's independent public accountants, the matters required to be
discussed by Statement on Auditing Standards No. 61 (Communication with Audit
Committees).
The Audit Committee has also received the written disclosures and the
letter from Ernst & Young LLP required by Independence Standards Board Standard
No. 1 (Independence Discussion with Audit Committees) and the Audit Committee
has discussed the independence of Ernst & Young LLP with that firm.
Based on the Audit Committee's review and discussions noted above, the
Audit Committee recommended to the Board of Directors that the Company's audited
financial statements be included in the Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 2000 for filing with the SEC.
Submitted by the Audit Committee:
Gerald A. Poch (Chairman)
F. Bryson Farrill
Marshall Geller
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COMPENSATION OF EXECUTIVE OFFICERS
We are required by the SEC to disclose compensation paid by the Company
during the last three fiscal years to (a) all persons who acted as the Company's
Chief Executive Officer or in a similar capacity during Fiscal 2000; (b) the
Company's four most highly compensated executive officers, other than the Chief
Executive Officer, who were serving as executive officers at the end of Fiscal
2000; and (c) up to two additional individuals for whom such disclosure would
have been provided under clause (b) above but for the fact that the individual
was not serving as an executive officer of the Company at the end of Fiscal
2000; provided, however, that no disclosure need be provided for any executive
officer, other than past or present Chief Executive Officers, whose total annual
salary and bonus does not exceed $100,000.
Accordingly, the following sections disclose information regarding
compensation paid by the Company during the last three fiscal years to (a)
Howard E. Taylor, the Company's Chief Executive Officer, and Philip R.
Ladouceur, who served as the Company's Chief Executive Officer until December
2000; (b) Roger Gallego, William Botti, Richard M. White and Jim Smith, the most
highly-compensated executive officers, other than the Chief Executive Officer,
who were serving as executive officers at the end of Fiscal 2000 and whose
salary and bonus exceeded $100,000; and (c) Messrs. Holmes and Kilambi, for whom
disclosure would be required as two of our most highly-compensated executive
officers, but for the fact that they were not serving as executive officers of
the Company at the end of Fiscal 2000. We refer to all of these officers as the
"Named Executive Officers."
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
--------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING
COMPENSATION OPTIONS/ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($) SARS(#) COMPENSATION($)
- --------------------------- ---- --------- -------- ------------ ------------ ---------------
Howard E. Taylor(1)......... 2000 $ 28,333 -- $ 4,262(2) 2,700,000 --
President and Chief
Executive Officer
Philip R. Ladouceur(3)...... 2000 $198,039 $465,227 -- 75,000(5) --
Executive Chairman and 1999 $110,000 $200,000(4) -- 1,300,000 --
Former Chief Executive 1998 -- -- -- 100,000(6) $68,000(6)
Officer
Roger Gallego............... 2000 $150,000(7) $ 83,398 $13,764(8) 22,430(9) --
Senior Vice President, 1999 $ 63,103 -- --
Strategy and Corporate
Development
William Botti............... 2000 $180,000(7) $ 60,417 $26,076(10) 143,725(11) --
Senior Vice President, 1999 $ 30,000 -- --
Professional Services West
Richard M. White............ 2000 $145,177 $ 41,333 $29,452(12) 263,500(13) --
Executive Vice President
and Chief Financial
Officer
Jim Smith................... 2000 $152,673 $ 25,500 $21,000(14) 89,828 --
Senior Vice President,
Operations
Glen C. Holmes(15).......... 2000 $200,000(7) $252,000 -- -- --
Former President and 1999 $ 58,435 $ 90,000(4) -- 100,000 --
Chief Operating Officer
Raghu N. Kilambi(3)(16)..... 2000 $208,752(17) $155,091 -- 29,500(18) --
Former Chief Financial 1999 $146,771 $ 90,000(4) -- 500,000 --
Officer 1998 $ 67,433 -- $ 4,700 100,000
- ---------------
(1) In connection with our hiring of Mr. Taylor in December 2000, we agreed to
pay him (a) a base salary of $325,000, (b) a signing bonus of $650,000
payable in two equal installments in 2001, (c) options to purchase
2,700,000 shares of our common stock and (d) other compensation benefits.
For a further discussion of the terms of Mr. Taylor's employment agreement,
see the discussion herein under the
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caption "Compensation of Executive Officers -- Employment Contracts and
Termination of Employment and Change of Control Arrangements."
(2) For Mr. Taylor, the amount attributable to perquisites in Fiscal 2000
includes $2,530 for housing expenses and $1,732 for relocation expenses.
(3) The compensation amounts payable to Mr. Ladouceur and Mr. Kilambi for
Fiscal 2000 are in Canadian dollars; however, for purposes of disclosure in
this table, all compensation amounts are expressed in U.S. dollars at a
conversion rate of 1.5 Canadian dollars to 1 U.S. dollar.
(4) Accrued in Fiscal 1999 but paid in Fiscal 2000.
(5) Includes 50,000 stock options granted in lieu of a cash bonus.
(6) At the time Mr. Ladouceur joined our Board of Directors, and before he
became an executive officer, he entered into an agreement with us dated
July 16, 1998. Under the agreement, we paid Mardale Investments Ltd., of
which Mr. Ladouceur is a principal, a fee of $68,000 and granted Mr.
Ladouceur options to purchase 100,000 shares of our Common Stock at an
exercise price of $3.80 per share.
(7) Portions of Mr. Gallego's, Mr. Botti's and Mr. Holmes' salary in Fiscal
2000 were deferred under the Company's 401(k) Plan.
(8) The amount attributable to perquisites in Fiscal 2000 includes $13,764 for
lease payments on a company car.
(9) Includes 10,430 stock options granted in lieu of cash bonus.
(10) The amount attributable to perquisites in Fiscal 2000 was attributable
solely to a housing allowance.
(11) Includes 13,725 stock options granted in lieu of cash bonus.
(12) The amount attributable to perquisites in Fiscal 2000 includes $20,914 for
relocation expenses and $8,538 for a housing allowance.
(13) Includes 9,000 stock options granted in Fiscal 2000 in lieu of cash bonus.
Also includes 4,500 stock options granted in 2001 in lieu of a cash bonus
that accrued in the fourth quarter of Fiscal 2000.
(14) The amount attributable to perquisites in Fiscal 2000 was attributable
solely to relocation expenses.
(15) Mr. Holmes resigned as an executive officer in December 2000.
(16) Mr. Kilambi resigned as an executive officer in December 2000.
(17) $15,473 was attributable to vacation pay paid to Mr. Kilambi upon the
termination of his employment with us.
(18) Includes 4,500 stock options granted in lieu of cash bonus.
STOCK OPTIONS
Stock Option Grants. The following table shows all stock option grants to
the Named Executive Officers during Fiscal 2000. We granted options to purchase
8,796,454 shares of our Common Stock to our employees in 2000. Except as
otherwise set forth below, options granted to our Named Executive Officers
during the 2000 fiscal year vest in four yearly increments and expire between
May 8, 2005 and December 20, 2005.
INDIVIDUAL GRANTS
-----------------------------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL EXERCISE OR
UNDERLYING OPTIONS/SARS BASE PRICE
OPTIONS/SARS GRANTED TO PER EXPIRATION
NAME GRANTED(#)(1) ALL EMPLOYEES SHARE($)(2) DATE
---- ------------- ------------- ----------- ----------
Howard E. Taylor........................ 2,700,000(4) 30.79% $ 0.81 12/04/05
Philip R. Ladouceur..................... 25,000 0.29% $ 6.75 05/23/05
50,000(5) 0.56% $ 1.49 12/18/05
Glen C. Holmes.......................... -- -- -- --
Raghu N. Kilambi........................ 25,000 0.29% $ 6.75 05/23/05
4,500(5) 0.05% $ 1.49 12/18/05
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INDIVIDUAL GRANTS
-----------------------------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL EXERCISE OR
UNDERLYING OPTIONS/SARS BASE PRICE
OPTIONS/SARS GRANTED TO PER EXPIRATION
NAME GRANTED(#)(1) ALL EMPLOYEES SHARE($)(2) DATE
---- ------------- ------------- ----------- ----------
Richard M. White........................ 20,000 0.23% $11.25 05/08/05
10,000 0.11% $ 6.75 05/23/05
20,000 0.23% $ 5.19 08/31/05
9,000(5) 0.10% $ 1.49 12/18/05
200,000 2.28% $ 0.94 12/20/05
William R. Botti........................ 55,000 0.63% $11.25 05/08/05
13,725(5) 0.16% $ 1.49 12/18/05
75,000 0.86% $ 0.94 12/20/05
James A. Smith, Jr. .................... 20,000 0.23% $ 6.75 05/23/05
10,000 0.11% $ 5.19 08/31/05
9,828(5) 0.11% $ 1.49 12/18/05
50,000 0.57% $ 0.94 12/20/05
Roger J. Gallego........................ 12,000 0.14% $ 6.75 05/23/05
10,430(5) 0.12% $ 1.49 12/18/05
- ---------------
(1) Upon a change in control of the Company (as defined in the stock option
agreements relating to the respective plans), the options shall,
notwithstanding the installment vesting provisions, become immediately
exercisable in full.
(2) All options were granted at the fair market value on the date of grant.
(3) We are required by the SEC to use 5% and 10% assumed rate of appreciation
over the ten year option term. This does not represent our estimate or
projection of the future common stock price. If the common stock does not
appreciate, the Named Executive Officers will receive no benefit from the
options.
(4) We granted these options to Mr. Taylor on December 4, 2000. The options vest
as follows: (a) 200,000 on December 31, 2001, if Mr. Taylor meets certain
milestones set by the Board of Directors; otherwise, such options vest on
January 1, 2004; (b) 1,500,000 in eight (8) quarterly installments of
250,000 shares commencing January 1, 2001; and (c) 500,000 on January 1,
2003.
(5) The officer elected to receive this grant in lieu of receiving his third
quarter cash bonus payment. The options were granted on December 18, 2000,
and automatically vested on that day.
Option Exercises/Fiscal Year End Value. The following table shows stock
option exercises and the value of unexercised stock options held by the Named
Executive Officers during Fiscal 2000.
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT FISCAL
SHARES VALUE FISCAL YEAR END YEAR END ($)(1)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
Howard E. Taylor............... -- -- 0 2,700,00 -- --
Philip R. Ladouceur............ -- -- 800,000 675,000 -- --
Glen C. Holmes................. -- -- 75,000 25,000 -- --
Raghu N. Kilambi............... -- -- 354,500 275,000 -- --
Richard M. White............... -- -- 37,750 281,250 -- --
William R. Botti(2)............ -- -- 37,475 201,250 -- --
James A. Smith, Jr.(2)......... -- -- 34,828 155,000 -- --
Roger J. Gallego(2)............ -- -- 197,930 74,500 -- --
- ---------------
(1) Represents the positive difference between the closing price of the Common
Stock on Friday, December 29, 2000 (the last stock trading day of the Fiscal
Year) and the exercise price of the options. The stock option exercise price
for each of the Named Executive Officers was above the closing price of the
common stock on December 29, 2000.
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(2) The officer tendered all of his outstanding options to us pursuant to an
Offer to Exchange that we made to our employees in January 2001 (the "Offer
to Exchange"). Under the terms of the Offer to Exchange, we offered our
employees the opportunity to exchange their outstanding stock options for
new option grants. The number of shares of common stock subject to new
options to be granted to each option holder who validly tendered options
will be equal to the number of shares subject to the options tendered by
such option holder and accepted for exchange minus the number of shares
subject to the options that would have expired in accordance with their
original terms during the period between their tender and the date the new
options are issued. We will grant the new options on or about the first
business day that is at least six months and one day following the date we
cancel and terminate the options accepted for exchange. The exercise price
of the new options will equal the fair market value of our common stock on
the day that is the last trading day immediately prior to the date of grant.
The new options will have the same vesting schedules as the old options.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
We have employment agreements with each of our named executive officers.
Each agreement provides for a fixed base salary and an annual performance bonus
that our compensation committee or the board of directors determines.
Mr. Taylor's employment agreement provides for an annual base salary of
$325,000 and a discretionary annual performance bonus of up to $250,000 in cash.
We granted to Mr. Taylor a performance-based option to purchase 200,000 shares
of our common stock at an exercise price of $0.81 per share. This option will
vest at the end of one year if Mr. Taylor meets the pre-determined milestones
established by our Board of Directors. If the milestones are not met, the option
will vest on January 1, 2004. In addition, we granted to Mr. Taylor an option to
acquire 2,500,000 shares of our common stock at an exercise price of $0.81 per
share. Two million of the shares vest in eight quarterly increments of 250,000
shares each, commencing on January 1, 2001. The remaining 500,000 shares will
vest on January 1, 2003. We also agreed to maintain a $1,000,000 life insurance
policy on Mr. Taylor's life for the beneficiaries named by Mr. Taylor. Mr.
Taylor's employment agreement has a term of two years commencing December 1,
2000. Either party may terminate the agreement at any time. In connection with
his employment agreement, Mr. Taylor is entitled to receive a signing bonus of
$650,000. The signing bonus is payable in two installments of $325,000, the
first installment was paid in January 2001 and the second installment is due in
April 2001. If Mr. Taylor voluntarily terminates his employment during the first
12 months of his employment, Mr. Taylor will be required to repay to us a
portion of the signing bonus on a pro rata basis for each month which remains in
the initial 12-month period of the term of his employment agreement. If we
terminate Mr. Taylor's employment within the first two years of his employment
term without just cause, we must pay him an amount equal to six month's salary,
one-half of his annual performance bonus and six month's insurance premium
contributions paid on his behalf. If we terminate Mr. Taylor's employment after
the first two years of his employment term without just cause, we must pay him
an amount equal to three month's salary, one-quarter of his annual performance
bonus and three month's insurance premium contributions paid on his behalf. In
addition, if at any time we terminate Mr. Taylor's employment without just
cause, we must cause any of Mr. Taylor's unvested stock options that are
scheduled to vest within 12 months of the date of his termination to immediately
accelerate and become exercisable for three months from the date of his
termination. Mr. Taylor's employment agreement also provides that if there is a
change in our control, and Mr. Taylor is terminated without just cause within
six months of such a change in control, or his level of responsibility or
compensation is reduced and he elects within six months of such change in
control to treat his employment as terminated, in each such case we must cause
all of his unvested stock options to immediately accelerate and become
exercisable for three months from the date of his termination.
Mr. White's employment agreement provides for an annual base salary of
$200,000, and the opportunity to earn an annual performance bonus of up to
$100,000. The agreement provides for the payment to Mr. White of up to $39,200
for expenses incurred by Mr. White in relocating from Canada to California. Our
employment agreement with Mr. White is an at-will agreement which either party
can terminate at any time. If we terminate Mr. White's employment without just
cause or if we change his level of responsibility and he
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elects to terminate after such change, we must pay him an amount equal to twelve
months' base salary, his most recent performance bonus, plus certain insurance
premium contributions paid on his behalf, provide him with up to $10,000 in
relocation and financial consulting services or, at his option, pay him $10,000,
and reimburse him up to $39,200 for expenses incurred by Mr. White in relocating
back to Canada. Mr. White's employment agreement also provides that if there is
a change in our control, and Mr. White is terminated without just cause within
six months of such a change in control, or his level of responsibility or
compensation is reduced and he elects within six months of such change in
control to treat his employment as terminated, we must cause his unvested stock
options to immediately accelerate and become exercisable for three months from
the date of his termination.
Mr. Ladouceur's employment agreement provides for an annual base salary of
$200,000, and he is eligible to earn an annual performance bonus of up to
$400,000. Our employment agreement with Mr. Ladouceur is at-will and either
party can terminate the agreement at any time. Mr. Ladouceur's employment
agreement provides that if there is a change in our control, and Mr. Ladouceur
is terminated without just cause within six months of such change in control,
his level of responsibility or compensation is reduced and he elects within six
months of such change in control to treat his employment as terminated, or he
elects within three months of such change in control to terminate his
employment, we must pay him an amount equal to one year's salary, his most
recent performance bonus, and one year's premium contributions to our employee
benefit plan paid on his behalf, provide up to $10,000 in relocation and
financial consulting services, or, at his option, pay him $10,000, and cause his
unvested stock options to accelerate and become exercisable for three months. If
we terminate Mr. Ladouceur's employment without just cause or change his level
of responsibility, and he elects to terminate, we must pay him an amount equal
to one year's salary, his most recent performance bonus, and one year's premium
contributions to our employee benefit plan paid on his behalf, and provide him
with up to $10,000 in relocation and financial consulting services or, at his
option, pay him $10,000.
Mr. Kilambi, who voluntarily resigned and is no longer an employee, had an
employment agreement that provided for an annual base salary of $180,000, and he
was eligible to earn an annual bonus of up to $180,000. Our employment agreement
with Mr. Kilambi was at-will and either party could terminate the agreement at
any time. Mr. Kilambi's employment agreement provided that if there was a change
in our control, and Mr. Kilambi was terminated without just cause within six
months of a change in control of us, his level of responsibility or compensation
was reduced and he elected within six months of such change in control to treat
his employment as terminated, or he elected within three months of such change
in control to terminate his employment, we must pay him an amount equal to one
year's salary, his most recent performance bonus, and one year's premium
contributions to our employee benefit plan paid on his behalf, provide up to
$10,000 in relocation and financial consulting services, or, at his option, pay
him $10,000, and cause his unvested stock options to accelerate and become
exercisable for three months. Mr. Kilambi's agreement also provided that if we
terminated Mr. Kilambi's employment without just cause or change his level of
responsibility, and he elected to terminate, we must pay him an amount equal to
one year's salary, his most recent performance bonus, and one year's premium
contributions to our employee benefit plan paid on his behalf, and provide him
with up to $10,000 in relocation and financial consulting services or, at his
option, pay him $10,000.
Mr. Holmes, who is no longer an officer or employee but remains a director,
had an at-will employment agreement which provided for an annual base salary of
$200,000. Mr. Holmes was also entitled to receive a minimum bonus of $50,000
each quarter and was eligible to receive a discretionary bonus to be determined
by the board of directors. His agreement also provided for 18 months severance
pay (including the minimum bonus for such period), if we terminated Mr. Holmes
without cause, his employment was terminated within 18 months of a change of our
control, Mr. Holmes voluntarily terminated because we materially reduced his
duties or his compensation, or we moved his place of business out of Orange
County, California. We believe that Mr. Holmes' voluntary resignation did not
give rise to an obligation to make severance payments to Mr. Holmes. However,
Mr. Holmes has expressed to us that he believes that he is entitled to such
benefits. As of the date of this Proxy Statement Mr. Holmes has not filed a
formal claim against us.
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Mr. Gallego's employment agreement provides for an annual base salary of
$150,000, and the opportunity to earn an annual performance bonus of up to
$125,000. Our employment agreement with Mr. Gallego for a term of two years,
commencing on September 30, 1999, provided that either party can terminate the
agreement at any time. If we terminate Mr. Gallego's employment without just
cause or if we change his level of responsibility and he elects to terminate
after such change, we must pay him an amount equal to his monthly base salary
and minimum bonus for a period of eighteen months. Mr. Gallego's employment
agreement also provides that if there is a change in our control, and Mr.
Gallego is terminated for any reason within eighteen months of such a change in
control, or his level of responsibility or compensation is reduced and he elects
within three months of such reduction in responsibilities to treat his
employment as terminated, we must pay him an amount equal to eighteen months'
base salary and minimum bonus.
Mr. Smith's employment agreement provides for an annual base salary of
$170,000, and the opportunity to earn an annual performance bonus of up to
$68,000. Our employment agreement with Mr. Smith is an at-will agreement which
either party can terminate at any time.
Mr. Botti's employment agreement provides for an annual base salary of
$180,000, and the opportunity to earn an annual performance bonus of up to
$100,000. Our employment agreement with Mr. Botti is for a term of three years
commencing November 4, 1999, provided that either party can terminate the
agreement at any time. If we terminate Mr. Botti's employment without just
cause, we must pay him a lump sum in an amount equal to six months' base salary.
In addition to the agreements described above, certain of our employee
benefit plans contain termination or change of control provisions.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
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. Cameron Chell, who served as our
Chief Executive Officer from April 1998 to August 1999 and was our President
from March 1999 to August 1999, was a director of both companies at the time
some of the transactions took place. In addition, we have reason to believe that
Mr. Chell was a principal of e-Supplies Inc. at the time of the transactions.
Raghu Kilambi, who served as an Executive Vice President from October 1999 to
November 2000 and as our Chief Financial Officer from March 1998 to November
2000, served on the board of directors of Willson Stationers, Ltd., as our
representative, at the request of Willson Stationers, Ltd., for approximately
one month in early 1999.
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.
On January 20, 2000, we commenced a proceeding in Canada against Mr. Chell,
various other former employees of and consultants to us 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
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severance compensation in the form of cash and stock options. We 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 August 1, 1999, the Company loaned $2.0 million to Vincent L. Romano,
our former Executive Vice President, Special Projects, with recourse, which was
then used by Mr. Romano to purchase 232,829 common shares of common stock. The
loan receivable was recorded as a reduction of stockholders' equity, and
$250,000 of the principal amount of the loan was to be forgiven on a quarterly
basis. The shares had been escrowed and were to be released from escrow on a
quarterly basis commencing January 1, 2000. The Company released 87,349 of these
shares to the employee. During the nine months ended September 30, 2000, the
Company recognized $250,000 as salary expense relating to the services received
from the employee in relation to the loan agreement. On June 30, 2000, the
Company and the employee agreed to terminate the loan agreement and cancel the
issuance of any further shares. In addition, the employee 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.
In October 1999, we issued warrants to acquire 1,658,350 shares of Common
Stock to Pequot Private Equity Fund II, L.P., Pequot Partners Fund and Pequot
International Fund, which, after giving effect to anti-dilution adjustments
since their issuance, entitled the holders to purchase 1,678,139 shares of
Common Stock at $8.40 per share. On February 29, 2000, the funds exercised their
warrants to acquire all 1,678,139 shares of our Common Stock, with net proceeds
to us of approximately $12.6 million, taking into account an early exercise fee
of $0.90 for each warrant exercised. On April 28, 2000, in a private placement
we issued to Pequot Private Equity Fund II, L.P. and Pequot Endowment Fund, L.P.
for just under $15.0 million, 1,764,704 shares of common stock and warrants
which, as of December 31, 2000, allow the holders to purchase 452,916 shares of
Common Stock at a purchase price of $9.01 per share. Pequot Capital Management,
Inc. manages the funds and therefore has the power to direct the vote of the
Common Stock that the funds hold, which constitute more than 5% of our
outstanding common stock both before and after this warrant exercise. In
addition, James McNiel, one of our directors, is a Senior Vice President at
Pequot Capital Management, Inc., and Gerald Poch, also a director, is a Manager
Director/Portfolio Manager at Pequot Capital Management, Inc. Howard Taylor, our
President and Chief Executive Officer, served as venture operating partner at
Pequot Capital Management, Inc. from September 2000 to November 2000.
The two securities purchase agreements we have entered into with the Pequot
funds and two other institutional investors restrict our material subsidiaries
and us without the prior written consent of the Pequot funds from:
- completing any merger, acquisition or sale of assets if our assets or
revenues are likely to be increased or decreased by 25% or more,
- buying any of our equity securities with a fair market value in excess of
$5.0 million, or
- changing the business in which we are currently engaged.
These restrictions will no longer apply at the earliest to occur of:
- the investors under these securities purchase agreements hold less than
5% of our fully-diluted common stock,
- the investors under these securities purchase agreements no longer have
the right to nominate any of our directors under these agreements, and
- October 15, 2002.
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On May 26, 2000, Glen Holmes, our former President and Chief Operating
Officer and one of our directors, 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.
Since May 1999, Commonwealth Associates L.P. ("Commonwealth") has served as
a placement agent and financial advisor to us. Michael Falk, one of our
directors, is the Chief Executive Officer of Commonwealth.
In May 1999, Commonwealth privately placed our units consisting of 8%
senior subordinated convertible notes convertible to shares of common stock at
$1.00 per share after adjustment for our five-for-one reverse stock split and
warrants to purchase 500 shares of common stock at $1.25 per share after
adjustment for our five-for-one reverse stock split for each $1,000 invested. We
paid the to Commonwealth $723,465 in commissions and issued to Commonwealth
warrants to acquire 4,000,000 shares of common stock, some of which were divided
among Commonwealth's employees and management, including Mr. Falk who received
agent's warrants to acquire 630,627 shares of common stock. Mr. Falk has since
exercised all of these warrants on a "cashless" basis and received 599,096
shares of common stock. We also paid to Commonwealth an additional $40,239 to
cover expenses it incurred in connection with the private placement.
Commonwealth directly participated in the offering, investing $300,000 for a
convertible note and warrants to acquire 150,000 shares of common stock which
convertible securities were since exchanged for a total of 495,441 shares of
common stock. Mr. Falk also participated in the offering, investing $225,000,
both directly and through his IRA, in exchange for a convertible note and
warrants which have since been converted or exercised for an aggregate of
371,581 shares of common stock. Tim Flynn, a former director, is the sole
shareholder and President of Flynn Investment Corporation, an entity that
invested $200,000 in this offering in exchange for warrants to purchase 100,000
shares of common stock and a convertible note, which securities have since been
exercised or converted for a total of 330,294 shares of common stock. Raghu
Kilambi, a former director and our former Executive Vice President and Chief
Financial Officer, invested $127,500 in exchange for a convertible note and
warrants which have subsequently been exchanged for a total of 160,563 shares of
common stock. Marshall Geller, one of our directors, invested $100,000 in
exchange for warrants to purchase 50,000 shares of common stock and a
convertible note which securities have been exercised or converted into an
aggregate of 165,147 shares of common stock. Cameron Chell, a former director
and our former Chief Executive Officer, invested $250,000 in exchange for a note
and warrants which were subsequently exchanged for a total of 314,828 shares of
common stock.
In July 1999, we retained Commonwealth to be the placement agent in a
private placement, which raised $15 million in gross proceeds and closed on July
29, 1999. As compensation for acting as the placement agent, we paid
Commonwealth approximately $1,350,000 in commissions and issued to them warrants
to acquire 225,000 shares of Common Stock at an exercise price of $8.50 per
share. We also paid to Commonwealth an additional $50,575 to cover expenses it
incurred in connection with the private placement. A portion of the agent's
warrants were divided among the staff members of Commonwealth or assigned to a
number of investors in the offering who dealt directly with the Company,
including Tim Flynn, one of our former directors. Mr. Falk received agent's
warrants which allowed him to acquire 24,452 shares of common stock. In
addition, Mr. Falk personally invested $50,000 in exchange for warrants to
purchase 7,500 shares of common stock and a convertible note which subsequently
converted into 9,090 shares of common stock and a further warrant which
currently entitles Mr. Falk to acquire 2,487 shares of common stock.
Commonwealth also directly participated in this offering, investing $100,000 in
exchange for 15,000 warrants and a note which subsequently was exchanged for
18,181 shares of common stock and a warrant which currently permits the holder
to acquire 4,975 shares of common stock. Mr. Flynn, through Flynn Investment
Corporation, invested $1,000,000 in this offering for which he received 15,000
agent's warrants, 150,000 warrants, and a note which has been converted into
181,818 shares of common stock and another warrant which permits Flynn
Investment Corporation to acquire 49,761 shares of common stock.
In September 1999, we retained Commonwealth under a services agreement to
assist us with an offer made to holders of convertible securities issued in the
July 1999 private placement to encourage them to convert their securities to
common stock. Under that agreement, Commonwealth was paid $55,859 for fees
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and expenses. We also paid Commonwealth $30,000 in April 1999, pursuant to an
advisory agreement for services that Commonwealth provided to us from May 1999
to November 1999.
In March 2001, we entered into a letter of intent with Commonwealth to
provide us with certain services as a financial advisor. In connection with
these financial advisory services, we will pay to Commonwealth a fee, which,
depending on the nature of the transactions that Commonwealth advises us about,
may consist of cash payments based on a percentage of the size of the
transaction and/or the issuance of certain securities. Under certain
circumstances, Commonwealth may also be entitled to a structuring fee or a
break-up fee of up to $250,000 for a transaction, which is abandoned or does not
close.
In the opinion of management, the terms of the above-described agreements
are fair and reasonable and as favorable to the Company as those, which could
have been obtained from unrelated third parties at the time of their execution.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors and executive
officers and persons who own more than ten percent of a registered class of our
equity securities to file with the SEC initial reports of ownership and reports
of changes in ownership of common stock and other equity securities. Officers,
directors and greater-than-ten-percent stockholders are required by SEC
regulations to furnish us with copies of all Section 16(a) forms they file.
To our knowledge, based solely on review of the copies of such reports
furnished to us and written representations that no other reports were required
during Fiscal 2000, our officers, directors and greater-than-ten-percent
beneficial owners complied with all Section 16(a) filing requirements except as
set forth below:
Current Reporting Officers
Neither Howard Taylor, Richard White, David Fung, Yuri Pasea, Ira Silverman
nor James Smith, filed a Form 3 upon his appointment as an officer of the
Company.
Neither Mr. Taylor, Mr. White, Mr. Fung, Mr. Pasea, Mr. Silverman, Mr.
Smith, William Botti, Roger Gallego nor Philip Ladouceur have yet filed a Form 5
describing the stock options that the Company granted to them in 2000. In 2000,
the Company made one option grant to Mr. Taylor, two option grants to each of
Mr. Pasea, Mr. Silverman, Mr. Gallego and Mr. Ladouceur, three option grants to
each of Mr. Fung and Mr. Botti, four option grants to Mr. Smith, and five option
grants to Mr. White.
In addition, Mr. Silverman, Mr. Botti and Mr. Gallego have not yet filed a
Form 5 describing the common stock the Company contributed to its 401K Plan on
behalf of Mr. Silverman, Mr. Botti and Mr. Gallego, to match contributions they
made during the first two quarters of fiscal 2000.
Reporting Directors
Marshall Geller did not file a Form 3 upon his appointment as a director of
the Company. In addition, Mr. Geller did not file a Form 5 describing the stock
option grant the Company made to him in 2000.
Glen Holmes did not file a Form 4 after he acquired shares of common stock
in 2000 pursuant to an earn out provision in connection with the Company's
purchase of Executive LAN Management, Inc. In addition, Mr. Holmes did not file
a Form 5 describing the common stock the Company contributed to its 401K Plan on
Mr. Holmes' behalf to match contributions he made during the first two quarters
of fiscal 2000.
Former Reporting Persons
Neither Michael Krieger, Chris Harvey nor Dorothy Farris, each a former
executive officer, filed a Form 3 upon their appointment as executive officers
of the Company.
Mr. Harvey was late filing a Form 4 upon acquiring common stock in
connection with the Company's purchase of Vertical Software, Inc. Mr. Harvey
also did not file a Form 5 describing the common stock the
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Company contributed to its 401K Plan on Mr. Harvey's behalf to match
contributions he made during the first two quarters of fiscal 2000.
In addition, neither Mr. Krieger, Mr. Harvey, Ms. Farris, Raghu Kilambi nor
Ross Vincenti, each a former executive officer, filed a Form 5 describing the
stock options the Company granted to them in 2000. In 2000, the Company made two
option grants to each of Mr. Harvey, Mr. Kilambi and Mr. Vincenti, and three
option grants to each of Mr. Krieger and Ms. Farris.
SUBMISSION OF STOCKHOLDER PROPOSALS
AND DIRECTOR NOMINATIONS FOR THE 2002 ANNUAL MEETING
NOMINATIONS FOR DIRECTORS FOR THE 2002 ANNUAL MEETING
No person will be eligible for election as a director unless nominated in
accordance with the provisions of the Nomination Bylaw. Nominations of persons
for election to the Board of Directors may be made by (a) the Board of Directors
or a committee appointed by the Board of Directors or (b) any stockholder who
(i) is a stockholder of record at the time of giving the notice provided for in
the Nomination Bylaw, (ii) will be entitled to vote for the election of
directors at the Annual Meeting and (iii) complies with the notice procedures
set forth in the Nomination Bylaw.
Nominations by stockholders must be made in written form to the Secretary
of the Company. Under the Nomination Bylaw, to be timely for an annual meeting,
a stockholder's notice must be delivered to or mailed and received at our
principal executive offices not less than 60 days prior to the applicable annual
meeting; provided, however, that in the event that less than 60 days notice or
prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the seventh day following the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made.
Therefore, in order to be timely for the 2002 Annual Meeting, a
stockholder's notice must be delivered to or mailed and received at our
principal executive offices not later than 60 days prior to the date of the 2002
annual meeting; provided, however, that in the event that less than 60 days
notice or prior public disclosure of the date of the 2002 annual meeting is
given or made to stockholders, notice by the stockholder to be timely must be so
received not later than the close of business on the seventh day following the
day on which such notice of the date of the meeting is mailed or such public
disclosure is made.
Such stockholder's notice shall set forth (i) as to such stockholder giving
notice, (a) the name and address, as they appear on the Company's books, of the
stockholder proposing the nominee, (b) the class and number of shares of the
Company which are beneficially owned by the stockholder, and (c) any other
information that is required to be provided by the stockholder pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), in his capacity as a proponent to a stockholder proposal; and
(ii) as to each person, if any, whom the stockholder proposes to nominate for
election or re-election as a director: (a) the name, age, business address and
residence address of such person, (b) the principal occupation or employment of
such person, (c) the class and number of shares of the corporation which are
beneficially owned by such person, (d) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nominations are to
be made by the stockholder and (e) any other information relating to such person
that is required to be disclosed in solicitations of proxies for elections of
directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Exchange Act (including without limitation such person's written
consent to being named in the proxy statement, if any, as a nominee and to
serving as a director if elected). At the request of the Board of Directors, any
person nominated by a stockholder for election as a director shall furnish to
the Secretary of the corporation that information required to be set forth in
the stockholder's notice of nomination which pertains to the nominee.
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STOCKHOLDER PROPOSALS FOR THE 2002 ANNUAL MEETING
Under the terms of the Stockholder Proposal Bylaw, to be properly brought
before an annual meeting, business must be (a) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors, (b) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, (c) otherwise properly brought before an
annual meeting by a stockholder. For business (other than the nomination of
directors, which is governed by the Nomination Bylaw) to be properly brought
before an annual meeting by a stockholder, the stockholder must have given
timely notice thereof in writing to the Secretary of the Company.
If you want us to consider including a proposal in the Company's proxy
materials relating to the annual meeting of stockholders to be held in the year
2002, you must submit such proposal to the Company no later than January ,
2002. If such proposal is in compliance with all of the requirements of Rule
14a-8 under the Exchange Act, we will include it in the proxy statement and set
it forth on the form of proxy issued for such annual meeting of stockholders.
You should direct any such stockholder proposals to the attention of the
Secretary of the Company at our address set forth on the first page of this
Proxy Statement.
With respect to any proposal that one of our a stockholders presents at the
annual meeting of stockholders to be held in the year 2002 that is not submitted
for inclusion in the Company's proxy materials, to be timely for an annual
meeting, a stockholder's notice must be delivered to or mailed and received at
our principal executive offices not less than 60 days prior to the applicable
annual meeting; provided, however, that in the event that less than 60 days
notice or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the seventh day following the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made.
Accordingly, with respect to any proposal that a stockholder of the Company
presents at the annual meeting of stockholders to be held in the year 2002 that
is not submitted for inclusion in the Company's proxy materials pursuant to Rule
14a-8 under the Exchange Act, the proxy for such annual meeting of stockholders
will confer discretionary voting authority to vote on such stockholder proposal
unless (a) we are is notified of such proposal no later than 60 days prior to
the applicable annual meeting or, in the event that less than 60 days notice or
prior public disclosure of the date of the meeting is given or made to
stockholders, by not later than the close of business on the seventh day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made, and (b) the proponent complies with the other
requirements set forth in Rule 14a-4 under the Exchange Act.
A stockholder's notice to the Secretary shall set forth as to each matter
the stockholder proposes to bring before the annual meeting: (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and address, as they appear on the Company's books, of the stockholder proposing
such business, (iii) the class and number of shares of the Company which are
beneficially owned by the stockholder, (iv) any material interest of the
stockholder in such business and (v) any other information that is required to
be provided by the stockholder pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), in his capacity as a
proponent to a stockholder proposal.
ANNUAL REPORT
YOU MAY OBTAIN, WITHOUT CHARGE, A COPY OF OUR ANNUAL REPORT ON FORM 10-KSB
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000, INCLUDING THE FINANCIAL STATEMENTS
AND THE FINANCIAL STATEMENT SCHEDULES REQUIRED TO BE FILED WITH THE SEC PURSUANT
TO RULE 13A-1 OF THE EXCHANGE ACT. YOU MAY ALSO OBTAIN COPIES OF EXHIBITS TO THE
FORM 10-KSB, BUT WE WILL CHARGE A REASONABLE FEE TO STOCKHOLDERS REQUESTING SUCH
EXHIBITS. YOU SHOULD DIRECT YOUR REQUEST IN WRITING TO US AT THE ADDRESS OF THE
COMPANY SET FORTH ON THE FIRST PAGE OF THIS PROXY STATEMENT, ATTENTION: JEFFREY
S. MARKS, ASSISTANT SECRETARY.
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OTHER MATTERS
The Board of Directors does not intend to present any items of business
other than those stated in the Notice of Annual Meeting of Stockholders. If
other matters are properly brought before the meeting, the persons named in the
accompanying proxy will vote the shares represented by it in accordance with
their best judgment. Discretionary authority to vote on other matters is
included in the proxy.
By Order of the Board of Directors,
/s/ JEFFREY S. MARKS
--------------------------------------
Jeffrey S. Marks
Assistant Secretary
Lake Forest, California
April , 2001
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APPENDIX A
AUDIT COMMITTEE CHARTER
INTRODUCTION
The executive management of FutureLink Corp. (the "Company") is primarily
responsible for the completeness and accuracy of the Company's financial
reporting and the adequacy of its internal financial and operating controls. The
Company's Board of Directors must oversee management's exercise of these
responsibilities. To assist the Board, the Company has established, through its
bylaws, an Audit Committee whose authority and responsibilities are described by
this Audit Committee Charter (this "Charter").
PURPOSE
This Charter is created in order to define the Audit Committee's
objectives, the range of its authority, the scope of its activities and its
duties and responsibilities. It is intended to give Audit Committee members,
management, and external and internal auditors a clear understanding of their
respective roles. The Audit Committee and the Board of Directors will review and
assess the adequacy of this Charter annually.
MISSION STATEMENT
The purpose of the Audit Committee is to oversee the Company's financial
reporting process, system of internal controls and audit process. In carrying
out this purpose, the Committee will maintain and facilitate free and open
communication between directors, independent auditors, internal auditors and the
Company's financial management.
GENERAL GUIDELINES
A. Size, Composition and Term of Appointment
The Audit Committee shall consist of no fewer than three directors each of
whom are independent of management and the Company. Each member shall be
financially literate and at least one shall have accounting or related financial
management expertise as defined by the relevant rules promulgated by the
Financial Accounting Standards Board ("FASB"), Securities and Exchange
Commission ("SEC"), and the National Association of Securities Dealers ("NASD")
or other regulatory body. The Board of Directors shall appoint the Audit
Committee's Chairperson and members annually.
B. Meetings
The Committee will meet on a quarterly basis, prior to the release of
earnings, and special meetings may be called when circumstances require.
C. Oversight by the Board of Directors
The Committee will report its activities to the full Board on a regular
basis so that the Board is kept informed of its activities on a current basis.
The Committee will perform all duties determined by the Board.
Annually, the Board will determine that the Committee's members are
independent, as defined by the relevant rules promulgated by FASB, the SEC and
the NASD, and that the Committee has fulfilled its duties and responsibilities.
D. Authority
The Committee derives its authority from the By-Laws of the Company and is
hereby given all resources and authority necessary to properly discharge its
duties and responsibilities.
The Committee acts on the Board's behalf in the matters outlined below.
A-1
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E. External Auditors
The Committee, as representatives of the shareholders, has the ultimate
authority to select, evaluate and, where appropriate, replace the independent
public accountants, or to nominate the independent public accountants to be
proposed for shareholder approval in the proxy statement. The Committee will
consider management's recommendation of the appointment of the independent
public accountants. The Committee will review with management the performance,
appointment and/or termination of the independent public accountants.
The Committee will ensure that the independent public accountants provide a
formal written statement to the Committee setting forth all relationships
between the independent public accountants and the Company, consistent with the
Independence Standards Board Standard No. 1. The Committee will discuss with the
independent public accountants any disclosed relationships or services which may
impact the objectivity and independence of the independent public accountants.
The Committee will take, or recommend that the full Board take, appropriate
action to ensure the independence of the independent public accountants.
The Committee will review with management and the independent public
accountants the annual audit scope and approach, significant accounting
policies, audit conclusions regarding significant accounting estimates/reserves,
and proposed fee arrangements for ongoing and special projects.
The Committee will review with management and the independent public
accountants their assessments of the adequacy of internal controls, and the
resolution of identified material weaknesses and reportable conditions in
internal controls, including the prevention or detection of management override
or compromise of the internal control system.
The Committee will review with management and the independent public
accountants the Company's compliance with laws and regulations having to do with
accounting and financial matters.
The Committee and the Board of Directors should consider whether the
independent public accountants should meet with the full Board to discuss any
matters relative to the financial statements and/or any potentially relevant
matters, and to answer any questions that other directors may have.
F. Financial Statements
The Committee will review with management and the independent public
accountants, the Company's interim and year-end financial statements, including
management's discussion and analysis, and audit findings (including any
significant suggestions for improvements provided to management by the Internal
Audit Director, if any, and the independent public accountants). Such review
will include a discussion of significant adjustments recorded or adjustments
passed and will conform with the requirements of SAS 61. Following such review,
the Committee will recommend to the Board whether the audited financial
statements should be included in the Company's annual report on Form 10-K.
The Committee will request from financial management and the independent
public accountants, a briefing on any significant accounting and reporting
issues, including any changes in accounting standards or rules promulgated by
the FASB, SEC or other applicable regulatory bodies, that have an effect on the
financial statements.
The Committee will inquire about the existence and substance of any
significant accounting accruals, reserves, or estimates made by management that
had a material impact on the financial statements.
The Committee will inquire of management and the independent public
accountants if there were any significant financial accounting or reporting
issues discussed during the accounting period and, if so, how they were resolved
or if not resolved, inquire as to the disagreements.
The members of the Committee will discuss among themselves, without
management or the independent public accountants present, the quality of the
accounting principles applied in the preparation of the Company's financial
statements and significant judgments affecting the financial statements; and the
independent public accountants' view of the quality of those principles and such
judgments.
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G. Private Discussions with Independent Public Accountants
The Committee will meet privately with the independent public accountants
to request their opinion on various matters including the quality of the
Company's accounting principles as applied in its financial reporting, and the
quality and performance of its financial and accounting personnel and the
internal audit staff.
The Committee will also discuss privately with the independent public
accountants any issues required from time to time by rules of the SEC, FASB and
NASD or any other applicable agencies.
H. Post-Audit Review
The Committee will review with management and the independent public
accountants the annual Management Letter comments and management's responses to
each.
The Committee will ask the independent public accountants what their
greatest concerns were (including any serious difficulties encountered) and if
they believe anything else should be discussed with the Committee that has not
been raised or covered elsewhere.
I. Litigation
The Committee will discuss/review with management, company counsel, and the
independent public accountants the substance of any significant issues raised by
counsel concerning litigation, contingencies, claims or assessments. The
Committee should understand how such matters are reflected in the Company's
financial statements.
J. Other
The Committee will review the internal audit function of the Company.
The Committee will initiate the investigation of any matter brought to its
attention within the scope of its duties, with the power to retain outside
counsel for this purpose if, in its judgment, that is appropriate.
The Committee will prepare a report for inclusion in the Company's proxy
statement for its annual meeting of stockholders describing the activities in
which it has engaged during the prior year pursuant to its charter. The report
will address all issues then required by the rules of the SEC.
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APPENDIX B
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
FUTURELINK CORP.
The undersigned, Howard E. Taylor, hereby certifies as follows:
1. He is the duly elected, qualified and acting President of
FutureLink Corp., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Corporation").
2. Article IV of the Certificate of Incorporation is hereby amended by
the addition of the following provision:
"Simultaneously with the effective date of this Certificate of Amendment,
each shares of Common Stock issued and outstanding
immediately prior to the effective date of the filing of this Certificate
of Amendment to the Corporation's Certificate of Incorporation is hereby
combined, converted, reclassified and changed into one fully paid and
nonassessable share of Common Stock, $0.0001 par value, of the Corporation,
and each holder of record of a certificate for three or more shares of
Common Stock as of the close of business on the effective date of the
filing of this Certificate of Amendment to the Corporation's Certificate of
Incorporation shall be entitled to receive, as soon as practicable, upon
surrender of such certificate, a certificate or certificates representing
one share of Common Stock for each shares of Common Stock
represented by the certificate of such holder, and any fractional shares
resulting will be rounded up to the next whole share. Until such time as
the certificates representing the Common Stock to be reverse split pursuant
hereto shall have been surrendered, the certificates representing the
Common Stock shall represent the shares of Common Stock issuable upon the
reverse stock split of such Common Stock."
3. The amendment set forth herein has been duly approved and adopted
by the Board of Directors of this Corporation.
4. The necessary number of issued and outstanding shares of capital
stock of the Corporation required by statute were voted in favor of the
amendment.
5. Such amendment was duly adopted in accordance with the provisions
of Sections 228 and 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, FutureLink Corp. has caused this certificate to be
signed by Howard E. Taylor, its President, this day of June, 2001.
Howard E. Taylor,
President and Chief Executive Officer
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PROXY PROXY
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS OF
FUTURELINK CORP.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS AND MAY BE REVOKED PRIOR TO ITS EXERCISE
The undersigned stockholder(s) of FutureLink Corp., a Delaware corporation (the
"Company"), hereby appoints Howard E. Taylor, James J. Sullivan, either of them,
proxies, each with full power of substitution, for and in the name of the
undersigned at the Annual Meeting of Stockholders of the Company to be held on
June 8, 2001, and at any and all adjournments, to vote all shares of the capital
stock of said Company held of record by the undersigned on April 20, 2001, as if
the undersigned were present and voting the shares.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED. IN
THE ABSENCE OF ANY DIRECTION, THE SHARES WILL BE VOTED FOR PROPOSALS 2 AND 3,
FOR THE NOMINEES NAMED IN PROPOSAL 1 ON THE REVERSE SIDE AND IN ACCORDANCE WITH
THEIR DISCRETION ON SUCH OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE
MEETING.
(CONTINUED AND TO BE VOTED, SIGNED AND DATED ON THE REVERSE SIDE)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
36
FUTURELINK CORP.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
THE LISTED NOMINEES AND THE PROPOSAL HAVE BEEN PROPOSED BY THE COMPANY. THE
BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED AND "FOR" THE
LISTED PROPOSAL.
For All
Except
1. ELECTION OF DIRECTORS: as
Indicated
For Withhold to the
All All Contrary
--- --- --------
Nominees for election to the Board of Directors:
Michael S. Falk, F. Bryson Farrill, Marshall S. Geller, [ ] [ ] [ ]
Glen C. Holmes, Philip R. Ladouceur, James P. McNiel and
Gerald A. Poch
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY
NOMINEE, WRITE THE NOMINEE'S NAME ON THE SPACE PROVIDED BELOW.)
- ---------------------------------------------------------------
2. REVERSE STOCK SPLIT For Against Abstain
--- ------- -------
Proposal to approve an amendment the Company's Certificate of [ ] [ ] [ ]
Incorporation to effect a reverse stock split of all issued and outstanding
shares of the Company's common stock, whereby each ____ share of common stock
would be combined, converted and changed into one share of common stock.
3. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS For Against Abstain
--- ------- -------
Proposal to ratify the Company's appointment of Ernst [ ] [ ] [ ]
& Young LLP as the Company's independent auditors.
The proxies are authorized to vote in their discretion upon
such other business as may properly come before the meeting.
I PLAN TO ATTEND THE MEETING [ ]
Please date this Proxy and sign
exactly as your name appears hereon.
When signing as attorney, executor,
administrator, trustee or guardian,
please give your full title. If
there is more than one trustee, all
should sign. All joint owners should
sign.
------------------------------------
Signature
Dated: ______________________ , 2001
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FOLD AND DETACH HERE