Page 16 of 81 Pages
FUTURELINK DISTRIBUTION CORP.
AGENCY AGREEMENT
Commonwealth Associates L.P.
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
July 1, 1999
Gentlemen:
FutureLink Distribution Corp., a Colorado corporation (the "Company"),
proposes to offer for sale to "accredited investors", in a private placement,
units ("Units"), each Unit consisting (i) $250,000 principal amount of 8% senior
subordinated convertible promissory notes (the "Notes") and (ii) two-year
warrants (the "Warrants") to purchase 37,500 shares of the Company's common
stock, $.0005 par value (the "Common Stock"). Such offering and sale are
referred to herein as the "Offering." A minimum of 20 Units for $5,000,000
("Minimum Offering") and a maximum of 40 Units for $10,000,000 ("Maximum
Offering") will be sold in the Offering at $250,000 per Unit. The Units will be
offered pursuant to those terms and conditions acceptable to you as reflected in
the Confidential Term Sheet dated July 1, 1999 (the "Term Sheet"). The Minimum
Offering will be made on a "best efforts - all-or-none" basis and the balance of
the Offering will be offered on a "best efforts" basis. The Units are being
offered pursuant to the Term Sheet and related documents in accordance with
Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act")
and Rule 506 of Regulation D promulgated thereunder.
Commonwealth Associates is sometimes referred to herein as the "Placement
Agent." The Term Sheet (including the exhibits thereto), as it may be amended or
supplemented from time to time, and the form of proposed subscription agreement
between the Company and each subscriber (the "Subscription Agreement") and the
exhibits which are part of the Term Sheet and/or Subscription Agreement are
collectively referred to herein as the "Offering Documents."
The Company will prepare and deliver to the Placement Agent a reasonable
number of copies of the Offering Documents in form and substance satisfactory to
counsel to the Placement Agent.
Each prospective investor subscribing to purchase Units ("Subscriber")
will be required to deliver, among other things, a Subscription Agreement and a
confidential purchaser questionnaire ("Questionnaire") in the form to be
provided to offerees. Capitalized terms used herein, unless otherwise defined or
unless the context otherwise indicates, shall have the same meanings provided in
the Offering Documents.
Page 17 of 81 Pages
1. Appointment of Placement Agent.
(a) You are hereby appointed exclusive Placement Agent of the
Company (subject to your right to have Selected Dealers, as defined in Section
1(c) hereof, participate in the Offering) during the Offering Period herein
specified for the purposes of assisting the Company in finding qualified
Subscribers pursuant to the offering (the "Offering") described in the Offering
Documents. The Offering Period shall commence on the day (the "Commencement
Date") the Offering Documents are first made available to you by the Company for
delivery in connection with the offering for sale of the Units and shall
continue until the earlier to occur of (i) the sale of all of the Maximum
Offering or (ii) July 31, 1999; provided, however, that if the Minimum Offering
has been sold by such date, the Offering will continue until August 31, 1999
(unless extended for a period of up to 30 days under circumstances specified in
the Term Sheet). If the Minimum Offering is not sold prior to July 31, 1999, the
Offering will be terminated and all funds received from Subscribers will be
returned, without interest and without any deduction. The day that the Offering
Period terminates is hereinafter referred to as the "Termination Date."
(b) Subject to the performance by the Company of all of its
obligations to be performed under this Agreement and to the completeness and
accuracy of all representations and warranties of the Company contained in this
Agreement, Commonwealth Associates L.P. hereby accepts its appointment as
exclusive Placement Agent and agrees to use its best efforts to assist the
Company in finding qualified subscribers pursuant to the Offering described in
the Offering Documents. It is understood that the Placement Agent has no
commitment to sell the Units. Your agency hereunder is not terminable by the
Company except upon termination of the Offering Period.
(c) Subscriptions for Units shall be evidenced by the execution by
Subscribers of a Subscription Agreement. No Subscription Agreement shall be
effective unless and until it is accepted by the Company. Until the Closing, all
subscription funds received shall be held as described in the Subscription
Agreement. The Placement Agent shall not have any obligation to independently
verify the accuracy or completeness of any information contained in any
Subscription Agreement or the authenticity, sufficiency, or validity of any
check delivered by any prospective investor in payment for Units.
(d) The Placement Agent and its affiliates may purchase Units sold
in the Offering.
2. Representations and Warranties of the Company. The Company represents
and warrants to the Placement Agent and each Selected Dealer, if any, as
follows:
(a) Securities Law Compliance. The Offering Documents conform in all
respects with the requirements of Section 4(2) of the Securities Act and
Regulation D promulgated thereunder and with the requirements of all other
published rules and regulations of the Securities and Exchange Commission (the
"Commission") currently in effect relating to "private offerings" to "accredited
investors" of the type contemplated by the Company. The Offering Documents will
not contain an untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in light of the
circumstances in which they were made, not misleading. If at any time prior to
the completion of the Offering or other termination of this Agreement any event
shall occur as a result of which it might become necessary to amend or
supplement the Offering
Page 18 of 81 Pages
Documents so that they do not include any untrue statement of any material fact
or omit to state any material fact necessary in order to make the statements
therein, in the light of the circumstances then existing, not misleading, the
Company will promptly notify you and will supply you with amendments or
supplements correcting such statement or omission. The Company will also provide
the Placement Agent, for delivery to all offerees and purchasers and their
representatives, if any, any information, documents and instruments which the
Placement Agent deems reasonably necessary to comply with applicable state and
federal law.
(b) Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Colorado
and has all requisite corporate power and authority to own and lease its
properties, to carry on its business as currently conducted and as proposed to
be conducted, to execute and deliver this Agreement and to carry out the
transactions contemplated by this Agreement, as appropriate, and is duly
licensed or qualified to do business as a foreign corporation in each other
jurisdiction in which the conduct of its business or ownership or leasing of its
properties requires it to be so qualified, except where the failure to be so
licensed or qualified would not, in the aggregate, have a material adverse
effect on the business or financial condition of the Company (a "Material
Adverse Effect").
(c) Capitalization. The authorized, issued and outstanding capital
stock of the Company prior to the consummation of the transactions contemplated
hereby is as set forth in the Offering Documents. All issued and outstanding
shares of the Company are validly issued, fully paid and nonassessable (with the
exception of 2,752,321 shares held in escrow to satisfy certain obligations upon
conversion of outstanding debentures and exercise of outstanding warrants which
have not been paid for) and such shares have not been issued in violation of the
preemptive rights of any stockholder of the Company. All prior sales of
securities of the Company were either registered under the Securities Act and
applicable state securities laws or exempt from such registration, and no
security holder has any rescission rights with respect thereto.
(d) Warrants, Preemptive Rights, Etc. Except as set forth in or
contemplated by the Term Sheet, there are not, nor will there be immediately
after the Closing (as hereinafter defined), any outstanding warrants, options,
agreements, convertible securities, preemptive rights to subscribe for or other
commitments pursuant to which the Company is, or may become, obligated to issue
any shares of its capital stock or other securities of the Company and this
Offering will not cause any anti-dilution adjustments to such securities or
commitments except as reflected in the Term Sheet.
(e) Subsidiaries and Investments. Other than as set forth in the
Offering Documents, the Company has no subsidiaries and the Company does not
own, directly or indirectly, any capital stock or other equity ownership or
proprietary interests in any other corporation, association, trust, partnership,
joint venture or other entity.
(f) Financial Statements. The financial information regarding the
Company which is contained in the Offering Documents is accurate in all material
respects. The financial statements of the Company which are attached to the
Offering Documents are hereinafter referred to collectively as the "Financial
Statements". The Financial Statements have been prepared in conformity with
generally accepted accounting principles consistently applied and show all
material liabilities, absolute or contingent, of the Company required to be
recorded thereon and present fairly the financial position and results of
operations of the Company as of the dates and for the periods indicated.
Page 19 of 81 Pages
(g) Absence of Changes. Since the date of the Term Sheet, except
with respect to matters of which the Company has notified you in writing, the
Company has not incurred any liabilities or obligations, direct or contingent,
not in the ordinary course of business, or entered into any transaction not in
the ordinary course of business, which is material to the business of the
Company, and there has not been any change in the capital stock of, or any
incurrence of long-term debt by, the Company, or any issuance of options,
warrants or other rights to purchase the capital stock of the Company, or any
adverse change or any development involving, so far as the Company can now
reasonably foresee, a prospective adverse change in the condition (financial or
otherwise), net worth, results of operations, business, key personnel or
properties which would be material to the business or financial condition of the
Company, and the Company has not become a party to, and neither the business nor
the property of the Company has become the subject of, any material litigation
whether or not in the ordinary course of business.
(h) Title. The Company has good and marketable title to all
properties and assets, owned by it, free and clear of all liens, charges,
encumbrances or restrictions, except such as are incurred in the normal course
of the Company's business, such as general security interests granted to the
Company's banking institution and security interests granted to certain
equipment manufacturers; all of the material leases and subleases under which
the Company is the lessor or sublessor of properties or assets or under which
the Company holds properties or assets as lessee or sublessee are in full force
and effect, and the Company is not in default in any material respect with
respect to any of the terms or provisions of any of such leases or subleases,
and no material claim has been asserted by anyone adverse to rights of the
Company as lessor, sublessor, lessee or sublessee under any of the leases or
subleases mentioned above, or affecting or questioning the right of the Company
to continued possession of the leased or subleased premises or assets under any
such lease or sublease. The Company owns or leases all such properties as are
necessary to its operations as now conducted.
(i) Proprietary Rights. The Company owns or possesses adequate and
enforceable rights to use all patents, patent applications, trademarks, service
marks, copyrights, trade secrets, processes, formulations, technology or
know-how used in the conduct of its business as described in the Term Sheet and
will own or possess such rights with respect to the business to be conducted as
contemplated by the Term Sheet (the "Proprietary Rights"). The Company has not
received any notice of any claims, nor does it have any knowledge of any
threatened claims, and knows of no facts which would form the basis of any
claim, asserted by any person to the effect that the sale or use of any product
or process now used or offered by the Company or proposed to be used or offered
by the Company infringes on any patents or infringes upon the use of any such
Proprietary Rights of another person and, to the best of the Company's
knowledge, no others have infringed the Company's Proprietary Rights.
(j) Litigation. Other than as set forth in the Offering Documents,
there is no material action, suit, investigation, customer complaint, claim or
proceeding at law or in equity by or before any arbitrator, governmental
instrumentality or other agency now pending or, to the knowledge of the Company,
threatened against the Company (or basis therefor known to the Company) the
adverse outcome of which would have a Material Adverse Effect. The Company is
not subject to any judgment, order, writ, injunction or decree of any Federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign which have a Material Adverse
Effect.
Page 20 of 81 Pages
(k) Non-Defaults; Non-Contravention. The Company is not in violation
of or default under, nor will the execution and delivery of this Agreement or
any of the Offering Documents or the Fund Escrow Agreement or consummation of
the transactions contemplated herein or therein result in a violation of or
constitute a default in the performance or observance of any obligation under
(i) its Articles of Incorporation, or its By-laws, or (ii) any indenture,
mortgage, contract, material purchase order or other agreement or instrument to
which the Company is a party or by which it or its property is bound or
affected, where such violation or default would have a Material Adverse Effect,
or (iii) any material order, writ, injunction or decree of any court of any
Federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, where such violation or
default would have a Material Adverse Effect, and there exists no condition,
event or act which constitutes, nor which after notice, the lapse of time or
both, could constitute a default under any of the foregoing, which in either
case would have a Material Adverse Effect.
(l) Taxes. To the best of current management's knowledge: (i) the
Company has filed all Federal, state, local and foreign tax returns which are
required to be filed by it or otherwise met its disclosure obligations to the
relevant agencies and all such returns are true and correct in all material
respects; (ii) the Company has paid all taxes pursuant to such returns or
pursuant to any assessments received by it or which it is obligated to withhold
from amounts owing to any employee, creditor or third party; (iii) the Company
has properly accrued all taxes required to be accrued by generally accepted
accounting principals consistently applied; (iv) the tax returns of the Company
have never been audited by any state, local or Federal authorities; and (v) the
Company has not waived any statute of limitations with respect to taxes or
agreed to any extension of time with respect to any tax assessment or
deficiency.
(m) Compliance With Laws; Licenses, Etc. The Company has not
received notice of any violation of or noncompliance with any Federal, state,
local or foreign, laws, ordinances, regulations and orders applicable to its
business which has not been cured, the violation of, or noncompliance with
which, would have a Material Adverse Effect. The Company has all licenses and
permits and other governmental certificates, authorizations and permits and
approvals (collectively, "Licenses") required by every Federal, state and local
government or regulatory body for the operation of its business as currently
conducted and the use of its properties, except where the failure to be licensed
would not have a Material Adverse Effect. The Licenses are in full force and
effect and to the Company's knowledge no violations currently exist in respect
of any License and no proceeding is pending or threatened to revoke or limit any
thereof.
(n) Authorization of Agreement, Etc. This Agreement has been duly
and validly authorized, executed and delivered by the Company and the execution,
delivery and performance by the Company of this Agreement, the Subscription
Agreement and the Fund Escrow Agreement have been duly authorized by all
requisite corporate action by the Company and when delivered, constitute or will
constitute the legal, valid and binding obligations of the Company, enforceable
in accordance with their respective terms, subject to applicable laws regarding
insolvency and to principles of equity.
(o) Authorization of Notes and Warrants Etc. The issuance, sale and
delivery of the Notes, the Warrants and the Agent's Warrants (as defined herein)
have been duly authorized by all requisite corporate action of the Company. When
so issued, sold and delivered, the Notes, the Warrants and the Agent's Warrants
will be duly executed, issued and delivered and will constitute
Page 21 of 81 Pages
valid and legal obligations of the Company enforceable in accordance with their
respective terms and, in each case, will not be subject to preemptive or any
other similar rights of the stockholders of the Company or others which rights
shall not have been waived prior to the Initial Closing.
(p) Authorization of Reserved Shares. The issuance, sale and
delivery by the Company of the shares of Common Stock issuable upon conversion
of the Notes and exercise of the Warrants and the Agent's Warrants (the
"Reserved Shares") have been duly authorized by all requisite corporate action
of the Company, and the Reserved Shares have been duly reserved for issuance
upon conversion of all or any of the Notes and exercise of all or any of the
Warrants and Agent's Warrants and when so issued, sold, paid for and delivered,
the Reserved Shares will be validly issued and outstanding, fully paid and
nonassessable, and not subject to preemptive or any other similar rights of the
stockholders of the Company or others which rights shall not have been waived
prior to the Initial Closing.
(q) Exemption from Registration. Assuming (i) the accuracy of the
information provided by the respective Subscribers in the Subscription Documents
and (ii) that the Placement Agent has complied in all material respects with the
provisions of Regulation D promulgated under the Securities Act, the offer and
sale of the Units pursuant to the terms of this Agreement are exempt from the
registration requirements of the Securities Act and the rules and regulations
promulgated thereunder (the "Regulations"). The Company is not disqualified from
the exemption under Regulation D by virtue of the disqualifications contained in
Rule 505(b)(2)(iii) or Rule 507 promulgated thereunder.
(r) Registration Rights. Except with respect to holders of the Units
and other securities previously sold to or through the Placement Agent or
otherwise specified in writing to the Placement Agent, no person has any right
to cause the Company to effect the registration under the Securities Act of any
securities of the Company. The Company shall grant registration rights under the
Securities Act to the investors in the Offering and/or their transferees as more
fully described in the Subscription Agreement between the Company and the
investors.
(s) Brokers. Neither the Company nor any of its officers, directors,
employees or stockholders has employed any broker or finder in connection with
the transactions contemplated by this Agreement other than the Placement Agent.
(t) Title to Units. When certificates representing the securities
comprising the Units shall have been duly delivered to the purchasers and
payment shall have been made therefor, the several purchasers shall have good
and marketable title to the Notes and Warrants and/or the Reserved Shares free
and clear of all liens, encumbrances and claims whatsoever (with the exception
of claims arising through the acts or omissions of the purchasers and except as
arising from applicable Federal and state securities laws), and the Company
shall have paid all taxes, if any, in respect of the original issuance thereof.
(u) Right of First Refusal. Except for the right of first refusal
previously granted to the Placement Agent, no person, firm or other business
entity is a party to any agreement, contract or understanding, written or oral
entitling such party to a right of first refusal with respect to offerings by
the Company.
Page 22 of 81 Pages
3. Closing; Placement and Fees.
(a) Closing. Provided the Minimum Offering shall have been
subscribed for and funds representing the sale thereof shall have cleared, a
closing (the "Initial Closing") shall take place at the offices of the Placement
Agent, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx within five business days thereafter
(which date (the "Closing Date") may be accelerated or adjourned by agreement
between the Company and the Placement Agent). At the Initial Closing, payment
for the Units issued and sold by the Company shall be made against delivery of
the Notes and Warrants comprising such Units. In addition, subsequent closings
(if applicable) may be scheduled at the discretion of the Company and Placement
Agent, each of which shall be deemed a "Closing" hereunder.
(b) Conditions to Placement Agent's Obligations. The obligations of
the Placement Agent hereunder will be subject to the accuracy of the
representations and warranties of the Company herein contained as of the date
hereof and as of each Closing Date, to the performance by the Company of its
obligations hereunder and to the following additional conditions:
(i) Due Qualification or Exemption. (A) The Offering will
become qualified or be exempt from qualification under the securities laws of
the several states pursuant to paragraph 4(e) below not later than the Closing
Date, and (B) at the Closing Date no stop order suspending the sale of the Units
shall have been issued, and no proceeding for that purpose shall have been
initiated or threatened;
(ii) No Material Misstatements. Neither the Blue Sky
qualification materials nor the Term Sheet, nor any supplement thereto, will
contain an untrue statement of a fact which in the opinion of the Placement
Agent is material, or omits to state a fact, which in the opinion of the
Placement Agent is material and is required to be stated therein, or is
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading;
(iii) Compliance with Agreements. The Company will have
complied with all agreements and satisfied all conditions on its part to be
performed or satisfied hereunder at or prior to each Closing;
(iv) Corporate Action. The Company will have taken all
necessary corporate action, including, without limitation, obtaining the
approval of the Company's board of directors, for the execution and delivery of
this Agreement, the performance by the Company of its obligations hereunder and
the offering contemplated hereby;
(v) Opinion of Counsel. The Placement Agent shall receive the
opinion of acceptable counsel to the Company, dated the Closing(s),
substantially to the effect that:
(A) the Company is validly existing and in good standing
under the laws of Colorado, has all requisite corporate power and authority
necessary to own or hold its respective properties and conduct its business and
is duly qualified or licensed to do business as described in the Offering
Documents. The Company is not qualified to do business as a foreign corporation
in states other than Colorado;
(B) each of this Agreement, the Notes, the Warrants, the
Agent's
Page 23 of 81 Pages
Warrants, the Fund Escrow Agreement and the Subscription Agreements has been
duly and validly authorized, executed and delivered by the Company, and is the
valid and binding obligation of the Company, enforceable against it in
accordance with its terms, subject to any applicable bankruptcy, insolvency or
other laws affecting the rights of creditors generally and to general equitable
principles;
(C) to the best of such counsel's knowledge: (i) the
authorized, issued and outstanding capital stock of the Company as of the date
hereof (before giving effect to the transactions contemplated by this Agreement)
is as set forth in the Offering Documents and there are no commitments pursuant
to which the Company is, or may become, obligated to issue any shares of its
capital stock or other securities of the Company other than as set forth in the
Offering Documents; (ii) all of the issued shares of capital stock of the
Company issued in connection with and subsequent to the reverse merger in
January1998 have been duly and validly authorized and issued, are fully paid and
non-assessable (with the exception of certain shares currently held in escrow to
satisfy certain obligations upon conversion of outstanding debentures and
exercise of outstanding warrants, which shares will not be fully paid and
non-assessable until such conversion or exercise); and (iii) no securities have
been issued in violation of the preemptive rights of any securityholder of the
Company. The offers and sales of such securities were either registered under
the Securities Act and applicable state securities laws or exempt from such
registration requirements;
(D) assuming (i) the accuracy of the information
provided by the Subscribers in the Subscription Documents, (ii) that the
Placement Agent has complied with the requirements of section 4(2) of the
Securities Act (and the provisions of Regulation D promulgated thereunder),
(iii) that there has been no public solicitation, (iv) each Subscriber has
received the Offering Documents, (v) that the Offering Documents do not contain
any material misstatements or omissions, and (vi) that a Notice on Form D is
timely and accurately filed, the issuance and sale of the Units is exempt from
registration under the Securities Act and Regulation D promulgated thereunder;
(E) neither the execution and delivery of this Agreement
or the Subscription Agreement, nor compliance with the terms hereof or thereof,
nor the consummation of the transactions herein or therein contemplated, nor the
issuance of the Notes, the Warrants or the Agent's Warrants, has, nor will,
conflict with, result in a breach of, or constitute a default under the Articles
of Incorporation or By-laws of the Company, or, to the best of such counsel's
knowledge, any material contract, instrument or document to which the Company is
a party, or by which it or any of its properties is bound or, to the best of
such counsel's knowledge, violate any applicable law, rule, regulation,
judgment, order or decree known to us of any governmental agency or court having
jurisdiction over the Company or any of its properties or business;
(F) to the best of such counsel's knowledge, there are
no claims, actions, suits, investigations or proceedings before or by any
arbitrator, court, governmental authority or instrumentality pending or, to such
counsel's knowledge, threatened against or affecting the Company or involving
the properties of the Company which might materially and adversely affect the
business, properties or financial condition of the Company or which might
materially adversely affect the transactions or other acts contemplated by this
Agreement or the validity or enforceability of this Agreement, except as set
forth in or contemplated by the Offering Documents; and
(G) such counsel has reviewed the Offering Documents and
nothing
Page 24 of 81 Pages
has come to the attention of such counsel to cause them to believe that the
Offering Documents contain any untrue statement of a material fact required to
be stated therein or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading (except for
the financial statements, notes thereto and other financial information and
statistical data contained therein, as to which such counsel need express no
opinion).
(H) to the best of such counsel's knowledge, there have
been no claims asserted against the Company relating to the potential
infringement of or conflict with any patents, trademarks, copyrights or trade
secrets of others.
(vi) Officers' Certificate. The Placement Agent shall receive
a certificate of the Company, signed by the Chief Executive Officer and Chief
Financial Officer thereof, that the representations and warranties contained in
Section 2 hereof are true and accurate in all material respects at such Closing
with the same effect as though expressly made at such Closing.
(vii) Fund Escrow Agreement. On or prior to the Initial
Closing Date, the Placement Agent shall receive a copy of a duly executed escrow
agreement with United States Trust Company of New York in the form previously
delivered to you regarding the deposit of funds pending the Closing(s) (the
"Fund Escrow Agreement").
(c) Blue Sky. A summary blue sky survey shall be prepared by counsel
to the Placement Agent stating the extent to which and the conditions upon which
offers and sales of the Units may be made in certain jurisdictions. It is
understood that such survey may be based on or rely upon (i) the representations
of each Subscriber set forth in the Subscription Agreement delivered by such
Subscriber, (ii) the representations, warranties and agreements of the Company
set forth in Section 2 of this Agreement, (iii) the representations and
warranties of the Placement Agent, and (iv) the representations of the Company
set forth in the certificate to be delivered at the Closing pursuant to
paragraph (vi) of Section 3(b).
(d) Placement Fee and Expenses. Simultaneously with payment for and
delivery of the Units at each Closing as provided in paragraph 3(a) above, the
Company shall at such Closing pay to the Placement Agent (i) a commission equal
to 9% of the gross proceeds from the sale of the Units; (ii) reimbursement of up
to $50,000 of accountable expenses (exclusive of up to $12,000 for blue sky fees
disbursements and up to $20,000 of Placement Agent's counsel fees which shall
also be reimbursable by the Company; and (iii) warrants to purchase that number
of shares of Common Stock as equals 10% of the Warrant Shares issuable upon
exercise of the Warrants sold in the Offering (the Agent's Warrants). The
Agent's Warrants will be substantially identical to the Warrants included in the
Units except that they will not be subject to redemption by the Company. The
Company shall also pay all expenses in connection with the qualification of the
Units under the securities or Blue Sky laws of the states which the Placement
Agent shall designate, including legal fees and filing fees (not to exceed
$12,000). The Agent's Warrants will be issue to you or your designees (which may
include any Selected Dealer or any officer of the Placement Agent or a Selected
Dealer).
(e) Bring-Down Opinions and Certificates. If there is more than one
Closing, then at each such Closing there shall be delivered to the Placement
Agent updated opinion and certificate as described in subsections (v) and (vi)
of Section 3(b) above, respectively.
Page 25 of 81 Pages
(f) No Adverse Changes. There shall not have occurred, at any time
prior to the Closing or, if applicable, any additional Closing, (i) any domestic
or international event, act or occurrence which has materially disrupted, or in
the Placement Agent's opinion will in the immediate future materially disrupt,
the securities markets; (ii) a general suspension of, or a general limitation on
prices for, trading in securities on the New York Stock Exchange or the American
Stock Exchange or in the over-the-counter market; (iii) any outbreak of major
hostilities or other national or international calamity; (iv) any banking
moratorium declared by a state or federal authority; (v) any moratorium declared
in foreign exchange trading by major international banks or other persons; (vi)
any material interruption in the mail service or other means of communication
within the United States; (vii) any material adverse change in the business,
properties, assets, results of operations, or financial condition of the
Company; or (viii) any change in the market for securities in general or in
political, financial, or economic conditions which, in the Placement Agent's
reasonable judgment, makes it inadvisable to proceed with the offering, sale,
and delivery of the Units.
4. Covenants of the Company.
(a) Use of Proceeds. The net proceeds of the Offering will be used
by the Company substantially as set forth in the Term Sheet. The Company shall
not use any of the proceeds from the Offering to repay any indebtedness of the
Company (other than trade payables in the ordinary course), including but not
limited to indebtedness to any current executive officers, directors or
principal stockholders of the Company.
(b) Expenses of Offering. The Company shall be responsible for, and
shall bear all expenses directly incurred in connection with, the proposed
Offering including, but not limited to, (i) legal fees of the Company's counsel
relating to the costs of preparing the Offering Documents and all amendments,
supplements and exhibits thereto; (ii) blue sky filing fees and the fees and
disbursements of Placement Agent's counsel in connection with blue sky matters
(up to $12,000 in the aggregate) (the "Company Expenses"). Such expenses shall
not include the cost of the Placement Agent's mailing, telephone, telegraph,
travel, due diligence meetings, or other similar expenses (the "Placement Agent
expenses") which are reimbursable by the Company up to $50,000 (exclusive of
fees and expenses of counsel to the Placement Agent unrelated to blue sky
matters which are also reimbursable by the Company up to $20,000).
If the Company determines not to proceed with the Offering for any
reason prior to the Termination Date and terminates the Letter of Intent dated
June 16, 1999 (the "LOI") and within one year from the termination of the LOI
obtains any similar financing from any third party, the Company shall be
obligated to pay the Placement Agent a break-up fee as follows:
(1) If the Company elects to terminate the LOI prior to the
distribution of the Term Sheet to prospective investors, the break-up fee
shall be $200,000;
(2) If the Company elects to terminate the LOI after the
distribution of the Term Sheet to prospective investors but prior to the
closing of the Minimum Offering and Commonwealth could have reasonably
been expected to sell the Minimum Offering by July 31, 1999, the break-up
fee shall be $400,000;
(3) If the Company elects to terminate the LOI after closing of not
less than the
Page 26 of 81 Pages
Minimum Offering but prior to the closing of the Maximum Offering and
Commonwealth could have reasonably been expected to sell the Maximum
Offering by August 31, 1999, the break-up fee shall be $600,000;
which break-up fee represents liquidated damages and represents the total
liability of the Company to the Placement Agent to the date of early
termination. Any amounts previously paid to the Placement Agent as compensation
under the LOI or this Agreement will be credited towards the break-up fee.
The Placement Agent shall have no liability to the Company for any reason
should the Placement Agent choose not to proceed with the Offering contemplated
hereby.
(c) Notification. The Company shall notify the Placement Agent
immediately, and in writing, (A) when any event shall have occurred during the
period commencing on the date hereof and ending on the later of the last Closing
or the Termination Date as a result of which the Offering Documents would
include any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, and (B) of the receipt of any notification with respect to the
modification, rescission, withdrawal or suspension of the qualification or
registration of the Units, or of any exemption from such registration or
qualification, in any jurisdiction. The Company will use its best efforts to
prevent the issuance of any such modification, rescission, withdrawal or
suspension and, if any such modification, rescission, withdrawal or suspension
is issued and you so request, to obtain the lifting thereof as promptly as
possible.
(d) Blue Sky. The Company will use its best efforts to qualify or
register the Units for offering and sale under, or establish an exemption from
such qualification or registration under, the securities or "blue sky" laws of
such jurisdictions as you may reasonably request; provided however, that the
Company will not be obligated to qualify as a dealer in securities in any
jurisdiction in which it is not so qualified. The Company will not consummate
any sale of Units in any jurisdiction in which it is not so qualified or in any
manner in which such sale may not be lawfully made.
(e) Form D Filing. The Company shall file five copies of a Notice of
Sales of Securities on Form D with the Securities and Exchange Commission (the
"Commission") no later than 15 days after the first sale of the Units. The
Company shall file promptly such amendments to such Notices on Form D as shall
become necessary and shall also comply with any filing requirement imposed by
the laws of any state or jurisdiction in which offers and sales are made. The
Company shall furnish the Placement Agent with copies of all such filings.
(f) Press Releases, etc. The Company shall not, during the period
commencing on the date hereof and ending on the later of the last Closing and
the Termination Date, issue any press release or other communication, or hold
any press conference with respect to the Company, its financial condition,
results of operations, business, properties, assets, or liabilities, or the
Offering, without the prior consent of the Placement Agent, which consent shall
not be unreasonably withheld.
(g) Executive Compensation. The compensation of the executive
officers of the Company shall not increase until repayment of the Notes, without
the unanimous approval of the Compensation Committee of the Board of Directors
(the "Compensation Committee"). In addition,
Page 27 of 81 Pages
prior to the maturity date of the Notes and thereafter in the event the Company
defaults on repayment of the Notes, the Company shall not amend or enter into
any employment agreement containing anti-takeover provisions without the
unanimous approval of the Compensation Committee.
(h) Transmittal Letters. Within five days after the Closing, the
Placement Agent shall receive copies of all letters from the Company to the
investors transmitting the Notes and Warrants and shall receive a letter from
the Company confirming transmittal of the securities to the investors.
5. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Placement
Agent and each Selected Dealer, if any, and their respective shareholders,
directors, officers, agents and controlling persons (an "Indemnified Party")
against any and all loss, liability, claim, damage and expense whatsoever (and
all actions in respect thereof), and to reimburse the Placement Agent for
reasonable legal fees and related expenses as incurred (including, but not
limited to the costs of investigating, preparing or defending any such action or
claim whether or not in connection with litigation in which the Placement Agent
is a party and the costs of giving testimony or furnishing documents in response
to a subpoena or otherwise), arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Offering Documents or the
omission or alleged omission therefrom of a material fact necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The indemnification provisions incorporated into the LOI
will remain in full force and effect.
(b) The Company agrees to indemnify and hold harmless an Indemnified
Party to the same extent as the foregoing indemnity, against any and all loss,
liability, claim, damage and expense whatsoever directly arising out of the
exercise by any person of any right under the Securities Act or the Exchange Act
or the securities or Blue Sky laws of any state on account of violations of the
representations, warranties or agreements set forth in Section 2 hereof.
(c) Promptly after receipt by an Indemnified Party under this
Section of notice of the commencement of any action, the indemnified party will,
if a claim in respect thereof is to be made against the Company under this
Section, notify in writing the Company of the commencement thereof; but the
omission so to notify the Company will not relieve it from any liability which
it may have to the Indemnified Party otherwise than under this Section except to
the extent the defense of the claim is prejudiced. In case any such action is
brought against an Indemnified Party, and it notifies the Company of the
commencement thereof, the Company will be entitled to participate in, and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, subject to the provisions herein
stated, with counsel reasonably satisfactory to the Indemnified Party, and after
notice from the Company to the Indemnified Party of its election so to assume
the defense thereof, the Company will not be liable to the Indemnified Party
under this Section for any legal or other expenses subsequently incurred by the
Indemnified Party in connection with the defense thereof other than reasonable
costs of investigation (provided the Company has been advised in writing that
such investigation is being undertaken). The Indemnified Party shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall not be at the
expense of the Company if the Company has assumed the defense of the action with
counsel reasonably satisfactory to the Indemnified Party;
Page 28 of 81 Pages
provided that the fees and expenses of such counsel shall be at the expense of
the Company if (i) the employment of such counsel has been specifically
authorized in writing by the Company or (ii) the named parties to any such
action (including any impleaded parties) include both the Indemnified Party or
Parties and the Company and, in the reasonable judgment of counsel for the
Indemnified Party, it is advisable for the Indemnified Party or Parties to be
represented by separate counsel due to an actual conflict of interest (in which
case the Company shall not have the right to assume the defense of such action
on behalf of the an Indemnified Party or Parties), it being understood, however,
that the Company shall not, in connection with any one such action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys for all
the Indemnified Parties. No settlement of any action against an Indemnified
Party shall be made unless such an Indemnified Party is fully and completely
released in connection therewith.
6. Contribution.
To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section (5) but
it is found in a final judicial determination, not subject to further appeal,
that such indemnification may not be enforced in such case, even though this
Agreement expressly provides for indemnification in such case, or (ii) any
indemnified or indemnifying party seeks contribution under the Securities Act,
the Exchange Act, or otherwise, then the Company (including for this purpose any
contribution made by or on behalf of any officer, director, employee or agent
for the Company, or any controlling person of the Company), on the one hand, and
the Placement Agent and any Selected Dealers (including for this purpose any
contribution by or on behalf of an indemnified party), on the other hand, shall
contribute to the losses, liabilities, claims, damages, and expenses whatsoever
to which any of them may be subject, in such proportions as are appropriate to
reflect the relative benefits received by the Company, on the one hand, and the
Placement Agent and the Selected Dealers, on the other hand; provided, however,
that if applicable law does not permit such allocation, then other relevant
equitable considerations such as the relative fault of the Company and the
Placement Agent and the Selected Dealers in connection with the facts which
resulted in such losses, liabilities, claims, damages, and expenses shall also
be considered. In no case shall the Placement Agent or a Selected Dealer be
responsible for a portion of the contribution obligation in excess of the
compensation received by it pursuant to Section 3 hereof or the Selected Dealer
Agreement, as the case may be. No person guilty of a fraudulent
misrepresentation shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation. For purposes of this Section 6,
each person, if any, who controls the Placement Agent or a Selected Dealer
within the meaning of Section 15 of the Securities Act or Section 20(a) of the
Exchange Act and each officer, director, stockholder, employee and agent of the
Placement Agent or a Selected Dealer, shall have the same rights to contribution
as the Placement Agent or the Selected Dealer, and each person, if any who
controls the Company within the meaning of Section 15 of the Securities Act or
Section 20(a) of the Exchange Act and each officer, director, employee and agent
of the Company, shall have the same rights to contribution as the Company,
subject in each case to the provisions of this Section 6. Anything in this
Section 6 to the contrary notwithstanding, no party shall be liable for
contribution with respect to the settlement of any claim or action effected
without its written consent. This Section 6 is intended to supersede any right
to contribution under the Securities Act, the Exchange Act, or otherwise.
Page 29 of 81 Pages
7. Miscellaneous.
(a) Survival. Any termination of the Offering without consummation
thereof shall be without obligation on the part of any party except that the
indemnification provided in Section 5 hereof and the contribution provided in
Section 6 hereof shall survive any termination and shall survive the Closing for
a period of five years.
(b) Representations, Warranties and Covenants to Survive Delivery.
The respective representations, warranties, indemnities, agreements, covenants
and other statements of the Company as of the date hereof shall survive
execution of this Agreement and delivery of the Units and the termination of
this Agreement for a period of one year after such respective event.
(c) No Other Beneficiaries. This Agreement is intended for the sole
and exclusive benefit of the parties hereto and their respective successors and
controlling persons, and no other person, firm or corporation shall have any
third-party beneficiary or other rights hereunder.
(d) Governing Law; Resolution of Disputes. This Agreement shall be
governed by and construed in accordance with the law of the State of New York
without regard to conflict of law provisions. The Placement Agent and the
Company will attempt to settle any claim or controversy arising out of this
Agreement through consultation and negotiation in good faith and a spirit of
mutual cooperation. Should such attempts fail, then the dispute will be mediated
by a mutually acceptable mediator to be chosen by the Placement Agent and the
Company within 15 days after written notice from either party demanding
mediation. Neither party may unreasonably withhold consent to the selection of a
mediator, and the parties will share the costs of the mediation equally. Any
dispute which the parties cannot resolve through negotiation or mediation within
six months of the date of the initial demand for it by one of the parties may
then be submitted to the courts for resolution. The use of mediation will not be
construed under the doctrine of latches, waiver or estoppel to affect adversely
the rights of either party. Nothing in this paragraph will prevent either party
from resorting to judicial proceedings if (a) good faith efforts to resolve the
dispute under these procedures have been unsuccessful or (b) interim relief from
a court is necessary to prevent serious and irreparable injury.
(e) Counterparts. This Agreement may be signed in counterparts with
the same effect as if both parties had signed one and the same instrument.
(f) Notices. Any communications specifically required hereunder to
be in writing, if sent to the Placement Agent, will be sent by overnight courier
providing a receipt of delivery or by certified or registered mail to it at
Commonwealth Associates, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, Att:
Xxxxxxxxx Xxxxx, with a copy to Bachner, Tally, Xxxxxxx & Xxxxxx LLP, 000
Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, Att: Xxxx Xxxxxxx and if sent to the
Company, will be sent by overnight courier providing a receipt of delivery or by
certified or registered mail to it at 000, 000-0xx Xxxxxx XX, Xxxxxxx, XX Xxxxxx
X0X 0X0, Att: Xxxxx Xxxxxxx, with a copy to Jeffer, Mangels, Xxxxxx & Marmaro,
10th Floor, 2121 Avenue of the Stars, Xxx Xxxxxxx, Xxxxxxxxxx, 00000-0000, Att:
Xxxxxxx X. Xxxxxx.
(g) Entire Agreement. This Agreement constitutes the entire
agreement of the parties with respect to the matters herein referred and
supersedes all prior agreements and
Page 30 of 81 Pages
understandings, written and oral, between the parties with respect to the
subject matter hereof except as otherwise specifically set forth herein. Neither
this Agreement nor any term hereof may be changed, waived or terminated orally,
but only by an instrument in writing signed by the party against which
enforcement of the change, waiver or termination is sought.
If you find the foregoing is in accordance with our understanding, kindly
sign and return to us a counterpart hereof, whereupon this instrument along with
all counterparts will become a binding agreement between us.
Very truly yours,
FUTURELINK DISTRIBUTION CORP.
By: --------------------------------
Name: Xxxxx Xxxxxxx
Title: Chief Financial Officer
Agreed:
COMMONWEALTH ASSOCIATES,
a New York limited partnership
By: Commonwealth Associates Management Corp., Inc.
a New York corporation, its general partner
By:
-------------------------------------------------
Name: Xxxxxx Xxxxx
Title: Chief Financial Officer
