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Exhibit 1
FUTURELINK DISTRIBUTION CORP.
AGENCY AGREEMENT
Commonwealth Associates L.P.
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
April 14, 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) $50,000 principal amount of 8%
convertible promissory notes (the "Notes") and (ii) seven-year warrants (the
"Warrants") to purchase 125,000 shares of the Company's common stock, $.0001 par
value (the "Common Stock"). Such offering and sale are referred to herein as the
"Offering." A minimum of 4 Units for $2,0000 ("Minimum Offering") and a maximum
of 100 Units for $5,000,000 ("Maximum Offering") will be sold in the Offering at
$50,000 per Unit. The Maximum Offering may be increased by up to $1,000,00 at
the discretion of the Placement Agent (as defined below) in the event of
over-subscription (the "Over-Allotment Option"). The Units will be offered
pursuant to those terms and conditions acceptable to you as reflected in the
Confidential Term Sheet dated April 14, 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 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.
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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) April 30, 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 the end of the Offering Period, 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 hereby accepts such agency 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 will 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 Documents so that they do not include any untrue
statement of any
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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 ______ 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 contained in the
Offering Documents is accurate in all material respects. The financial
statements 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.
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(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, except as set forth in Schedule G to this Agreement 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. Except as set forth on Schedule H hereto, 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
not significant or important in relation to the Company's business; 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. Except as set forth in Schedule I hereto,
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.
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(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, the Fund Escrow Agreement, the Advisory Agreement
or the M/A Agreement (all as defined herein) 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. 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. 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. The Company has properly accrued all taxes required to be accrued by
generally accepted accounting principals consistently applied. The tax returns
of the Company have never been audited by any state, local or Federal
authorities. 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, the Fund Escrow Agreement , the Advisory Agreement and the M/A
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,
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the Warrants and the Agent's Warrants will be duly executed, issued and
delivered and will constitute 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 except as set forth in Schedule R hereto, 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
granted to the Placement Agent herein, 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.
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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 10 days following the
Termination Date (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 the State 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 a foreign
corporation and is in good standing in each jurisdiction in which the
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ownership or leasing of its properties or conduct of its business requires such
qualification, except where the failure to so qualify or be licensed would not
have a Material Adverse Effect;
(B) each of this Agreement, the Notes, the Warrants, the
Agent's Warrants, the Fund Escrow Agreement, the Subscription Agreements, the
Advisory Agreement and the M/A Agreement 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) 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. To
such counsel's knowledge, there are no outstanding warrants, options,
agreements, convertible securities, preemptive rights 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 other than as set forth
in the Offering Documents. 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
nonassessable and to such counsel's knowledge have not 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 and (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), 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, the Subscription Agreement, the Advisory Agreement or the M/A
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 any material contract, instrument or
document known to such counsel to which the Company is a party, or by which it
or any of its properties is bound or 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
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(G) such counsel has reviewed the Offering Documents and
nothing has come to the attention of such counsel to cause them to have reason
to believe that the Offering Documents contained 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) 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; such counsel has conducted a
search for existing United States patents with claims that might cover the
Company's technology and, in such counsel's opinion, the Company's technology
does not infringe any United States patents.
(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 in the form previously delivered to you regarding the deposit of funds
pending the Closing(s) with a bank or trust company acceptable to the Placement
Agent (the "Fund Escrow Agreement").
(viii) Insider Subscriptions. Prior to the Initial Closing
Date, the Placement Agent shall receive irrevocable Subscription Agreements for
the purchase of not less than an aggregate of $250,000 of Units from management
and directors of the Company or their designees and shall have been advised by
the escrow agent that cleared funds for the purchase of such Units is in escrow.
(ix) Independent Auditors. On or prior to the Initial Closing
Date, the Company shall have retained a firm of independent auditors acceptable
to the Placement Agent. The Company will not switch auditors other than to
another "Big Five" firm during the three-year period following the Initial
Closing Date.
(x) Financial Projections. On or prior to the Initial Closing
Date, the Placement Agent shall receive two-year quarterly financial projections
which have been reviewed and approved by the Company and the Placement Agent.
(xi) Advisory Agreement. On or prior to the Initial Closing
Date, the Company shall execute and deliver to the Placement Agent an advisory
agreement with the Placement Agent, in the form previously delivered to the
Company by the Placement Agent (the "Advisory Agreement") and shall deliver to
the Placement Agent the warrants provided for in such agreement.
(xii) Merger and Acquisition Agreement. On or prior to the
Initial Closing Date, the Company shall execute and deliver to the Placement
Agent an agreement with the
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Placement Agent regarding mergers and acquisitions, in the form previously
delivered to the Company by the Placement Agent (the "M/A Agreement").
(xiii) Lock-Up Agreements. On or prior to the Initial Closing
Date, the Placement Agent shall receive agreements from each officer and
director of the Company to the effect that such individual shall not sell,
assign or transfer any of their securities of the Company for the period of 12
months from the final Closing without the prior written consent of the Placement
Agent and, if requested by the managing underwriter of a public offering, for an
additional 12-month period.
(xiv) Board Designee. During the period ending two years from
the Initial Closing Date, the Company agrees to nominate a designee of the
Placement Agent to the Company's Board of Directors. The Placement Agent shall
also have the right to immediately appoint a majority of the Board of Directors
if the Company fails to repay the Notes when due.
(xv) Irrevocable Proxy. The Placement Agent shall receive, on
or prior to the Initial Closing Date, an irrevocable proxy from each of the
officers and directors of the Company granting the Placement Agent a proxy to
vote their shares for the election of directors solely for the purpose of
enforcing the Placement Agent's rights described in subsection (xiv) above.
(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 (vii) 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 6.5% of the aggregate purchase price of the Units sold (including
Over-allotment Option Units); (ii) a structuring fee equal to 2.5% of the
aggregate purchase price of the Units sold (including Over-allotment Option
Units) and (iii) reimbursement of accountable expenses up to $25,000 (excluding
legal fees and disbursements of counsel to the Placement Agent which shall also
be reimbursable 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 (not to exceed $2,500) and filing fees. The Company will, at each Closing,
issue to you or your designees (which may include any Selected Dealer or any
officer of the Placement Agent or a Selected Dealer) warrants to purchase 62,500
shares of Common Stock at an exercise price of $.25 per share $50,000 raised in
the Offering and sell to you for $.01 per warrant warrants to purchase 62,500
shares of Common Stock at an exercise price of $.25 per share $50,000 raised in
the Offering (collectively, the "Agent's Warrants"). The Agent's Warrants will
be substantially identical to the Warrants comprising the Units.
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(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 (v) and (vi) of Section
3(b) above, respectively.
(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. Other than $200,000
of working capital advances to be repaid to an executive officer of the Company,
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 and preparing and delivering all placement
agent and selling documents, including, but not limited to, the Agency Agreement
with the Placement Agent and the blue sky memorandum; Note and Warrant
certificates; (ii) blue sky fees, filing fees and the fees (up to $2,500) and
disbursements of Placement Agent's counsel in connection with blue sky matters
(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 $25,000 (exclusive of fees and expenses of
counsel to the Placement Agent which are also reimbursable by the Company).
If the Company decides not to proceed with the Offering for any
reason (other than Placement Agent's failure to close on the Offering in the
time frame set forth in Paragraph 1 of the letter of intent dated March 15, 1999
between the parties (the "LOI")), or if the Placement Agent decides not to
proceed with the Offering because of a material breach by the Company of its
representations, warranties, or covenants in this Agreement or in the LOI or as
a result of material adverse changes in the affairs of the Company, or failure
to meet the General Conditions set forth
Page 26 of 84 Pages
in Paragraph 9 of the LOI, the Company will be obligated to pay the Placement
Agent liquidated damages of $120,000, to reimburse the Placement Agent for its
time, work and expenses up to the sum of $25,000 and to issue the Placement
Agent Agent's Warrants to purchase 12,500,000 shares of Common Stock. If the
Placement Agent decides not to proceed with the Offering other than for the
reasons set forth above, the Company's obligation to reimburse the Placement
Agent shall be limited to $25,000. 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.
(f) 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.
(g) 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.
(h) Key-Man Insurance. Prior to the Initial Closing Date, the
Company shall have obtained "key-man" life insurance policies in the amount of
at least $2,000,000 on the life of Cameron Shell. Such policy will be kept in
effect for at least three years from the Initial Closing Date.
Page 27 of 84 Pages
(i) Executive Compensation. The compensation of the executive
officers of the Company shall not increase until repayment of the Notes. In
addition, 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 approval of the holders of a majority in principal amount of the Notes
(including holders who have converted their Notes).
(j) Budgets. During the period ending two years after the Initial
Closing Date, the Company shall prepare quarterly budgets reflecting its
proposed operations and cash flow needs and submit such budgets to the Placement
Agent for review and to the Company's Board of Directors for its approval.
(k) By-Laws. 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 its By-laws without shareholder approval and the approval of the
holders of a majority in principal amount of the Notes (including holders who
have converted their Notes).
(l) Right of First Refusal. In the event the Maximum Offering is
sold, if during the two-year period after the Initial Closing Date the Company
proposes to use a manager, placement agent or investment banker or persons
performing similar services for a fee, the Placement Agent shall have the right
of first refusal (the "Right of First Refusal") to purchase for the account of
the Placement Agent or to act as an underwriter or agent for any and all public
or private offerings of the securities of the Company, or any successor to or
subsidiary of the Company or other entity in which the Company has a controlling
equity interest (collectively referred to herein as the "Company"), up to
$40,000,000 (the "Subsequent Offering"); provided, that if the Subsequent
Offering is to be lead managed by a "major bracket underwriting firm", the
Placement Agent shall have only the right to participate in the Subsequent
Offering as a co-manager and receive at least 33% of the total consideration
(including commissions, expense allowance, consulting fees, warrants or other
equity); and provider, further, that if more than $40,000,000 is to be raised in
the Subsequent Offering, the Placement Agent shall have the right on to act as
co-manager or co-agent and receive at least 25% of the total consideration.
Accordingly, if during such period the Company intends to make a Subsequent
Offering, the Company shall notify you in writing of such intention and of the
proposed terms of the offering. The Company shall thereafter promptly furnish
you with such information concerning the business, condition and prospects of
the Company as you may reasonably request. If within 10 business days of the
mailing by registered mail addressed to the Placement Agent with respect to a
Subsequent Offering of such notice of intention and statement of terms you do
not accept in writing such offer to act as underwriter or agent with respect to
such offering or investment banker with respect to such transaction, upon the
terms proposed, the Company shall be free to negotiate terms with other
underwriters or agents with respect to such offering or investment banker with
respect to such transaction, and to effect such offering or transaction on such
proposed terms. Before the Company shall accept any proposal less favorable to
the Company from such underwriter or agent or investment banker or if such
Subsequent Offering is not consummated within six (6) months, your preferential
right shall be reinstated and the same procedure with respect to such modified
proposal as provided above shall be adopted; provided, however, that your
preferential right shall not be reinstated later than two years after the
Initial Closing Date. The failure by you to exercise your
Page 28 of 84 Pages
Right of First Refusal in any particular instance shall not affect in any way
such right with respect to any other Subsequent Offering.
(m) 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;
(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; 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
Page 29 of 84 Pages
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 30 of 84 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, 000-0 Xxxxxx XX, Xxxxxxx, XX Xxxxxx
X0X 0X0, Att: Xxxxx Xxxxxxx, with a copy to Jeffer, Mangels, Xxxxxx & Maranaro,
2121 Avenue of the Stars, 00xx Xxxxx, Xxx Xxxxxxx, Xxxxxxxxxx, Att: Xxxx 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 31 of 84 Pages
understandings, written and oral, between the parties with respect to the
subject matter hereof. 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:
Title:
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
