<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON , 1998.
REGISTRATION NO. 333-49291
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------------------
FIRSTLINK COMMUNICATIONS, INC.
(Name of small business issuer in its Charter)
<TABLE>
<S> <C> <C>
OREGON 7385 93-1197477
(State or jurisdiction of (Primary Standard Industrial IRS Employer
organization) Classification Identification
Code Number) Number
</TABLE>
190 SW HARRISON
PORTLAND, OREGON 97201
(503) 306-4444
(Address and telephone number of Registrant's principal executive offices)
A. ROGER PEASE
190 SW HARRISON
PORTLAND, OREGON 97201
(503) 306-4444
(Name, address and telephone number of agent for service of process)
----------------------------------
COPIES TO:
DAVID H. DRENNEN, ESQ. GREGORY SICHENZIA, ESQ.
Neuman Drennen & Stone, LLC Sichenzia, Ross & Friedman, LLP
5350 South Roslyn Street, Suite 380 135 West 50th Street
Englewood, Colorado 80111 New York, New York 10020
(303) 221-4700 (303) 694-6287 (Fax) (212) 261-2007 (212) 664-7329 (Fax)
----------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT.
----------------------------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF AMOUNT TO
SECURITIES TO BE REGISTERED BE REGISTERED
<S> <C>
Units (each Unit consists of one share of Common Stock and one Common Stock
Purchase Warrant)(2)............................................................ 1,610,000
Common Stock(3)................................................................... 1,610,000
Common Stock Purchase Warrants(4)................................................. 1,610,000
Common Stock underlying Warrants(5)............................................... 805,000
Representatives' Options(6)....................................................... 140,000
Units underlying Representatives' Option (each Unit consists of one share of
Common Stock and one Common Stock Purchase Warrant)............................. 140,000
Common Stock underlying Representatives' Options.................................. 140,000
Common Stock Purchase Warrants underlying Representatives' Options................ 140,000
Common Stock, underlying Common Stock Purchase Warrant underlying Representatives'
Options......................................................................... 70,000
Common Stock Purchase Warrants, being converted by Selling Shareholders from
Private Warrants................................................................ 188,889
Common Stock issuable Upon exercise of Warrants being converted by Selling
Security Holders................................................................ 94,444
TOTAL
<CAPTION>
PROPOSED MAXIMUM
SECURITIES TO BE REGISTERED PER UNIT(1)
<S> <C>
Units (each Unit consists of one share of Common Stock and one Common Stock
Purchase Warrant)(2)............................................................ $5.50
Common Stock(3)................................................................... --
Common Stock Purchase Warrants(4)................................................. --
Common Stock underlying Warrants(5)............................................... $8.10
Representatives' Options(6)....................................................... $0.001
Units underlying Representatives' Option (each Unit consists of one share of
Common Stock and one Common Stock Purchase Warrant)............................. $7.70
Common Stock underlying Representatives' Options.................................. --
Common Stock Purchase Warrants underlying Representatives' Options................ --
Common Stock, underlying Common Stock Purchase Warrant underlying Representatives'
Options......................................................................... $8.10
Common Stock Purchase Warrants, being converted by Selling Shareholders from
Private Warrants................................................................ $0.10
Common Stock issuable Upon exercise of Warrants being converted by Selling
Security Holders................................................................ $8.10
TOTAL
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE
SECURITIES TO BE REGISTERED OFFERING PRICE
Units (each Unit consists of one share of Common Stock and one Common Stock
Purchase Warrant)(2)............................................................ $8,855,000
Common Stock(3)................................................................... --
Common Stock Purchase Warrants(4)................................................. --
Common Stock underlying Warrants(5)............................................... $6,520,500
Representatives' Options(6)....................................................... $140
Units underlying Representatives' Option (each Unit consists of one share of
Common Stock and one Common Stock Purchase Warrant)............................. $1,078,000
Common Stock underlying Representatives' Options.................................. --
Common Stock Purchase Warrants underlying Representatives' Options................ --
Common Stock, underlying Common Stock Purchase Warrant underlying Representatives'
Options......................................................................... $567,500
Common Stock Purchase Warrants, being converted by Selling Shareholders from
Private Warrants................................................................ $18,889
Common Stock issuable Upon exercise of Warrants being converted by Selling
Security Holders................................................................ $764,996
TOTAL $17,804,525
<CAPTION>
TITLE OF EACH CLASS OF AMOUNT OF
SECURITIES TO BE REGISTERED REGISTRATION FEE
Units (each Unit consists of one share of Common Stock and one Common Stock
Purchase Warrant)(2)............................................................ $2,612
Common Stock(3)................................................................... --
Common Stock Purchase Warrants(4)................................................. --
Common Stock underlying Warrants(5)............................................... $1,924
Representatives' Options(6)....................................................... $0
Units underlying Representatives' Option (each Unit consists of one share of
Common Stock and one Common Stock Purchase Warrant)............................. $318
Common Stock underlying Representatives' Options.................................. --
Common Stock Purchase Warrants underlying Representatives' Options................ --
Common Stock, underlying Common Stock Purchase Warrant underlying Representatives'
Options......................................................................... $167
Common Stock Purchase Warrants, being converted by Selling Shareholders from
Private Warrants................................................................ $6
Common Stock issuable Upon exercise of Warrants being converted by Selling
Security Holders................................................................ $226
TOTAL $5,252
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
(2) Includes 210,000 Units subject to the Underwriters' overallotment option
(3) Includes 210,000 shares subject to the Underwriters' overallotment option
(4) Includes 210,000 Warrants subject to the Underwriters' overallotment option
(5) Issuable upon exercise of the Common Stock Purchase Warrants
(6) The Representatives' Options entitle the Representatives to purchase 140,000
Units at $7.70 per Unit. The Common Stock and Warrants included in the Units
underlying the Representatives' Options may only be purchased together. The
Representatives' Options are exercisable over a four-year period commencing
one year from the effective date of this Registration Statement.
----------------------------------
Pursuant to Rule 416, there are also being registered such additional shares
and warrants as may become issuable pursuant to anti-dilution provisions upon
the exercise of the Warrants and Representatives' Options.
----------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
FIRSTLINK COMMUNICATIONS, INC.
CROSS-REFERENCE INDEX
<TABLE>
<CAPTION>
ITEM NO. AND HEADING
IN FORM SB-2
REGISTRATION STATEMENT LOCATION IN PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and outside
front cover page of Prospectus..................... Forepart of Registration Statement and outside front
cover page of Prospectus
2. Inside front and outside back cover pages of
Prospectus......................................... Inside front and outside back cover pages of
Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges.......................... Prospectus Summary; Risk Factors
4. Use of Proceeds...................................... Use of Proceeds
5. Determination of Offering Price...................... Front Cover Page; Underwriting
6. Dilution............................................. Dilution
7. Plan of Distribution................................. Underwriting
8. Legal Proceedings.................................... Business--Legal Matters
9. Directors, Executive Officers, Promoters and
Controlled Persons................................. Management
10. Security Ownership of Certain Beneficial Owners...... Securities Ownership of Management and Principal
Shareholders
11. Description of Securities to be Registered........... Description of Securities
12. Interest of Named Experts and Counsel................ Legal Matters
13. Disclosure of SEC Position on Indemnification for
Securities Act Liabilities......................... Management--Limitation on Directors' Liability;
Indemnification
14. Organization Within Last Three Years................. Certain Transactions
15. Description of Business.............................. Prospectus Summary; Risk Factors; Business
16. Management's Discussion and Analysis or Plan of
Operation.......................................... Management's Discussion and Analysis of Financial
Condition and Results of Operations
17. Description of Property.............................. Business
18. Certain Relationships and Related
Transactions....................................... Certain Transactions
19. Market for Common Equity and Related Stockholder
Matters............................................ *
20. Executive Compensation............................... Management--Executive Compensation
21. Financial Statements................................. Financial Statements
22. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................ *
</TABLE>
- ------------------------
* Omitted from Prospectus because Item is inapplicable or answer is in the
negative.
2
<PAGE>
EXPLANATORY NOTE
The first Prospectus (the "Offering Prospectus") will be used in connection
with the offering of up to 1,610,00 Units of securities of FirstLink
Communications, Inc., an Oregon corporation (the "Company"), for sale by the
Company in an underwritten public offering (the "Offering Prospectus"). Each
Unit will consist of one share of the Company's no par value Common Stock
("Common Stock") and one Common Stock Purchase Warrant ("Warrants"). The
registered Units include 210,000 Units that may be issued to cover
over-allotments, if any. The second Prospectus (the "Shareholders' Prospectus")
will be used in connection with (1) the resale by Selling Security Holders of
Warrants issued to them through conversion of warrants acquired by them in a
private placement; and (2) the issuance of Common Stock upon exercise of those
Warrants. The Offering Prospectus follows immediately after this Explanatory
Note. The Shareholders' Prospectus will be identical in all respects except for
the alternate pages for the Shareholders' Prospectus included after the Offering
Prospectus, including alternate front and back cover pages and sections entitled
"SELLING SECURITYHOLDERS," "PLAN OF DISTRIBUTION" and "PUBLIC OFFERING" to be
used in lieu of the sections entitled "UNDERWRITING" and "PRINCIPAL STOCK
HOLDERS" in the Offering Prospectus. Certain sections of the Offering
Prospectus, such as "UNDER WRITING," will not be used in the Selling
Shareholders' Prospectus.
3
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 1, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
1,400,000 UNITS
FIRSTLINK COMMUNICATIONS, INC.
EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK
AND ONE COMMON STOCK PURCHASE WARRANT
------------------
FirstLink Communications, Inc., an Oregon Corporation (the "Company"), is
hereby offering to the public 1,400,000 units (the "Units"), each unit
consisting of one share (the "Shares") of common stock, no par value per share
("Common Stock"), and one common stock purchase warrant (the "Warrants"). The
anticipated initial public offering price of the Units is $5.50 per Unit
("Offering Price"), of which $.10 is the public offering price allocated to the
Warrants. Upon completion of the Offering of the Units (the "Offering"), the
Common Stocks and the Warrants will immediately trade separately. Two Warrants
entitle the holder to purchase one share of Common Stock at a price of $8.10 per
share ("Warrant Exercise Price") during the three-year period commencing on the
date of this Prospectus. The Warrants may be redeemed by the Company at any time
after the date of this Prospectus at a price of $.05 per Warrant on 45 days
written notice if the last sale price of the Common Stock exceeds $12.15 for at
least 20 of the 30 trading days immediately preceding the notice of redemption.
Upon 30 days written notice to all holders of the affected class of Warrants,
the Company shall have the right to reduce the exercise price and/or extend the
term of the Warrants. The Units, Common Stocks, and Warrants offered hereby are
sometimes herein collectively referred to as the "Securities." See "Description
of Securities."
In addition, the registration statement of which this Prospectus is a part
(the "Registration Statement") covers the resale by certain shareholders of the
Company (the "Shareholders") of an additional 188,889 Warrants (the
"Shareholders' Warrants"); and the issuance by the Company of 94,444 shares of
Common Stock issuable upon exercise of the Shareholders' Warrants (the
"Shareholders' Warrant Stock"). The Shareholders' Warrants and the Shareholders'
Warrant Stock are sometimes collectively referred to in this Prospectus as the
"Shareholders' Securities." The Shareholders' Warrants and the Shareholders'
Warrant Stock will be available for immediate resale, and may be offered by the
Shareholders subject to certain prospectus delivery requirements (the
"Shareholders' Offering").
Prior to the Offering, there has been no public market for the Common Stock
or the Warrants, and there can be no assurance that such a market will develop
after the effectiveness of the Offering. The offering price (the "Offering
Price") has been determined by negotiation between the Company and Kashner
Davidson Securities Corporation and Joseph Charles & Associates, Inc. (the
"Representatives"), as representatives of the several Underwriters
("Underwriters"). For a discussion of factors considered in determining the
Offering Price and the Warrant Exercise Price, see "Underwriting."
The Representatives are currently negotiating with prospective underwriters
who may or may not become market makers in the Securities, but no additional
market makers for the Securities have been specifically identified at this time.
The Company has filed an application to list the Units, the Common Stock and
Warrants on the Nasdaq SmallCap Market under the symbols "FLCIU," "FLCI," and
"FLCIW." The Company has also filed an application to list the Units, the Common
Stock, and the Warrants on the Boston Stock Exchange under the symbols "FLCU,"
"FLC," and "FLCW."
--------------------------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK AND SUBSTANTIAL IMMEDIATE DILUTION. SEE "RISK FACTORS" BEGINNING AT PAGE 7
AND "DILUTION."
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE
COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR HAS
THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
PRICE TO PUBLIC UNDERWRITING PROCEEDS TO
(1) DISCOUNT (1) COMPANY (1)(2)
<S> <C> <C> <C>
Per Share................................................ $5.50 $.55 $4.95
Total (3)................................................ $7,700,000 $770,000 $6,930,000
(see Notes, next Page)
</TABLE>
The Securities are being offered by the several Underwriters on a firm
commitment basis, subject to prior sale, when, as and if delivered to and
accepted by the Underwriters, and subject to withdrawal or cancellation of the
offer without notice and to their right to reject any order, in whole or in
part, and to certain other conditions. It is expected that delivery of the
certificates representing the Securities will be made on or about , 1998.
--------------------------
KASHNER DAVIDSON SECURITIES CORPORATION JOSEPH CHARLES & ASSOCIATES, INC.
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE>
(1) Excludes a non-accountable expense allowance equal to 3% of the gross
proceeds of the Offering payable to the Representatives, and the sale to the
Representatives for $140 of an option (the "Representatives' Option") to
purchase up to 140,000 Units at a price of $7.70 per Unit, exercisable over
a period of four years commencing one year from the date of this Prospectus.
The Company also has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting offering expenses payable by the Company of approximately
$391,000, including the non-accountable expense allowance to the
Representatives'. See "Underwriting."
(3) The Company has granted the Underwriters a 45-day option to purchase up to
an additional 210,000 Units on the same terms as set forth above to cover
over-allotments, if any (the "Over-allotment Options"). If the Underwriters
exercise such options in full, the total Price to Public, Underwriting
Discount, and Proceeds to Company will be $8,855,000, $885,500, and
$7,969,500 respectively. See "Underwriting."
Any modification to the Offering will be made by means of an amendment to
the Prospectus. The Company reserves the right to withdraw or cancel the
Offering without notice, and to reject any orders, in whole or in part, for the
purchase of any of the offered Securities.
------------------------
Upon effectiveness of the Registration Statement of which this Prospectus is
a part the Company will be subject to the reporting and other requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
Company intends to furnish its stockholders with annual reports containing
financial statements audited by independent certified public accountants, as
well as quarterly financial information for each of the first three quarters of
each fiscal year. The Company will also file reports, proxy statements and other
information with the Securities and Exchange Commission ("Commission").
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
WHICH STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OR
WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE CONVERTING
TRANSACTIONS, OR IMPOSING PENALTY BIDS. SUCH TRANSACTIONS MAY BE EFFECTED ON
NASDAQ OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME. FURTHER, SUCH PERSONS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN
THE COMPANY'S SECURITIES ON NASDAQ IN ACCORDANCE WITH RULE 103 OF REGULATION M
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE RELATED NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL
INFORMATION WITH REGARD TO THE CAPITAL STOCK OF THE COMPANY IN THIS PROSPECTUS,
INCLUDING SHARE AND PER SHARE INFORMATION, (I) ASSUMES NO EXERCISE OF ANY
OUTSTANDING OPTIONS OR WARRANTS OF THE COMPANY PRIOR TO THE OFFERING DESCRIBED
HEREIN, (II) ASSUMES NO EXERCISE OF THE WARRANTS, THE UNDERWRITERS'
OVER-ALLOTMENT OPTION, OR THE REPRESENTATIVES' OPTION SOLD IN THE OFFERING, AND
(III) GIVES EFFECT TO A 1- FOR -1.5 REVERSE STOCK SPLIT TO BE EFFECTED BY THE
COMPANY ON THE EFFECTIVENESS OF THE REGISTRATION STATEMENT OF WHICH THIS
PROSPECTUS IS A PART. (SEE "DESCRIPTION OF SECURITIES" AND "UNDERWRITING.")
THE COMPANY
The Company is a telecommunications company based in Portland, Oregon, that
provides integrated telecommunications and entertainment services to
multi-family apartment and condominium complexes. The Company offers a variety
of services to tenants including the following:
- Cable television
- Local telephone
- Long distance telephone
- Enhanced calling features, such as:
<TABLE>
<S> <C>
- - Call waiting - Call forwarding
- - Conference calling - Distinctive ringing
- - Account coding - Speed dialing
- - Restricted access dialing - Wake-up service
- - Voice mail
</TABLE>
- High Speed Internet access
- Telephone calling cards
Industry sources estimate that the market for US telecommunications services
represents approximately $210 billion. This includes local and long distance
telephone service and cable television. Management estimates that approximately
$7 billion of this figure is represented by the approximately 6 million
apartments in buildings of 200 units or more in the United States.
The Company currently leases telephone transmission facilities from U S West
Communications, Inc. ("USWC"), LDDS Worldcom and Frontier Communications. Cable
television signal is acquired by the Company from TCI Cablevision of Oregon,
Inc., a subsidiary of Tele-Communications, Inc. ("TCI"); and KBL Cablesystems of
the Southwest, a Time Warner company. Switching hardware used by the Company is
manufactured by Cortelco, formerly ITT Solid State, and Digital
Telecommunications Inc. Its high speed Internet services provider is GTE
Intelligent Network Services, Inc. The Company's Internet line provides access
speed, over existing telephone lines using standard equipment, of 1.544 Mb per
second, or approximately 27 times faster than the 56 kilobytes per second
provided by dial-up modems for use over existing telephone lines.
These services are all offered under the Company's service mark to tenants
of apartment and condominium complexes (referred to collectively herein as
"apartments") which are under exclusive contracts with the Company. The services
that are provided to the tenant are "transparent" to him; he does not have to
acquire additional equipment or utilize special procedures to utilize the
services. When a new tenant at a property which has a contract with the Company
signs a service agreement with the Company, the Company assigns the tenant a
telephone number, and installs all requested services in the tenant's apartment
prior to the time the tenant moves in. All services are installed prior to
tenant move-in, thereby eliminating the need to arrange for multiple
installations by multiple vendors. One customer service number covers all
potential service and inquiry needs. One bill is rendered to the tenant at the
end of the month integrating all services provided. Payment is accepted by cash,
check, wire transfer or credit card. In
4
<PAGE>
addition, all services are believed to be offered at or below retail market
prices. The tenant may retain his existing telephone number if allowed by the
incumbent local exchange carrier. There are no fees or interruptions of service
for tenants transferring to FirstLink from another supplier.
The Company provides additional incentives to the property manager or owner,
including the benefit of dealing with a single provider for all communication
services; the ability to offer tenants a complete, integrated package of
communication and entertainment services; and the ability to maintain or improve
occupancy rates by attracting and retaining tenants for whom communications and
entertainment services are important. The property manager or owner and leasing
agents also benefit from the receipt of commissions and further incentives for
successfully marketing the Company's service.
The Company currently has long-term contracts with 20 residential
developments in six cities in the United States, including properties owned by
Harsh Investment Corp, Paine Webber, and an affiliate of Prudential Insurance
Company of America. Eleven of those properties were on-line as of the date of
this Prospectus. The properties contain 4,661 apartment units.
The Company has been able to obtain contracts with building owners and
tenants in the Portland area. It intends to expand to other cities through
arrangements with companies that have established relationships with MDU's in
those cities. As an example, it recently entered into a letter of intent with
Web Service Company, Inc. ("WEB"), one of the largest providers of coin operated
laundry equipment and other services to apartment and condominium complexes in
the United States. Initially, WEB will market the Company's services to the 590
apartment complexes which WEB presently supplies ancillary services in Seattle,
Denver, Dallas, and the San Francisco Bay area, which represent approximately
150,000 units. See "Business--General" and "Business--WEB Agreement."
The Company believes that WEB, which has been in business for over 50 years,
has developed the credibility and recognition with property owners and managers
that will allow the Company to expand into its target markets more rapidly, with
greater penetration levels, and more cost effectively than it could do on its
own.
Approximately $40,000 of the proceeds of this Offering will be used by the
Company to fulfill its obligations under its current contracts in Portland. An
additional $3,652,000 will be used to purchase equipment for additional
expansion in Portland and expansion into five additional cities. Approximately
$2,097,000 of the proceeds will be used to pay additional overhead to service
apartments in those cities. See "Use of Proceeds."
The Company's executive offices are located at 190 SW Harrison, Portland,
Oregon 97201, where its telephone number is (503) 306-4444.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities offered............ 1,400,000 Units (1)
Common Stock outstanding
before the Offering......... 2,164,063 (2)
Common Stock outstanding after
the Offering................ 3,564,063 (2)(3)
Use of proceeds............... Capital expenditures, system enhancements, and working
capital
Proposed Nasdaq Symbols:
Units....................... FLCIU
Common Stock................ FLCI
Warrants.................... FLCIW
Proposed Boston Stock Exchange
Symbols:
Units....................... FLCU
Common Stock................ FLC
Warrants.................... FLCW
</TABLE>
- ------------------------
(1) Until completion of the Offering, the Units may only be purchased on the
basis of one Common Share and one Warrant per Unit. Upon completion of the
Offering, the Common Shares and the Warrants will be immediately detachable
and separately transferable. Two Warrants entitle the holder to purchase one
share of Common Stock at a price of $8.10 per share ("Warrant Exercise
Price") during the three-year period commencing on the date of this
Prospectus. The Warrants may be redeemed by the Company at any time after
the date of this Prospectus at a price of $.05 per Warrant on 45 days
written notice if the last sale price of the Common Stock exceeds $12.10 for
at least 20 of the 30 trading days immediately preceding the notice of
redemption. Upon 30 days written notice to all holders of the affected class
of Warrants, the Company shall have the right to reduce the exercise price
and/or extend the term of the Warrants.
(2) Does not include (i) 533,333 shares of Common Stock reserved for issuance
upon exercise of options which have been granted under the Company's stock
incentive plan (The Plan), none of which have been exercised as of May 15,
1998, and which have exercise prices ranging from of $1.13 to $2.25 per
share, and of which 343,333 were subject to future vesting; (ii) 357,000
shares of Common Stock reserved for issuance upon exercise of other
outstanding warrants having exercise prices ranging from $.75 to $3.00 per
share; or (iii) 94,444 shares of Common Stock reserved for issuance upon
exercise of the Shareholders' Warrants. See "Management--Stock Options and
Option Plans"; and Description of Securities-- Convertible Notes.
(3) Does not include 700,000 shares of Common Stock reserved for issuance upon
exercise of the Warrants (805,000 shares if the Over-allotment Option is
exercised in full). Assumes no exercise of (i) the Underwriters'
Over-allotment Options; and (ii) the Representative's Warrants.
6
<PAGE>
SUMMARY FINANCIAL DATA
Set forth below is selected summary financial information with respect to
the Company. Financial information as of and for each of the years in the
two-year period ended December 31, 1997, are derived from the financial
statements included elsewhere in this Prospectus and is qualified by reference
to such financial statements and the notes related thereto. Financial
information as of March 31, 1998 and for the three month periods ended March 31,
1998 and 1997 are derived from unaudited financial statements of the Company.
The unaudited financial statements have been prepared on the same basis as the
audited financial statements and, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the information set forth therein. The historical results
are not necessarily indicative of the operating results to be expected in the
future.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31 MARCH 31
------------------------- ------------------------
1997 1996 1998 1997
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues.................................................. $ 879,903 $ 602,423 $ 283,483 $ 165,441
Operating expenses........................................ 1,351,524 972,767 530,456 259,343
Operating loss............................................ (471,621) (370,344) (246,973) (93,902)
Other expense, net........................................ 106,655 27,473 32,255 50,736
Net loss.................................................. (578,276) (397,817) (279,228) (144,638)
Basic and diluted loss per common share................... $ (.50) $ (.75) $ (.15) $ (.18)
Basic and diluted weighted average common shares.......... 1,162,397 533,309 1,918,398 785,078
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------------
AS ADJUSTED
BALANCE SHEET DATA: DECEMBER 31, 1997 ACTUAL (1)
----------------- ------------ --------------
<S> <C> <C> <C>
Cash and cash equivalents...................................... $ 398,415 $ 409,132 $ 6,948,132
Working capital................................................ $ 59,464 $ 132,303 $ 6,671,303
Property and equipment, net.................................... $ 543,053 $ 542,182 $ 542,182
Total assets................................................... $ 1,060,821 $ 1,113,617 $ 7,652,617
Current liabilities............................................ $ 408,795 $ 376,728 $ 376,728
Long term debt, net of current portion......................... $ 388,017 $ 158,790 $ 158,790
Stockholders' equity........................................... $ 264,009 $ 578,099 $ 7,117,099
</TABLE>
<TABLE>
<CAPTION>
OTHER DATA: 12/31/96 3/31/97 6/30/97 9/30/97 12/31/97 3/31/98
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Number of Units Under Contract...................... 1,641 2,081 2,081 3,985 4,290 4,661
Number of Units Installed........................... 1,069 1,271 1,643 1,643 1,922 2,609
</TABLE>
- ------------------------
(1) Adjusted to reflect net proceeds of $6,539,000 from the sale by the Company
in this Offering of 1,400,000 Units at the assumed public offering price of
$5.50 per Unit.
7
<PAGE>
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE POSSIBILITY OF THE
LOSS OF THEIR ENTIRE INVESTMENT IN THE COMPANY'S SECURITIES AND, ALONG WITH EACH
OF THE FOLLOWING FACTORS, CONSIDER THE INFORMATION SET FORTH ELSEWHERE IN THIS
PROSPECTUS.
RISK FACTORS RELATED TO THE BUSINESS OF THE COMPANY
ABILITY TO CONTINUE AS GOING CONCERN. The Company has only a limited
operating history upon which investors may base an evaluation of the likely
performance of the Company. Although certain of the directors and officers of
the Company have experience in managing businesses in related industries, they
have only limited experience in developing and operating shared tenant services.
Any failure to successfully develop or operate future properties could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company and its predecessors have generated operating
revenues only since September 1994. From inception through March 31, 1998, the
Company has recorded an accumulated deficit of $1,255,321. Management expects
that the Company will continue to incur losses for the foreseeable future. The
continuation of the Company for an extended period is dependent upon achieving
adequate profit margins to realize profitable operations. There can be no
assurance that the Company will realize earnings from operations or net profits.
The Company has funded its operations to date through the private sale of equity
and debt securities. The Company's independent auditors have included in their
audit report an explanatory paragraph which states that the Company's recurring
losses from operations raise substantial doubt about its ability to continue as
a going concern. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
DEPENDENCE ON PROCEEDS OF THIS OFFERING; NEED FOR ADDITIONAL CAPITAL. The
Company is dependent on and intends to use virtually all of the net proceeds of
the Offering to purchase switches and related equipment necessary to provide
local telephone service in the Company's new and existing markets, fund the
increased working capital requirements associated with the Company's planned
market expansion, and enhance the Company's billing and customer care systems to
support the growing customer base.
DEPENDENCE UPON TCI. Nearly all of the apartment and condominium complexes
the Company has under contract utilize TCI to provide cable service. The Company
has negotiated exclusive agreements with TCI to provide such service on a
complex-by-complex basis. There can be no assurance that the Company will be
able to continue to negotiate cable service rates with TCI that are economically
feasible for the Company; or that it will be able to enter any such agreements
with cable companies in areas not served by TCI. If it is unable to obtain such
agreements, the Company's ability to provide its services to new complexes may
be severely adversely affected.
POTENTIAL ADVERSE EFFECT OF INSUFFICIENT CABLE PENETRATION. Under its
exclusive agreements with TCI, the Company pays TCI a monthly rate based on the
number of units in a complex, regardless of the number of subscribers to cable
service in the complex. The Company makes assumptions about the number of
subscribers that will purchase cable in the complex to determine the rate it can
afford to pay TCI. However, it is required to pay TCI regardless of the actual
subscription base of a particular complex. Accordingly, there is a risk that the
Company over-estimated the number of cable subscribers it will obtain in a
complex, which would have an adverse impact on its results of operations. See
"Business--Key Suppliers."
UNCERTAIN ABILITY TO MANAGE GROWTH. The Company intends to pursue an
aggressive growth strategy involving the development of customers in new
markets. This growth strategy will require, among other changes, expanded
operational and financial systems and the implementation of new control
procedures. The Company's future operating results will depend on its ability to
develop its infrastructure commensurate with revenues and on its ability to
attract, hire and retain skilled employees. There can be no
8
<PAGE>
assurance that the Company will be able to provide adequate services in areas in
which it wishes to expand or otherwise execute its business strategy, and its
ability to grow may be adversely affected thereby.
There can be no assurance that the Company will be able to manage any growth
effectively. Failure to manage growth effectively could have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, although the Company's management information systems ("MIS") are
adequate for its present level of business, as the Company expands it will need
to up-grade such systems. The Company will use a portion of the proceeds of this
Offering to acquire computer hardware, programming, and software to up-grade its
MIS. However, it is likely that the new systems will require a period of time
for the Company to adjust to the them and to integrate its existing future
business into such systems. The Company's billing and customer service may be
adversely affected by any delays in implementing such a system. See
"Business--Management Information Systems."
DEPENDENCE ON KEY PERSONNEL. The success of the Company is highly dependent
upon the continued services of A. Roger Pease, its President and Chief Executive
Officer, and Jeffrey S. Sperber, its Chief Financial Officer. The loss of the
services of such key personnel could adversely affect the Company's business,
financial condition and results of operations. The Company will require the
services of additional executive personnel in the future. The Company has no
employment agreements or non-compete agreements with any of its key personnel.
There can be no assurance that the Company will be successful in attracting and
retaining the personnel it requires to develop and operate its facilities or to
expand its operations. The Company does not carry key man life insurance on any
of its personnel. After the completion of this Offering, the Company will
attempt to obtain key man insurance on Roger Pease, Jeffrey Sperber, and David
Deluhery. See "Management."
COMPETITION. General and local market conditions, including, among others,
the presence of competing companies, may materially and adversely affect the
Company's business, financial condition and results of operations. The
competition in the telecommunications services industry is intense. Competitive
factors include location and quality of facilities, price and quality of
service. Competition may increase as a result of deregulation, allowing more
companies to enter the market for local telecommunications services, many of
which have held monopoly positions in the marketplace. Although the Company
believes it offers services that are superior to or more convenient than
competing services, many of the Company's existing and future competitors may
have financial, marketing and other resources that substantially exceed those
available to the Company. See "Business--Competition."
DEVELOPMENT AND CONSTRUCTION DELAYS. The Company's growth strategy is
dependent upon its ability to attract and retain additional customers. The
successful development of new customers will depend upon various factors,
including the availability of suitable sites, the ability of the Company to
successfully service contracts to meet construction schedules and budgets, and
the extent to which the Company otherwise performs in accordance with
expectations. Development and construction delays could have a material adverse
impact on the Company's business, financial condition and results of operations.
MANAGEMENT'S LACK OF VOTING INFLUENCE. Upon consummation of the Offering,
the Company's President, A. Roger Pease, will beneficially own 186,667 shares of
Common Stock, including vested options exercisable to acquire an additional
80,000 shares of Common Stock, together representing 5.1% of the total issued
and outstanding shares of Common Stock following completion of the Offering. All
of the Company's officers and directors as a group beneficially own only 450,630
shares of Common Stock, including vested options. Even giving effect to the
exercise of their outstanding and vested options, the Company's officers and
directors as a group would exercise voting control over only 11.8% of the
Company's outstanding shares of Common Stock following completion of the
Offering. As a result of this lack of voting influence as stockholders, there
can be no assurance that the Company's officers and directors will be able to
implement the plans and strategies described in this Prospectus. Further, it is
possible that stockholders with greater voting influence could initiate actions
which could be adverse to
9
<PAGE>
those plans or hostile to current management. See "Security Ownership of
Management and Principal Stockholders."
INDEMNIFICATION AND EXCULPATION. To the extent permitted by Oregon law, the
directors of the Company will not be liable to the Company or its stockholders
for monetary damages for conduct as directors. The Company's Articles of
Incorporation permit, and its Bylaws require, the Company to indemnify its
directors and officers against all damages incurred in connection with the
business of the Company to the fullest extent provided or allowed by law. The
exculpation provisions may have the effect of preventing stockholders from
recovering damages against the directors of the Company caused by their
negligence, poor judgment or other circumstances. The indemnification provisions
may require the Company to use its assets to defend the directors and officers
of the Company against claims, including claims arising out of their negligence,
poor judgment, or other circumstances. The Company has also entered into
indemnity agreements with each of its directors and officers.
RELIANCE ON MANAGEMENT. All decisions with respect to the management of the
Company will be made exclusively by the management. The stockholders will not
have any right or power to take part in the management of the Company. No
prospective investor should purchase any of the Securities offered hereby unless
the investor is willing to entrust all aspects of the management of the Company
to the Management. See "Management."
COMPENSATION PAYABLE TO MANAGEMENT AND OTHERS REGARDLESS OF
PROFITABILITY. The officers of the Company will receive salaries which will be
payable to them whether or not the Company is profitable. The Company does not
have employment contracts with any of its officers. Upon completion of the
Offering the Compensation Committee of the Board of Directors of the Company
will negotiate employment contracts with Mssrs. Pease, Sperber, and Deluhery.
See "Management--Executive Compensation."
NO ASSURANCE OF PROFITS. There is no assurance that the Company will
generate profits, or that its securities will appreciate in value or that
investors will be able to sell the securities acquired in the Offering at a
profit. The marketability and value of the Company's business will depend upon
many factors beyond the control of the Company, and there is no assurance that
there will be a ready market for the business operated by the Company.
YEAR 2000 EFFECT. While the Company believes that its software applications
are year 2000 compliant, there can be no assurance until the year 2000 occurs
that all systems will then function adequately. Further, if the software
applications of local exchange carriers, long distance carriers, cable providers
or others on whose services the Company depends are not year 2000 compliant, it
could have a material adverse effect on the Company's financial condition and
results of operations and the value of the Securities.
GOVERNMENT REGULATION. The business of the Company is subject to extensive
and changing laws and regulations, including those of the Federal Communications
Commission ("FCC") and state and local regulatory bodies such as public utility
commissions ("PUC"). Many of the operations of the Company are subject to
licensing requirements of federal, state and local law. The United States
Congress, the FCC, and state and local regulatory bodies in the past have
adopted, and may in the future adopt, new laws, regulations and policies
regarding a wide variety of matters that could affect the operations of the
Company's business. No assurance can be given that changes in current or future
regulations adopted by the United States Congress, the FCC, or state or local
regulatory bodies or legislative initiatives could not have a material adverse
effect on the Company. See "Business--Government Regulation."
RISK FACTORS RELATED TO THE OFFERING
POSSIBLE DEPRESSIVE EFFECT ON EARNINGS OF ISSUANCE OF WEB WARRANTS. The
Company has entered into a letter of intent with WEB to market the Company's
services to apartment complexes. Under the proposed contract, WEB will have the
right to earn warrants (the "WEB Warrants") to purchase shares of the
10
<PAGE>
Company's Common Stock on the basis of warrants to purchase 25 shares of Common
Stock for each customer WEB obtains a service agreement with the Company. WEB
can earn warrants to purchase up to 2,000,000 shares of Common Stock over the
five year term of the Agreement. The exercise price of the WEB Warrants will be
the public offering price of the Units sold in this Offering. Issuance of the
WEB Warrants will significantly dilute the ownership of present shareholders and
of those persons who invest in this Offering. Additionally, when Warrants are
issued to WEB, the Company will report a charge to its earnings (if any)
equivalent to the difference between the fair market value of the Common Stock
on the date the WEB warrants are issued (if greater than the WEB Warrant
exercise price) and the WEB Warrant exercise price. Any resulting decrease in
earnings (or increase in losses) may have a depressive effect on the market
price of the Company's Common Stock. See "BUSINESS--The WEB Agreement."
BROAD DISCRETION IN APPLICATION OF PROCEEDS. The proceeds to the Company
from the Offering, net of the expenses of the Offering, will be approximately
$6,539,000. Although the Company has tentatively allocated the net proceeds from
this offering for various uses, the projected expenditures are estimates and
approximations and do not represent firm commitments of the Company.
Accordingly, management of the Company has broad discretion to adjust the
application and allocation of the net proceeds of this offering, in order to
address changed circumstances and opportunities. In the event that the Company's
plans change, or if the proceeds of this offering, the Company's results of
operations or cash flow prove to be insufficient to fund operations, the Company
may find it necessary to reallocate some or all of the proceeds from the
offering. See "Use of Proceeds."
DILUTION. As of the date of this prospectus, the Company has sold the
2,164,063 shares of Common Stock outstanding at an average cost per share of
approximately $.93, which is $4.57 per share less than the Offering Price. In
February-March 1998, the Company sold units which were essentially identical to
the Units offered hereby at $2.25 per unit. At March 31, 1998, the Company had a
net tangible book value (total assets less total liabilities and intangible
assets) of $578,099 or $.27 per share of Common Stock outstanding, based on
2,164,063 shares issued and outstanding. Giving effect to the sale of 1,400,000
Units by the Company in the Offering, after deduction of the expenses of the
Offering, the Company will have a net tangible book value of approximately
$7,117,099 or $2.00 per share. Investors in the Offering will sustain an
immediate substantial dilution of $3.50 of their price per share. See
"Dilution."
LIMITED MARKET FOR SECURITIES; ARBITRARY DETERMINATION OF PRICES. There has
been no market for the Common Stock or Warrants of the Company prior to the
effective date of the Registration Statement of which this Prospectus is a part,
and there is no assurance that an active public trading market for the
Securities will develop or be sustained in the foreseeable future. In the
absence of a public market for those securities, the public offering price of
the Units and the exercise price of the Warrants were determined by negotiations
between the Representative and the Company. Among the factors considered in
determining the Offering Price and the Warrant Exercise Price were the prospects
for the Company, an assessment of the industry in which the Company operates, an
assessment of management, the number of shares of Common Stock and Warrants
offered, the price the purchasers of such securities might be expected to pay
given the nature of the Company, and the general conditions of the securities
markets at the time of the Offering. Accordingly, the offering prices set forth
on the cover page of this Prospectus or the exercise price of the Warrants
should not be regarded as indications of the actual value of the Company or the
Securities or of any future market price of the Company's Common Stock.
Moreover, there can be no assurance that the market price of the Securities will
not decline following the Offering, or that investors will be able to sell any
of the Securities purchased hereunder at a price equal to or greater than the
prices paid therefor.
UNDERWRITERS' INFLUENCE ON THE MARKET. A significant number of Units will
be sold to customers of the Underwriters. Such customers may subsequently engage
in transactions for the sale or purchase of the Securities through or with the
Underwriters. Although they have no legal obligation to do so, the Underwriters
from time to time in the future may make a market in and otherwise effect
transactions in
11
<PAGE>
the Securities. To the extent the Underwriters do so, they may be a dominating
influence in any market that might develop and the degree of participation by
the Underwriters may significantly affect the price and liquidity of the
Securities. Such market making activities, if commenced, may be discontinued at
any time or from time to time by the Underwriters without obligation or prior
notice. Depending on the nature and extent of the Underwriters' market making
activities and retail support of the Company's securities at such time, the
Underwriters' discontinuance could adversely affect the price and liquidity of
the Securities.
POSSIBLE VOLATILITY OF STOCK PRICES; PENNY STOCK RULES. The
over-the-counter markets for securities such as the Securities offered hereby
historically have experienced extreme price and volume fluctuations during
certain periods. These broad market fluctuations and other factors, such as new
product developments and trends in the Company's industry and investment markets
generally, as well as economic conditions and quarterly variations in the
Company's results of operations, may adversely affect the market price of the
Company's Common Stock. Although applications have been made to have the
Securities be approved for quotation on the Nasdaq Small Cap Market, even if the
applications are initially approved, there can be no assurance that they will
remain eligible to be included on Nasdaq. In the event that the Securities were
no longer eligible to be included on Nasdaq, they could be subject to rules
adopted by the Commission regulating broker-dealer practices in connection with
transactions in "penny stocks" which could materially, adversely affect the
liquidity of the Company's securities. The regulations define a penny stock as
any equity security not listed on a regional or national exchange or NASDAQ that
has a market price of less than $5.00 per share, subject to certain exceptions.
The material, adverse effects of such designation could include, among other
things, impaired liquidity with respect to the Company's securities and
burdensome transactional requirements associated with transactions in the
Company's securities, including, but not limited to, waiting periods, account
and activity reviews, disclosure of additional personal financial information
and substantial written documentation. These requirements could lead to a
refusal of certain broker-dealers to trade or make a market in the Company's
securities. See "--Penny Stock Regulation."
SHARES ELIGIBLE FOR FUTURE SALE. As of March 31, 1998, 2,164,063 shares of
the Company's Common Stock were issued and outstanding, all of which are
"restricted securities." Those shares may, under certain circumstances, in the
future, be sold in compliance with Rule 144 adopted under the Securities Act.
The holders of all of the restricted securities have agreed not to sell their
shares for a period of one year after the date of this Prospectus without the
Representatives' prior written consent. In general, under Rule 144, subject to
the satisfaction of certain other conditions, a person, including an affiliate
of the Company, who has beneficially owned restricted shares of Common Stock for
at least one (1) year is entitled to sell, within any three-month period, a
number of shares that does not exceed the greater of 1% of the total number of
outstanding shares of the same class, or if the Common Stock is quoted on Nasdaq
or a stock exchange, the average weekly trading volume during the four (4)
calendar weeks immediately preceding the sale. A person who presently is not and
who has not been an affiliate of the Company for at least three (3) months
immediately preceding the sale and who has beneficially owned the shares of
Common Stock for at least two (2) years is entitled to sell such shares under
Rule 144 without regard to any of the volume limitations described above.
The Company is authorized to grant options to purchase 533,333 shares of
Common Stock pursuant to a stock option plan for key employees, officers, and
directors (the "Plan"). As of May 15, 1998, stock options to purchase 533,333
shares of Common Stock have been granted under the Plan. See
"Management--Executive Compensation-Stock Options and Option Plans." Although
the Company has no present plans to register for sale under the Securities Act
shares issuable upon exercise of the options granted pursuant to the Plan, if it
should do so, when the options are exercised and the shares issued they would be
freely tradeable, except for certain limitations imposed upon directors,
officers and affiliates who exercise options granted under the Plan.
No prediction can be made as to the effect, if any, that sales of shares of
Common Stock or the availability of such shares for sale will have on the market
prices prevailing from time to time. Nevertheless, the possibility that
substantial amounts of Common Stock may be sold in the public market may
12
<PAGE>
adversely affect prevailing market prices for the Common Stock and could impair
the Company's ability to raise capital in the future through the sale of equity
securities. Actual sales or the prospect of future sales of shares of Common
Stock under Rule 144 may have a depressive effect upon the price of the Common
Stock and the market therefor.
AUTHORIZATION OF PREFERRED STOCK. The Company's Articles of Incorporation,
as amended, authorize the issuance of up to 1,000,000 shares of preferred stock,
no par value. The Board of Directors has been granted the authority to fix and
determine the relative rights and preferences of preferred shares, as well as
the authority to issue such shares, without further stockholder approval. As a
result, the Board of Directors could authorize the issuance of a series of
preferred stock which would grant to holders preferred rights to the assets of
the Company upon liquidation, the right to receive dividend coupons before
dividends would be declared to common stockholders, and the right to the
redemption of such shares, together with a premium, prior to the redemption of
Common Stock. Common stockholders have no redemption rights. The issuance of any
series of preferred stock under certain circumstances could adversely affect the
voting power or other rights of the holders of Common Stock, and under certain
circumstances, be used as a means of discouraging, delaying or preventing a
change in control of the Company. The Company does not presently intend to issue
any Preferred Stock. See "Description of Securities."
AUTHORIZATION OF ADDITIONAL SHARES. The Company's Articles of
Incorporation, authorizes the issuance of up to 20,000,000 shares of Common
Stock, of which 2,164,063 shares were outstanding on May 15, 1998. The Company's
Board of Directors has the authority to issue additional shares of Common Stock
and to issue options and warrants to purchase shares of the Company's Common
Stock without stockholder approval. Future issuance of Common Stock could be at
values substantially below the Offering Price in the Offering and therefore
could represent further substantial dilution to investors in the Offering. In
addition, the Board could issue large blocks of voting stock to fend off
unwanted tender offers or hostile takeovers without further stockholder
approval.
MARKET OVERHANG FROM OUTSTANDING OPTIONS AND WARRANTS. Immediately after
the Offering the Company will have outstanding 533,333 options to purchase
shares of Common Stock which have been granted under the Plan. The Company will
also have Common Stock purchase warrants ("Private Warrants") exercisable to
purchase 357,000 shares of Common Stock at exercise prices ranging from $.75 -
$3.00 per share; 700,000 shares underlying the Warrants issued in this Offering;
and an additional 94,444 shares underlying warrants that convert into warrants
identical to the Warrants. The Company may also issue warrants (the WEB
Warrants) to purchase up to 2,000,000 shares of Common Stock to WEB. (The
options, Private Warrants and WEB Warrants will be referred to as the
"Derivative Securities.") To the extent that such Derivative Securities are
exercised or converted, dilution to the interests of the Company's stockholders
may occur. Exercise or conversion of the Derivative Securities, or even the
potential of their exercise or conversion may have an adverse effect on the
trading price and market for the Company's Common Stock. The holders of the
Derivative Securities are likely to exercise or convert them at times when the
market price of the shares of Common Stock exceeds their exercise price.
Accordingly, the issuance of shares of Common Stock upon exercise of the
Derivative Securities may result in dilution of the equity represented by the
then outstanding shares of Common Stock held by other stockholders. Holders of
the Derivative Securities can be expected to exercise them at a time when the
Company would, in all likelihood, be able to obtain any needed capital on terms
which are more favorable to the Company than the exercise terms provided by such
Derivative Securities. See "Description of Securities" and "BUSINESS--The WEB
Agreement."
CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE
WARRANTS. The Company will be able to issue shares of its Common Stock upon the
exercise of Warrants only if there is a current prospectus relating to the
Common Stock issuable upon the exercise of the Warrants under an effective
registration statement filed with the Securities and Exchange Commission and
such Common Stock is then qualified for sale or exempt therefrom under
applicable state securities laws of the jurisdictions in which
13
<PAGE>
the various holders of Warrants reside. Although the Company has undertaken to
maintain the effectiveness of a current Prospectus covering the Common Stock
underlying the Warrants, there can be no assurance that the Company will be
successful in maintaining a current registration statement. The Warrants,
therefore, may be deprived of any value if for any reason a current prospectus
covering the Common Stock issuable upon exercise of the Warrants is not kept
effective.
WARRANTS SUBJECT TO REDEMPTION. Two Warrants will entitle the holder to
purchase one share of Common Stock at an exercise price equal to $8.10 per Share
commencing from the effective date of this Prospectus. The Warrants are
redeemable by the Company for $.05 per Warrant at any time after the date of
this Prospectus upon at least forty-five (45) days prior written notice provided
(a) the closing high bid price of the Common Stock for twenty consecutive
trading days within the thirty-day period preceding the date of the notice of
redemption equals or exceeds $12.15; and (b) the Company has in effect a current
registration statement with the Commission registering the Common Stock issuable
upon exercise of the Warrants. In the event the Company exercises the right to
redeem the Warrants, a holder would be forced either to exercise the Warrants
within the period of the notice of redemption (which could occur at a time when
it may be disadvantageous to do so), to sell the Warrants at the then current
market price when the holder might otherwise wish to hold them, or to accept the
redemption.
PENNY STOCK REGULATION. In the event that the Company is unable to satisfy
the maintenance requirements for the Nasdaq Small Cap Market and its Common
Stock falls below the minimum bid price of $5.00 per share for the initial
quotation, trading would be conducted on the "pink sheets" or the NASD's
Electronic Bulletin Board. In the absence of the Common Stock being quoted on
Nasdaq, or listed on an exchange, trading in the Common Stock would be covered
by Rule 15g-9 promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") if the Common Stock is a "penny stock." Under such rule,
broker-dealers who recommend such securities to persons other than established
customers and accredited investors must make a special written suitability
determination for the purchaser and receive the purchaser's written agreement to
a transaction prior to sale. Securities are exempt from this rule if the market
price is at least $5.00 per share.
The Commission adopted regulations that generally define a penny stock to be
any equity security that has a market price of less than $5.00 per share,
subject to certain exceptions. Such exceptions include an equity security listed
on Nasdaq, and an equity security issued by an issuer that has (i) net tangible
assets of at least $2,000,000, if such issuer has been in continuous operation
for three years, (ii) net tangible assets of at least $5,000,000, if such issuer
has been in continuous operation for less than three years, or (iii) average
revenue of at least $6,000,000 for the preceding three years. Unless an
exception is available, the regulations require the delivery, prior to any
transaction involving a penny stock, of a disclosure schedule explaining the
penny stock market and the risks associated therewith.
If the Company's Common Stock were to become subject to the regulations
applicable to penny stocks, the market liquidity for the Common Stock and
Warrants would be severely affected, limiting the ability of broker-dealers to
sell the common Stock and Warrants and the ability of purchasers in this
Offering to sell their Common stock and Warrants in the secondary market. There
is no assurance that trading in the Common Stock and Warrants will not be
subject to these or other regulations that would adversely affect the market for
such securities.
NON-REGISTRATION IN CERTAIN JURISDICTIONS OF SHARES UNDERLYING THE
WARRANTS. Although the Common Stock and the Warrants will not knowingly be sold
to purchasers in jurisdictions in which they are not registered or otherwise
qualified for sale, purchasers may buy the Common Stock or Warrants in the
aftermarket or may move to jurisdictions in which the shares of Common Stock
issuable upon exercise of the Warrants are not so registered or qualified during
the period that the Warrants are exercisable. In such event, the Company could
be unable to issue shares to those persons desiring to exercise their Warrants
unless and until the shares could be registered or qualified for sale in the
jurisdiction in which such purchasers reside, or an exemption to such
qualification exists or is granted in such jurisdiction. If the
14
<PAGE>
Company was unable to register or qualify the shares in a particular state and
no exemption to such registration or qualification was available in such
jurisdiction, in order to realize any economic benefit from the purchase of the
Warrants, a holder might have to sell the Warrants rather than exercising them.
No assurance can be given, however, as to the ability of the Company to effect
any required registration or qualification of the Common Stock or Warrants in
any jurisdiction in which registration or qualification has not already been
completed. See "Description of Securities-Warrants."
POSSIBLE LOSS OF INVESTMENT. Most of the net proceeds of the Offering will
be expended at or prior to receipt of significant revenues by the Company.
Consequently, stockholders will be dependent upon the performance of the
Company's business for any return of their investment and risk the entire loss
of their investment if revenues are insufficient to cover expenses. In the event
that the business does not generate sufficient revenues to pay expenses,
stockholders could lose part or all of their investment.
15
<PAGE>
DILUTION
The net tangible book value of the Company at March 31, 1998, before giving
effect to the Offering, was $578,099 or $.27 per share, based upon 2,164,063
shares outstanding. Net tangible book value per share is determined by dividing
the number of outstanding shares of Common Stock into the net tangible book
value of the Company (total assets less total liabilities and intangible
assets). After giving effect to the sale of 1,400,000 Units by the Company in
the Offering and receipt of the estimated net proceeds therefrom, the adjusted
net tangible book value at March 31, 1998, would have been $7,117,099 or $2.00
per share of Common Stock. This represents an immediate increase of $1.73 per
share to current stockholders and an immediate dilution of $3.50 per share to
the investors in the Offering (assuming the allocation of the entire Offering
Price to the shares of Common Stock). The following table illustrates the per
share dilution, assuming all 1,400,000 Units are sold in the Offering: (1)
<TABLE>
<S> <C> <C>
Assumed price Per Share of Common Stock....................... $ 5.50
Pro Forma Net Tangible Book Value Per Share of Common Stock
Before Offering (2)......................................... $ 0.27
Increase in Pro Forma Net Tangible Book Value Per Share of
Common Stock Attributable to Shares Offered Hereby.......... $ 1.73
Pro Forma Net Tangible Book Value Per Share of Common Stock
After Offering.............................................. $ 2.00
Dilution of Pro Forma Net Tangible Book Value Per Share of
Common Stock to Purchasers in this Offering................. $ 3.50
Dilution Per Share of Common Stock as a Percent of Offering
Price....................................................... 64%
</TABLE>
- ------------------------
(1) Does not include (i) 533,333 shares of Common Stock which have been granted
under the Company's Incentive Plan, having exercise prices ranging from
$1.13 to $2.25 per share, and of which 343,333 are subject to future
vesting; (ii) 357,000 shares of Common Stock reserved for issuance upon
exercise of outstanding warrants having a weighted average exercise price of
$1.76 per share; and (iii) 94,444 shares of Common Stock reserved for
issuance upon exercise of outstanding warrants that will be automatically
exchanged for Warrants. See Management--Stock Options and Option Plans.
(2) Determined by dividing the number of shares of Common Stock outstanding into
the net tangible book value of the Company.
The following table sets forth, as of March 31, 1998, the number of shares
of Common Stock purchased, the percentage of total cash consideration paid, and
the average price per share paid by (i) the existing stockholders; and (ii)
investors purchasing Securities in the Offering, before deducting estimated
underwriting discounts and offering expenses payable by the Company.
<TABLE>
<CAPTION>
TOTAL CASH CONSIDERATION
SHARES PURCHASED AVERAGE
----------------------- ------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing Stockholders.............................. 2,164,063 61% $ 2,022,621 21% $ .93
New Investors (1).................................. 1,400,000 39% $ 7,700,000 79%(1) $ 5.50
---------- --- ------------ --- -----
Total.............................................. 3,564,063 100% $ 9,722,621 100% $ 2.73
</TABLE>
- ------------------------
(1) Assumes (a) 1,400,000 Shares are sold in the Offering at an Offering Price
of $5.50 per Share; and (b) no exercise of Warrants.
16
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1998, (i) on an actual basis; and (ii) as adjusted to give effect to the
estimated net proceeds from the sale of the Units offered hereby, based upon an
assumed Offering Price of $5.50 per Unit. This section should be read in
conjunction with the financial statements and notes to the financial statements
that are contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------------------------
AS ADJUSTED
ACTUAL (1)(2)
------------- -----------------
<S> <C> <C>
Long Term Debt, net of current portion.......................................... $ 158,790 $ 158,790
Stockholders' Equity:
Preferred Stock, no par value, 1,000,000 Shares authorized; no shares
outstanding................................................................. -- --
Common Stock, no par value, 20,000,000 shares authorized; 2,164,063 shares
issued and outstanding; 3,564,063(2) shares issued and outstanding as
adjusted.................................................................... 1,833,420 $ 8,372,420
Accumulated Deficit:............................................................ (1,255,321) (1,255,321)
Total Stockholders' Equity:..................................................... 578,099 7,117,099
Total Capitalization:........................................................... $ 736,889 $ 7,275,889
</TABLE>
- ------------------------
(1) Does not include (i) 533,333 shares of Common Stock which have been granted
under the Company's Stock Option Plan, having exercise prices ranging from
$1.13 to $2.25 per share, and of which 343,333 are subject to future
vesting; (ii) 357,000 shares of Common Stock reserved for issuance upon
exercise of outstanding warrants having a weighted average exercise price of
$1.76 per share; and (iii) 94,444 shares of Common Stock reserved for
issuance upon exercise of outstanding warrants that will be exchanged for
Warrants. See Management--Stock Options and Option Plans.
(2) Assumes no exercise of the Underwriters' Over-allotment Option or the
Representatives' Options.
17
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Securities offered
hereby, assuming a Unit Offering Price of $5.50, are estimated to be
approximately $6,539,000, ($7,543,850 if the Over-allotment Option is exercised
in full) after deducting the underwriting discount and offering expenses.
Management anticipates that the proceeds will be applied with the following
priority during the next twelve (12) month period:
<TABLE>
<CAPTION>
DESCRIPTION OF USE AMOUNT PERCENT
- ------------------------------------------------------------------ ------------ ---------
<S> <C> <C>
Capital Expenditures (1).......................................... $ 3,692,000 56%
System Enhancements (2)........................................... 750,000 12%
Salaries and Personnel Costs (3).................................. 1,500,000 23%
Marketing and General Administrative Costs (3).................... 597,000 9%
------------ ---------
Total......................................................... 6,539,000 100%
------------ ---------
------------ ---------
</TABLE>
- ------------------------
(1) Capital expenditures consist primarily of telephone switching equipment in
new cities and new buildings, including buildings under contract, based on
the Company's planned expansion.
(2) System enhancements consist primarily of enhancements to the current, or the
acquisition of a new, billing and customer service system. The Company is
currently evaluating the alternatives.
(3) The proceeds allocated to Salaries and Personnel Costs and to Marketing and
General Administrative Costs will be applied, to the extent necessary, to
the Company's current operations and to fund anticipated losses over the
next twelve months. See "Management's Discussion and Analysis."
The amounts set forth above represent the Company's present intentions for
the use of the proceeds from the Offering. However, actual expenditures could
vary considerably depending upon many factors, including, without limitation,
changes in economic conditions, the ability of the Company to obtain lease
financing, unanticipated complications, delays and expenses, or problems
relating to the development of additional properties. Any reallocation of the
net proceeds of the Offering will be made at the discretion of the Board of
Directors but will be in furtherance of the Company's strategy to achieve growth
and profitable operations through the development of additional properties. The
Company's working capital requirements are a function of its future sales growth
and expansion, neither of which can be predicted with any reasonable degree of
certainty. As a result, the Company is unable to precisely forecast the period
of time for which proceeds of the Offering will meet its working capital
requirements. The Company may need to seek funds through loans or other
financing arrangements in the future, and there can be no assurance that the
Company will be able to make such arrangements in the future should the need
arise. However, it intends to budget the proceeds so that such proceeds, either
alone or with proceeds of any other financing, and revenues from operations,
will be sufficient to meet the Company's cash requirements for at least the next
12 months.
Pending use of the net proceeds of the Offering, the funds will be invested
temporarily in certificates of deposit, short-term government securities or
similar investments. Any income from these short-term investments will be used
for working capital.
DIVIDENDS
No dividends have been paid by the Company. While no decision with regard to
the payment of dividends in the future has, to date, been made, the Company does
not, as of the date of this Prospectus, intend to declare or pay any dividends
on its outstanding shares of Common Stock in the foreseeable future. Future
dividend policy is subject to the discretion of the Board of Directors, and is
dependent upon a number of factors including future earnings, capital
requirements and the financial condition of the Company. Although no shares of
preferred stock have been issued, in the event such shares are issued, the
rights of Common Stock stockholders to dividends shall be subject to the rights
and preferences of preferred stockholders. The Company does not presently intend
to issue any preferred stock.
18
<PAGE>
SELECTED FINANCIAL DATA AND STATISTICAL DATA
Set forth below is selected summary financial information with respect to
the Company. Financial information as of and for each of the years in the
two-year period ended December 31, 1997, are derived from the financial
statements included elsewhere in this Prospectus and is qualified by reference
to such financial statements and the notes related thereto. Financial
information as of March 31, 1998 and for the three month periods ended March 31,
1998 and 1997 are derived from unaudited financial statements of the Company.
The unaudited financial statements have been prepared on the same basis as the
audited financial statements and, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the information set forth therein. The historical results
are not necessarily indicative of the operating results to be expected in the
future.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31 MARCH 31
------------------------- ------------------------
1997 1996 1998 1997
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues........................................................ $ 879,903 $ 602,423 $ 283,483 $ 165,441
Operating expenses.............................................. 1,351,524 972,767 530,456 259,343
Operating loss.................................................. (471,621) (370,344) (246,973) (93,902)
Other expense, net.............................................. 106,655 27,473 32,255 50,736
Net loss........................................................ (578,276) (397,817) (279,228) (144,638)
Basic and diluted loss per common share......................... $ (.50) $ (.75) $ (.15) $ (.18)
Basic and diluted weighted average common shares................ 1,162,397 533,309 1,918,398 785,078
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------------
DECEMBER 31, 1997 ACTUAL AS ADJUSTED(1)
----------------- ------------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................ $ 398,415 $ 409,132 $ 6,948,132
Working capital...................................................... $ 59,464 $ 132,303 $ 6,671,303
Property and equipment, net.......................................... $ 543,053 $ 542,182 $ 542,182
Total assets......................................................... $ 1,060,821 $ 1,113,617 $ 7,652,617
Current liabilities.................................................. $ 408,795 $ 376,728 $ 376,728
Long term debt, net of current portion............................... $ 388,017 $ 158,790 $ 158,790
Stockholders' equity................................................. $ 264,009 $ 578,099 $ 7,117,099
</TABLE>
<TABLE>
<CAPTION>
12/31/96 3/31/97 6/30/97 9/30/97 12/31/97
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Number of Units Under Contract............................ 1,641 2,081 2,081 3,985 4,290
Number of Units Installed................................. 1,069 1,271 1,643 1,643 1,922
<CAPTION>
3/31/98
-----------
<S> <C>
OTHER DATA:
Number of Units Under Contract............................ 4,661
Number of Units Installed................................. 2,609
</TABLE>
- ------------------------
(1) Adjusted to reflect net proceeds of $6,539,000 from the sale by the Company
in this Offering of 1,400,000 Units at the assumed public offering price of
$5.50 per Unit.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
The Company provides integrated telecommunications services to multi-family
apartment and condominium complexes. The Company offers a complete package of
telecommunications services including local telephone, long distance telephone,
enhanced calling features, internet access and cable television. All services
are installed prior to the tenant's move-in and one bill is rendered to the
tenant at the end of the month incorporating all services provided.
Additionally, all services are believed to be offered at or below retail market
prices. The Company's first property, the 525-unit Portland Center apartments
complex, went on-line in September 1994. The properties under contract as of the
date of this Prospectus, consisting of 3,015 units in Portland, Oregon and 1,646
units in five other cities, represent 4,661 units. Contract terms range from
five years to fifteen years.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1997.
The Company reported a net loss of $279,228 for the three months ended March
31, 1998, compared to a net loss of $144,638 for the same period of the prior
year. The increase in net loss is primarily attributable to increased personnel
and other selling, general and administrative expenses.
Revenue increased by $118,042 or 71% for the three months ended March 31,
1998, compared to the same period of the prior year. The increase in revenue is
attributable to the Company having eleven properties operating as of March 31,
1998, compared to four as of March 31, 1997. The increase in revenue is not
proportional to the increase in properties due to the timing of when properties
were brought on line.
Operating expenses increased by $103,899 or 88% for the three months ended
March 31, 1998, compared to the same period of the prior year. The increase in
operating expenses, which are those costs directly attributable to revenue, was
due to the increase in properties between periods. Operating expenses were 78%
of revenue for the three month period during 1998 compared to 71% for the same
period of the prior year. The increase in operating expense was disproportionate
to the increase in revenue due to the Company absorbing certain fixed costs
associated with the new properties brought on-line during 1998 without a
corresponding increase in revenue.
Selling, general and administrative expenses increased by $158,216 or 122%
for the three months ended March 31, 1998, compared to the same period of the
prior year. The increase between periods resulted from increases in payroll and
related costs, travel and entertainment expenses, advertising and promotion
expenses, and legal and regulatory costs. Selling, general and administrative
expenses were 102% of revenue for the three month period during 1998 compared to
79% for the same period of the prior year.
Depreciation and amortization expenses increased by $8,998 or 76% for the
three months ended March 31, 1998, compared to the same period of the prior
year. The increase between years is due to an increase in property and equipment
resulting from the increased number of properties on line between years.
Depreciation and amortization expense was 7% of revenue for the three month
periods in both 1998 and 1997.
Other expense decreased by $18,481 or 36% for the three months ended March
31, 1998, compared to the same period of the prior year. The decrease between
years resulted from interest that was accreted on the Promissory Notes during
1997 that were not outstanding during 1998 offset by increased interest expense
associated with capital leases. Other expense was 11% of revenue for the three
month period during 1998 compared to 31% for the same period of the prior year.
20
<PAGE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO DECEMBER 31, 1996.
The Company reported a net loss of $578,276 for the year ended December 31,
1997, compared to a net loss of $397,817 for the year ended December 31, 1996.
The increase in net loss is attributable to the increased personnel costs,
depreciation charges and interest expense associated with the Company's growth
that was experienced between years.
Revenue increased by $277,480 or 46% for the year ended December 31, 1997,
compared to the prior year. The increase in revenue is attributable to the
Company having eight properties operating by the end of 1997 compared to three
for 1996. The increase in revenue is not proportional to the increase in
properties due to the timing of when properties were brought on line during
1997.
Operating expenses increased by $210,782 or 57% for the year ended December
31, 1997, compared to the prior year. The increase in operating expenses, which
are those costs directly attributable to revenue, was due to the increase in
properties between years. Operating expenses were 66% of revenue for the year
ended December 31, 1997, compared to 61% for the prior year. The increase in
operating expense was disproportionate to the increase in revenue due to the
Company absorbing certain fixed costs associated with the new properties brought
on line during 1997 without a corresponding increase in revenue.
Selling, general and administrative expenses increased by $135,899 or 24%
for the year ended December 31, 1997, compared to the prior year. The increase
between years resulted from an increase in payroll and temporary staff expenses.
Selling, general and administrative expenses were 80% of revenue for the year
ended December 31, 1997, compared to 94% for the prior year.
Depreciation and amortization expenses increased by $32,076 or 85% for the
year ended December 31, 1997, compared to the prior year. The increase between
years is due to an increase in property and equipment resulting from the
increased number of properties on-line between years. Depreciation and
amortization expense was 8% of revenue for the year ended December 31, 1997,
compared to 6% for the prior year.
Other expense increased by $79,182 or 288% for the year ended December 31,
1997, compared to the prior year. The increase between years resulted from an
increase in interest expense, which was due to an increase in financing
activities and accreted interest thereon and capital leases between years. Other
expense was 12% of revenue for the year ended December 31, 1997, compared to 5%
for the prior year.
The Company has net operating loss carryforwards which are available to
offset future financial reporting and taxable income. Net operating loss
carryforwards for tax purposes totaled approximately $965,000 at December 31,
1997, and expire in 2011 through 2012.
A provision of the Internal Revenue Code requires the utilization of net
operating losses be limited when there is a change of more than 50% in ownership
of the Company. The Company appears to have incurred an ownership change under
IRC Section 382. This potential ownership change would limit the utilization of
any net operating losses incurred prior to the change in ownership date. The
Company intends to complete an analysis under IRC Section 382 to determine if
any ownership change has occurred.
The difference between expected tax benefit, computed by applying the
federal statutory rate of 34% to loss before taxes, and the actual tax benefit
of $-0- is primarily due to the increase in the valuation allowance for deferred
taxes.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had cash and cash equivalents of $409,132
compared to $389,415 at December 31, 1997. Net cash of $341,974 was used in
operating activities which resulted from the Company's net loss as well as from
working capital requirements.
21
<PAGE>
Net cash of $19,917 was used in investing activities which was comprised
entirely of capital expenditures. The Company is currently pursuing various
leasing alternatives to finance its anticipated future capital expenditures. As
of March 31, 1998, the Company had $550,000 of lease financing available for
future capital expenditures. While management believes that available lease
lines are sufficient to fund short-term capital requirements, additional lease
financing will be required to fund the Company's long-term plans. There is no
assurance that the Company will be able to obtain lease financing at rates that
are acceptable to the Company or in amounts that will be sufficient to fund its
long-term requirements. Any deficiencies between the Company's leasing
capabilities and the Company's capital expenditure requirements, will have to be
financed through the issuance of common stock or debt.
Net cash of $381,608 was generated from financing activities during the
three months ended March 31, 1998. This was the net result of the Company's
issuance of shares of Common Stock in a private placement which totaled
$390,391, offset by principal payments under capital leases.
The Company's independent auditors have included in their audit report an
explanatory paragraph which states that the Company's recurring losses from
operations raise substantial doubt about its ability to continue as a going
concern. The Company has generated operating cash losses from its inception.
Additionally, the Company requires and will continue to require, cash to fund
the net losses and capital requirements associated with the Company's planned
growth. The cash required to fund such activities will be substantial and beyond
what the Company currently holds in cash and cash equivalents. Management
believes that approximately $5,200,000 of cash will be required to fund planned
operations for the next twelve months. Management believes that the Company's
cash balance at March 31, 1998, is sufficient to fund the Company's activities
for the next three months. The Company is currently pursuing various financing
alternatives including both public and private equity financing. There can be no
assurance that management will be successful in obtaining such financing.
In December 1997, the Company signed a letter of intent with an underwriter
to offer shares of the Company's common stock for sale through an initial public
offering. It is the Company's plan to raise between $7,700,000 and $8,855,000 in
the public offering. If successful, management believes that the cash generated
from the public offering will be sufficient to meet its cash requirements for at
least the next twelve months.
The Company has agreements with certain cable television operators to
purchase bulk cable signals at the Company's properties. As of March 31, 1998,
the Company's commitment was $27,224 per month for such services. At March 31,
1998, there were no material commitments for capital expenditures.
NEW ACCOUNTING PRONOUNCEMENTS
SFAS 130, "Reporting Comprehensive Income," was issued in June 1997. It
establishes standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. SFAS 131,
"Disclosure about Segments of an Enterprise and Related Information," was issued
in June 1997. It establishes standards for the way public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The adoption of these standards had no
effect on the Company's financial statements.
22
<PAGE>
BUSINESS
GENERAL
The Company is a Portland, Oregon, based telecommunications company that
provides integrated telecommunications and entertainment services to
multi-family apartment and condominium complexes. The Company offers a variety
of services to tenants including the following:
- Cable television
- Local telephone
- Long distance telephone
- Enhanced calling features, such as:
<TABLE>
<S> <C>
- - Call waiting - Call forwarding
- - Conference calling - Distinctive ringing
- - Account coding - Speed dialing
- - Restricted access dialing - Wake-up service
- - Voice mail
</TABLE>
- High speed Internet access
- Telephone calling cards
Long distance traffic is routed over separate dedicated lines to an
interexchange carrier who provides discounted long distance telephone service to
the Company and its customers. Cable television service is provided to MDU's by
the Company through exclusive agreements with the local cable television
franchise holder. In Portland, for example, the Company has an agreement with
TCI Cablevision of Oregon, Inc., a subsidiary of Tele-Communications, Inc., the
largest cable company in the US ("TCI"); and with a division of Time Warner
Communications, Inc., to be the exclusive provider of cable service to the
building with which the Company has a contract. The Company purchases cable
service at a discount and applies a markup to cover additional costs and
contribution to profit and then resells the service to tenants at a discount
from retail rates.
Internet access is provided by routing traffic through the Company's
switches to an independent Internet service provider. On December 30, 1997, the
Company entered into an agreement with GTE Intelligent Network Services, Inc., a
subsidiary of GTE Corp., to provide internet access to its customers. In May
1998 the Company installed its first internet line on a test basis, providing
access speed of 1.544 Mb per second, or approximately 27 times faster than the
56 kilobytes per second provided by dial-up modems for use over existing
telephone lines. The GTE service uses existing telephone lines. The user incurs
no additional costs to utilize the faster service.
These services are all offered under the Company's service mark to tenants
of apartment and condominium complexes (referred to collectively herein as
"apartments") which are under exclusive contracts with the Company. When a new
tenant at a property under contract with the Company signs a service agreement
with the Company, the Company assigns the tenant a telephone number; and
installs all of the services in the tenant's apartment prior to the time the
tenant moves in. All services are installed prior to tenant move-in so the
tenant does not need to arrange for multiple installations by multiple vendors.
One customer service number covers all potential service and inquiry needs. One
bill is rendered to the tenant at the end of the month integrating all services
provided. Payment is accepted by cash, check, wire transfer or credit card. In
addition, all services are believed to be offered at or below retail market
prices. The tenant may retain his existing telephone number if allowed by the
incumbent local exchange carrier. There are no fees or interruptions of service
for tenants transferring to FirstLink after receiving service from another
supplier.
The Company provides additional incentives to a property manager or owner,
including the benefit of dealing with a single provider for all communication
services; the ability to offer tenants a complete,
23
<PAGE>
integrated package of communication and entertainment services; and the ability
to maintain or improve occupancy rates by attracting and retaining tenants for
whom communications and entertainment services are important. The property
manager or owner and leasing agents also benefit from the receipt of commissions
and further incentives for successfully marketing the Company's service.
The Company currently has written long-term contracts with 20 residential
developments in six cities in the United States, including properties owned by
Harsh Investment Corp, Paine Webber, and an affiliate of Prudential Insurance
Company of America. Eleven of those properties were on-line as of the date of
this Prospectus. The properties contain 4,661 apartment units. Contract terms
range from 5 to 15 years with the average term of 6.5 years. The Company does
not believe that it is dependent on any individual property.
<TABLE>
<CAPTION>
PROPERTY LOCATION UNITS UNDER CONTRACT UNITS ON LINE
- --------------------------------------------------------- --------------------- ---------------
<S> <C> <C>
Portland, OR............................................. 3,015 2,609
Seattle, WA.............................................. 351 --
Denver, CO............................................... 315 --
Oklahoma City, OK........................................ 273 --
Vancouver, WA............................................ 440 --
Phoenix, AZ.............................................. 267 --
----- -----
Total.................................................. 4,661 2,609
</TABLE>
The Company has been able to obtain contracts with building owners and
tenants in the Portland area. It intends to expand to other cities through
agreements with companies that already have an extensive presence in those
cities. As an example, it recently entered into a letter of intent with Web
Service Company, Inc., one of the largest providers of coin operated laundry
equipment and other services ("ancillary services") to apartment and condominium
complexes in the United States. Initially, WEB will market the Company's
services to the 590 apartment complexes which WEB presently supplies ancillary
services in Seattle, Denver, Dallas, and the San Francisco Bay area,
representing approximately 150,000 units. See "--WEB Agreement."
Approximately $40,000 of the proceeds of this Offering will be used by the
Company to fulfill its obligations under its current contracts in Portland. An
additional $3,652,000 will be used to purchase equipment for additional
expansion in Portland and expansion into five additional cities. Approximately
$2,097,000 of the proceeds will be used to pay additional overhead to service
apartments in those cities. See "Use of Proceeds."
COMPANY SERVICES AND EXISTING CUSTOMERS
Five main services make up the Company's integrated communications package.
They include:
- Local phone service
- Enhanced calling features
- Long distance phone service
- Cable television service
- Internet access
The Company installs telephone switching equipment within each apartment
complex. This equipment generates an internal dial tone to the apartment
complex. The same hardware and software also provides enhanced calling features
like call waiting, call forwarding, and voicemail service. The switching
equipment located at the apartment complex is then interconnected with the local
telephone company so telephone calls can be received and transmitted across the
public switched telephone network, as well as
24
<PAGE>
the networks of other carriers. The Company's services are transparent to the
customer; that is, he is unaware that his service goes through the Company's
switch.
From the customer's perspective all of these services are provided through
the Company. The Company handles the sales, installation, customer care, and
billing of all services, thereby delivering a one-stop approach to customer
satisfaction.
The tenant is offered discounts as an enticement to take service from the
Company. Installation costs are waived when a customer transfers service to
FirstLink from another provider and the transfer is accomplished without
inconvenience to the tenant. If permitted by the local carrier, the tenant has
the option of keeping his existing phone number. The Company guarantees its
service: if the tenant is unhappy for any reason, the Company will reconnect the
tenant to the carrier of his choice. The apartment leasing agent or condominium
sales agent presents the Company's service agreement to the new tenant at the
same time final apartment leasing documents are executed.
The Company is positioned as a communications integrator and one-stop shop
for communications services, so that it can maximize its offerings to the
consumer. The Company will seek to provide other services to its customers, such
as video on demand, cellular telephone, paging, video conferencing, and others.
It is also working directly with local franchised cable companies to offer the
broadest possible range of cable television services. Many of its competitors
build stand-alone and limited capacity satellite television systems that provide
reduced offerings to the consumer. The Company views its business as a service
driven with customer satisfaction its number one priority.
In return for marketing assistance and access to their buildings and
tenants, the Company pays apartment owners a share of revenue based on services
used by each subscribing tenant. This revenue sharing can have a significant
impact not only on the revenue stream from an apartment complex but also through
enhanced capital appreciation for the property, which this additional revenue
represents. In addition, apartments are typically rented based on the amenity
package provided to prospective tenants. The Company's integrated communication
services give a potential competitive advantage to an apartment owner.
The Company provides the apartment tenant numerous benefits: cost savings
compared to the traditional providers of communications service; a convenient
means of subscribing to communications services; a single, integrated bill for
all communications services; instant connection to cable television, local phone
service, long distance telephone service and high speed internet access; and
simple and competitively priced choices for long distance telephone service.
While communications markets remain regulated, limiting competition on the
national level, many states are today licensing Shared Tenant Services ("STS"),
known in the industry as Residential Multi-Tenant Services ("RMTS"). The
providers of RMTS, like the Company, are allowed to purchase dial tone from the
local telephone company on a wholesale basis and resell the dial tone to the
tenant from common telecommunications facilities. Other services are added to
the package such as long distance and cable television. The potential customers
of this service include residents within existing apartment complexes, new
multi-unit developments under construction, condominiums, and other
multi-dwelling units with telecommunications needs such as hospitals, nursing
homes, college campuses, etc. Large apartment complexes served by on-site
telecommunications equipment offer efficient use of capital.
MARKETING STRATEGY
The Company currently targets apartment complexes with 150 or more tenants.
The selling cycle for the Company's service includes proposal presentation,
contract negotiations and service implementation, a cycle that can require more
than six months to complete. In addition to the 4,661 units currently under
contract, the Company has contracts under review by other properties
representing approximately 7,997 units and proposals outstanding to properties
totaling an additional 5,199 units. In addition it plans to
25
<PAGE>
market its services through WEB in at least four cities. However, no assurance
can be given that those contracts with additional properties will be entered.
The Company believes that there are few barriers to expanding the business
on a national basis. Unlike cable television networks or telephone networks, the
RMTS business does not require an investment in transport infrastructure like
fiber optic cable or telephone lines. Instead, it relies on purchasing that
capacity from third parties. The only significant capital expense is the
installation of telephone switching equipment in the various apartment
complexes, and this is done on a stand-alone basis. Because of this flexibility,
the Company has no ties to existing technology or infrastructure. Therefore,
with a successful engineering, marketing, and customer service formula,
expansion into other markets is simplified.
Securing new apartment contracts is the key to the Company's growth. Both
new apartment construction and existing apartment complexes will be targeted.
The Company will seek to secure new contracts through:
- One-on-one contacts
- Real Estate Investment Trusts (REITs)
- Associations
- Property management organizations
- Asset owners
The Company will also add appropriate new telecommunications services and
enhancements to customer offerings.
The Company believes that adequate back office support systems are in place
for its present level of business. However, it will need to implement additional
systems to manage its planned growth, including effective cost accounting,
technical support, credit and collections, and customer service, supported by a
subscriber management and billing system. Part of the proceeds from the Offering
will be used to establish such systems. See "Use of Proceeds."
THE WEB AGREEMENT
In May 1998 the Company entered into a letter of intent with Web Service
Company, Inc., one of the largest operators of coin-operated laundry equipment
and other services ("ancillary services") in apartment and condominium complexes
in the United States. Based on information provided by WEB, the Company believes
that WEB provides ancillary services to approximately 44,000 apartment complexes
located in 26 states.
Under the proposed contract, WEB will exclusively market the Company's
services to properties with which WEB has an existing relationship that have
more than 150 units. The exclusive arrangement will be subject to performance
requirements that will be defined in the definitive agreement. As compensation
for WEB's sales of the Company's services, the Company will grant WEB warrants
to purchase 2,000,000 shares of its Common Stock, subject to vesting conditions
requiring WEB to deliver one customer for each 25 shares. In other words, in
order to earn the 2,000,000 warrants, WEB must, within six years, deliver 80,000
customers who subscribe to the Company's services. If WEB is unable to deliver a
certain number of subscribers each year (which number increases over the life of
the contract), a portion of the unvested warrants expire. The maximum number of
warrants that can vest in any year cannot exceed 20% of the Company's
outstanding Common Stock at the vesting date. The warrants will be exercisable
at $5.40 per share for five years after they are issued.
The Company will also pay WEB a commission of 1.75% on collected revenues
for WEB customers (2.25% for customers in any property in which the Company has
achieved a penetration rate in excess of 60%). The commission is paid for the
life of the Company's contract with the property.
26
<PAGE>
The Company will sell WEB 25,000 shares of the Company's Common Stock at
$4.00 per share prior to the public offering; and an additional 25,000 Units in
the public offering, at the public offering price.
The Company anticipates that a definitive agreement will be entered into in
June 1998.
MARKET
The United States telecommunications industry is large and robust. The cable
television industry's annual revenues exceed $28 billion. Local and long
distance telephone traffic generates $182 billion per year. Since the break-up
of AT&T in 1984, many new businesses have developed, including cellular
telephone, alternative long distance, and competitive access providers. These
businesses and others have created dramatic growth in telecommunications.
MANAGEMENT INFORMATION SYSTEMS
Providing accurate and customized billing for customers is an integral
component of the Company's business. The Company's management information
systems ("MIS") processes calls for the services the Company provides and
combines this information with other recurring and nonrecurring customer charges
to produce monthly invoices. Customers are quoted a monthly charge for basic
telephone and cable service. In addition, customers are charged for special
services and usage, including third-party billing calls, local message units
(where applicable), directory assistance, and long-distance at a discount from
the standard rates charged by long-distance providers; and for premium cable
channels.
Enhancements to the MIS systems will allow the Company to have a scaleable
billing and customer service solution that will be able to support the Company's
planned growth. Once the Company's MIS systems are completed, they will be able
to be expanded with minimal incremental cost to accommodate substantially more
volume. Such systems may feature backup processors and short-time response
maintenance agreements and are designed to respond to customer needs as well as
support the Company's operations.
COMPETITION
The Company believes that competition in its markets will come from smaller
companies as well as large telephone companies. Corporate cultures of the
various competing entities such as phone and cable companies differ greatly from
one another. Cable companies tend to be more entrepreneurial and telephone
companies tend toward a monopoly mentality. As a result, it has been difficult
for these large organizations to work together to actually realize the economies
of scale which a converged industry represents. At the same time, the
telecommunications industry remains highly regulated and although there are
attempts being made to open telecommunications markets, incumbent monopolies
still control the local exchange marketplace and can afford protracted
litigation to delay new entrants to the marketplace. The Company will attempt to
establish relationships with large apartment owners who influence the
telecommunications options of the building they own. There can be no assurance
that other companies who may offer services like those offered by the Company
will not be able to effectively compete with the Company in its existing or
proposed markets.
Other companies currently provide cable and telephone services to
residential complexes, including ICS Communications, Inc. (ICS) and GE
Capital-Rescom, L.P. ("Rescom"). The Company's principal competitors in the
future will include companies that provide shared tenant services to office
holdings, who have a significant infrastructure in place in cities to which the
Company plans to expand. For example, Shared Technologies Fairchild
Communications Corp ("STF") has an agreement with ICS Rescom, L.P., to manage
certain aspects of its business.
27
<PAGE>
KEY SUPPLIERS
The Company currently leases transmission facilities from U S West
Communications, Inc. ("USWC"), LDDS Worldcom and Frontier Communications. Cable
television signal is acquired by the Company from TCI Cablevision of Oregon,
Inc. and KBL Cablesystems of the Southwest, a Time Warner company. Switching
hardware used by the Company is manufactured by Cortelco, formerly ITT Solid
State, and Digital Telecommunications Inc. Its Internet services provider is GTE
Intelligent Network Services, Inc. The Company believes that alternative sources
are available for all critical equipment and services that it utilizes from the
above suppliers, and that such equipment and services can be obtained at prices
comparable to those the Company is presently paying.
GOVERNMENT REGULATION
The Company is subject to regulation under both state and federal
telecommunications laws. On the state level, rules and policies are set by each
state's Public Utility Commission or Public Service Commission ("PUC" or "PSC").
On a federal level, the Federal Communications Commission ("FCC"), among other
agencies, dictates the rules and policies which govern interstate communications
providers. The FCC is also the main agency in charge of creating rules and
regulations to implement the recently enacted Telecommunications Act of 1996
("the Act"), although currently the Bell Operating Companies (BOCs) have asked
the judiciary to review and overrule the FCC and its regulations.
Nevertheless, the Act was enacted in the first quarter of 1996 with its
primary goal being to create a "competitive telecommunications marketplace." To
achieve that goal, the Act sets out a checklist of requirements that BOCs, other
local exchange carriers and long distance carriers must meet before they may
begin to compete in new telecommunications-based businesses. For example, the
Act opens a regulatory door for BOCs to enter the long-distance services market,
a door that has been closed for almost fourteen years since the Modified Final
Judgment or "Consent Decree" that broke up the old AT&T/Bell system. The Act
also allows long-distance carriers to enter the local exchange service business,
a monopoly held by the AT&T/Bell system since the turn of the Century. Equally
important, the Act opens new venues to alternative providers of video services,
thereby allowing more than the one-to-a-city cable franchisee to provide visual
entertainment and information products.
The FCC published a majority of the rules and regulations that add detail to
the Act, thereby giving to state PUCs/PSCs explicit directions and authority to
oversee, among others, such processes as 1) the way long-distance and
local-service providers "interconnect" their infrastructures and technologies;
2) the methods by which BOCs may determine their costs and revenue requirements
and pricing and rates for service; 3) how and how much non-facilities based
resellers will pay "wholesale" for retail service offerings; and 4) the degree
to which new entrants and incumbent carriers can agree as to terms, conditions,
and technical specifications for interconnection through negotiations and
arbitration.
Proceedings at state PUC's and PSC's continue, despite the BOCs court
appeals and the temporary stay of much of the FCC rules. In Oregon, for
instance, the Oregon Public Utilities Commission ("OPUC") regulates the
standards, rates and terms of services offered by Local Exchange Companies
("LECs") such as USWC, GTE, Inc. ("GTE") and other telecommunications carriers.
Companies such as the Company are regulated and certificated by the OPUC also.
As a STS provider, the Company must operate according to specific statutes and
OPUC rules. In addition, the Company has received authorization as an
Alternative Local Exchange Carrier ("ALEC") in Oregon. Applications for ALEC
authorization are pending in Colorado and Washington. As an ALEC, the Company
will be able to provide local dialtone services outside the apartment locations
for which it is currently authorized, and compete with the LECs such as USWC and
GTE. At that time, the Company will have to comply with the OPUC rules and
regulations governing ALEC operations, service standards and state surcharges
and subsidies, as well as state policies affecting technical interconnection
with the public switched telephone network, for its services provided as an
ALEC.
28
<PAGE>
In seeking the above-referenced state certifications, however, the Company
faces a limited risk of agency and court challenges by future competitors such
as USWC. Such challenges, though unlikely, could occur before state regulatory
agencies and courts in 1998.
While most of the services provided now and in the future by the Company are
considered "competitive" and "unregulated," no predictions or assurances can be
given as to the effect of federal and state laws and regulations on the
Company's business.
TRADEMARKS
The United States Patent and Trademark Office has granted the Company
service mark protection on the Company's service mark "FirstLink." This service
mark has been used in interstate commerce by the Company or its predecessors
continuously since 1994 and, in the Company's opinion, has developed recognition
in the Company's industry. The Company intends to develop and aggressively
protect its service mark and to develop other service marks used in connection
with its business.
PROPERTIES
The Company leases 2,100 square feet of office space at 190 SW Harrison in
Portland, Oregon, on a five-year lease expiring on October 31, 2001. In April
1998 the Company signed a lease agreement to lease 4,500 square feet of space at
117 SW Taylor in Portland, Oregon, with an option to lease an additional 4,500
square feet at the same location. The Company anticipates relocating to its new
facility in September 1998. This lease has an eight year term, but the Company
can terminate at any time after the 60th month. The Company believes it will be
able to sublease the space located at 190 SW Harrison. The Company believes that
its office space is sufficient for the next several years. The Company also
maintains leased equipment, including switching equipment, at various locations
to provide local dial tone for its customers.
EMPLOYEES
The Company employs 20 persons on a full-time basis in its Portland offices.
Of these employees, eight are administrative or management and twelve are in the
areas of customer service, billing and operations. The Company believes its
relationship with its employees to be good and none of the employees are union
members. All of the Company's employees are at will.
LEGAL MATTERS
The Company is currently not involved in any material legal proceedings.
29
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The directors and executive officers of the Company, and their ages as of
the date of this Prospectus, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- --- ----------------------------------------------------
<S> <C> <C>
A. Roger Pease (2)(3).................. 52 Chairman of the Board, President, Chief Executive
Officer
David M. Deluhery...................... 41 Chief Operating Officer
Thomas E. McChesney (1)(2)(3).......... 51 Director
Robert F. Olsen (1)(3)................. 49 Director
Jeffrey S. Sperber..................... 33 Chief Financial Officer
James F. Twaddell (1)(2)............... 58 Director
</TABLE>
- ------------------------
(1) Independent directors. The Company will maintain at least two (2)
independent directors on its board of directors.
(2) Member of Audit Committee.
(3) Member of Compensation Committee.
A. ROGER PEASE was appointed President and Chief Executive Officer of the
Company in January 1996. From June 1994, Mr. Pease served as Chief Executive
Officer, President or Manager of the Company's predecessors. Previously, Mr.
Pease was President and Chief Executive Officer of Payline Systems, Inc. since
1987. From 1983 to 1987, he was employed by Lattice Semiconductor Corporation as
Vice President of Finance, Vice President of Strategic Planning and
Administration, and as a consultant. From 1979 to 1983, Mr. Pease was a Partner
with the Portland office of the accounting firm of Touche, Ross & Co., where he
served as Director of Management Consulting Operations. Mr. Pease, a certified
public accountant, holds a Masters of Business Administration degree from
Northwestern University (1970), and a Bachelor of Arts degree in Finance from
the University of Illinois (1968).
DAVID M. DELUHERY was appointed Chief Operating Officer in April 1998. From
August 1984 to April 1998 he was employed by Nike, Inc., a publicly held
international sports and fitness company. He served Nike in a variety of senior
information technology management roles, most recently as the Director of
Distributed Infrastructure Services where he was responsible for the planning
and implementation of contemporary technologies globally.
THOMAS E. MCCHESNEY was appointed a director in January 1996. He is a
registered representative of Blackwell Donaldson & Co., a securities
broker-dealer. From January 1996, to October 1996 Mr. McChesney was associated
with Bathgate McColley Capital Group, LLC. Previously, Mr. McChesney was an
officer and director of Paulson Investment Co. and Paulson Capital Corporation
from March 1977 to June 1995. Mr. McChesney also serves on the boards of Labor
Ready, Inc., a company listed on the Nasdaq Stock Market; T. Angell & Co., Inc.;
and Nation's Express, Inc.
ROBERT F. OLSEN was appointed as a director in January 1996. Mr. Olsen
previously served as Director of Payline Systems from May 1992 until May 1995.
Mr. Olsen is the Chairman and Chief Executive Officer of J. R. Roberts Corp.,
which he co-founded in 1980. J. R. Roberts Corp. is the largest construction
company in Sacramento, California, specializing in commercial, industrial and
multi-family housing projects. JR Roberts has offices in Sacramento, Seattle,
Portland, and Orange County. Mr. Olsen resides in California. From 1971 to 1980,
he served as Manager of Marketing and Director of East Coast Construction and
Special Projects for Continental Heller, a large national construction company
based in California. Mr. Olsen holds two degrees from Oregon State University: a
Bachelor of Science degree in Civil Engineering and a Bachelor of Arts degree in
Business Administration (1971).
30
<PAGE>
JEFFREY S. SPERBER was appointed chief financial officer in October 1997.
From August 1995 to September 1997 Mr. Sperber was the Controller of TCI
Wireline, Inc., a business unit of Tele-Communications, Inc., engaged in
providing local telephone service. From August 1991 to August 1995 he was
employed by Concord Services, Inc., a privately held international conglomerate
based in Denver, Colorado, where he was responsible for the accounting and
finance of both public and privately held entities, most recently, as Chief
Financial Officer of its manufacturing and processing business unit. From
September 1986 to August 1991 he was employed by Arthur Andersen and Co. in
Denver, Colorado, as a senior auditor.
JAMES F. TWADDELL was elected a director of the Company in February 1998. He
is a member of the investment banking group of Schnieder Securities, Inc.,
located in Providence, Rhode Island. From 1974 through 1995, Mr. Twaddell served
as Chairman of Barclay Investments, Inc., a member firm of the National
Association of Securities Dealers, Inc. (the "NASD"). Mr. Twaddell also served
as Chairman of Regional Investment Brokers, Inc., a 125-member cooperative
association of regional investment bankers and broker/dealers conducting
business throughout the United States. For the 1993-1995 term, he was elected to
serve on both the NASD District 11 Committee and the District Business Conduct
Committee. He has served as Chairman of the Board of First Mutual Fund, a
30-year old publicly-traded mutual fund, since 1979. He has also served as a
Trust Manager of Grove Property Trust, a public real estate investment trust
that is engaged in the acquisition, repositioning, management and operation of
mid-priced multifamily communities in the Northeastern United States, since
1994. Mr. Twaddell received his B.A. from Brown University in 1961.
There are no family relationships among Directors or persons nominated or
chosen by the Company to become a Director, nor any arrangements or
understandings between any Director and any other person pursuant to which any
Director was elected as such. Each Director is elected to serve for a term of
one (1) year until the next annual meeting of stockholders or until a successor
is duly elected and qualified. The present term of office of each Director will
expire at the next annual meeting of stockholders.
The executive officers of the Company are elected annually at the first
meeting of the Company's Board of Directors held after each annual meeting of
stockholders. Each executive officer will hold office until his successor is
duly elected and qualified, until his resignation or until he shall be removed
in the manner provided by the Company's By-Laws.
During fiscal 1997 and 1996, the Company did not have standing Audit or
Compensation Committees of the Board of Directors. The Company formed an Audit
Committee, chaired by Mr. McChesney, and a Compensation Committee chaired by Mr.
Olsen, in February 1998. Those committees consist of three members each,
including two outside directors. No member of those committees will receive any
additional compensation for his service as a member of that Committee. The Audit
Committee will be responsible for providing assurance that financial disclosures
made by management of the Company reasonably portray the Company's financial
condition, results of operations, plan and long-term commitments. To accomplish
this, the Audit Committee will oversee the external audit coverage, including
the annual nomination of the independent public accountants, review accounting
policies and policy decisions, review the financial statements, including
interim financial statements and annual financial statements, together with
auditor's opinions, inquire about the existence and substance of any significant
accounting accruals, reserves or estimates made by Management, review with
Management the Management's Discussion and Analysis section of the Annual
Report, review the letter of Management representations given to the independent
public accountants, meet privately with the independent public accountants to
discuss all pertinent matters, and report regularly to the Board of Directors
regarding its activities.
DIRECTOR NOMINEE
The Company intends to increase the size of the Board of Directors to five
directors after consummation of this offering. The vacancy created thereby will
be filled by the Board of Directors pursuant to the
31
<PAGE>
Company's Bylaws. The Company has granted ProFutures Bridge Capital, LP,
("ProFutures") a substantial shareholder, the right to nominate a director,
subject to the Company's approval. ProFutures has not exercised that right as of
the date of this Prospectus. If ProFutures does not nominate a director, the
Company will seek a qualified director to be added to the Board.
DIRECTOR COMPENSATION
None of the Company's directors received any compensation during the most
recent fiscal year for serving in their position as a director. No plans have
been adopted to compensate directors in the future. In 1997 the Board of
Directors adopted a stock option plan which includes provision for stock options
to be issued to directors. The Company granted a total of 240,000 options to
directors under this plan in 1997. See "-- Stock Incentive Plan."
Directors who are also executive officers of the Company receive no
additional compensation for their services as Directors. Directors who are not
executive officers of the Company are paid a $500 fee for each board meeting
they attend. In addition, outside Directors are entitled to be reimbursed for
their expenses associated with attendance at meetings or otherwise incurred in
connection with the discharge of their duties as Directors of the Company.
EXECUTIVE COMPENSATION
The following table and discussion set forth information with respect to all
compensation earned by or paid to the Company's Chief Executive Officer ("CEO"),
its most highly compensated executive officer, for all services rendered in all
capacities to the Company for each of the Company's last three fiscal years;
provided, however, that no disclosure has been made for any executive officer,
other than the CEO, whose total annual salary and bonus does not exceed
$100,000.
TABLE 1
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION AWARDS
ANNUAL COMPENSATION ---------------------------------
SECURITIES
---------------------------- OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY ($) BONUS ($) COMPENSATION(1)($) OPTIONS/SARS
- -------------------------------------------------- ------------- ------------- --------------- ------------------ -------------
<S> <C> <C> <C> <C> <C>
A. Roger Pease President & CEO.................... 1997 -0- -0- $ 96,000 160,000
1996 -0- -0- $ 96,000 --
</TABLE>
- ------------------------
(1) Mr. Pease was paid $8,000 per month pursuant to an oral management agreement
with the Company during 1996 and 1997. He was not paid a salary. Beginning
April 1998, he is being paid a salary of $10,000 per month, and the
management agreement has been terminated
The Company does not have an employment agreement with any of its officers.
It plans to enter into employment agreements with Mssrs. Pease, Sperber, and
Deluhery shortly after the completion of this Offering.
STOCK INCENTIVE PLAN
During fiscal 1997, the Company adopted the Plan. Pursuant to the Plan,
stock options granted to eligible participants take the form of Incentive Stock
Options ("ISO's") under Section 422 of the Internal Revenue code of 1986, as
amended (the "Code") or options which do not qualify as ISO's (Non-Qualified
Stock Options or "NQSO's"). As required by Section 422 of the Code, the
aggregate fair market value of the Company's Common Stock with respect to its
ISO's granted to an employee exercisable for the first time in any calendar year
may not exceed $100,000. The foregoing limitation does not apply to NQSO's.
32
<PAGE>
The exercise price of an ISO may not be less than 100% of the fair market value
of the shares of the Company's Common Stock on the date of grant. The exercise
price of an NQSO may be set by the administrator, but not less than 85% of the
Fair Market Value of the shares of Common Stock on the date of grant. An option
is not transferable, except by will or the laws of descent and distribution. If
the employment of an optionee terminates for any reason (other than for cause,
or by reason of death, disability, or retirement), the optionee may exercise his
options within a ninety day period following such termination to the extent he
was entitled to exercise such options at the date of termination. Either the
Board of Directors (provided that a majority of directors are "disinterested")
can administer the Plan, or the Board of Directors may designate a committee
comprised of directors meeting certain requirements to administer the Plan. The
administrator will decide when and to whom to make grants, the number of shares
to be covered by the grants, the vesting schedule, the type of award and the
terms and provisions relating to the exercise of the awards. An aggregate of
533,333 shares of the Company's Common stock is reserved for issuance under the
Plan. The Company received stockholder approval of the Plan in a meeting of
stockholders held on February 24, 1998, and accordingly, can issue ISO's from
such date forward.
At May 15, 1998, the Company had granted a total of 533,333 options under
the Plan consisting of 450,000 NQSO's and 83,333 ISO's at exercise prices
ranging from $1.13 to $2.25 per share. All options have been issued with
exercise prices at or above market value on the date of issuance. All of the
options vest over a three-year period.
The following tables set forth certain information as of December 31, 1997,
and for the fiscal year then ended concerning non-qualified stock options
granted to and exercised by the named executive officer and the fiscal year-end
value of unexercised options on an aggregated basis:
OPTIONS/GRANTS IN FISCAL 1997
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/GRANTS TO
UNDERLYING EMPLOYEES IN
NAME OPTIONS/GRANTS(#) FISCAL YEAR EXERCISE PRICE ($/SH) EXPIRATION DATE
- ---------------------- ----------------- ----------------- ------------------------- ----------------
<S> <C> <C> <C> <C>
A. Roger Pease........ 160,000 38.4% $ 1.13 February 2007
</TABLE>
TABLE 3
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
SHARES NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED ON VALUE OPTIONS/SARS AT IN-THE-MONEY OPTIONS/SARS
NAME EXERCISE(#) REALIZED(1)($) FY-END(#) AT FY-END($)(2)
- ------------------------------------- ------------ --------------- ----------------------- -------------------------
<S> <C> <C> <C> <C>
A. Roger Pease....................... -- -- Exercisable-80,000 Exercisable-$90,000
Unexercisable-80,000 Unexercisable-$90,000
</TABLE>
- ------------------------
(1) Value Realized is determined by calculating the difference between the
aggregate exercise price of the options and the aggregate fair market value
of the Common Stock on the date the options are exercised.
(2) The value of unexercised options is determined by calculating the difference
between the fair market value of the securities underlying the options at
fiscal year end and the exercise price of the options. The fair market value
of the securities underlying the options, based on the last price Common
Stock was sold by the Company privately, was $2.25 per share.
33
<PAGE>
LIMITATION ON DIRECTORS' LIABILITY; INDEMNIFICATION
The Company has adopted provisions in its Articles of Incorporation and
Bylaws that limit the liability of its directors to the fullest extent permitted
by the Oregon Business Corporation Act (the "OBCA"). Under the Company's
Articles and Bylaws, as permitted by the OBCA, no director is liable to the
Company or its Stockholders for monetary damages for his conduct as a director
of the Company. Such limitation of liability does not affect a director's
liability for (a) a breach of the director's duty of loyalty to the Company or
its stockholders; (b) any acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of the law; or (c) any unlawful
distribution, or a transaction from which the director receives an improper
personal benefit. Such limitation of liability also does not affect the
availability of equitable remedies such as injunctive relief or rescission.
The Company's Articles of Incorporation permit and its Bylaws require the
Company to indemnify officers and directors to the fullest extent permitted by
the OBCA. These agreements, among other provisions, provide indemnification for
certain expenses (including attorney fees), judgments, fines and settlement
amounts incurred in any action or proceeding, including any action by or in the
right of the Company.
The effect of this provision in the Company's Articles of Incorporation is
to eliminate the rights of the Company and its stockholders (through
stockholder's derivative suits on behalf of the Company) to recover monetary
damages against a director for breach of his fiduciary duty of care as a
director (including breaches resulting from negligent or grossly negligent
behavior) except in the situations described in clauses (a) through (c) above.
This provision does not limit nor eliminate the rights of the Company or any
stockholder to seek non-monetary relief such as an injunction or rescission in
the event of a breach of a director's duty of care. The ByLaws provide that if
Oregon law is amended, in the case of alleged occurrences of actions or
omissions preceding any such amendment, the amended indemnification provisions
shall apply only to the extent that the amendment permits the Company to provide
broader indemnification rights than the OBCA permitted the Company to provide
prior to such amendment.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, the Company has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy and is, therefore, unenforceable.
34
<PAGE>
SECURITIES OWNERSHIP OF MANAGEMENT
AND PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of May 15, 1998, and as adjusted to
reflect the sale of the Securities offered hereby, by (i) each person who owns
beneficially more than 5% of the Company's Common Stock; (ii) each of the
Company's directors and executive officers; and (iii) all directors and
executive officers as a group. Each named beneficial owner has sole voting and
investment power with respect to the Shares held, unless otherwise stated.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF SHARES
SHARES BENEFICIALLY OWNED(2)
BENEFICIALLY ----------------------------------
NAME AND ADDRESS OF OWNER OWNED(1) PRIOR TO OFFERING AFTER OFFERING
- -------------------------------------------------------------- ----------------- ----------------- ---------------
<S> <C> <C> <C>
A. Roger Pease (3)............................................ 186,667 8.3% 5.1%
190 SW Harrison
Portland, OR 97201
Robert F. Olsen (4)........................................... 118,679 5.5 3.3%
7745 Greenback Lane
Citrus Heights, CA 95610
Jeffrey S. Sperber (5)........................................ 16,667 < 1% < 1%
190 SW Harrison
Portland, OR 97201
Steven M. Bathgate (6)(7)..................................... 340,149 15.2% 9.3%
5350 S. Roslyn Way, #380
Englewood, CO 80111
Thomas E. McChesney (8)....................................... 115,852 5.3% 3.2%
200 SW Market Street
Portland, OR 97201
Eugene C. McColley (6)(9)..................................... 310,149 13.9% 8.5%
5350 S. Roslyn Way, #380
Englewood, CO 80111
ProFutures Bridge Capital Fund, LP (10)....................... 212,800 9.8% 5.9%
5350 S. Roslyn Street, Suite 350
Englewood, CO 80111
James Edmund McDonald (11).................................... 121,499 5.6% 3.4%
6044 E. Briarwood Drive
Englewood, CO 80112
Virginia S. McDonald (11)..................................... 121,499 5.6% 3.4%
6044 E. Briarwood Drive
Englewood, CO 80112
Caribou Bridge Fund, LLC (12)................................. 148,498 6.8% 4.1%
5350 S. Roslyn Street, Suite 380
Englewood, CO 80112
All Executive Officers and Directors as a Group
(5 persons)................................................. 437,865 19.0% 11.8%
</TABLE>
- ------------------------
(1) Except as set forth in the footnotes to this table, the persons named in
this table have sole voting and investment power with respect to all shares.
Shares not outstanding but deemed beneficially owned by virtue of the
individual's right to acquire then as of the date of this Prospectus, or
within sixty (60) days of such date, all treated as outstanding when
determining the percent of the class owned by such person and when
determining the percent owned by a group.
35
<PAGE>
(2) Applicable percentage is based on 2,164,063 shares of Common Stock
outstanding on March 31, 1998 and 3,564,063 shares outstanding after the
completion of the Offering.
(3) 103,333 shares are owned by Mr. Pease in his individual retirement account.
Also includes 3,333 shares owned by Mr. Pease's wife, of which he disclaims
beneficial ownership; and presently exercisable stock options by Mr. Pease
to purchase 80,000 shares of Common Stock at $1.13 per share.
(4) Includes 96,653 shares beneficially owned by JR Roberts Corporation, of
which Mr. Roberts is the Chairman and Chief Executive Officer; and Options
exercisable to purchase 13,333 shares of Common Stock at $1.13 per share.
(5) Consists of presently exercisable options to purchase shares of Common
Stock.
(6) Includes 134,053 shares and warrants to purchase 14,445 shares owned by
Caribou Bridge Fund, LLC. Mssrs. Bathgate and McColley own the Administrator
of Caribou. They disclaim beneficial ownership of such shares. Also includes
29,161 shares of Common Stock and 4,445 shares of Common Stock underlying
presently exercisable warrants owned by Kiawah Capital Partners, an entity
that Mssrs. Bathgate and McColley own equally. Fifty percent of those shares
and warrants are attributed to each Mr. Bathgate and Mr. McColley.
(7) Includes 18,667 shares owned by Bathgate Family Partnership II, of which
Mr. Bathgate is a general partner.
(8) Includes 5,833 shares and 4,375 shares of Common Stock underlying presently
exercisable warrants owned by Elizabeth McChesney, Mr. McChesney's wife of
which he disclaims beneficial ownership. Also includes 30,802 shares of
Common Stock and 16,667 shares of Common Stock underlying presently
exercisable warrants and vested options, respectively.
(9) Includes 48,000 shares of Common Stock underlying presently exercisable
warrants.
(10) Includes 53,333 shares of Common Stock underlying presently exercisable
warrants. ProFutures is a limited partnership. Its general partners are
Bridge Capital Partners, Inc. James H. Perry is the President, Director and
sole shareholder of Bridge Capital Partners, Inc.
(11) Of the shares of Common Stock listed as being beneficially owned by James
E. McDonald and Virginia S. McDonald, 68,165 shares (including 7,778 shares
underlying presently exercisable warrants) are owned by James E. McDonald,
Trustee for the James E. McDonald Revocable Trust; and 53,333 shares
(including 6,667 shares underlying presently exercisable warrants) are owned
by Virginia S. McDonald, Trustee for the Virginia S. McDonald Revocable
Trust. Mr. and Mrs. McDonald are husband and wife. They each disclaim
beneficial ownership of shares owned by their spouse's trust.
(12) Includes 14,445 shares of Common Stock underlying presently exercisable
warrants. Caribou Bridge Fund, LLC, is a Colorado Limited Liability Company.
Its manager is E. Bowman McLean, who has voting power over securities owned
by CBF. Investment decisions are made by an investment committee comprised
of E. Bowman McLean, Douglas Kelsall, Steven M. Bathgate, and Eugene C.
McColley. See FN 6.
CERTAIN TRANSACTIONS
In April 1994, Payline Systems, Inc. ("Payline") a publicly traded
corporation, entered into a five-year contract with Pacific Union Property
Services, the management company for Portland Center Apartments, to provide
telecommunications services to the tenants of the Portland Center Apartments.
Shortly thereafter, Payline formed FirstLink Communications, L.L.C. ("FLC"), and
assigned that contract to FLC. In January 1995, FLC signed a seven-year contract
with RiverPlace II Joint Venture to provide services to the tenants of
RiverPlace. Subsequently, FLC borrowed a total of $250,000 from three investors,
including JR Roberts Corporation and Thair Q. Schneiter, a director and major
stockholders of the Company. The investors obtained as collateral for the loan a
security interest in all assets of FLC, including the two contracts and certain
equipment. In May 1995, the investors foreclosed on their notes, which were in
default, and obtained the assets of FLC. They assigned the assets to a newly
formed limited liability
36
<PAGE>
company, FirstLink Tenant Services, L.L.C. ("FTS"). On January 1, 1996, the
Company acquired substantially all of the assets of FTS, in exchange for 133,333
shares of Common Stock. The acquisition of these net assets was accounted for
using the purchase method of accounting. As the Company and FTS were entities
under common control, the assets and liabilities of FTS were recorded by the
Company using the carryover basis in such assets and liabilities of $82,790.
Because of the nature of this transaction, it cannot be considered to have
resulted from an arms-length negotiation between the Company and the investors.
In October 1996, the Company issued 6,667 shares of Common Stock to each of
Mr. McChesney, a director of the Company, and Mssrs. Bathgate and McColley, who
are substantial shareholders of the Company, in consideration of their
guaranteeing a $125,000 equipment lease. The Company also agreed to issue an
additional 200 shares per month to each of those individuals for each month that
the guarantee is outstanding. Through March 31, 1998, the Company had issued an
additional 3,400 shares to each such individual. The Company will attempt to
obtain a release of those guarantees following the closing of this Offering.
In 1997, the Company issued 8,692 shares to Mr. Olsen, and 1,060 shares to
Mr. McChesney, directors of the Company, as consideration for their guarantees
of a second lease.
Mssrs. Bathgate and McColley are principals of Bathgate McColley Capital
Group, LLC, who acted as the Company's Placement Agent in three private
offerings of the Company in 1997 and 1998. In connection with such offerings,
they were paid commissions aggregating $135,852 in 1997 and $38,000 in 1998; and
issued persons affiliated with BMCG warrants to purchase a total of 157,000
shares of Common Stock.
Each of the above transactions, except the transaction in which the Company
acquired the assets of FTS, were approved or ratified by a majority of
disinterested directors. The Board of Directors has determined that any future
transactions with officers, directors, or principal shareholders will be
approved by the disinterested directors and will be on terms no less favorable
than could be obtained from an unaffiliated third party. The Board of Directors
will obtain independent counsel or other independent advice to assist in that
determination.
37
<PAGE>
DESCRIPTION OF SECURITIES
The Company's Articles of Incorporation authorize the issuance of up to
20,000,000 shares of Common Stock and 1,000,000 shares of Preferred Stock
("Preferred Stock").
COMMON STOCK
Holders of Common Stock are entitled to receive dividends when and as
declared by the Board of Directors out of any funds lawfully available therefor
and, in the event of liquidation or distribution of assets, are entitled to
participate ratably in the distribution of such assets remaining after payments
of liabilities, in each case subject to any preferential rights granted to any
series of Preferred Stock that may then be outstanding. The Common Stock does
not have any preemptive rights or redemption, conversion or sinking fund
provisions. All of the issued and outstanding shares of Common Stock are, and
all shares of Common Stock to be outstanding upon completion of the Offering
will be, validly issued, fully paid and nonassessable. Holders of Common Stock
are entitled to one vote per share on all matters to be voted upon by the
stockholders. Holders of Common Stock do not have cumulative voting rights in
the election of directors, which means that the holders of more than 50% of the
shares voting can elect all directors.
PREFERRED STOCK
The Articles of Incorporation authorize 1,000,000 shares of Preferred Stock
and permit the Board of Directors, without further stockholder authorization, to
issue Preferred Stock in one or more series and to fix the terms and provisions
of each series, including dividend rights and preferences, conversion rights,
voting rights, redemption rights and rights on liquidation, including
preferences over Common Stock. The issuance of any series of Preferred Stock
under certain circumstances could adversely affect the voting power or other
rights of the holders of Common Stock, and, under certain circumstances, be used
as a means of discouraging, delaying, or preventing a change in control of the
Company. No Preferred Stock is outstanding, and the Company has no present plans
to issue any shares of Preferred Stock. The Company will not offer preferred
stock to officers, directors, or substantial shareholders of the Company except
on the same terms as are offered to all shareholders as a group, or to new
investors.
WARRANTS
Two Warrants will entitle the holder to purchase one share of Common Stock
at a price of $8.10 during the three-year period commencing on the date of this
Prospectus. The Warrants will be redeemable upon forty-five (45) days prior
written notice at a redemption price of $.05 per Warrant if (a) the closing high
bid price of the Common Stock has exceeded $12.15 for at least 20 of the 30
trading days immediately preceding the date of mailing of the notice of
redemption, and (b) the Company has in effect a current registration statement
with the Commission registering the Common Stock issuable upon exercise of the
Warrants. The Warrants will contain anti-dilution provisions for stock splits,
recombinations, and reorganizations.
STATE LEGISLATION
When and if the Company has 100 or more stockholders, the Company will
become subject to the Oregon Control Share Act (the "Control Share Act"). As of
December 31, 1997, the Company had 73 stockholders. The Control Share Act
generally provides that a person (the "Acquirer") who acquires voting stock of
an Oregon corporation in a transaction which results in the Acquirer holding
more than each of 20%, 33 1/3% or 50% of the total voting power of the
corporation (a "Control Share Acquisition") cannot vote the shares it acquires
in the Control Share Acquisition ("Control Shares") unless voting rights are
accorded to the Control Shares by (i) a majority of each voting group entitled
to vote and (ii) the holders of a majority of the outstanding voting shares,
excluding the Control Shares held by the Acquirer and
38
<PAGE>
shares held by the corporation's officers and inside directors. The term
"Acquirer" is broadly defined to include persons acting as a group.
The Acquirer may, but is not required to, submit to the corporation an
"Acquiring Person Statement" setting forth certain information about the
Acquirer and its plans with respect to the corporation. The Acquiring Person
Statement may also request that the corporation call a special meeting of
stockholders to determine whether the voting rights will be restored to the
Control Shares. If the Acquirer does not request a special meeting of
stockholders, the issue of voting rights of Control Shares will be considered at
the next annual or special meeting of stockholders. If the Acquirer's Control
Shares are accorded voting rights and represent a majority or more of all voting
power, Stockholders who do not vote in favor of the restoration of such voting
rights will have the right to receive the appraised "fair value" of their
shares, which may not be less than the highest price paid per share by the
Acquirer for the Control Shares.
TRANSFER AND WARRANT AGENT
American Securities Transfer & Trust, Incorporated, 1825 Lawrence Street,
Denver, Colorado 80202 will be the transfer agent for the Common Stock and the
warrant agent for the Warrants.
REGISTRATION RIGHTS
The Company is a party to a Registration Rights Agreement pursuant to which
it granted to certain former holders of Convertible Promissory Notes (the
"Notes") (all of whom have converted the Notes to Common Stock), Common Stock,
and Warrants certain rights with respect to registration under the Securities
Act of 935,556 shares of Common Stock and 188,889 warrants held by such holders,
the "Registrable Securities"). Under the Registration Rights Agreement, if the
Company files a registration statement under the Securities Act, the holders of
Registrable Securities may require the Company, subject to certain limitations,
to include all or any portion of their Registrable Securities in such
registration at the Company expense. The shares so registered will be subject to
an agreement not to sell those shares for a period of one year after the date of
this Prospectus without the representative's written consent. The Company is
registering a portion of the Registrable Securities in the Registration
Statement of which this Prospectus is a part; and it plans to file a separate
registration statement for the other Registrable Securities prior to the
expiration of the lock-up period.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for the Common Stock
or the Warrants. Future sales of substantial amounts of Common Stock in the
public market could adversely affect prevailing market prices.
Upon completion of the Offering, the Company will have 3,564,063 shares of
Common Stock outstanding. Of these shares, 1,400,000 shares registered in the
Registration Statement for this Offering will be freely tradeable without
restriction under the Securities Act, except for any shares purchased by
affiliates of the Company, which will be subject to certain resale limitations
of Rule 144 promulgated under the Securities Act. The remaining 2,164,063 shares
and all of the shares of Common Stock issuable upon exercise of outstanding
options and warrants are "restricted securities" as defined in Rule 144. The
owners of those shares have agreed with the Representative of the Underwriters
not to sell, transfer, assign, or make any other disposition of any shares owned
by them for a period of twelve months after the date of this Prospectus without
the prior written consent of the Representative. The Warrants being issued in
this Offering as part of the Units, the 700,000 shares of Common Stock issuable
upon exercise of the Warrants, the 188,889 Warrants being issued to certain
private investors, and the 94,445 shares of Common Stock underlying those
Warrants will be freely transferable and not subject to any restrictions on
resale.
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
for at least one year is entitled to sell, within any three-
39
<PAGE>
month period, a number of shares that does not exceed the greater of 1% of the
then outstanding shares of the issuer's common stock or the average weekly
trading volume during the four calendar weeks preceding such sale, provided that
certain public information about the issuer as required by Rule 144 is then
available and the seller complies with certain other requirements. In general,
shares issued in compliance with Rule 701 promulgated under the 1933 Act may be
sold by non-affiliates subject to the manner of sale requirements of Rule 144,
but without compliance with the other requirements of Rule 144. Affiliates may
sell such shares in compliance with Rule 144, other than the holding period
requirement. A person who is not an affiliate, has not been an affiliate within
three months prior to sale, and has beneficially owned the restricted securities
for at least two years is entitled to sell such shares under Rule 144 without
regard to any of the limitations described above.
Further, upon completion of the Offering, there will be outstanding Warrants
exercisable to purchase an additional 794,444 shares of Common Stock, assuming
no exercise of the Over-allotment Option. All shares of Common Stock issuable
upon exercise of the Warrants will be free trading and immediately eligible for
sale upon issuance.
40
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, a copy of
which has been filed as an exhibit to the Registration Statement of which this
Prospectus forms a part, the Underwriters named below (the "Underwriters") have
severally agreed, through Kashner Davidson Securities Corporation and Joseph
Charles & Associates, Inc. as the Representatives of the Underwriters, to
purchase from the Company on a firm commitment basis, the aggregate number of
Units set forth opposite their names below:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF UNITS
- --------------------------------------------------------------------------------------- ---------------
<S> <C>
Kashner Davidson Securities Corporation................................................
Joseph Charles & Associates, Inc.......................................................
---------------
Total................................................................................ 1,400,000
</TABLE>
The Securities are being offered by the several Underwriters, subject to
prior sale, when, as, and if delivered to and accepted by the Underwriters and
subject to their right to reject orders in whole or in part and subject to
approval of certain legal matters by counsel and to various conditions. The
nature of the Underwriters' obligation is such that they must purchase all of
the Securities offered hereby if any are purchased.
The Company has granted the Underwriters an option for 45 days from the date
of this Prospectus to purchase up to an additional 210,000 Units at the initial
public offering prices less the underwriting discount of $.55 per Unit. The
Underwriters may exercise such option only for the purpose of covering any
over-allotments in the sale of the Securities being offered.
The Underwriters have advised the Company that they propose to offer the
1,400,000 Units directly to the public at the public offering prices set forth
on the cover page of this Prospectus and to selected dealers at that price, less
a concession of not more than $.275 per Unit. After the initial offering of the
Securities is completed, the price of the Securities may change as a result of
market conditions. However, no such change will effect the amount of proceeds to
be received by the Company as set forth on the cover page of this Prospectus.
The Underwriters have advised the Company that they will not make sales of the
Securities offered in this Prospectus to accounts over which they exercise
discretionary authority.
The Company will pay the Representative a non-accountable expense allowance
from offering proceeds, including proceeds from the over-allotment options to
the extent exercised. The expense allowance will be 3% of the gross proceeds
sold in the Offering. The Representative's expenses in excess of the
non-accountable expense allowance will be borne by the Representative. To the
extent that the expenses of the Representative are less than the non-accountable
expense allowance, the excess shall be deemed to be compensation to the
Representative. The Company has advanced the Representative $25,000 of such
expense allowance.
In addition to the Underwriters' discount and the non-accountable expense
allowance, the Company is required to pay the costs of qualifying the Securities
under federal and state securities laws, together with legal and accounting
fees, printing, road show and other costs in connection with the Offering. The
Underwriters have agreed to pay all fees and expenses of any legal counsel whom
it may employ to represent it separately in connection with or on account of the
proposed offering by the Company, mailing, telephone, travel and clerical costs
and all other office costs incurred or to be incurred by the Underwriters or by
their representatives in connection with the Offering.
41
<PAGE>
The Company has agreed with the Representatives not to solicit Warrant
exercises other than through the Representatives. Upon exercise of any Warrants,
the Company will pay the Representatives a fee of 3% of the aggregate exercise
price, if (i) the market price of the Company's Common Stock on the date the
Warrant is exercised is greater than the then exercise price of the Warrant;
(ii) the exercise of the Warrant was solicited by a member of the National
Association of Securities Dealers, Inc. who is so designated in writing by the
holder exercising the Warrant; (iii) the Warrant is not held in a discretionary
account except where prior specific written approval for the exercise has been
received; (iv) disclosure of compensation arrangements was made both at the time
of the offering and at the time of exercise of the Warrant; (v) the solicitation
of the exercise of the Warrant was not in violation of Regulation M promulgated
under the Exchange Act; and (vi) the Representative provides bona fide services
in connection with the solicitation of the Warrant. No solicitation fee will be
paid to the Representatives on Warrants exercised within one year of the date of
this Prospectus or on Warrants voluntarily exercised at any time without
solicitation. In addition, unless granted an exemption by the Commission from
Regulation M under the Exchange Act, the Representatives will be prohibited from
engaging in any market making activities or solicited brokerage activities until
the later of the termination of such solicitations activity or the termination
by waiver or otherwise of any right the representatives may have to receive a
fee for the exercise of the Warrants following such solicitation. Such a
prohibition, while in effect, could impair the liquidity and market price of the
Securities.
The present shareholders of the Company have agreed not to issue, offer,
sell, transfer, assign, hypothecate or otherwise dispose of any securities of
the Company for twelve months from the date of this Prospectus without the prior
written consent of the Representative.
Until the distribution of the Securities is completed, rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase the securities. As an exception to these rules,
the Underwriters are permitted to engage in certain transactions that stabilize
the price of the securities. Such transactions consist of bids or purchases for
the purpose of pegging, fixing or maintaining the price of the securities. If
the Underwriters create a short position in the Securities in connection with
the Offering, i.e., if they sell more Securities than are set forth on the cover
page of this Prospectus, the Underwriters may reduce that short position by
purchasing Securities in the open market. The Underwriters may also elect to
reduce any short position by exercising all or part of the Over-allotment Option
described above.
The Underwriters may also impose a penalty bid on selling group members.
This means that if the Underwriters purchase Securities in the open market to
reduce the Underwriters' short position or to stabilize the price of the
Securities, it may reclaim the amount of the selling concession from the selling
group members who sold those securities as part of the Offering.
In general, purchase of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it was
to discourage resales of the security. Neither the Company nor the Underwriters
make any representation or predictions as to the direction or magnitude of any
effect that the transactions described above may have on the price of the
Securities. In addition, neither the Company nor the Underwriters make any
representation that the Underwriters will engage in such transactions, once
commenced, will not be discontinued without notice.
There are no current plans, proposals, arrangements or understandings
between the Representatives, any members of the underwriting group, or known to
the Representatives, members of the underwriting group, with respect to engaging
in any transactions with the Shareholders who are participating in the
Shareholders Offering.
Prior to the Offering, there has been no public market for the Common Stock
or Warrants. Accordingly, the public offering prices of the Shares and Warrants
and the exercise price of the Warrants
42
<PAGE>
were determined by negotiations between the Representatives and the Company.
Among the factors considered in determining the public offering prices and the
Warrant exercise price were the prospects for the Company, an assessment of the
industry in which the Company operates, the assessment of management, the number
of Securities offered, the price that purchasers of such Securities might be
expected to pay given the nature of the Company, and the general condition of
the securities markets at the time of the Offering. Accordingly, the offering
prices set forth on the cover page of this Prospectus should not be considered
an indication of the actual value of the Company or the Common Stock or
Warrants.
The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the 1933 Act, and, if such
indemnifications are unavailable or insufficient, the Company and the
Underwriters have agreed to damage contribution agreements between them based
upon relative benefits received from the Offering and relative fault resulting
in such damages. Insofar as indemnification for liabilities arising under the
Securities Act may be provided to directors, officers and controlling persons of
the Company, the Company has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. The Company also has agreed with the
Underwriters that the Company will file and cause to become effective a
registration statement pursuant to Section 12(g) of the Securities Exchange Act
of 1934 no later than the date of this Prospectus.
The foregoing does not purport to be a complete statement of the terms and
conditions of the Underwriting Agreement, copies of which are on file at the
offices of the Representative, the Company and the Commission. See "Additional
Information."
REPRESENTATIVES' OPTIONS
Upon completion of the Offering, the Company will sell to the Representative
for $140, the Representatives' Options to purchase 140,000 Units at a price that
is equal to 140% of the Offering Price. The Warrants underlying the
Representatives' Option will have an exercise price and other terms identical to
the Warrants being offered to the public pursuant to this Prospectus, (the
"Representatives' Option"). The Representatives' Options will be exercisable
commencing one year after the date of this Prospectus for a period of four
years. The exercise price for the units underlying the Representatives' Options
is payable in cash or through the surrender of Options having a value equal to
the difference between the exercise price and the average of the current market
price of the Common Stock and Warrants for the 20 consecutive trading days
commencing 21 trading days before the date the Representatives' Options are
tendered for exchange.
The Representative's Options will be non-transferable except among the
Underwriters and by their respective officers or partners for a period of twelve
months from the date of this Prospectus. The Representative's Options and the
securities underlying the Representative's Options (the "Representative's
Securities") will also contain anti-dilution provisions for stock splits,
combinations and reorganizations, piggyback registration rights, one demand
registration right at the expense of the Company, and one demand registration
right paid for by the holders of the Representative's Securities (all of which
expire five years from the date of the Prospectus).
The Representative's Securities are being registered in the Registration
Statement of which this Prospectus is a part. The Company has agreed to maintain
an effective Registration Statement with respect to such shares to permit their
resale at all times during the period in which the Representative's Options are
exercisable. The sale of the Representative's Securities could dilute the
interest of other holders of Common Stock and Warrants and the existence of the
Representative's Options may make the raising of additional capital by the
Company more difficult. At any time at which exercise of Representative's
Options might be expected, it is likely that the Company could raise additional
capital on terms more favorable than the terms of the Representative's Options.
Any profit realized by the Representatives (or any holder of the Representatives
Warrants) on the sale of the shares of Common Stock or the Warrants
43
<PAGE>
included in the Units or the sale of the shares of Common Stock underlying the
Warrant may be deemed underwriting compensation.
CONSULTANT TO THE BOARD OF DIRECTORS
The Company has agreed, for a period of three years from the date of this
Prospectus, to designate a person selected by the representatives to act as a
consultant to the Board of Directors who will have the right to attend all Board
and Board committee meetings and will be reimbursed his out-of-pocket expenses
to attend Board meetings. The Representative has not yet exercised its right to
designate such a person.
LEGAL MATTERS
The validity of the issuance of the Common Stock offered hereby will be
passed upon for the Company by Neuman Drennen & Stone, LLC, Englewood, Colorado.
David H. Drennen, whose company is a member of the firm of Neuman Drennen &
Stone, LLC is the owner of warrants to purchase 14,000 shares of the Company's
Common Stock, which he received from the placement agent of a private placement
of the Company's securities as partial compensation for his services to that
placement agent. Certain legal matters will be passed upon for the
Representative by Sichenzia, Ross & Friedman, LLP, 135 West 50th Street, 20th
Floor, New York, New York 10020.
EXPERTS
The financial statements of the Company as of December 31, 1997, and for the
years ended December 31, 1997 and 1996, have been included herein and in the
registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
The report of KPMG Peat Marwick LLP covering the December 31, 1997,
financial statements contains an explanatory paragraph that states that the
Company's recurring losses from operations raise substantial doubt about its
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of that uncertainty.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement on Form SB-2 with the
Commission in Washington, D.C., in accordance with the provisions of the
Securities Act, with respect to the securities offered hereby. This Prospectus
does not contain all of the information set forth in the Registration Statement,
certain portions of which have been omitted as permitted by the rules and
regulations of the Commission. For further information pertaining to the
securities offered hereby and the Company, reference is made to the Registration
Statement, including the exhibits and financial statement schedules filed as a
part thereof. Statements contained in this Prospectus concerning the provisions
of any document are not necessarily complete and, in each instance, reference is
made to the copy of such document filed as an Exhibit to the Registration
Statement. Each such statement is qualified in its entirety by such reference.
The Registration Statement may be obtained from the Commission upon payment of
the fees prescribed therefor and may be examined at the principal office of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
maintains a World Wide web site that contains reports, proxy and information
statements and other information that are filed through the Commission's
Electronic Data Gathering, Analysis and Retrieval System. This web site can be
accessed at http://www.sec.gov.
Upon completion of the Offering the Company will be subject to the
information requirements of the Securities Exchange Act of 1934 (the "Exchange
Act"), and in accordance with the Exchange Act files periodic reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). Reports, proxy statements and other information concerning
the Company can be inspected and copied (at prescribed rates) at the
Commission's Public Reference Section, Room 1024,
44
<PAGE>
450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, as well as at
the following Regional Offices: Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511; and Seven World Trade Center,
13th Floor, new York, New York 10048. Copies of such material also may be
obtained at prescribed rates from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549.
The Company intends to furnish to its stockholders annual reports containing
financial statements audited by an independent public accounting firm after the
end of each fiscal year. In addition, the Company will furnish to its
stockholders quarterly reports for the first three quarters of each fiscal year
containing unaudited financial and other information after the end of each
fiscal quarter.
45
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF
THE COMMON STOCK AND WARRANTS OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE SHARES OF COMMON
STOCK OR WARRANTS BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 4
Risk Factors.............................................................. 8
Dilution.................................................................. 16
Capitalization............................................................ 17
Use of Proceeds........................................................... 18
Dividend Policy........................................................... 18
Selected Financial Data................................................... 19
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 20
Business.................................................................. 23
Management................................................................ 30
Principal Stockholders.................................................... 35
Certain Transactions...................................................... 36
Description of Securities................................................. 38
Underwriting.............................................................. 41
Legal Matters............................................................. 44
Experts................................................................... 44
Additional Information.................................................... 44
Index to Financial Statements............................................. F-2
</TABLE>
UNTIL (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
1,400,000 SHARES OF COMMON STOCK
1,400,000 COMMON STOCK
PURCHASE WARRANTS
FIRSTLINK
COMMUNICATIONS, INC.
---------------------
PROSPECTUS
---------------------
KASHNER DAVIDSON SECURITIES
CORPORATION
JOSEPH CHARLES &
ASSOCIATES, INC.
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
FIRSTLINK COMMUNICATIONS, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1997
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
<PAGE>
FIRSTLINK COMMUNICATIONS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE(S)
-----------
<S> <C>
Independent Auditors' Report............................................................................. F-3
Financial Statements:
Balance Sheet as of December 31, 1997 and March 31, 1998 (unaudited)................................... F-4
Statements of Operations for the years ended December 31, 1997 and 1996 and the three months ended
March 31, 1998 and 1997 (unaudited).................................................................. F-5
Statements of Stockholders' Equity (Deficit) for the years ended December 31, 1997 and 1996 and the
three months ended March 31, 1998 (unaudited)........................................................ F-6
Statements of Cash Flows for the years ended December 31, 1997 and 1996 and the three months ended
March 31, 1998 and 1997 (unaudited).................................................................. F-7
Notes to Financial Statements.......................................................................... F-8
</TABLE>
F-2
<PAGE>
When the transaction referred to in note 2(e) of the notes to the financial
statements has been consummated, we will be in a position to render the
following report.
INDEPENDENT AUDITORS' REPORT
The Board of Directors
FirstLink Communications, Inc.:
We have audited the accompanying balance sheet of FirstLink Communications,
Inc. as of December 31, 1997, and the related statements of operations,
stockholders' equity (deficit), and cash flows for the years ended December 31,
1997 and 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of FirstLink Communications,
Inc. as of December 31, 1997, and the results of its operations and its cash
flows for the years ended December 31, 1997 and 1996 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 1 to the
financial statements, the Company has suffered recurring losses from operations
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Portland, Oregon
January 21, 1998, except as to note 9
which is as of April 8, 1998 and note 2(e)
which is as of June , 1998
F-3
<PAGE>
FIRSTLINK COMMUNICATIONS, INC.
BALANCE SHEET
DECEMBER 31, 1997 AND MARCH 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------ MARCH 31,
1998
------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................................... $ 389,415 $ 409,132
Accounts receivable, net of allowance for doubtful accounts of $8,716 at December
31, 1997 and $17,817 at March 31, 1998........................................... 19,617 30,322
Prepaid and other current assets................................................... 59,227 69,577
------------ ------------
Total current assets........................................................... 468,259 509,031
Property and equipment, net.......................................................... 543,053 542,182
Other assets......................................................................... 49,509 62,404
------------ ------------
Total assets................................................................... $1,060,821 $ 1,113,617
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................... $ 142,130 $ 104,752
Accrued liabilities................................................................ 99,580 106,114
Current portion of capital lease obligations....................................... 40,897 39,674
Other current liabilities.......................................................... 126,188 126,188
------------ ------------
Total current liabilities...................................................... 408,795 376,728
------------ ------------
Long-term debt:
Capital lease obligations.......................................................... 166,350 158,790
Convertible notes payable.......................................................... 221,667 --
------------ ------------
Total long-term debt........................................................... 388,017 158,790
------------ ------------
Commitments and contingencies (note 8)
Stockholders' equity:
Preferred stock, no par value; 1,000,000 shares authorized; no shares issued or
outstanding...................................................................... -- --
Common stock, no par value; 20,000,000 shares authorized; 1,786,708 and 2,164,063
shares issued and outstanding at December 31, 1997 and March 31, 1998,
respectively..................................................................... 1,240,102 1,833,420
Retained deficit................................................................... (976,093) (1,255,321)
------------ ------------
Total stockholders' equity..................................................... 264,009 578,099
------------ ------------
Total liabilities and stockholders' equity..................................... $1,060,821 $ 1,113,617
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
FIRSTLINK COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND THE
THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------------- ------------------------
1997 1996 1998 1997
------------ ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue..................................................... $ 879,903 $ 602,423 $ 283,483 $ 165,441
------------ ----------- ----------- -----------
Expenses:
Operating................................................. 580,197 369,415 221,472 117,573
Selling, general and administrative....................... 701,372 565,473 288,196 129,980
Depreciation and amortization............................. 69,955 37,879 20,788 11,790
------------ ----------- ----------- -----------
Total expenses........................................ 1,351,524 972,767 530,456 259,343
------------ ----------- ----------- -----------
Operating loss........................................ (471,621) (370,344) (246,973) (93,902)
------------ ----------- ----------- -----------
Other (income) expense:
Interest, net............................................. 107,305 25,123 30,756 49,906
Other..................................................... (650) 2,350 1,499 830
------------ ----------- ----------- -----------
106,655 27,473 32,255 50,736
------------ ----------- ----------- -----------
Net loss.............................................. $ (578,276) $ (397,817) $ (279,228) $ (144,638)
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
Per share amounts:
Basic and diluted loss per common share................... $ (.50) $ (.75) $ (.15) $ (.18)
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
Basic and diluted weighted average common shares.......... 1,162,397 533,309 1,918,398 785,078
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
FIRSTLINK COMMUNICATIONS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND THE
THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK STOCKHOLDERS'
------------------------ RETAINED EQUITY
SHARES AMOUNT DEFICIT (DEFICIT)
---------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Balance at January 1, 1996................................. -- $ -- -- --
Acquisition of net assets from FirstLink Tenant Services... 133,333 82,790 -- 82,790
Sale of common stock....................................... 554,667 126,040 -- 126,040
Common stock issued pursuant to guarantor agreements....... 21,200 6,996 -- 6,996
Common stock issued pursuant to Promissory Notes........... 57,200 18,876 -- 18,876
Net loss................................................... -- -- (397,817) (397,817)
---------- ------------ ----------- ------------
Balance at December 31, 1996............................... 766,400 234,702 (397,817) (163,115)
Common stock issued pursuant to Promissory Notes........... 52,800 17,424 -- 17,424
Common stock issued in payment of Promissory Note
interest................................................. 3,879 4,364 -- 4,364
Conversion of Promissory Notes into common stock........... 217,780 245,000 -- 245,000
Sale of common stock, net of stock offering costs.......... 728,888 721,449 -- 721,449
Common stock issued pursuant to guarantor agreements....... 16,961 17,163 -- 17,163
Net loss................................................... -- -- (578,276) (578,276)
---------- ------------ ----------- ------------
Balance at December 31, 1997............................... 1,786,708 1,240,102 (976,093) 264,009
Conversion of Promissory Notes into common stock........... 186,667 199,552 -- 199,552
Sale of common stock, net of stock offering costs.......... 188,888 390,391 -- 390,391
Common stock issued pursuant to guarantor agreements....... 1,800 3,375 -- 3,375
Net loss................................................... -- -- (279,228) (279,228)
---------- ------------ ----------- ------------
Balance at March 31, 1998.................................. 2,164,063 $ 1,833,420 (1,255,321) 578,099
---------- ------------ ----------- ------------
---------- ------------ ----------- ------------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
FIRSTLINK COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND THE
THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
----------------------- ----------------------
1997 1996 1998 1997
----------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss....................................................... $ (578,276) (397,817) (279,228) (144,638)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization................................ 130,262 38,112 35,829 51,326
Provision for losses on accounts receivable.................. 43,250 73,796 9,101 8,185
Changes in assets and liabilities:
Accounts receivable........................................ (39,196) (34,422) (19,806) 10,453
Prepaid and other current assets........................... (59,563) 7,441 (57,026) (1,328)
Accounts payable and accrued liabilities................... 17,408 (52,037) (30,844) 96,180
Other current liabilities.................................. (50,233) 176,421 -- (50,234)
----------- ---------- ---------- ----------
Net cash used in operating activities.................... (536,348) (188,506) (341,974) (30,056)
----------- ---------- ---------- ----------
Cash flows from investing activities:
Capital expenditures........................................... (70,090) (48,664) (19,917) (30,022)
Cash acquired from FirstLink Tenant Services L.L.C............. -- 4,467 -- --
----------- ---------- ---------- ----------
Net cash used in investing activities.................... (70,090) (44,197) (19,917) (30,022)
Cash flows from financing activities:
Net proceeds from issuance of common stock..................... 738,873 144,916 390,391 --
Proceeds from Promissory Notes................................. 102,576 111,124 -- 65,000
Repayments of Promissory Notes................................. (5,000) -- -- --
Proceeds from Convertible Notes................................ 172,077 -- -- --
Principal payments under capital leases........................ (27,792) (8,218) (8,783) (4,283)
----------- ---------- ---------- ----------
Net cash provided by financing activities................ 980,734 247,822 381,608 60,717
----------- ---------- ---------- ----------
Net increase in cash and cash equivalents................ 374,296 15,119 19,717 639
Cash and cash equivalents, beginning of year..................... 15,119 -- 389,415 15,119
----------- ---------- ---------- ----------
Cash and cash equivalents, end of year........................... $ 389,415 15,119 409,132 15,758
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Supplemental disclosure of cash flow information:
Cash paid for interest......................................... $ 51,791 23,446 19,660 9,948
Cash paid for income taxes..................................... -- -- -- --
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
FIRSTLINK COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996 AND MARCH 31, 1998
(INFORMATION AS OF MARCH 31, 1998 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED)
(1) BUSINESS AND ORGANIZATION
FirstLink Communications, Inc. (FirstLink or the Company), an Oregon
corporation, is an integrated telecommunications service company providing local
telephone, long distance telephone, enhanced calling features and cable
television services to residents of multi-family apartment and condominium
complexes. The services are provided to the tenants in accordance with long-term
operating agreements between the Company and the property owners under which the
property owners share in the telecommunication revenues generated from their
properties. The agreements provide the tenants with the option to use either
FirstLink or the local telephone company and long distance carriers for
telephone services. Tenants desiring to subscribe to cable television must
utilize FirstLink.
From time to time, the Company will evaluate the market demand, as well as
the economic and technical feasibility, of offering new products and services to
the residents of the Company's properties. Such products and services may
include, but are not limited to, internet access, wireless telephone and paging.
The Company expects to introduce internet access to certain properties during
the first quarter of 1998.
Historically, the Company has operated in and around the Portland, Oregon
metropolitan area. As of December 31, 1997, the Company had contracts for
additional properties in Vancouver, Washington; Seattle, Washington; Denver,
Colorado; Phoenix, Arizona; and Oklahoma, City, Oklahoma.
The Company was incorporated on December 26, 1995 and on January 1, 1996
acquired substantially all of the assets and liabilities of FirstLink Tenant
Services L.L.C. (FTS) with a net book basis of $82,790 in exchange for 133,333
shares of the Company's common stock. The acquisition of these net assets was
accounted for using the purchase method of accounting. As the Company and FTS
were entities under common control, the assets and liabilities of FTS were
recorded by the Company using the carryover basis in such assets and
liabilities.
The Company has generated operating cash losses from its inception.
Additionally, the Company requires, and will continue to require, cash to fund
the net losses and capital requirements associated with the Company's rapid
growth. It is management's expectation that the Company will enter at least five
new markets during 1998 and additional others beyond the coming year. The cash
required to fund such activities will be substantial and beyond what the Company
holds in cash and cash equivalents at December 31, 1997. The Company is
currently pursuing various financing alternatives including, but not limited to,
both public and private equity and debt financings. There can be no assurance
that management will be successful in obtaining such financing.
In December 1997, the Company signed a letter of intent with an underwriter
to offer shares of the Company's common stock for sale through an initial public
offering.
The financial statements and related notes as of March 31, 1998 and for the
three months ended March 31, 1998 and 1997 are unaudited but, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, which are necessary for a fair presentation of the financial
condition, results of operations and cash flows of the Company. The operating
results for the three months ended March 31, 1998 are not necessarily indicative
of the results that may be expected for the year ended December 31, 1998.
F-8
<PAGE>
FIRSTLINK COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996 AND MARCH 31, 1998
(INFORMATION AS OF MARCH 31, 1998 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments readily convertible to
known amounts of cash to be cash equivalents.
(b) PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, including installation cost. The
Company provides for depreciation using the straight-line method over estimated
useful lives of three to ten years. Property and equipment held under capital
leases are amortized straight-line over the shorter of the lease term or
estimated useful life of the asset. Repairs and maintenance are expensed as
incurred.
(c) REVENUE RECOGNITION
Revenue is recognized when services are provided.
(d) USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
(e) COMMON STOCK AND LOSS PER SHARE
The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 128, EARNINGS PER SHARE. SFAS 128 replaced the presentation of primary and
fully diluted earnings (loss) per share (EPS) with a presentation of basic and
diluted EPS. Under SFAS 128, basic EPS excludes dilution for common stock
equivalents and is computed by dividing income or loss available to common
stockholders by the weighted average number of common shares outstanding during
the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock resulted in the issuance of common stock.
The loss per common share in the accompanying financial statements has been
computed using the weighted average number of shares of common stock outstanding
during each period giving consideration to the effects of the Securities and
Exchange Commission Staff Accounting Bulletin No. 98 (SAB 98). Pursuant to SAB
98, issuances of common stock, options, warrants or other potentially dilutive
securities for nominal consideration (Nominal Issuances) are to be included in
the calculation of EPS for all periods presented in the manner of a stock split
for which retroactive restatement is required. Management believes that there
have been no Nominal Issuances since the inception of FirstLink.
In accordance with SFAS No. 128, the calculation of basic and diluted EPS
does not assume the conversion, exercise or contingent issuance of securities
that would have an anti-dilutive effect on earnings per share. As a result,
basic and diluted loss per share are the same for the years ended December 31,
1997 and 1996 and for the three months ended March 31, 1998 and 1997.
Additionally, common share amounts have been adjusted to reflect the stock split
of 1 for 1.5 which will occur immediately prior to the effectiveness of the
Registration Statement.
F-9
<PAGE>
FIRSTLINK COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996 AND MARCH 31, 1998
(INFORMATION AS OF MARCH 31, 1998 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(f) STOCK-BASED COMPENSATION
The Company accounts for its stock-based employee compensation plan using
the intrinsic value based method prescribed by Accounting Principles Board
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related
Interpretation (APB No. 25). The Company has provided pro forma disclosures as
if the fair value based method of accounting for these plans, as prescribed by
SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, had been applied.
(g) IMPAIRMENT OF LONG-LIVED ASSETS
Effective January 1, 1996, the Company adopted SFAS No. 121, ACCOUNTING FOR
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF
(SFAS No. 121), which requires that the long-lived assets and certain
identifiable intangibles, held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying value of
an asset may not be recoverable. An impairment loss is recognized when estimated
undiscounted future cash flows expected to be generated by the asset is less
than its carrying value. Measurement of the impairment loss is based on the fair
value of the asset, which is generally determined using valuation techniques
such as the discounted present value of expected future cash flows. The adoption
of SFAS No. 121 had no effect on the financial statements of the Company.
(h) INCOME TAXES
The Company accounts for income taxes under the provisions of SFAS No. 109,
ACCOUNTING FOR INCOME TAXES (SFAS No. 109). Under the asset and liability method
of SFAS No. 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under SFAS
No. 109, the effect on deferred tax assets and liabilities of a change in tax
rate is recognized in income in the period that includes the enactment date.
(i) NEW ACCOUNTING PRONOUNCEMENTS
SFAS 130, REPORTING COMPREHENSIVE INCOME, was issued in June 1997. It
establishes standards for reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. SFAS 131,
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, was issued
in June 1997. It establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The adoption of these standards had no
effect on the financial statements of the Company.
F-10
<PAGE>
FIRSTLINK COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996 AND MARCH 31, 1998
(INFORMATION AS OF MARCH 31, 1998 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(j) Supplemental Cash Flow Information of Non-cash Investing and Financing
Activities
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER THREE MONTHS ENDED
31, MARCH 31,
---------------------- ----------------------
1997 1996 1998 1997
---------- ---------- --------- -----
<S> <C> <C> <C> <C>
Assets acquired under capital leases................ $ 73,694 169,563 -- --
Net working capital deficit acquired from FirstLink
Tenant Services L.L.C............................. -- (210,553) -- --
Property and equipment acquired from FirstLink
Tenant Services L.L.C............................. -- 288,876 -- --
Conversion of Promissory Notes to equity............ 245,000 -- 199,552 --
Other............................................... 15,024 6,996 3,875 594
</TABLE>
(3) PROPERTY AND EQUIPMENT
Property and equipment, including assets owned under capital leases of
$243,257 at both December 31, 1997 and March 31, 1998 is comprised of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ ----------
<S> <C> <C>
Switches, installation and wiring................................... $ 601,446 621,363
Computers and office equipment...................................... 41,117 41,117
Leasehold improvements.............................................. 8,324 8,324
------------ ----------
650,887 670,804
Less accumulated depreciation, including $30,973 and $36,562 at
December 31, 1997 and March 31, 1998, respectively, applicable to
assets under capital leases....................................... (107,834) (128,622)
------------ ----------
Net property and equipment.................................. $ 543,053 542,182
------------ ----------
------------ ----------
</TABLE>
(4) INCOME TAXES
The difference between expected tax benefit, computed by applying the
federal statutory rate of 34% to loss before taxes, and the actual tax benefit
of $-0- is primarily due to the increase in the valuation allowance for deferred
taxes.
F-11
<PAGE>
FIRSTLINK COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996 AND MARCH 31, 1998
(INFORMATION AS OF MARCH 31, 1998 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED)
(4) INCOME TAXES (CONTINUED)
The Company's deferred tax assets are comprised of the following components
as of December 31, 1997 and March 31, 1998:
<TABLE>
<CAPTION>
MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1997 1998
------------ ----------
<S> <C> <C>
Net operating loss carryforwards.................................... $ 373,480 485,250
Less valuation allowance............................................ (373,480) (485,250)
------------ ----------
Net deferred tax assets..................................... $ -- --
------------ ----------
------------ ----------
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1998, 1997
and 1996 was $373,480, $152,242 and $-0-, respectively. The net change in the
total valuation allowance for the three months ended March 31, 1998 and the
years ended December 31, 1997 and 1996 was an increase of $111,770, $221,238 and
$152,242, respectively. The Company has established a valuation allowance due to
the uncertainty that the full amount of the operating loss carryforwards will be
utilized. Although management expects future results of operations to be
profitable, it emphasized past performance rather than growth projections when
determining the valuation allowance. Any subsequent adjustments to the valuation
allowance, if deemed appropriate due to changed circumstances, will be
recognized as a separate component of the provision for income taxes.
The Company has net operating loss carryforwards which are available to
offset future financial reporting and taxable income. Net operating loss
carryforwards for tax purposes totaled approximately $965,000 and $1,244,000 at
December 31, 1997 and March 31, 1998, respectively, and expire in 2011 through
2012.
A provision of the Internal Revenue Code requires the utilization of net
operating losses be limited when there is a change of more than 50% in ownership
of the Company. The Company appears to have incurred an ownership change under
IRC Section 382. This potential ownership change would limit the utilization of
any net operating losses incurred prior to the change in ownership date. The
Company intends to complete an analysis under IRC Section 382 to determine if
any ownership change has occurred.
F-12
<PAGE>
FIRSTLINK COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996 AND MARCH 31, 1998
(INFORMATION AS OF MARCH 31, 1998 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED)
(5) DEBT
PROMISSORY NOTES
During 1997 and 1996, the Company issued unsecured promissory notes (the
Promissory Notes) aggregating $250,000. The Promissory Notes bore interest at 8%
per annum with both principal and interest payable on or before March 31, 1997.
As an additional inducement, the holders of the Promissory Notes received 440
shares of the Company's common stock for each $1,000 of principal. The value
assigned to such shares was $17,424 and $18,876 in 1997 and 1996, respectively.
The Promissory Notes were originally recorded at $213,700, which represents the
$250,000 in proceeds less a discount of $36,300 assigned to the common stock.
The fair value of the common stock was based on other recent equity transactions
with third parties. The discount was accreted to the debt over the life of the
Promissory Notes as a financing cost. The accretion of the value assigned to the
common stock is included in interest expense in the accompanying financial
statements. In 1997, $245,000 of the Promissory Notes, plus accrued interest,
were converted into 221,659 shares of the Company's common stock. The remaining
$5,000 and accrued interest was paid in full during 1997.
CONVERTIBLE NOTES
During 1997, the Company issued unsecured convertible notes (the Notes) with
a face value of $420,000 and 560,000 shares of common stock pursuant to a
private placement memorandum (the Private Placement). Total proceeds from the
Private Placement was $840,000. The Notes bear interest at 6% per annum, payable
semiannually commencing June 30, 1998, mature three years from the date of
issuance and are convertible into shares of the Company's common stock at $3.00
per share. The Notes were originally recorded at $210,000, which represents the
face value of $420,000 less a discount of $210,000 which was assigned to the
common stock and offering costs of $37,923 which are included in other assets in
the accompanying financial statements. The 560,000 shares of common stock were
recorded at the estimated fair market value of such shares which was $630,000
less stock offering costs of $37,301, resulting in net proceeds of $592,699. The
fair market value of the common stock was based on other recent equity
transactions with third parties. The discount is being accreted to the debt
using the interest method over three years. The accretion value assigned to the
common stock is included in interest expense in the accompanying financial
statements.
CONVERTIBLE NOTE CONVERSION
During the three months ended March 31, 1998, the Company asked the holders
of the Notes to convert the Notes into shares of common stock. As an inducement
to convert, the Company reduced the conversion price to $2.25 per share from the
$3.00 conversion price stated on the Notes for those holders converting on or
before March 9, 1998. As of March 9, 1998, all of the Notes had been converted
into 186,667 shares of common stock.
F-13
<PAGE>
FIRSTLINK COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996 AND MARCH 31, 1998
(INFORMATION AS OF MARCH 31, 1998 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED)
(6) STOCKHOLDERS' EQUITY
PRIVATE PLACEMENT
During 1997, the Company issued 290,000 units, with each unit consisting of
two shares of common stock and one common stock purchase warrant pursuant to a
private placement memorandum. The Company sold 126,667 units (the Units)
resulting in 168,888 shares for $190,000 with the remaining 163,333 units being
issued to the holders of the Promissory Notes in exchange for converting
$245,000 of the Promissory Notes plus accrued interest into 221,659 shares of
common stock (see note 5 above). Stock offering cost associated with the sale of
the Units was $61,250.
During February and March 1998, the Company sold 283,333 units with each
unit consisting of one share of common stock and one common stock purchase
warrant pursuant to a private placement memorandum. The net proceeds from the
offering were $390,391.
STOCK OPTION PLANS
In July 1996, the Company established the FirstLink Communications, Inc.
Incentive Stock Option Plan (the Incentive Plan) and the FirstLink
Communications, Inc. Non-Qualified Stock Option Plan (the Non-Qualified Plan).
No shares were issued under the Incentive and Non-Qualified Plans. In February
1997, the Company's Board of Directors adopted the 1997 Restated Combined
Incentive Stock and Non-Qualified Stock Option Plan (the 1997 Plan) to supersede
and replace the Incentive and Non-Qualified Plans. Options issued under the 1997
Plan shall not be priced at less than fair market value and expire no later than
ten years from the date of grant. The vesting periods are at the discretion of
the Company's Board of Directors. The 1997 Plan is subject to ratification by
the majority vote of the holders of the Company's common stock within one year
from the effective date of adoption for any incentive options granted under the
1997 Plan. Until ratified, all shares issued under the 1997 Plan will be
non-qualified as the Board of Directors has the authority to issue nonqualified
options. The Company has made available 533,333 shares for grant under the 1997
Plan. During 1997, the Company issued options to purchase 416,667 shares of
common stock with vesting terms of 25% immediately and 25% on each anniversary
date over a three-year period.
The following table provides additional information concerning options
granted under the 1997 Plan:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE REMAINING TERM
----------- ----------------- ----------------
<S> <C> <C> <C>
Outstanding, January 1, 1997.................. -- $ --
Granted....................................... 416,667 1.13 9.2 years
Exercised..................................... -- --
Forfeited..................................... -- --
----------- -----
Outstanding, December 31, 1997................ 416,667 1.13
Granted....................................... 6,666 1.13 9.84 years
Exercised..................................... -- --
Forfeited..................................... --
----------- -----
Outstanding, March 31, 1998................... 423,333 $ 1.13
----------- -----
----------- -----
</TABLE>
F-14
<PAGE>
FIRSTLINK COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996 AND MARCH 31, 1998
(INFORMATION AS OF MARCH 31, 1998 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED)
(6) STOCKHOLDERS' EQUITY (CONTINUED)
A total of 104,167 and 188,333 options were exercisable at December 31, 1997
and March 31, 1998 at a weighted average exercise price of $1.13.
The Company has elected to account for its stock-based compensation plans
under APB 25; however, the Company has computed, for pro forma disclosure
purposes, the value of all options granted during 1997 using the Black-Scholes
option pricing model as prescribed by SFAS 123 using the following assumptions
used for grants in 1997:
<TABLE>
<CAPTION>
<S> <C>
Risk-free interest.......................................................... 6.25%
Expected dividend yield..................................................... None
Expected lives.............................................................. 5 years
Expected volatility......................................................... Not applicable
</TABLE>
The total value of options granted during 1997 was computed as approximately
$124,000 which would be amortized on a pro forma basis over the three-year
vesting period of the options. The fair market value of the option grants during
1997 was $1.13 per share.
Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the Company's net loss and
loss per share would have been:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------
AS REPORTED PRO FORMA
----------- ----------
<S> <C> <C>
Net loss............................................................. $ (578,276) (609,276)
----------- ----------
----------- ----------
Basic and diluted loss per common share.............................. $ (.50) (.52)
----------- ----------
----------- ----------
</TABLE>
WARRANTS
The Company has issued various stock purchase warrants in connection with
its financing activities to investors and placement agents. The following table
provides additional information related to stock purchase warrants:
<TABLE>
<CAPTION>
RANGE OF RANGE OF
EXERCISE EXPIRATION
NUMBER OF SHARES PRICES OF DATES OF
UNDERLYING WARRANTS WARRANTS
WARRANTS ISSUED ISSUED ISSUED
DURING YEAR DURING YEAR DURING YEAR
---------------- -------------- --------------
<S> <C> <C> <C>
Outstanding at December 31, 1997.......... 357,000 $ .75-$3.00 12/00-11/02
Outstanding at March 31, 1998............. 451,444 $ .75-$5.25 12/00-11/02
</TABLE>
(7) RELATED PARTY TRANSACTIONS
During 1997 and 1996 and a portion of 1998, the Company had a management
agreement with an officer and director of the Company whereby from time to time
a management fee was paid for his services. Amounts paid under this arrangement
totaled $96,000 in both 1997 and 1996 and $30,000 during
F-15
<PAGE>
FIRSTLINK COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996 AND MARCH 31, 1998
(INFORMATION AS OF MARCH 31, 1998 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED)
(7) RELATED PARTY TRANSACTIONS (CONTINUED)
the three months ended March 31, 1998. This officer and director became an
employee of the Company on April 1, 1998.
(8) COMMITMENTS AND CONTINGENCIES
OPERATING LEASE COMMITMENT
The Company leases office space under a non-cancelable operating lease
expiring on October 31, 2001. Operating lease payments for the years ended
December 31, 1997 and 1996 and the three months ended March 31, 1998 totaled
$29,160, $10,728 and $7,290, respectively. At December 31, 1997, future minimum
lease payments under non-cancelable operating leases are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998.............................................................................. $ 29,160
1999.............................................................................. 29,160
2000.............................................................................. 29,160
2001.............................................................................. 24,300
2002.............................................................................. --
----------
$ 111,780
----------
----------
</TABLE>
The Company leases certain switching equipment under capital leases. The
following table is a schedule, by year, of future minimum payments under capital
leases, together with the present value of the net minimum payments as of
December 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
1998.............................................................................. $ 74,693
1999.............................................................................. 74,693
2000.............................................................................. 73,017
2001.............................................................................. 57,892
2002.............................................................................. 8,499
----------
Total minimum lease payments................................................ 288,794
Less amount representing interest................................................. (81,547)
----------
Total obligations under capital leases...................................... $ 207,247
----------
----------
</TABLE>
In connection with entering into certain of the capital lease agreements,
certain stockholders, including directors of the Company (the Guarantors),
entered into personal guaranty arrangements with the lessor on behalf of the
Company. The Company, in turn, agreed to issue common stock to each of the
Guarantors upon execution of and throughout the duration of the leases. 16,961,
21,200 and 1,800 shares of common stock were issued to the Guarantors during
1997 and 1996 and the three months ended March 31, 1998, respectively.
The common stock was assigned values of $17,163, $6,996 and $3,375 for the
shares issued during 1997 and 1996 and the three months ended March 31, 1998,
respectively, based on recent equity transactions with third parties. The value
assigned to the common stock is being amortized using the
F-16
<PAGE>
FIRSTLINK COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996 AND MARCH 31, 1998
(INFORMATION AS OF MARCH 31, 1998 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED)
(8) COMMITMENTS AND CONTINGENCIES (CONTINUED)
interest method over the lives of the leases. The accretion value is included in
interest expense in the accompanying financial statements.
COMMITMENT WITH CABLE PROVIDERS
The Company has agreements with TCI Cablevision of Oregon, Inc. (TCI) and
Paragon Cable (Paragon) to purchase bulk cable signals at the Company's
properties. The agreements provide for the Company to pay fixed monthly amounts
regardless of the number of customers the Company has at the properties. As of
December 31, 1997 and March 31, 1998, the Company's monthly commitment was
$27,224 per month. The TCI agreements provide for annual rate increases not to
exceed 5%. The agreements all have terms of five years and expire during May
2001 through April 2002.
(9) LITIGATION
In April 1997, LDDS World Comm (LDDS) filed a lawsuit against the Company
seeking payment of $190,000 plus attorney fees for goods and services provided
to the Company. The Company contends it was overcharged by LDDS pursuant to the
terms of its agreement and the actual amount owed is approximately $126,000
which is recorded on the accompanying balance sheet. The Company has provided
LDDS with supporting documentation for the actual amount owed and has offered a
settlement proposal. On April 8, 1998, the LDDS claim was settled for $102,000
payable in two installments of $50,000 and $52,000 on April 10, 1998 and June
15, 1998, respectively.
From time to time, the Company is involved in various litigation in the
normal course of business. Management believes that the outcomes will not have a
material impact to the Company's financial statements.
F-17
<PAGE>
PROSPECTUS
FIRSTLINK COMMUNICATIONS, INC.
188,889 COMMON STOCK PURCHASE WARRANTS
94,445 SHARES OF COMMON STOCK
This Prospectus relates to (1) the registration of the resale of 188,889
Common Stock Purchase Warrants ("Exchange Warrants") which will be issued to
certain investors on the date of this Prospectus which will be converted from
warrants which were previously issued to such investors in a private placement
by the Company in March 1998 (the "1998 Private Placement"); and (2) the
registration of the issuance of 94,444 shares of Common Stock (the "Exchange
Warrant Shares") upon exercise of the Exchange Warrants. The Exchange Warrants
and the Exchange Warrant Shares are collectively referred to as the "Offered
Securities;" and the holders of the Exchange Warrants are collectively referred
to as the "Selling Securityholders."
The securities offered by this prospectus may be sold from time to time by
the Selling Securityholders, or by their transferees. The distribution of the
securities offered hereby may be effected in one or more transactions that may
take place in the over-the-counter market, including ordinary brokers'
transactions, privately negotiated transactions or through sales to one or more
dealers for resale of such securities as principals, at market prices prevailing
at the time of sale, at prices related to such prevailing market prices or at
negotiated prices. Usual and customary or specifically negotiated brokerage fees
or commissions may be paid by the Selling Securityholders.
The Selling Securityholders and intermediaries through whom such securities
are sold may be deemed "underwriters" within the meaning of the Securities Act
of 1933, as amended (the "Securities Act"), with respect to the securities
offered, and any profits realized or commission received may be deemed
underwriting compensation. The Company has agreed to indemnify the Selling
Securityholders against certain liabilities, including liabilities under the
Securities Act.
The Company will not receive any of the proceeds from the sale of securities
by the Selling Securityholders. See "SELLING SECURITYHOLDERS" and "PLAN OF
DISTRIBUTION."
On April 2, 1998, the Company filed a registration statement under the
Securities Act with the Securities and Exchange Commission (the "Commission")
relating to the Offered Securities and to a public offering by the Company (the
"Public Offering") of 1,400,000 Units, consisting of 1,400,000 shares of Common
stock and 1,400,000 Common Stock Purchase Warrants ("Warrants"). The Company
will receive approximately $6,500,000 in net proceeds from the sale of the Units
(assuming no exercise of the Underwriter's over-allotment option) after payment
of underwriting discounts and estimated expenses of the Public Offering.
Prior to this offering, there has been no public market for the securities
of the Company and there can be no assurance that such a market will develop for
the Common Stock or the Warrants after the completion of this offering. The
Company has filed an application to list the Common Stock and the Warrants
(including the Exchange Warrants) on the Nasdaq Small Cap Market under the
symbols "FLCI" and "FLCIW," respectively; and on the Boston Stock Exchange under
the symbols "FLC" and "FLCW," respectively.
------------------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK AND SUBSTANTIAL IMMEDIATE DILUTION.
SEE "RISK FACTORS" BEGINNING AT PAGE AND "DILUTION."
---------------------
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES COMMISSION
NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered by the
Company..................... 94,444 shares of Common Stock issuable upon exercise of
Common Stock Purchase Warrants
Securities Offered by the
Selling Securityholders..... 188,889 Common Stock Purchase Warrants
Offering Price................ Prevailing market price; except the Exchange Warrant Stock
is exercisable at $8.10 per share.
Common Stock outstanding
before Offering............. 2,164,063 (1)
Common Stock outstanding after
Offering.................... 3,564,063 (2)
Proposed Nasdaq Small Cap
Market Symbols:
Common Stock................ FLCI
Warrants.................... FLCIW
Proposed Boston Stock Exchange
Symbols
Common Stock................ FLC
Warrants.................... FLCW
</TABLE>
- ------------------------
(1) Does not include (i) 533,333 shares of Common Stock reserved for issuance
upon exercise of options which have been granted under the Company's stock
incentive plan (The Plan), none of which have been exercised as of May 15,
1998, and which have exercise prices ranging from of $1.13 to $2.25 per
share, and of which 343,333 were subject to future vesting; (ii) 357,000
shares of Common Stock reserved for issuance upon exercise of other
outstanding warrants having exercise prices ranging from $.75 to $3.00 per
share; or (iii) 94,444 shares of Common Stock reserved for issuance upon
exercise of the Exchange Warrants. See Management--Stock Options and Option
Plans; and Description of Securities--Convertible Notes.
(2) Does not include 700,000 shares of Common Stock reserved for issuance upon
exercise of Warrants to be issued in the Public Offering (805,000 shares if
the Over-allotment Option is exercised in full). Assumes no exercise of (i)
the Underwriters' Over-allotment Options; and (ii) the Representative's
Warrants.
SELLING SECURITYHOLDERS
The following securities may be offered by certain Selling Securityholders
or by their transferees: 188,889 Exchange Warrants issued upon conversion of
private warrants acquired by the investors in February and March 1998.
The following table sets forth certain information with respect to each
Selling Securityholder for whom the Company is registering securities for resale
to the public. The proceeds from the exercise of the Exchange Warrants will be
paid to the Company. Except for such proceeds, the Company will not receive any
of the proceeds from the sale of these securities. Beneficial ownership of the
Securities by such Selling Securityholders after this offering will depend on
the number of Exchange Warrants and the number of shares of Common Stock sold by
each Selling Securityholder. Except as otherwise disclosed below, there
1
<PAGE>
are no material relationships between any of the Selling Securityholders and the
Company, nor have any such relationships existed within the past three years.
Bathgate McColley Capital Group, LLC (BMCG) has in the past acted as the
placement agent for several private placements that the Company has conducted;
and BMCG received substantial fees for its services as a placement agent. In
addition, Mssrs. Bathgate, McColley, and McChesney are guarantors on certain
equipment leases entered into by the Company, for which they have received
shares of Common Stock.
<TABLE>
<CAPTION>
SHARES OF PERCENTAGE OF
COMMON STOCK SHARES OF SHARES OF COMMON
EXCHANGE BENEFICIALLY COMMON STOCK STOCK
WARRANTS OWNED SHARES OF BENEFICIALLY BENEFICIALLY
BENEFICIALLY EXCHANGE AS OF COMMON OWNED AFTER OWNED AFTER
OWNED AS OF WARRANTS OFFERING STOCK COMPLETION OF COMPLETION OF THE
SELLING SECURITYHOLDER OFFERING DATE OFFERED DATE(1) OFFERED(2) THE OFFERING OFFERING
- -------------------------------------- ------------- ----------- --------------- ----------- -------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Steven M. Bathgate (3)(4)............. 20,000 20,000 340,149 10,000 330,149 9.2%
Kenneth S. Bernstein (5).............. 13,333 13,333 76,306 6,667 69,639 < 1%
Birdie Capital Corp. (6).............. 7,407 7,407 14,814 3,704 11,110 < 1%
Lawrence Black (7).................... 18,518 18,518 27,777 9,259 18,518 < 1%
Caribou Bridge Fund, LLC (8).......... 6,667 6,667 148,498 3,334 141,831 4.0%
Fred Duboc (9)........................ 6,667 6,667 34,306 3,334 30,972 < 1%
Generation Capital (10)............... 66,667 66,667 100,000 33,333 66,667 < 1%
J. Scott Liolios (11)................. 3,333 3,333 5,000 1,667 3,333 < 1%
James Edmund McDonald Trust (12)...... 6,667 6,667 121,499 3,334 118,165 3%
Virginia S. McDonald Trust (13)....... 13,333 13,333 121,499 6,667 114,832 3%
Randy Sasaki (14)..................... 3,333 3,333 5,000 1,667 3,333 < 1%
Greg Shimanski (15)................... 6,667 6,667 10,000 3,334 6,667 < 1%
Sterling Capital, LLC (16)............ 7,407 7,407 11,111 3,704 7,407 < 1%
DW Squared (17)....................... 8,889 8,889 37,640 4,445 33,195 < 1%
</TABLE>
- ------------------------
(1) Includes shares of Common Stock receivable upon exercise of Exchange
Warrants.
(2) Consists of shares of Common Stock receivable upon exercise of Exchange
Warrants. This offering includes the sale to the named securityholder of
such shares.
(3) Shares beneficially owned include 134,053 shares and warrants to purchase
14,445 shares owned by Caribou Bridge Fund, LLC. Mr. Bathgate owns the
Administrator of Caribou. He disclaims beneficial ownership of such shares.
Also includes 29,161 shares and 4,445 shares underlying presently
exercisable warrants owned by Kiawah Capital Partners, an entity that Mr.
Bathgate owns 50% of. Fifty percent of those shares and warrants are
attributed to Mr. Bathgate.
(4) Includes 18,667 shares owned by Bathgate Family Partnership II, of which Mr.
Bathgate is a general partner.
(5) Shares beneficially owned include 15,417 shares underlying presently
exercisable warrants.
(6) Shares beneficially owned include 3,704 shares underlying presently
exercisable warrants.
(7) Shares beneficially owned include 9,259 shares underlying presently
exercisable warrants.
(8) Shares beneficially owned include 14,445 shares underlying presently
exercisable warrants.
(9) Shares beneficially owned include 12,083 shares underlying presently
exercisable warrants.
(10) Shares beneficially owned include 33,333 shares underlying presently
exercisable warrants.
(11) Shares beneficially owned include 1,667 shares underlying presently
exercisable warrants.
(12) Of the shares listed as being beneficially owned by James Edmund McDonald
and Virginia S. McDonald, 68,165 shares (including 7,778 shares underlying
presently exercisable warrants) are owned by James Edmund McDonald, Trustee
for the James Edmund McDonald Revocable Trust; and 53,333 shares (including
6,667 shares underlying presently exercisable warrants) are owned by
Virginia
2
<PAGE>
S. McDonald, Trustee for the Virginia S. McDonald Revocable Trust. Mr. and
Mrs. McDonald are husband and wife. They each disclaim beneficial ownership
of shares owned by their spouse's trust.
(13) See Footnote (12).
(14) Shares beneficially owned include 1,667 shares underlying presently
exercisable warrants.
(15) Shares beneficially owned include 3,333 shares underlying presently
exercisable warrants.
(16) Shares beneficially owned include 3,704 shares underlying presently
exercisable warrants.
(17) Shares beneficially owned include 13,195 shares underlying presently
exercisable warrants.
PLAN OF DISTRIBUTION
The Selling Securityholders have been advised that sales of the Exchange
Warrants and the Exchange Warrant Shares, may be effected from time to time in
transactions (which may include block transactions) in the over-the-counter
market, in negotiated transactions, through the writing of options on the Common
Stock or a combination of such methods of sale, at fixed prices that may be
changed, at market prices prevailing at the time of sale, or at negotiated
prices. The Selling Securityholders may effect such transactions by selling the
Offered Securities directly to purchasers or through broker-dealers that may act
as agents or principals. Such broker-dealers may receive compensation in the
form of discounts, concessions or commissions from the Selling Securityholders
and/or the purchasers of Offered Securities for whom such broker-dealers may act
as agent or to whom they sell as principals, or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions).
The Selling Securityholders and any broker-dealers that act in connection
with the sale of Exchange Warrants as principals may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act and any
commissions received by them and any profit on the resale of the Offered
Securities as principals might be deemed to be underwriting discounts and
commission under the Securities Act. The Selling Securityholders may agree to
indemnify any agent, dealer or broker-dealer that participates in transactions
involving sales of the Offered Securities, against certain liabilities,
including liabilities under the Securities Act. The Company will not receive any
proceeds from the sale of the Exchange Warrants. The Company will receive the
proceeds from the exercise of the Exchange Warrants; but not from any resale of
the Exchange Warrant Shares. Sales of the Offered Securities by the Selling
Securityholders, or even the potential of such sales, would likely have an
adverse impact on the market price of the Warrants and the Common Stock.
The Offered Securities are offered by the Company and the Selling
Securityholders on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act. The Company has agreed to pay all expenses incurred in
connection with the registration of the Offered Securities by the Selling
Securityholders; provided, however, that the Selling Securityholders shall be
exclusively liable to pay any and all commissions, discounts and other payments
to broker-dealers incurred in connection with their sale of the Offered
Securities.
PUBLIC OFFERING
The Registration Statement of which this Prospectus forms a part also covers
an underwritten offering of 1,400,000 units containing 1,400,000 shares of
Common Stock and 1,400,000 Warrants by the Company (1,610,000 shares of Common
stock and 1,610,000 Warrants if the Underwriters' over-allotment option is
exercised in full).
3
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF
THE COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF ANY OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................
Risk Factors..............................................................
Use of Proceeds...........................................................
Dilution..................................................................
Capitalization............................................................
Dividend Policy...........................................................
Selected Financial Data...................................................
Management's Discussion and Analysis of Financial Condition and Results of
Operations..............................................................
Business..................................................................
Management................................................................
Certain Transactions......................................................
Selling Securityholders...................................................
Description of Securities.................................................
Plan of Distribution......................................................
Legal Matters.............................................................
Experts...................................................................
Additional Information....................................................
Index to Financial Statements.............................................
</TABLE>
UNTIL (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
188,889 COMMON STOCK PURCHASE
WARRANTS
94,445 SHARES OF COMMON STOCK
FIRSTLINK
COMMUNICATIONS, INC.
---------------------
PROSPECTUS
---------------------
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The only statute, charter provision, bylaw, contract, or other arrangement
under which any controlling person, director or officers of the Registrant is
insured or indemnified in any manner against any liability which he may incur in
his capacity as such, is as follows:
The Company's Articles of Incorporation permit and its Bylaws require the
Company to indemnify officers and directors to the fullest extent permitted by
the Oregon Business Corporation Law (OBCA). The Company has also entered into
agreements to indemnify its directors and executive officers to provide the
maximum indemnification permitted by Oregon law. These agreements, among other
provisions, provide indemnification for certain expenses (including attorney
fees), judgments, fines and settlement amounts incurred in any action or
proceeding, including any action by or in the right of the Company.
Article VI of the Company's Bylaws permits the Company to indemnify its
directors, officers, employees and agent to the maximum extent permitted by the
OBCA. Section 317 of the OBCA provides that a corporation has the power to
indemnify and hold harmless a director, officer, employer, or agent of the
corporation who is or is made a party or is threatened to be made a party to any
threatened action, suit or proceeding, whether civil, criminal, administrative
or investigative, against all expense, liability and loss actually and
reasonably incurred by such person in connection with such a proceeding if he or
she acted in good faith and in a manner he or she reasonably believed to be in
the best interest of the corporation, and, with respect to any criminal
proceeding, had no reasonable cause to believe that the conduct was unlawful. If
it is determined that the conduct of such person meets these standards, such
person may be indemnified for expenses incurred and amounts paid in such
proceeding if actually and reasonably incurred in connection therewith.
If such a proceeding is brought by or on behalf of the corporation (i.e., a
derivative suit), such person may be indemnified against expenses actually and
reasonably incurred if such person acted in good faith and in a manner
reasonably believed to be in the best interest of the corporation and its
shareholders. There can be no indemnification with respect to any matter as to
which such person is adjudged to be liable to the corporation unless and only to
the extent that the court in which such action or suit was brought shall
determine upon application that, despite such adjudication but in view of all of
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses as the court shall deem proper.
Where any such person is successful in any such proceeding, such person is
entitled to be indemnified against expenses actually and reasonably incurred by
him or her. In all other cases (unless order by a court), indemnification is
made by the corporation upon determination by it that indemnification of such
person is proper in the circumstances because such person has met the applicable
standard of conduct.
A corporation may advance expenses incurred in defending any such proceeding
upon receipt of an undertaking to repay any amount so advanced if it is
ultimately determined that the person is not eligible for indemnification.
The indemnification rights provided in Section 317 of the OBCA are not
exclusive of additional rights to indemnification for breach of duty to the
corporation and its shareholders to the extent additional rights are authorized
in the corporation's articles of incorporation and are not exclusive of any
other rights to indemnification under any bylaw, agreement, vote of shareholders
or disinterested directors or otherwise, with as to action in his or her office
and as to action in another capacity while holding such office.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses of the offering are to be borne by the Company, are
as follows:
<TABLE>
<S> <C>
SEC Filing Fee.................................................... $ 5,900
ASD Filing Fee.................................................... 2,300
Nasdaq Listing Fee................................................ 10,000
Boston Stock Exchange Listing Fee................................. 10,000
Printing Expenses*................................................ 40,000
Accounting Fees and Expenses*..................................... 25,000
Legal Fees and Expenses*.......................................... 45,000
Blue Sky Fees and Expenses*....................................... 15,000
Registrar, Transfer Agent, and Warrant Agent Fee*................. 5,000
Miscellaneous*.................................................... 1,800
---------
Total........................................................... $ 160,000
</TABLE>
- ------------------------
* Estimated
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following discussion gives retroactive effect to the 1-for-1.5 stock
split of the Company's Common Stock which will be effected on the effective date
of this Registration Statement. With the exception of the securities described
in paragraph h. below, all of the shares are subject to the terms of a one-year
lock-up agreement with the representative of the Underwriter in the offering
register by this Registration Statement. The Registrant has sold and issued the
following securities during the past three years.
a. On January 1, 1996, the Company acquired all of the operating assets of
FirstLink Tenant Services, LLC, pursuant to an asset purchase agreement, in
exchange for 133,333 shares of Common Stock. The assets acquired were valued at
$82,790 which was the carry-over basis in such assets and liabilities. The
shares were issued to two individuals who owned the equity of FirstLink Tenant
Services, LLC. The sale of the shares was made pursuant to Section 4(2) of the
Securities Act; both investors were sophisticated and had access to all
pertinent information about the Company.
b. In January 1996, the Company issued 200,000 shares of Common Stock to
eight persons, including management and employers of the Company and persons
associated with Bathgate McColley Capital Group, LLC (BMCG). Those investors
paid a total of $9,000 for the shares, or $.05 per share. The sale of the shares
was made pursuant to Section 4(2) of the Securities Act; each investor was
sophisticated and had access to all pertinent information about the Company.
c. In February-April 1996, the company issued 354,667 shares to 20
investors in a private placement pursuant to Section 4(2) of the Securities Act.
The shares were sold to the investors for $.33 per share, or an aggregate of
$117,040. Each investor was sophisticated and had access to all pertinent
information about the Company.
d. From September 1996 through April 1997 the Company borrowed $250,000
from eleven accredited investors pursuant to Section 4(2) of the Securities Act.
The Company issued 110,000 shares as additional consideration for the loans; and
3,879 in lieu of interest on the Notes. Each investor was sophisticated and had
access to all pertinent information about the Company. $245,000 of the Notes
were converted into units (Item 26e, below). 3,879 shares were issued in payment
of interest on those notes.
e. In April 1997, the Company issued 386,666 shares of Common Stock and
warrants to purchase 193,333 shares of Common Stock to 23 persons in a private
placement pursuant to Section 4(2) and Rule 506 of Regulation D of the
Securities Act. Bathgate McColley Capital Group, LLC, (BMCG) whose principals
(Steven M. Bathgate, Eugene C. McColley, and Vicki D. E. Barone) are
securityholders of the
II-2
<PAGE>
Company, acted as placement agent for the offering which was placed with
accredited investors. Each investor executed a subscription agreement and
investor questionnaire in connection with the offering. The offering was sold in
units, each unit consisting of two shares of Common Stock and one Common Stock
Purchase Warrant. The units were priced at $1.50 each for an aggregate price of
$435,000. $245,000 of the units were purchased for cancellation of Notes (Item
26d); the remainder were purchased for cash. The Company paid BMCG commissions
and a non-accountable expense allowance, totaling $61,250. BMCG also received,
for nominal consideration, warrants to purchase 87,000 shares of Common Stock,
exercisable at $1.13 per share until they expire on April 30, 2002.
f. In August through November 1997, the Company issued 560,000 shares of
Common Stock and $420,000 of Convertible Notes ("Notes") in a private placement
pursuant to Section 4(2) and Rule 506 of Regulation D. BMCG acted as placement
agent for this offering which was placed with accredited investors. Each
investor executed a subscription agreement and investor questionnaire in
connection with the Offering. The Offering was sold in 12 units, each unit
consisting of 46,667 shares of Common Stock and one $35,000 Convertible Note.
The units were priced at $70,000 per unit. The Company paid BMCG commissions and
a non-accountable expense allowance totaling $74,602 and issued BMCG warrants to
purchase 56,000 shares of Common Stock at $.75 per share; and warrants to
purchase 14,000 shares of Common Stock at $3.00 per share. Those warrants are
exercisable at any time and expire on November 30, 2002. The Notes were
converted into a total of 186,667 shares of Common Stock in February and March
1998.
g. Throughout 1996 and 1997 the Company issued shares of Common Stock to
four individuals, including two individuals who are directors of the Company,
who guaranteed $125,000 of Company leases. The Company will continue to issue
shares to each individual at the rate of 200 shares per month for as long as
those leases are guaranteed by such individuals. The Company issued a total of
40,561 shares pursuant to these guarantees as of April 30, 1998. The issuances
were made pursuant to Section 4(2) of the Securities Act; each investor was a
sophisticated accredited investor.
h. In February and March 1998 the Company issued units consisting of
188,889 shares of Common Stock and 188,889 Common Stock Purchase Warrants
("Exchange Warrants") to individuals in a private placement pursuant to Section
4(2) and Rule 506 of Regulation D. The Exchange Warrants will convert into
Public Warrants upon the effectiveness of a Registration Statement registering
the Public Warrants and the stock underlying the Public Warrants. The Public
Warrants will be identical to the Warrants issued as part of the Units
registered in this Registration Statement. BMCG acted as placement agent in the
Offering, which was placed to accredited investors. Each investor executed a
subscription agreement and investor questionnaire in connection with the
Offering. The units were priced at $2.25 per unit. The Company paid BMCG
commissions of $38,000.
II-3
<PAGE>
ITEM 27. EXHIBITS.
a. The following Exhibits are filed as part of this Registration Statement
pursuant to Item 601 of Regulation S-B:
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
- ----------- ---------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement. (1)
1.1.1 Form of Underwriting Agreement (Revised)
1.2 Form of Representative's Share Option Agreement. (1)
1.2.1 Form of Representatives' Option Agreement
1.3 Form of Representative's Warrant Option Agreement. (1)
3.1 Articles of Incorporation. (1)
3.2 Bylaws. (1)
4.1 Specimen Certificate for Common Stock.
4.2 Warrant Agreement. (1)
4.2.1 Form of Warrant Agreement (Revised) (with Form of Warrant Certificate)
4.3 Form of Lock Up Agreement with certain Securityholders. (1)
4.5 Registration Rights Agreement (1)
4.6 Form of Lock Up Agreement with certain Securityholders
5.1 Opinion of Neuman Drennen & Stone, LLC.
10.1 1996 Stock Option Plan. (1)
10.2 Office Lease (190 SW Harrison, Portland, OR) (1)
10.2.1 Office Lease (The Mikado Building)
10.3 Telecommunications Services Agreement between Registrant and Oregon Portland Associates (Portland
Center Apartments) (1)(2)
10.4 Telecommunications Services Agreement between Registrant and Riverplace II Joint Venture
(Riverplace Development) (1)(2)
10.5 Telecommunications Services Agreement between Registrant and Elsie D. McIver U/A Trust Dated 1/4/72
(Vista St. Clair) (1)(2)
10.6 Telecommunications Services Agreement between Registrant and Lloyd Place Apartments Limited
Partnership (Lloyd Place) (1)(2)
10.7 Telecommunications Services Agreement between Registrant and Harsch Investment Corp. (King Tower
Apartments) (1)(2)
10.8 Telecommunications Services Agreement between Registrant and Harsch Investment Corp. (Park Plaza
Apartments) (1)(2)
10.9 Telecommunications Services Agreement between Registrant and Security Investments; LP (Ione Plaza
Apartments) (1)(2)
10.10 Telecommunications Services Agreement between Registrant and Housing Authority of Portland (Pearl
Court Apartments) (1)(2)
10.11 Telecommunications Services Agreement between Registrant and Harsch Investment Corp. (The Clay
Towers Apartments) (1)(2)
10.12 Telecommunications Services Agreement between Registrant and Crossing Development Corporation
(Legends) (1)(2)
10.13 Telecommunications Services Agreement between Registrant and Parkside Place (Parkside Plaza) (1)(2)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
- ----------- ---------------------------------------------------------------------------------------------------
10.14 Telecommunications Services Agreement between Registrant and Housing Authority of the City of
Vancouver, Washington (Cougar Creek Apartments) (1)(2)
<C> <S>
10.15 Telecommunications Services Agreement between Registrant and Housing Authority of the City of
Vancouver, Washington (ParkLane Apartments) (1)(2)
10.16 Telecommunications Services Agreement between Registrant and Housing Authority of the City of
Vancouver, Washington (Willow Creek Apartments) (1)(2)
10.17 Telecommunications Services Agreement between Registrant and Harsch Development Corp. (Sherman
Tower) (1)(2)
10.18 Telecommunications Services Agreement between Registrant and Harsch Development Corp. (The
Nettleton) (1)(2)
10.19 Telecommunications Services Agreement between Registrant and Harsch Development Corp. (Regency
Tower Apartments) (1)(2)
10.20 Telecommunications Services Agreement between Registrant and Harsch Development Corp. (Syl-Mar
Estates) (1)(2)
10.21 Letter of Intent with WEB Services, Inc. (2)
10.22 Registration Rights Agreement
23.1 Consent of Neuman Drennen & Stone, LLC. (included in Exhibit 5.1)
23.2 Consent of KPMG Peat Marwick LLP.
24 Power of Attorney (included on page II-6).
</TABLE>
- ------------------------
(1) Previously filed.
(2) Certain information has been omitted pursuant to Rule 406 of the Securities
Act. Omitted information is designated by "-".
ITEM 28. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
2. That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
3. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
II-5
<PAGE>
4. To provide, upon Closing of the Offering as specified in the
Underwriting Agreement, certificates in such denominations and registered in
such names as are required to permit prompt delivery to each purchaser.
5. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding in connection with
the securities being registered), the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
6. For determining any liability under the Securities Act:
(i) To treat the information omitted from the form of prospectus filed
as part of this Registration Statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4), or 497(h) under the Securities
Act as part of this Registration Statement as of the time it was
declared effective; and
(ii) To treat each post-effective amendment that contains a form of
prospectus as a new registration statement for the securities
offered in the registration statement, and the offering of such
securities at that time as the initial bona fide offering of those
securities.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in Portland, State of Oregon on May 29, 1998.
<TABLE>
<S> <C> <C>
FIRSTLINK COMMUNICATIONS, INC.
By: /s/ A. ROGER PEASE
-----------------------------------------
A. Roger Pease,
PRESIDENT
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints A. Roger Pease and Jeffrey S. Sperber, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and re-substitution, for him and in his name, place, and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirement of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ A. ROGER PEASE
- ------------------------------ President, Chief Executive May 29, 1998
A. Roger Pease Officer and Director
/s/ JEFFREY S. SPERBER
- ------------------------------ Chief Financial Officer May 29, 1998
Jeffrey S. Sperber
/s/ ALLAN A. FULSHER*
- ------------------------------ Secretary May 29, 1998
Allan A. Fulsher
/s/ THOMAS E. MCCHESNEY*
- ------------------------------ Director May 29, 1998
Thomas E. McChesney
/s/ ROBERT F. OLSEN*
- ------------------------------ Director May 29, 1998
Robert F. Olsen
/s/ JAMES F. TWADDELL*
- ------------------------------ Director May 29, 1998
James F. Twaddell
*By /s/ A. ROGER PEASE
-------------------------
ATTORNEY-IN-FACT
II-7
<PAGE>
FIRSTLINK COMMUNICATIONS, INC.
1,400,000 UNITS
EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK
AND ONE COMMON STOCK PURCHASE WARRANT
UNDERWRITING AGREEMENT
, 1998
Kashner Davidson Securities Corporation
77 South Palm Avenue
Sarasota, FL 34236
Joseph Charles & Associates, Inc.
1775 Sherman Street
Suite 900
Denver, CO 80203
Dear Sirs:
Firstlink Communications, Inc., an Oregon corporation (the "Company"),
hereby confirms its agreement with Kashner Davidson Securities Corporation and
Joseph Charles & Associates, Inc. (the "Underwriters"), as follows:
I. DESCRIPTION OF THE SECURITIES.
The Company proposes to issue and sell to the Underwriters 1,400,000
units (the "Units"), each unit consisting of one share the Company's common
stock, no par value per share (the "Common Stock"), and one Common Stock
purchase warrant (each, a "Warrant," and collectively, the "Warrants"). Two
Warrants shall entitle to the holder to purchase one share of Common Stock for
$___. The Units, and the Common Stock and Warrants underlying the Units,
collectively, are referred to herein as the "Securities." The Company proposes
to grant to the Underwriters an option to purchase up to 210,000 additional
Units (the "Additional Securities"). offering of Securities and Additional
Securities contemplated hereby may sometimes be referred to as the "Offering."
(a) THE WARRANTS.
The Warrants are exercisable for a period of three years
commencing on the effective date of the Registration Statement, as defined in
Paragraph 2(a) (the "Effective Date"), subject to prior redemption by the
Company. The Warrants will be exercisable at $____ per share
<PAGE>
of Common Stock. The shares of Common Stock issuable upon the exercise of the
Warrants are hereinafter referred to as the "Warrant Shares."
The Warrants will be redeemable by the Company at any time after the
Effective Date at a price of $.05 per Warrant and prior to their expiration upon
written notice given within 30 days after 20 consecutive business days ending on
the third day prior to the date the notice of redemption is given during which
the Common Stock maintains a per share closing bid price (or closing sales price
if listed on an exchange or on a reporting system that provides last sales
prices) at least equal to 150% of the then current Warrant exercise price
(initially $___ per share, subject to adjustment), subject to the right of the
holder to exercise his purchase rights thereunder until redemption.
(b) UNDERWRITERS' SECURITIES.
The Company will sell to the Underwriters, for nominal
consideration, a warrant to purchase 140,000 Units at a price of 140% the public
offering price of the Units, exercisable over a period of four years commencing
one year from the Effective Date (the "Underwriters' Warrants," and collectively
with the Securities underlying the Underwriters' Warrants, the "Underwriters'
Securities"). The Underwriters' Securities shall be non-exercisable and
non-transferable (other than to officers and directors of the Underwriters and
to members of the selling group) for a period of 12 months following the
Effective Date. If the Underwriters' Securities are not exercised during their
term, they shall, by their terms, automatically expire. The Underwriters'
Securities shall be registered for sale to the public and shall be included in
the Registration Statement filed in connection with the Offering.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Underwriters that:
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission"), a registration statement on Form SB-2 (File No.
33- _________), including any related preliminary prospectus ("Preliminary
Prospectus"), for the registration of the Securities under the Securities Act of
1933 (the "Act"). The Company will file further amendments to said registration
statement in the form to be delivered to you and will not, before the
registration statement becomes effective, file any other amendment thereto to
which you shall have objected in writing after having been furnished with a copy
thereof. Except as the context may otherwise require, such registration
statement, as amended, on file with the Commission at the time the registration
statement becomes effective (including the prospectus, financial statements,
exhibits and all other documents filed as a part thereof or incorporated
therein), is hereinafter called the "Registration Statement," and the
prospectus, in the form filed with the Commission pursuant to Rule 424(b) of the
General Rules and Regulations of the Commission under the Act (the
"Regulations") or, if no such filing is made, the definitive prospectus used in
the Offering, is hereinafter called the "Prospectus." The Company has delivered
to you copies of each Preliminary
2
<PAGE>
Prospectus as filed with the Commission and has consented to the use of such
copies for purposes permitted by the Act.
(b) The Commission has not issued any orders preventing or
suspending the use of any Preliminary Prospectus, and each Preliminary
Prospectus has conformed in all material respects with the requirements of the
Act and has not included any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, subject to the provisions set forth below and to except as such
omission has been cured in the a subsequent preliminary prospectus or in the
final prospectus.
(c) When the Registration Statement becomes effective under the
Act and at all times subsequent thereto including the Closing Date (hereinafter
defined) and the Option Closing Date (hereinafter defined) and for such longer
periods as in the opinion of counsel for the Underwriters, a Prospectus is
required to be delivered in connection with the sale of the Securities by the
Underwriters, the Registration Statement and Prospectus, and any amendment
thereof or supplement thereto, will contain all material statements which are
required to be stated therein in accordance with the Act and the Regulations,
and will in all material respects conform to the requirements of the Act and the
Regulations, and neither the Registration Statement nor the Prospectus, nor any
amendment or supplement thereto, will contain 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, in light of the circumstances under
which they were made, not misleading; provided, however, that this
representation and warranty does not apply to statements or omissions made in
reliance upon and in conformity with written information furnished to the
Company by you, for use in connection with the preparation of the Registration
Statement or Prospectus, or in any amendment thereof or supplement thereto. It
is understood that the statements set forth under the heading "Underwriting" in
the Prospectus with respect to (i) the amounts of the selling concession and
reallowance; (ii) the identity of counsel to the Underwriters under the heading
"Legal Matters"; and (iii) the information concerning the NASD affiliation of
the Underwriters.
(d) The Company is, and at the Closing Date and the Option
Closing Date will be, a corporation duly organized, validly existing and in good
standing under the laws of the State of Oregon. The Company is duly qualified or
licensed and in good standing as a foreign corporation in each jurisdiction in
which its ownership or leasing of any properties or the character of its
operations requires such qualification or licensing, except those jurisdictions
in which the failure to so qualify would not have a material adverse effect.
The Company has all requisite corporate powers and authority, and except as set
forth in the Registration Statement the Company and its employees have all
material and necessary authorizations, approvals, orders, licenses, certificates
and permits of and from all governmental regulatory officials and bodies to own
or lease the Company's properties and conduct its business as described in the
Prospectus and the Company is doing business and has been doing business during
the period described in the Registration Statement in compliance with all such
material authorizations, approvals, orders, licenses, certificates and permits
and all material federal, state and local laws, rules and regulations
3
<PAGE>
concerning the business in which the Company is engaged. The disclosures in the
Registration Statement concerning the effects of federal, state and local
regulation on the Company's business as currently conducted and as contemplated
are correct in all material respects and do not omit to state a material fact.
The Company has all corporate power and authority to enter into this Agreement
and carry out the provisions and conditions hereof, and all consents,
authorizations, approvals and orders required in connection therewith have been
obtained or will have been obtained prior to the Closing Date.
(e) This Agreement has been duly and validly authorized and
executed by the Company. The Securities (including the Units, Common Stock and
the Warrants), the Warrant Shares, the Underwriters' Warrants to be issued and
sold by the Company pursuant to this Agreement, the securities issuable upon
exercise of the Underwriters' Warrants and payment therefor, and the Common
Stock and Warrant Shares underlying such Underwriters' Warrants, have been duly
authorized (and, in the case of the Common Stock and the Warrant Shares, have
been duly reserved for issuance) and, when issued and paid for in accordance
with this Agreement (and, in the case of the Warrant Shares, upon exercise of
the Warrants and payment to the Company of the exercise price therefor), the
Common Stock and Warrant Shares will be validly issued, fully paid and
non-assessable; the Common Stock, Warrants, Warrant Shares, Underwriters'
Warrants, Additional Securities and Underwriters' Warrants Shares are not and
will not be subject to the preemptive rights of any stockholder of the Company
and conform and at all times up to and including their issuance will conform in
all material respects to all statements with regard thereto contained in the
Registration Statement and Prospectus; and all corporate action required to be
taken for the authorization, issuance and sale of the Units and the Common Stock
and Warrants underlying the Units, Warrant Shares and Underwriters' Warrants has
been taken, and this Agreement constitutes a valid and binding obligation of the
Company, enforceable in accordance with its terms, to issue and sell, upon
exercise in accordance with the terms thereof, the number and kind of securities
called for thereby.
(f) The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof will not result in a breach or
violation of any of the terms or provisions of, or constitute a default under,
the Articles of Incorporation, as amended, or bylaws of the Company or of any
evidence of indebtedness, lease, contract or other agreement or instrument to
which the Company is a party or by which the Company or any of its properties is
bound, or under any applicable law, rule, regulation, judgment, order or decree
of any government, professional advisory body, administrative agency or court,
domestic or foreign, having jurisdiction over the Company or its properties, or
result in the creation or imposition of any lien, charge or encumbrance upon any
of the properties or assets of the Company; and no consent, approval,
authorization or order of any court or governmental or other regulatory agency
or body is required for the consummation by the Company of the transactions on
its part herein contemplated, except as such as may be required under the Act or
under state securities or blue sky laws, except where a breach, violation or
failure to obtain such consent would not have a material adverse effect upon the
business or operation of the Company.
4
<PAGE>
(g) Subsequent to the date hereof, and prior to the Closing Date
and the Option Closing Date, the Company will not issue or acquire any equity
securities except that the Company may make short-term investments as
contemplated in the "Use of Proceeds" section of the Prospectus. Except as
described in the Registration Statement, the Company does not have, and at the
Closing Date and at the Option Closing Date will not have, outstanding any
options to purchase or rights or warrants to subscribe for, or any securities or
obligations convertible into, or any contracts or commitments to issue or sell
shares of its Preferred Stock, Common Stock or any such options, warrants,
convertible securities or obligations.
(h) The financial statements and notes thereto included in the
Registration Statement and the Prospectus fairly present the financial position
and the results of operations of the Company at the respective dates and for the
respective periods to which they apply; and such financial statements have been
prepared in conformity with generally accepted accounting principles,
consistently applied throughout the periods involved.
(i) Except as set forth in the Registration Statement, the
Company is not, and at the Closing Date and at the Option Closing Date will not
be, in violation or breach of, or default in, the due performance and observance
of any term, covenant or condition of any indenture, mortgage, deed of trust,
note, loan or credit agreement, or any other agreement or instrument evidencing
an obligation for borrowed money, or any other agreement or instrument to which
the Company is a party or by which the Company may be bound or to which any of
the property or assets of the Company is subject, which violations, breaches,
default or defaults, singularly or in the aggregate, would have a material
adverse effect on the Company. The Company has not and will not have taken any
action in material violation of the provisions of the Articles of Incorporation,
as amended, or the Bylaws of the Company or any statute or any order, rule or
regulation of any court or regulatory authority or governmental body having
jurisdiction over or application to the Company, its business or properties.
(j) The Company has, and at the Closing Date and at the Option
Closing Date will have, good and marketable title to all properties and assets
described in the Prospectus as owned by it, free and clear of all liens,
charges, encumbrances, claims, security interests, restrictions and defects of
any material nature whatsoever, except such as are described or referred to in
the Prospectus and liens for taxes not yet due and payable. 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 as described in the Prospectus are, and will on the Closing Date and the
Option Closing Date be, in full force and effect, and except as described in the
Prospectus, the Company is not and will not be in default in respect to any of
the terms or provisions of any of such leases or subleases (which would have a
material adverse effect on the business, business prospects or operations of the
Company taken as a whole), and no 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 continue possession of the leased or subleased premises or assets
under any such lease or sublease except as described or referred to in the
Prospectus, and the Company owns or leases all such
5
<PAGE>
properties as are necessary to its operations as now conducted and, except as
otherwise stated in the Prospectus, as proposed to be conducted set forth in the
Prospectus (which would have a material adverse effect on the business, business
prospects or operations of the Company taken as a whole).
(k) The authorized, issued and outstanding capital stock of the
Company as of ___________, 1998 and as of the date of the Prospectus is as set
forth in the Prospectus under "Capitalization;" the shares of issued and
outstanding capital stock of the Company set forth thereunder have been duly
authorized, validly issued and are fully paid and non-assessable; except as set
forth in the Prospectus, no options, warrants or other rights to purchase,
agreements or other obligations to issue, or agreements or other rights to
convert any obligation into, any shares of capital stock of the Company have
been granted or entered into by the Company; and the Units and the Common Stock
and the Warrants underlying the Units, and all such options and warrants
conform in all material respects, to all statements relating thereto contained
in the Registration Statement and Prospectus.
(l) Except as described in the Prospectus, the Company does not
own or control any capital stock or securities of, or have any proprietary
interest in, or otherwise participate in any other corporation, partnership,
joint venture, firm, association or business organization; provided, however,
that this provision shall not be applicable to the investment, if any, of the
net proceeds from the sale of the Securities sold by the Company in certificates
of deposits, savings deposits, short-term obligations of the United States
Government, money market instruments or other short-term investments.
(m) KPMG Peat Marwick, LLP, who have reported on the financial
statements of the Company for the years ended December 31, 1997 and 1996, and
who have reviewed the financial statements of the Company for the periods ended
March 31, 1998 and 1997 all of which are filed with the Commission as a part of
the Registration Statement, are independent accountants as required by the Act
and the Regulations.
(n) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, the Company has not
(i) issued any securities or incurred any liability or obligation, direct or
contingent, for borrowed money; or (ii) entered into any transaction other than
in the ordinary course of business; or (iii) declared or paid any dividend or
made any other distribution on or in respect to its capital stock.
(o) There is no litigation or governmental proceeding pending or
to the knowledge of the Company threatened against, or involving the properties
or business of the Company which might materially adversely affect the value,
assets or the operation of the properties or the business of the Company, except
as referred to in the Prospectus. Further, except as referred to in the
Prospectus, there are no pending actions, suits or proceedings related to
environmental matters or related to discrimination on the basis of age, sex,
religion or race, nor is the Company charged with or, to its knowledge, under
investigation with respect to any violation of any statutes
6
<PAGE>
or regulations of any regulatory authority having jurisdiction over its business
or operations, and no labor disturbances by the employees of the Company exist
or, to the knowledge of the Company, have been threatened.
(p) The Company has, and at the Closing Date and at the Option
Closing Date will have, filed all necessary federal, state and foreign income
and franchise tax returns or has requested extensions thereof (except in any
case where the failure to so file would not have a material adverse effect on
the Company), and has paid all taxes which it believes in good faith were
required to be paid by it except for any such tax that currently is being
contested in good faith or as described in the Prospectus.
(q) The Company has not at any time (i) made any contribution to
any candidate for political office, or failed to disclose fully any such
contribution, in violation of law, or (ii) made any payment to any state,
federal, foreign governmental or professional regulatory agency, officer or
official or other person charged with similar public, quasi-public or
professional regulatory duties, other than payments or contributions required or
allowed by applicable law.
(r) Except as set forth in the Registration Statement, to the
knowledge of the Company, neither the Company nor any officer, director,
employee or agent of the Company has made any payment or transfer of any funds
or assets of the Company or conferred any personal benefit by use of the
Company's assets or received any funds, assets or personal benefit in violation
of any law, rule or regulation, which is required to be stated in the
Registration Statement or necessary to make the statements therein not
misleading.
(s) On the Closing Date and on the Option Closing Date, all
transfer or other taxes, if any (other than income tax) which are required to be
paid, and are due and payable, in connection with the sale and transfer of the
Securities by the Company to the Underwriters will have been fully paid or
provided for by the Company as the case may be, and all laws imposing such taxes
will have been fully complied with in all material respects.
(t) There are no contracts or other documents of the Company
which are of a character required to be described in the Registration Statement
or Prospectus or filed as exhibits to the Registration Statement which have not
been so described or filed.
(u) The Company will apply the net proceeds from the sale of the
Securities sold by it for the purposes and in the manner set forth in the
Registration Statement and Prospectus under the heading "Use of Proceeds."
(v) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (1) transactions are
executed in accordance with management's general or specified authorizations;
(2) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (3) access to assets is permitted only in
7
<PAGE>
accordance with management's general or specific authorizations; and (4) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(w) Except as set forth in the Prospectus, no holder of any
securities of the Company has the right to require registration of any
securities because of the filing or effectiveness of the Registration Statement.
(x) The Company has not taken and at the Closing Date will not
have taken, directly or indirectly, any action designed to cause or result in,
or which has constituted or which might reasonably be expected to constitute,
the stabilization or manipulation of the price of the Units, or the Common Stock
or the Warrants underlying the Units, to facilitate the sale or resale of such
securities.
(y) To the Company's knowledge, there are no claims for services
in the nature of a finder's origination fee with respect to the sale of the
Securities hereunder, except as set forth in the Prospectus.
(z) No right of first refusal exists with respect to any sale of
securities by the Company.
(aa) No statement, representation, warranty or covenant made by
the Company in this Agreement or made in any certificate or document required by
this Agreement to be delivered to Underwriters was, when made, or as of the
Closing Date or as of the Option Closing Date will be materially inaccurate,
untrue or incorrect.
3. COVENANTS OF THE COMPANY.
The Company covenants and agrees that:
(a) It will deliver to the Underwriters, without charge, two
conformed copies of each Registration Statement and of each amendment or
supplement thereto, including all financial statements and exhibits.
(b) The Company has delivered to the Underwriters, and each of
the Selected Dealers (as hereinafter defined) without charge, as many copies as
have been requested of each Preliminary Prospectus heretofore filed with the
Commission in accordance with and pursuant to the Commission's Rule 430 under
the Act and will deliver to the Underwriters and to others whose names and
addresses are furnished by the Underwriters or a Selected Dealer, without
charge, on the Effective Date of the Registration Statement, and thereafter from
time to time during such reasonable period as you may request if, in the opinion
of counsel for the Underwriters, the Prospectus is required by law to be
delivered in connection with sales by the Underwriters or a dealer, as many
copies of the Prospectus (and, in the event of any amendment of or supplement to
the Prospectus,
8
<PAGE>
of such amended or supplemented Prospectus) as the Underwriters may request for
the purposes contemplated by the Act. The Company will take all necessary
actions to furnish to whomever directed by the Underwriters, when and as
requested by the Underwriters, all necessary documents, exhibits, information,
applications, instruments and papers as may be reasonably required or, in the
opinion of counsel to the Underwriters desirable, in order to permit or
facilitate the sale of the Securities.
(c) The Company has authorized the Underwriters to use, and make
available for use by prospective dealers, the Preliminary Prospectus, and
authorizes the Underwriters, all dealers selected by you in connection with the
distribution of the Securities (the "Selected Dealers") to be purchased by the
Underwriters and all dealers to whom any of such Securities may be sold by the
Underwriters or by any Selected Dealer, to use the Prospectus, as from time to
time amended or supplemented, in connection with the sale of the Securities in
accordance with the applicable provisions of the Act, the applicable Regulations
and applicable state law, until completion of the distribution of the Securities
and for such longer period as you may request if the Prospectus is required
under the Act, the applicable Regulations or applicable state law to be
delivered in connection with sales of the Securities by the Underwriters or the
Selected Dealers.
(d) The Company will use its best efforts to cause the
Registration Statement to become effective and will notify the Representative
immediately, and confirm the notice in writing: (i) when the Registration
Statement or any post-effective amendment thereto becomes effective; (ii) of
the issuance by the Commission of any stop order or of the initiation, or to
the best of the Company's knowledge, the threatening, of any proceedings for
that purpose; (iii) the suspension of the qualification of the Securities and
the Underwriters' Warrants, or underlying securities, for offering or sale in
any jurisdiction or of the initiating, or to the best of the Company's
knowledge the threatening, of any proceeding for that purpose; and (iv) of
the receipt of any comments from the Commission. If the Commission shall
enter a stop order at any time, the Company will make every reasonable effort
to obtain the lifting of such order at the earliest possible moment.
(e) During the time when a prospectus is required to be
delivered under the Act, the Company will comply with all requirements
imposed upon it by the Act and the Securities Exchange Act of 1934 (the
"Exchange Act"), as now and hereafter amended and by the Regulations, as from
time to time in force, as necessary to permit the continuance of sales of or
dealings in the Securities in accordance with the provisions hereof and the
Prospectus. If at any time when a prospectus relating to the Securities is
required to be delivered under the Act, any event shall have occurred as a
result of which, in the opinion of counsel for the Company or counsel for the
Underwriters, the Prospectus as then amended or supplemented includes an
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading, or
if it is necessary at any time to amend the Prospectus to comply with the
Act, the Company will notify you promptly and prepare and file with the
Commission an appropriate amendment or supplement in accordance with Section
10 of the Act and will furnish to you copies thereof.
9
<PAGE>
(f) The Company will endeavor in good faith, in cooperation with
you, at or prior to the time the Registration Statement becomes effective, to
qualify the Securities for offering and sale under the securities laws or blue
sky laws of such jurisdictions as you may reasonably designate. In each
jurisdiction where such qualification shall be effected, the Company will,
unless you agree that such action is not at the time necessary or advisable,
file and make such statements or reports at such times as are or may reasonably
be required by the laws of such jurisdiction.
(g) The Company will make generally available to its security
holders, as soon as practicable, but in no event later than the first day of the
fifteenth full calendar month following the Effective Date of the Registration
Statement, an earnings statement of the Company, which will be in reasonable
detail but which need not be audited, covering a period of at least twelve
months beginning after the Effective Date of the Registration Statement, which
earnings statements shall satisfy the requirements of Section 11(a) of the Act
and the Regulations as then in effect. The Company may discharge this
obligation in accordance with Rule 158 of the Regulations.
(h) During the period of five years commencing on the Effective
Date of the Registration Statement, the Company will furnish to its stockholders
an annual report (including financial statements audited by its independent
public accountants), in reasonable detail, and, at its expense, furnish each of
the Underwriters (i) within 90 days after the end of each fiscal year of the
Company, a consolidated balance sheet of the Company and its consolidated
subsidiaries and a separate balance sheet of each subsidiary of the Company the
accounts of which are not included in such consolidated balance sheet as of the
end of such fiscal year, and consolidated statements of operations,
stockholder's equity and cash flows of the Company and its consolidated
subsidiaries and separate statements of operations, stockholder's equity and
cash flows of each of the subsidiaries of the Company the accounts of which are
not included in such consolidated statements, for the fiscal year then ended all
in reasonable detail and all certified by independent accountants (within the
meaning of the Act and the Regulations), (ii) within 45 days after the end of
each of the first three fiscal quarters of each fiscal year, similar balance
sheets as of the end of such fiscal quarter and similar statements of
operations, stockholder's equity and cash flows for the fiscal quarter then
ended, all in reasonable detail, and subject to year end adjustment, all
certified by the Company's principal financial officer or the Company's
principal accounting officer as having been prepared in accordance with
generally accepted accounting principles applied on a consistent basis, (iii) as
soon as available, each report furnished to or filed with the Commission or any
securities exchange and each report and financial statement furnished to the
Company's shareholders generally and (iv) as soon as available, such other
material as the Underwriters may from time to time reasonably request regarding
the financial condition and operations of the Company.
(i) For a period of eighteen months from the Closing Date, the
Company, at its expense, shall cause its regularly engaged independent certified
public accountants to review (but not audit), the Company's financial statements
for each of the first three quarters prior to the announcement of quarterly
financial information, the filing of the Company's 10-Q quarterly report and the
mailing of quarterly financial information to stockholders.
10
<PAGE>
(j) Prior to the Closing Date or the Option Closing Date, the
Company will not issue, directly or indirectly, without your prior written
consent and that of counsel for the Underwriters, any press release or other
public announcement or hold any press conference with respect to the Company or
its activities with respect to this Offering.
(k) The Company will deliver to you prior to filing, any
amendment or supplement to the Registration Statement or Prospectus proposed to
be filed after the Effective Date of the Registration Statement and will not
file any such amendment or supplement to which you shall reasonably object after
being furnished such copy.
(l) During the period of 120 days commencing on the date hereof,
the Company will not at any time take, directly or indirectly, any action
designed to, or which will constitute or which might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Securities
to facilitate the sale or resale of any of the Securities.
(m) The Company will apply the net proceeds from the Offering
received by it in the manner set forth under "Use of Proceeds" in the
Prospectus. For a period of three years from the Closing, the Company will not
make any loans or engage in any transactions with any officer, director or
shareholder of the Company, or any person, corporation or other entity
affiliated with such persons, without the approval of the independent Audit
Committee.
(n) Counsel for the Company, the Company's accountants, and the
officers and directors of the Company will, respectively, furnish the opinions,
the letters and the certificates referred to in subsections of Paragraph 9
hereof, and, in the event that the Company shall file any amendment to the
Registration Statement relating to the offering of the Securities or any
amendment or supplement to the Prospectus relating to the offering of the
Securities subsequent to the Effective Date of the Registration Statement, such
counsel, such accountants, such officers and directors, respectively, will, at
the time of such filing or at such subsequent time as you shall specify, so long
as securities being registered by such amendment or supplement are being
underwritten by the Underwriters, furnish to you such opinions, letters and
certificates, each dated the date of its delivery, of the same nature as the
opinions, the letters and the certificates referred to in said Paragraphs 9, as
you may reasonably request, or, if any such opinion or letter or certificate
cannot be furnished by reason of the fact that such counsel or such accountants
or any such officer or director believes that the same would be inaccurate, such
counsel or such accountants or such officer or director will furnish an accurate
opinion or letter or certificate with respect to the same subject matter.
(o) The Company will comply with all of the provisions of any
undertakings contained in the Registration Statement in all material respects.
(p) The Company will reserve and keep available for issuance
that maximum number of its authorized but unissued shares of Common Stock which
are issuable upon
11
<PAGE>
exercise of the Warrants and issuable upon exercise of the Underwriters'
Warrants (including the underlying securities) outstanding from time to time.
(q) Following the Effective Date, and from time to time
thereafter, so long as the Warrants are outstanding, the Company will timely
prepare and file at its sole cost and expense one or more post-effective
amendments to the Registration Statement or a new registration statement as
required by law as will permit Warrant holders to be furnished with a current
prospectus in the event Warrants are exercised, and to use its best efforts and
due diligence to have same be declared effective. The Company will deliver a
draft of each such post-effective amendment or new registration statement to the
Underwriters at least ten days prior to the filing of such post-effective
amendment or registration statement.
(r) Twelve months following the Effective Date and from time to
time thereafter so long as any of the Warrants remain outstanding, the Company
will timely deliver and supply to its warrant agent sufficient copies of the
Company's current Prospectus, as will enable such Warrant Agent to deliver a
copy of such Prospectus to any Warrant or other holder where such Prospectus
delivery is by law required to be made.
(s) So long as any of the Warrants remain outstanding, the
Company shall continue to employ the services of a firm of independent certified
public accountants reasonably acceptable to the Underwriters in connection with
the preparation of the financial statements to be included in any registration
statement to be filed by the Company hereunder, or any amendment or supplement
thereto (it being understood KPMG Peat Marwick, LLP is acceptable to the
Underwriters). During the same period, the Company shall employ the services of
a law firm(s) acceptable to the Underwriters in connection with all legal work
of the Company, including the preparation of a registration statement to be
filed by the Company hereunder, or any amendment or supplement thereto (it being
understood that Nueman, Drennen & Stone, LLC is acceptable to the Underwriters).
(t) So long as any of the Warrants remain outstanding, the
Company shall continue to appoint a Warrant Agent for the Warrants, who shall be
reasonably acceptable to the Underwriters.
(u) The Company agrees that it will, upon the Effective Date,
for a period of no less than three (3) years, engage a designee of the
Underwriters as an advisor (the "Advisor") to its Board of Directors where such
Advisor shall attend meetings of the Board, receive all notices and other
correspondence and communications sent by the Company to members of its Board of
Directors and receive compensation equal to the entitlement of other non-officer
Directors. In addition, such Advisor shall be entitled to receive reimbursement
for all reasonable costs incurred in attending such meetings including, but not
limited to, food, lodging, and transportation. The Company further agrees that,
during said three (3) year period, it shall schedule no less than four (4)
formal and "in person" meetings of its Board of Directors in each such year and
thirty (30) days advance notice of such meetings shall be held quarterly each
year and thirty (30) days advance notice
12
<PAGE>
of such meetings shall be given to the Advisor. Further, during such three (3)
year period, the Company shall give notice to the Underwriters with respect to
any proposed acquisitions, mergers, reorganizations or other similar
transactions. In lieu of the Underwriters right to designate an Advisor, the
Underwriters shall have the right during such three-year period, in its sole
discretion, to designate one person for election as a Director of the Company
and the Company will utilize its best efforts to obtain the election of such
person who shall be entitled to receive the same compensation, expense
reimbursements and other benefits set forth above.
The Company agrees to indemnify and hold the Underwriters and
such Advisor or Director harmless against any and all claims, actions, damages,
costs and expenses, and judgments arising solely out of the attendance and
participation of your designee at any such meeting described herein. In the
event the Company maintains a liability insurance policy affording coverage for
the acts of its officers and directors, it agrees, if possible, to include the
Underwriters' designee as an insured under such policy.
(v) The Company's Units, and the Common Stock and Warrants
underlying the Units, shall be listed on the NASDAQ National Market ("NNM") or
the Nasdaq SmallCap Market ("Nasdaq") and the Boston Stock Exchange ("BSE") not
later than the Closing Date. Promptly after the Closing Date, the Company will
make all filings required, including registration under the Exchange Act, to
obtain the listing of the Common Stock and Warrants on the NNM, Nasdaq and the
BSE, as the case may be, and will effect and use its best efforts to maintain
such listing (unless the Company is acquired) for at least five years from the
date of this Agreement.
(w) The Company will apply for listing in Standard and Poor's
Corporation Reports or Moody's OTC Guide and shall use its best efforts to have
the Company included in such publications for at least five years from the
Closing Date.
(x) Except as contemplated in the Registration Statement, no
person who is currently an officer or director of the Company nor any
stockholder, warrant holder or option holder of the Company shall, without your
written consent, offer for sale, pledge, contract to sell, or sell or otherwise
dispose of directly or indirectly, any shares of the Common Stock of the Company
owned by such stockholder (including shares issuable upon exercise of existing
options and shares issued pursuant to Rule 144 under the Act), on the date of
this Agreement for a period of six months from the Closing Date. The Company
has caused each of its officers, directors, stockholders, warrant holders and
option holders to deliver to you, on or before the date of this Agreement, an
agreement to this effect, in form and substance reasonably satisfactory to the
Underwriters and to counsel for the Underwriters. For a period of twelve months
from the Effective Date, the Company shall not issue any shares of Common Stock
or preferred stock or any warrants, options or other rights to purchase Common
Stock or preferred stock or any other security of the Company without the
consent of the Underwriters, with the exception of shares issued pursuant to the
exercise of options, warrants or other convertible securities outstanding prior
to the Effective Date. The Company agrees not to file any registration
statement on Form S-8, during the 24 months following the Effective Date without
prior written approval of the Underwriters.
13
<PAGE>
(y) The Company will use its best efforts to obtain, and so long
as any of the Warrants remain outstanding shall maintain, key person life
insurance payable to the Company on the life of Steven Wasserman in the amount
of $1,000,000; provided, however, that such insurance need not be maintained on
such person if he ceases to be employed by the Company.
(aa) The Company will use its best efforts to obtain, as
soon after the Closing Date as is reasonably possible, liability insurance
covering its officers and directors.
(bb) The Company agrees that any conflict of interest
arising between a member of the Company's Board of Directors and the Company in
connection with such Director's dealing with, or obligations to, the Company,
shall be resolved by a vote of the majority of the independent members of the
Board of Directors.
(cc) The Company agrees that it will not amend the terms or
cancel any employment or consulting agreement without the approval of the
independent Audit Committee.
(dd) The Company agrees that it will employ the services of
financial public relations firm acceptable to the Underwriters for a period of
at least twelve months following the Effective Date.
4. SALE, PURCHASE AND DELIVERY OF SECURITIES; CLOSING DATE.
(a) The Company agrees to sell to the Underwriters, and the
Underwriters, on the basis of the warranties, representations and agreements of
the Company herein, and subject to the terms and conditions herein, agrees to
purchase the Securities from the Company at a price of ($___) per unit, less
an underwriting discount of ten percent (10%) of the offering price for each
security. The Underwriters may allow a concession not exceeding ($ ) per Unit
to Selected Dealers who are members of the National Association of Securities
Dealers, Inc. ("NASD"), and to certain foreign dealers, and such dealers may
reallow to NASD members and to certain foreign dealers a concession not
exceeding $.( ) per Unit.
(b) Delivery of the Securities and payment therefor shall
be made at 10:00 A.M., New York time on the Closing Date, as hereinafter
defined, at the offices of Kashner Davidson Securities Corp., 77 South Palm
Avenue, Sarasota, FL 34236, or such other location as may be agreed upon by you
and the Company. Delivery of certificates for the Common Stock and Warrants
underlying the Units (in definitive form and registered in such names and in
such denominations as you shall request by written notice to the Company
delivered at least four business days' prior to the Closing Date), shall be made
to you for the account of the Underwriters against payment of the purchase price
therefor by certified or bank check or wire transfer payable in New York
Clearing House funds to the order of the Company. The Company will make such
certificates available for inspection at least two business days prior to the
Closing Date at such place as you shall designate.
14
<PAGE>
(c) The "Closing Date" shall be __________, 1998, or such
other date not later than the third business day following the Effective Date of
the Registration Statement as you shall determine and advise the Company by at
least three full business days' notice.
(d) The cost of original issue tax stamps, if any, in
connection with the issuance and delivery of the Securities by the Company to
the Underwriters shall be borne by the Company. The Company will pay and hold
the Underwriters, and any subsequent holder of the Securities, harmless from any
and all liabilities with respect to or resulting from any failure or delay in
paying federal and state stamp taxes, if any, which may be payable or determined
to be payable in connection with the original issuance or sale to the
Underwriters of the Securities or any portions thereof.
5. SALE, PURCHASE AND DELIVERY OF ADDITIONAL SECURITIES; OPTION
CLOSING DATE.
(a) The Company agrees to sell to the Underwriters, and
upon the basis of the representations, warranties and agreements of the Company
herein contained, subject to the satisfaction of all the terms and conditions of
this Agreement, the Underwriters shall have the option (the "Option") to
purchase the Additional Securities from the Company, at the same price per
Security as set forth in Paragraph 4(a) above. Additional Securities may be
purchased solely for the purpose of covering over-allotments made in connection
with the distribution and sale of the Securities.
(b) The Option to purchase all or part of the Additional
Securities covered thereby is exercisable by you at any time and from time to
time before the expiration of a period of 45 calendar days from the date of the
Effective Date of the Registration Statement (the "Option Period") by written
notice to the Company setting forth the number of Additional Securities for
which the Option is being exercised, the name or names in which the certificates
for such Additional Securities are to be registered and the denominations of
such certificates. Upon each exercise of the Option, the Company shall sell to
the Underwriters the aggregate number of Additional Securities specified in the
notice exercising such Option.
(c) Delivery of the Additional Securities with respect to
which Options shall have been exercised and payment therefor shall be made at
10:00 A.M., New York time on the Option Closing Date, as hereinafter defined, at
the offices of Kashner Davidson Securities Corp. or at such other locations as
may be agreed upon by you and the Company. Delivery of certificates for
Additional Securities shall be made to you for the account of the Underwriters
against payment of the purchase price therefor by certified or bank check or
wire transfer in New York Clearing House Funds to the order of the Company. The
Company will make certificates for Additional Securities to be purchased at the
Option Closing Date available for inspection at least two business days prior to
such Option Closing Date at such place as you shall designate.
(d) The "Option Closing Date" shall be the date not later
than three business days after the end of the Option Period as you shall
determine and advise the Company by
15
<PAGE>
at lease three full business days' notice, unless some other time is agreed upon
between you and the Company.
(e) The obligations of the Underwriters to purchase and pay for
Additional Securities at such Option Closing Date shall be subject to compliance
as of such date with all the conditions specified in Paragraph 2 herein and the
delivery to you of opinions, certificates and letters, each dated such Option
Closing Date, substantially similar in scope to those specified in Paragraph 9
herein.
(f) The cost of original issue tax stamps, if any, in connection
with the issuance and delivery of the Additional Securities by the Company to
the Underwriters shall be borne by the Company. The Company will pay and hold
the Underwriters, and any subsequent holder of Additional Securities, harmless
from any and all liabilities with respect to or resulting from any failure or
delay in paying federal and state stamp taxes, if any, which may be payable or
determined to be payable in connection with the original issuance or sale to the
Underwriters of the Additional Securities or any portion thereof.
6. WARRANT SOLICITATION FEE.
The Company agrees to pay the Underwriters a fee of five percent (5%)
of the aggregate exercise price of the Warrants if: (i) the market price of the
Common Stock is greater than the exercise price of the Warrants on the date of
exercise; (ii) the exercise of the Warrants are solicited by a member of the
NASD; (iii) the Warrants are not held in a discretionary account; (iv) the
disclosure of compensation arrangements was made both at the tie of the Offering
and at the time of the exercise of the Warrant; and (v) the solicitation of the
Warrant is not in violation of Rule 10b-6 promulgated under the Exchange Act.
The Company agrees not to solicit the exercise of any Warrants other than
through the Underwriters and will not authorize any other dealer to engage in
such solicitation without the prior written consent of the Underwriters which
will not be unreasonably withheld. The Warrant solicitation fee will not be
paid in a non-solicited transaction. Any request for exercise will be presumed
to be unsolicited unless the customer states in writing that the transaction was
solicited and designates in writing the broker/dealer to receive compensation
for the exercise. No Warrant solicitation by the Underwriters will occur for a
period of 12 months from the Effective Date.
7. REPRESENTATIONS AND WARRANTIES OF THE UNDERWRITERS.
The Underwriters represent and warrant to the Company that:
(a) The Underwriters are members in good standing of the
National Association of Securities Dealers, Inc., and has complied with all NASD
requirements concerning net capital and compensation to be received in
connection with the Offering.
16
<PAGE>
(b) To the Underwriters' knowledge, there are no claims for
services in the nature of a finder's origination fee with respect to the sale of
the Securities hereunder to which the Company is, or may become, obligated to
pay.
8. PAYMENT OF EXPENSES.
(a) The Company will pay and bear all costs, fees, taxes and
expenses incident to and in connection with: (i) the issuance, offer, sale and
delivery of the Securities, including all expenses and fees incident to the
preparation, printing, filing and mailing (including the payment of postage with
respect to such mailing) of the Registration Statement (including all exhibits
thereto), each Preliminary Prospectus, the Prospectus, and amendments and
post-effective amendments thereof and supplements thereto, and this Agreement
and related documents, Preliminary and Final Blue Sky Memoranda, including the
cost of preparing and copying all copies thereof in quantities deemed necessary
by the Underwriters; (ii) the costs of preparing and printing all "Tombstone"
and other appropriate advertisements; (iii) the printing, engraving, issuance
and delivery of the Common Stock, Warrants, Warrant Shares, Additional
Securities, Underwriters' Warrants and the securities underlying the
Underwriters' Warrant, including any transfer or other taxes payable thereon in
connection with the original issuance thereof; (iv) the qualification of the
Common Stock and Warrants under the state or foreign securities or "Blue Sky"
laws selected by the Underwriters and the Company, and disbursements and
reasonable fees of counsel for the Underwriters in connection therewith plus the
filing fees for such states; (v) fees and disbursements of counsel and
accountants for the Company; (vi) other expenses and disbursements incurred on
behalf of the Company (vii) the filing fees payable to the Commission and the
National Association of Securities Dealers, Inc. ("NASD"); (viii) fees
associated with the preparation of transaction "bibles" and lucite cube momentos
in such quantities as the Underwriters may request; and (ix) any listing of the
Common Stock and Warrants on a securities exchange or on NASDAQ.
(b) In addition to the expenses to be paid and borne by the
Company referred to in Paragraph 8(a) above, the Company shall reimburse you at
closing for expenses incurred by you in connection with the Offering (for which
you need not make any accounting), in the amount of 3% of the price to the
public of the Securities and Additional Securities sold in the Offering. This
3% non-accountable expense allowance shall cover the fees of your legal counsel,
but shall not include any expenses for which the Company is responsible under
Paragraph 8(a) above, including the reasonable fees and disbursements of your
legal counsel with respect to Blue Sky matters. As of the date hereof, $25,000
has been advanced by the Company to the Underwriters with respect to such
non-accountable expense allowance.
(c) In the event that the Company does not or cannot, for any
reason whatsoever other than a default by the Underwriters, expeditiously
proceed with the Offering, or if any of the representations, warranties or
covenants contained in this Agreement are not materially correct or cannot be
complied with by the Company, or business prospects or obligations of the
Company are adversely affected and the Company does not commence or continue
with the Offering at any time or terminate the proposed transaction prior to the
first closing date of this Agreement the
17
<PAGE>
Company shall reimburse the Underwriters on an accountable basis for all
out-of-pocket expenses actually incurred in connection with the underwriting,
this Agreement and all of the transactions hereby contemplated, including,
without limitation, your legal fees and expenses, less such sums which have
already been paid.
9. CONDITIONS OF UNDERWRITERS' OBLIGATIONS.
The obligations of the Underwriters to consummate the transactions
contemplated by this Agreement shall be subject to the continuing accuracy of
the representations and warranties of the Company contained herein as of the
date hereof and as of the Closing Date, the accuracy of the statements of the
Company and its officers and directors made pursuant to the provisions hereof,
and to the performance by the Company of its covenants and agreements hereunder
and under each certificate, opinion and document contemplated hereunder and to
the following additional conditions:
(a) The Registration Statement shall have become effective not
later than 5:00 p.m., New York time, on the date following the date of this
Agreement, or such later date and time as shall be consented to in writing by
you and, on or prior to the Closing Date, no stop order suspending the
effectiveness of the Registration Statement or the qualification or registration
of the Securities under the securities laws of any jurisdiction shall have been
issued and no proceedings for that purpose shall have been instituted or shall
be pending or to your knowledge or the knowledge of the Company, shall be
contemplated by the Commission or any such authorities of any jurisdiction and
any request on the part of the Commission or any such authorities for additional
information shall have been complied with to the reasonable satisfaction of the
Commission or such authorities and counsel to the Underwriters and after the
date hereof no amendment or supplement shall have been filed to the Registration
Statement or Prospectus without your prior consent.
(b) The Registration Statement or the Prospectus or any
amendment thereof or supplement thereto shall not contain an untrue statement of
a fact which is material, or omit to state a fact which 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.
(c) Between the time of the execution and delivery of this
Agreement and the Closing Date, there shall be no litigation instituted against
the Company or any of its officers or directors and between such dates there
shall be no proceeding instituted or, to the Company's knowledge, threatened
against the Company or any of its officers or directors before or by any
federal, state or county commission, regulatory body, administrative agency or
other governmental body, domestic or foreign, in which litigation or proceeding
an unfavorable ruling, decision or finding would have a material adverse effect
on the Company or its business, business prospects or properties, or have a
material adverse effect on the financial condition or results of operation of
the Company.
18
<PAGE>
(d) Each of the representations and warranties of the Company
contained herein and each certificate and document contemplated under this
Agreement to be delivered to you shall be true and correct at the Closing Date
as if made at the Closing Date, and all covenants and agreements contained
herein and in each such certificate and document to be performed on the part of
the Company, and all conditions contained herein and in each such certificate
and document to be fulfilled or complied with by the Company at or prior to the
Closing Date shall be fulfilled or complied with.
(e) At the Closing Date, you shall have received the opinion of
Neuman Drennen & Stone, LLC, counsel to the Company, dated as of such Closing
Date, addressed to the Underwriters and in form and substance satisfactory to
counsel to the Underwriters, to the effect that:
(i) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Oregon with full
corporate power and authority, and all licenses, permits, certifications,
registrations, approvals, consents and franchises to own or lease and operate
its properties and to conduct its business as described in the Registration
Statement. The Company is duly qualified to do business as a foreign
corporation and is in good standing in all jurisdictions wherein such
qualification is necessary and failure so to qualify could have a material
adverse effect on the financial condition, results of operations, business or
properties of the Company;
(ii) The Company has full corporate power and authority
to execute, deliver and perform the Underwriting Agreement, the Consulting
Agreement, the Warrant Agreement and the Underwriters' Warrants and to
consummate the transactions contemplated thereby. The execution, delivery and
performance of the Underwriting Agreement, the Consulting Agreement, the Warrant
Agreement and the Underwriters' Warrants by the Company, the consummation by the
Company of the transactions therein contemplated and the compliance by the
Company with the terms of the Underwriting Agreement, the Consulting Agreement,
the Warrant Agreements and the Underwriters' Warrants have been duly authorized
by all necessary corporate action, and each of the Underwriting Agreement, the
Consulting Agreement, the Warrant Agreement and the Underwriters' Warrant has
been duly executed and delivered by the Company. Each of the Underwriting
Agreement, the Consulting Agreement, the Warrant Agreements and the
Underwriters' Warrants are a valid and binding obligation of the Company,
enforceable in accordance with their respective terms, subject, as to
enforcement of remedies, to applicable bankruptcy, insolvency, reorganization,
moratorium and other laws affecting the rights of creditors generally and the
discretion of courts in granting equitable remedies and except that
enforceability of the indemnification provisions and the contribution provisions
set forth in the Underwriting Agreement may be limited by the federal securities
laws or public policy underlying such laws;
(iii) The execution, delivery and performance of the
Underwriting Agreement, the Consulting Agreement, the Warrant Agreement and the
Underwriters' Warrants by the Company, the consummation by the Company of the
transactions therein contemplated and the compliance by the Company with the
terms of the Underwriting Agreement, the Consulting
19
<PAGE>
Agreement, the Warrant Agreement and the Underwriters' Warrants do not, and will
not, with or without the giving of notice or the lapse of time, or both, (A)
result in a violation of the Certificate of Incorporation, as the same may be
amended, or by-laws of the Company, (B) to the best of our knowledge, result in
a breach of, or conflict with, any terms or provisions of or constitute a
default under, or result in the modification or termination of, or result in the
creation or imposition of any lien, security interest, charge or encumbrance
upon any of the properties or assets of the Company pursuant to, any indenture,
mortgage, note, contract, commitment or other material agreement or instrument
to which the Company is a party or by which the Company or any of its properties
or assets are or may be bound or affected, except where any of the foregoing
would not result in a material adverse effect upon the Company's business or
operations; (C) to the best of our knowledge, violate any existing applicable
law, rule or regulation or judgment, order or decree known to us of any
governmental agency or court, domestic or foreign, having jurisdiction over the
Company or any of its properties or business; or (D) to the best of our
knowledge, have any effect on any permit, certification, registration, approval,
consent, license or franchise necessary for the Company to own or lease and
operate its properties and to conduct its business or the ability of the Company
to make use thereof;
(iv) To the best of our knowledge, no authorization,
approval, consent, order, registration, license or permit of any court or
governmental agency or body (other than under the Act, the Regulations and
applicable state securities or Blue Sky laws) is required for the valid
authorization, issuance, sale and delivery of the Securities, the Additional
Securities, the Common Stock, the Warrants, the Warrant Shares, or the
Underwriters' Warrants, and the consummation by the Company of the transactions
contemplated by the Underwriting Agreement, the Consulting Agreement, the
Warrant Agreement or the Underwriters' Warrants;
(v) The Registration Statement was declared effective
under the Act on [___________], 1998; to the best of our knowledge, no stop
order suspending the effectiveness of the Registration Statement has been
issued, and no proceedings for that purpose have been instituted or are pending,
threatened or contemplated under the Act or applicable state securities laws;
(vi) The Registration Statement and the Prospectus, as of
the Effective Date (except for the financial statements and other financial data
included therein or omitted therefrom, as to which we express no opinion),
comply as to form in all material respects with the requirements of the Act and
Regulations and the conditions for use of a registration statement on Form SB-2
have been satisfied by the Company;
(vii) The description in the Registration Statement and
the Prospectus of statutes, regulations, contracts and other documents have been
reviewed by us, and, based upon such review, are accurate in all material
respects and present fairly the information required to be disclosed, and to the
best of our knowledge, there are no material statutes or regulations, or, to the
best of our knowledge, material contracts or documents, of a character required
20
<PAGE>
to be described in the Registration Statement or the Prospectus or to be filed
as exhibits to the Registration Statement, which are not so described or filed
as required.
To the best of our knowledge, none of the material provisions of
the contracts or instruments described above violates any existing applicable
law, rule or regulation or judgment, order or decree known to us of any United
States governmental agency or court having jurisdiction over the Company or any
of its assets or businesses;
(viii) The outstanding Common Stock and Warrants have been
duly authorized and validly issued. The outstanding Common stock is fully paid
an nonassessable. To the best of our knowledge, none of the outstanding Common
Stock has been issued in violation of the preemptive rights of any shareholder
of the Company. None of the holders of the outstanding Common Stock is subject
to personal liability solely by reason of being such a holder. The authorized
Common Stock conforms to the description thereof contained in the Registration
Statement and Prospectus. To the best of our knowledge, except as set forth in
the Prospectus, no holders of any of the Company's securities has any rights,
"demand," "piggyback" or otherwise, to have such securities registered under the
Act;
(ix) The issuance and sale of the Securities, the
Additional Securities, the Common Stock, the Warrants, the Warrant Shares and
the Underwriters' Warrants have been duly authorized and when issued will be
validly issued, fully paid and nonassessable, and the holders thereof will not
be subject to personal liability solely by reason of being such holders.
Neither the Securities, the Additional Securities, nor the Common Stock are
subject to preemptive rights of any stockholder of the Company. The
certificates representing the Securities are in proper legal form;
(x) The issuance and sale of the Warrant Shares and the
Underwriters' Warrant have been duly authorized and, when paid for, issued and
delivered pursuant to the terms of the Underwriters Agreement or the
Underwriters' Warrants, as the case may be, the Warrants, the Warrant Shares and
the Underwriters' Warrants will constitute the valid and binding obligations of
the Company, enforceable in accordance with their terms, to issue and sell the
Warrants, the Warrant Shares and/or Underwriters' Warrants. All corporate
action required to be taken for the authorization, issuance and sale of the
securities has been duly, validly and sufficiently taken. The Common Stock and
the Warrants have been duly authorized by the Company to be offered in the form
of the Securities. The Warrants, the Warrant Shares and the Underwriters'
Warrants conform to the descriptions thereof contained in the Registration
Statement and Prospectus;
(xi) The Underwriters have acquired good title to the
Securities, free and clear of all liens, encumbrances, equities, security
interests and claims, provided that the Underwriters are bona fide purchasers as
defined in Section 8-302 of the Uniform Commercial Code;
(xii) Assuming that the Underwriters exercise the
over-allotment option to purchase the Additional Securities and make payments
therefor in accordance with the
21
<PAGE>
terms of the Underwriting Agreement, upon delivery of the Additional Securities
to the Underwriters thereunder, the Underwriters will acquire good title to the
Additional Securities, free and clear of any liens, encumbrances, equities,
security interests and claims, provided that the Underwriters are bona fide
purchasers as defined in Section 8-302 of the Uniform Commercial Code;
(xiii) To the best of our knowledge, there are no claims,
actions, suits, proceedings, arbitrations, investigations or inquiries before
any governmental agency, court or tribunal, foreign or domestic, or before any
private arbitration tribunal, pending or threatened against the Company or
involving its properties or business, other than as described in the Prospectus,
such description being accurate, and other than litigation incident to the kind
of business conducted by the Company which, individually and in the aggregate,
is not material, and, except as otherwise disclosed in the Prospectus and the
Registration Statement, the Company has complied with all federal and state
laws, statutes and regulations concerning its business;
(xiv) We have participated in reviews and discussions in
connection with the preparation of the Registration Statement and the
Prospectus. Although we are not passing upon and do not assume responsibility
for the accuracy, completeness or fairness of the statements contained in the
Registration Statement, no facts came to our attention which lead us to believe
that (A) the Registration Statement (except as to the financial statements and
other financial data contained therein, as to which we express no opinion), on
the Effective Date, contained any untrue statement of a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, or that (B) the
Prospectus (except as to the financial statements and other financial data
contained therein, as to which we express no opinion) contains any untrue
statement or a material fact or omits to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading; and
(xv) The Company is not in violation of or in default
under its Articles of Incorporation or by-laws, or to the knowledge of such
counsel, in the performance or observance of any material obligation, agreement,
covenant or condition contained in any bond, debenture, note or other evidence
of indebtedness or in any contract, indenture, mortgage, loan agreement or
instrument to which the Company is a party or by which it or any of its
properties may be bound, or in violation of any material order, rule,
regulation, writ, injunction or decree of any government or governmental
instrumentality or court.
(f) On or prior to the Closing Date, counsel for the
Underwriters shall have been furnished such documents, certificates and opinions
as they may reasonably require for the purpose of enabling them to review the
matters referred to in subparagraph (e) of this Paragraph 9, or in order to
evidence the accuracy, completeness or satisfaction of any of the
representations, warranties or conditions herein contained.
(g) Prior to the Closing Date:
22
<PAGE>
(i) There shall have been no material adverse change in
the condition or prospects or the business activities, financial or otherwise,
of the Company from the latest dates as of which such condition is set forth in
the Registration Statement and Prospectus;
(ii) There shall have been no transaction, outside the
ordinary course of business, entered into by the Company from the latest date as
of which the financial condition of the Company is set forth in the Registration
Statement and Prospectus which is material to the Company, which is either (x)
required to be disclosed in the Prospectus or Registration Statement and is not
so disclosed, or (y) likely to have material adverse effect on the Company's
business or financial condition;
(iii) The Company shall not be in default under any
material provision of any instrument relating to any outstanding indebtedness,
except as described in the Prospectus;
(iv) No material amount of the assets of the Company
shall have been pledged, mortgaged or otherwise encumbered, except as set forth
in the Registration Statement and Prospectus;
(v) No action, suit or proceeding, at law or in equity,
shall have been pending or to its knowledge threatened against the Company or
affecting any of its properties or businesses before or by any court or federal
or state commission, board or other administrative agency wherein an unfavorable
decision, ruling or finding would materially and adversely affect the business,
operations, prospects or financial condition or income of the Company, taken as
a whole, except as set forth in the Registration Statement and Prospectus; and
(vi) No stop order shall have been issued under the Act
and no proceedings therefor shall have been initiated or, to the Company's
knowledge, threatened by the Commission.
(vii) Each of the representations and warranties of the
Company contained in this Agreement and in each certificate and document
contemplated under this Agreement to be delivered to you was, when originally
made and is at the time such certificate is dated, true and correct.
(h) Concurrently with the execution and delivery of this
Agreement and at the Closing Date, you shall have received a certificate of the
Company signed by the Chief Executive Officer of the Company and the principal
financial officer of the Company, dated as of the Closing Date, to the effect
that the conditions set forth in subparagraph (g) above have been satisfied and
that, as of the Closing Date, the representations and warranties of the Company
set forth in Paragraph 2 herein and the statements in the Registration Statement
and Prospectus were and are true and correct. Any certificate signed by any
officer of the Company and delivered to you or for
23
<PAGE>
counsel for the Underwriters shall be deemed a representation and warranty by
the Company to the Underwriters as to the statements made therein.
(i) At the time this Agreement is executed, and at the Closing
Date, you shall have received a letter, addressed to the Underwriters and in
form and substance satisfactory in all respects to you and counsel for the
Underwriters, and including estimates of the Company's revenues and results of
operations for the period ending at the end of the month immediately preceding
the Effective Date and results of the comparable period during the prior fiscal
year, from KPMG Peat Marwick, dated as of the date of this Agreement and as of
the Closing Date.
(j) All proceedings taken in connection with the authorization,
issuance or sale of the Common Stock, Warrants, Warrant Shares, Additional
Securities, the Underwriters' Warrants and the Underwriters' Warrants Shares as
herein contemplated shall be satisfactory in form and substance to you and to
counsel to the Underwriters, and the Underwriters shall have received from such
counsel an opinion, dated as the Closing Date with respect to such of these
proceedings as you may reasonably require.
(k) The Company shall have furnished to you such certificates,
additional to those specifically mentioned herein, as you may have reasonably
requested in a timely manner as to the accuracy and completeness, at the Closing
Date, of any statement in the Registration Statement or the Prospectus, as to
the accuracy, at the Closing Date, of the representations and warranties of the
Company herein and in each certificate and document contemplated under this
Agreement to be delivered to you, as to the performance by the Company of its
obligations hereunder and under each such certificate and document or as to the
fulfillment of the conditions concurrent and precedent to your obligations
hereunder.
(l) The obligation of the Underwriters to purchase Additional
Securities hereunder is subject to the accuracy of the representations and
warranties of the Company contained herein on and as of the Option Closing Date
and to the satisfaction on and as of the Option Closing Date of the conditions
set forth herein.
(m) On the Closing Date there shall have been duly tendered to
you for your account the appropriate number of shares of Common Stock and
Warrants.
10. Indemnification and Contribution.
(a) Subject to the conditions set forth below, the Company
agrees to indemnify and hold harmless the Underwriters and each person, if any,
who controls the Underwriters ("controlling person") within the meaning of
either Section 15 of the Act or Section 20 of the Exchange Act, against any and
all losses, liabilities, claims, damages, actions and expenses or liability,
joint or several, whatsoever (including but not limited to any and all expense
whatsoever reasonably incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim whatsoever), joint or
several, to which it or such controlling persons may
24
<PAGE>
become subject under the Act, the Exchange Act or under any other statute or at
common law or otherwise or under the laws of foreign countries, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement or any Preliminary Prospectus or
the Prospectus (as from time to time amended and supplemented); in any
post-effective amendment or amendments or any new registration statement and
prospectus in which is included the Warrant Shares of the Company issued or
issuable upon exercise of the Warrants, or Underwriters' Warrant Shares upon
exercise of the Underwriters' Warrants; or in any application or other document
or written communication (in this Paragraph 10 collectively called
"application") executed by the Company or based upon written information
furnished by the Company filed in any jurisdiction in order to qualify the
Common Stock, Warrants, Warrant Shares, Additional Securities, Underwriters'
Warrants and Underwriters' Warrant Shares (including the Shares issuable upon
exercise of the Warrants underlying the Underwriters' Warrants) under the
securities laws thereof or filed with the Commission or any securities exchange;
or the omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein not misleading (in
the case of the Prospectus, in the light of the circumstances under which they
were made), unless such statement or omission was made in reliance upon or in
conformity with written information furnished to the Company with respect to the
Underwriters by or on behalf of the Underwriters expressly for use in any
Preliminary Prospectus, the Registration Statement or Prospectus, or any
amendment or supplement thereof, or in application, as the case may be.
Notwithstanding the foregoing, the Company shall have no liability under this
Paragraph 10(a) if any such untrue statement or omission made in a Preliminary
Prospectus, is cured in the Prospectus and the Underwriters failed to deliver to
the person or persons alleging the liability upon which indemnification is being
sought, at or prior to the written confirmation of such sale, a copy of the
Prospectus. This indemnity will be in addition to any liability which the
Company may otherwise have.
(b) The Underwriters agree to indemnify and hold harmless the
Company and each of the officers and directors of the Company who have signed
the Registration Statement and each other person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, to the same extent as the foregoing indemnity from the Company to
the Underwriters in Paragraph 10(a), but only with respect to any untrue
statement or alleged untrue statement of any material fact contained in or any
omission or alleged omission to state a material fact required to be stated in
any Preliminary Prospectus, the Registration Statement or Prospectus or any
amendment or supplement thereof or necessary to make the statements therein not
misleading or in any application made solely in reliance upon, and in conformity
with, written information furnished to the Company by you specifically expressly
for use in the preparation of such Preliminary Prospectus, the Registration
Statement or Prospectus directly relating to the transactions effected by the
Underwriters in connection with this Offering. This indemnity agreement will be
in addition to any liability which the Underwriters may otherwise have.
Notwithstanding the foregoing, the Underwriters shall have no liability under
this Paragraph 10(b) if any such untrue statement or omission made in a
Preliminary Prospectus is cured in the Prospectus, and the Prospectus is
delivered to the person or persons alleging the liability upon which
indemnification is being sought.
25
<PAGE>
(c) If any action is brought against any indemnified party (the
"Indemnitee") in respect of which indemnity may be sought against another party
pursuant to the foregoing (the "Indemnitor"), the Indemnitor shall assume the
defense of the action, including the employment and fees of counsel (reasonably
satisfactory to the Indemnitee) and payment of expenses. Any Indemnitee shall
have the right to employ its or their own counsel in any such case, but the fees
and expenses of such counsel shall be at the expense of such Indemnitee unless
the employment of such counsel shall have been authorized in writing by the
Indemnitor in connection with the defense of such action. If the Indemnitor
shall have employed counsel to have charge of the defense or shall previously
have assumed the defense of any such action or claim, the Indemnitor shall not
thereafter be liable to any Indemnitee in investigating, preparing or defending
any such action or claim. Each Indemnitee shall promptly notify the Indemnitor
of the commencement of any litigation or proceedings against the Indemnitee in
connection with the issue and sale of the Common Stock, Warrants, Warrants
Shares, Additional Securities, Underwriters' Securities or in connection with
the Registration Statement or Prospectus.
(d) In order to provide for just and equitable contribution
under the Act in any case in which: (i) the Underwriters make a claim for
indemnification pursuant to Paragraph 10 hereof, but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the time to appeal has expired or the last right of appeal has been denied)
that such indemnification may not be enforced in such case notwithstanding the
fact that this Paragraph 10 provides for indemnification of such case; or (ii)
contribution under the Act may be required on the part of the Underwriters in
circumstances for which indemnification is provided under this Paragraph 10,
then, and in each such case, the Company and the Underwriters shall contribute
to the aggregate losses, claims, damages or liabilities to which they may be
subject (after any contribution from others) in such proportion so that the
Underwriters are responsible for the portion represented by dividing the total
compensation received by the Underwriters herein by the total purchase price of
all Securities sold in the public offering and the Company is responsible for
the remaining portion; provided, that in any such case, no person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
The foregoing contribution agreement shall in no way affect the
contribution liabilities of any persons having liability under Section 11 of the
Act other than the Company and the Underwriters. As used in this Paragraph 10,
the term "Underwriters" includes any officer, director, or other person who
controls the Underwriters within the meaning of Section 15 of the Act, and the
word "Company" includes any officer, director or person who controls the Company
within the meaning of Section 15 of the Act. If the full amount of the
contribution specified in this paragraph is not permitted by law, then the
Underwriters and each person who controls the Underwriters shall be entitled to
contribution from the Company to the full extent permitted by law. No
contribution shall be requested with regard to the settlement of any matter from
any party who did not consent to the settlement.
26
<PAGE>
(e) Within fifteen (15) days after receipt by any party to this
Agreement (or its representative) of notice of the commencement of any action,
suit or proceeding, such party will, if a claim for contribution in respect
thereof is made against another party (the "contributing party"), notify the
contributing party of the commencement thereof, but the omission so to notify
the contributing party will not relieve it from any liability it may have to any
other party other than for contribution hereunder.
In case any such action, suit or proceeding is brought against any
party, and such party notifies a contributing party or his or its representative
of the commencement thereof within the aforesaid fifteen (15) days, the
contributing party will be entitled to participate therein with the notifying
party and any other contributing party similarly notified. Any such
contributing party shall not be liable to any party seeking contribution on
account of any settlement of any claim, action or proceeding effected by such
party seeking contribution without the written consent of such contributing
party. The indemnification provisions contained in this Paragraph 10 are in
addition to any other rights or remedies which either party hereto may have with
respect to the other or hereunder.
11. REPRESENTATIONS, WARRANTIES, AGREEMENTS TO SURVIVE DELIVERY.
The respective indemnity and contribution agreements by the
Underwriters and the Company contained in Paragraph 10 hereof, and the
covenants, representations and warranties of the Company and the Underwriters
set forth in this Agreement, shall remain operative and in full force and effect
regardless of (i) any investigation made by the Underwriters or on their behalf
or by or on behalf of any person who controls the Underwriters, or by the
Company or any controlling person of the Company or any director or any officer
of the Company, (ii) acceptance of any of the Securities and payment therefor,
or (iii) any termination of this Agreement, and shall survive the delivery of
the Securities and any successor of the Underwriters or the Company, or of any
person who controls you or the Company or any other indemnified party, as the
case may be, shall be entitled to the benefit of such respective indemnity and
contribution agreements. The respective indemnity and contribution agreements
by the Underwriters and the Company contained in this Paragraph 11 shall be in
addition to any liability which the Underwriters and the Company may otherwise
have.
12. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION THEREOF.
(a) This Agreement shall become effective at 10:00 A.M., New
York time, on the first full business day following the day on which you and the
Company receive notification that the Registration Statement became effective.
(b) This Agreement may be terminated by the Underwriters by
notifying the Company at any time on or before the Closing Date, if any domestic
or international event or act or occurrence has materially disrupted, or in your
opinion will in the immediate future materially disrupt, securities markets; or
if trading on the New York Stock Exchange, the American Stock
27
<PAGE>
Exchange, or in the over-the-counter market shall have been suspended, or
minimum or maximum prices for trading shall have been fixed, or maximum ranges
for prices for securities shall have been required on the over-the-counter
market by the NASD or NASDAQ or by order of the Commission or any other
governmental authority having jurisdiction; or if a moratorium in foreign
exchange trading by major international banks or persons has been declared; or
if the Company shall have sustained a loss material or substantial to the
Company taken as a whole by fire, flood, accident, hurricane, earthquake, theft,
sabotage or other calamity or malicious act which, whether or not such loss
shall have been insured, will, in your opinion, make it inadvisable to proceed
with the delivery of the Securities; or if there shall have been a material
adverse change in the conditions of the securities market in general, as in your
reasonable judgment would make it inadvisable to proceed with the offering, sale
and delivery of the Securities; or if there shall have been a material adverse
change in the financial or securities markets, particularly in the
over-the-counter market, in the United States having occurred since the date of
this Agreement.
(c) If you elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Paragraph 12, the
Company shall be notified promptly by you by telephone or facsimile, confirmed
by letter.
(d) If this Agreement shall not become effective by reason of an
election of the Underwriters pursuant to this Paragraph 12 or if this Agreement
shall not be carried out within the time specified herein by reason of any
failure on the part of the Company to perform any undertaking, or to satisfy any
condition of this Agreement by it to be performed or satisfied, the sole
liability of the Company to the Underwriters, in addition to the obligations
assumed by the Company pursuant to Paragraph 8 herein, will be to reimburse the
Underwriters for the following: (i) Blue Sky counsel fees and expenses to the
extent set forth in Paragraph 8(a)(iv); (ii) Blue Sky filing fees; and (iii)
such reasonable out-of-pocket expenses of the Underwriters (including the fees
and disbursements of their counsel), to the extent set forth in Paragraph 8(c),
in connection with this Agreement and the proposed offering of the Securities,
but in no event to exceed the sum of $100,000 less such amounts already paid.
Notwithstanding any contrary provision contained in this Agreement,
any election hereunder or any termination of this Agreement, and whether or not
this Agreement is otherwise carried out, the provisions of Paragraph 8 and 10
hereof shall not be in any way affected by such election or termination or
failure to carry out the terms of this Agreement or any part hereof.
13. NOTICES.
All communications hereunder, except as herein otherwise specifically
provided, shall be in writing and, if sent to the Underwriters, shall be mailed,
delivered or telegraphed and confirmed to the Underwriters at Kashner Davidson
Securities Corp., 77 South Palm Avenue, Sarasota, FL 34236, attention: Victor
Kashner and to Joseph Charles & Associates, Inc., Mellon Financial Center, 1775
Sherman Street, Suite 900, Denver, CO 80203, attention: James E. Hosch, with a
copy thereof to Gregory Sichenzia, Esq., Sichenzia, Ross & Friedman, LLP, 135
West 50th
28
<PAGE>
Street, 20th Floor, New York, NY 10020, and, if sent to the Company, shall be
mailed, delivered or telegraphed and confirmed to the Company at 190 SW
Harrison, Portland, OR 97201, attention: A. Roger Pease, President, with a copy
thereof to David H. Drennen, Esq., Neuman Drennen & Stone, LLC., 5350 South
Roslyn Street, Suite 380, Englewood, CO 80111.
14. PARTIES.
This Agreement shall inure solely to the benefit of and shall be
binding upon, the Underwriters, the Company and the controlling persons,
directors and officers referred to in Paragraph 10 hereof, and their respective
successors, legal representatives and assigns, and no other person shall have or
be construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provision herein contained.
15. CONSTRUCTION.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York and shall supersede any
agreement or understanding, oral or in writing, express or implied, between the
Company and you relating to the sale of any of the Securities.
16. JURISDICTION AND VENUE.
The Company agrees that the courts of the State of New York shall have
jurisdiction over any litigation arising from this Agreement, and venue shall be
proper in the Southern District of New York.
17. COUNTERPARTS.
This agreement may be executed in counterparts.
If the foregoing correctly sets forth the understanding between you
and the Company, please so indicate in the space provided below for that
purpose, whereupon this letter shall constitute a binding agreement between us.
Very truly yours,
FIRSTLINK COMMUNICATIONS, INC.
By:
----------------------------
A. Roger Pease, President
Accepted as of the date first above
29
<PAGE>
written:
KASHNER DAVIDSON SECURITIES CORP
By:
--------------------------------
JOSEPH CHARLES & ASSOCIATES, INC.
By:
--------------------------------
30
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF
UNITS TO BE
UNDERWRITER PURCHASED
- ----------- ---------
<S> <C>
Kashner Davidson Securities Corp (____)
Joseph Charles & Associates, Inc. (____)
TOTAL: 1,400,000
---------
---------
</TABLE>
31
<PAGE>
NO SALE OR TRANSFER OF THIS WARRANT OR THE SECURITIES UNDERLYING THIS WARRANT
MAY BE MADE UNTIL THE EFFECTIVENESS OF A REGISTRATION STATEMENT OR OF A
POST-EFFECTIVE AMENDMENT THERETO UNDER THE SECURITIES ACT OF 1933 (THE "ACT"),
COVERING THIS WARRANT OR THE SECURITIES UNDERLYING THIS WARRANT, OR UNTIL THE
COMPANY IS IN RECEIPT OF AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION REQUIREMENTS
OF THE ACT. TRANSFER OF THIS WARRANT IS RESTRICTED UNDER PARAGRAPH 2 BELOW.
UNDERWRITER'S WARRANT TO PURCHASE
COMMON STOCK AND/OR REDEEMABLE WARRANTS
FIRSTLINK COMMUNICATIONS, INC.
(AN OREGON CORPORATION)
Dated: [__________], 1998
THIS CERTIFIES THAT, for value received, [__________________] (the
"Underwriter") or its registered assigns (the "Holder") is the owner of options
(the "Underwriter's Option") to purchase from Firstlink Communications, Inc., an
Oregon corporation (the "Company"), during the period and at the prices
hereinafter specified, up to 70,000 Units, each unit consisting of one share of
the Company's common stock, no par value per share (the "Common Stock"), and
common stock purchase warrants (the "Warrants"), (the Units, and the Common
Stock and Warrants underlying the Units, collectively referred to as the
"Securities").
This Underwriter's Option is issued pursuant to an Underwriting
Agreement dated [__________], 1998, between the Company and the Underwriter in
connection with a public offering through the Underwriter (the "Public
Offering"), of 1,400,000 Units and, pursuant to the Underwriter's overallotment
option, an additional 210,000 Units. The Warrants (including those issuable
pursuant to the exercise of the Underwriter's Option) will be issued pursuant to
and subject
<PAGE>
to the terms and conditions set forth in an agreement between the Company, the
Underwriter and Continental Stock Transfer & Trust Company (the "Warrant
Agreement").
1. EXERCISE OF THE UNDERWRITER'S OPTION.
(a) The rights represented by this Underwriter's Option shall be
exercisable at the prices and during the period specified below, upon the terms
and subject to the conditions as set forth herein:
(i) During the period from [_________], 1998 to [_______],
1999, inclusive, the Holder shall have no right to purchase any Securities
hereunder.
(ii) Between [_______], 1999 and [_______], 2003, inclusive, the
Holder shall have the option to purchase shares of Common Stock and Warrants
hereunder at a price of $[_____] per Unit, the purchase price of the Units being
140% of the public offering prices for the Securities set forth in the
Prospectus forming a part of the registration statement on Form SB-2
(File No. 33-[__________]) of the Company, as amended (the "Registration
Statement").
(iii) After [_________], 2003, the Holder shall have no right
to purchase any Securities hereunder and this Underwriter's Option shall expire
effective at 5:00 p.m., New York time on such date.
(b) The rights represented by this Underwriter's Option may be
exercised at any time within the period above specified, in whole or in part, by
(i) the surrender of this Underwriter's Option (with the purchase form at the
end hereof properly executed) at the principal executive office of the Company
(or such other office or agency of the Company as it may designate by notice in
writing to the Holder at the address of the Holder appearing on the books of the
Company); (ii) payment to the Company of the exercise price then in effect for
the number of shares of Common Stock and Warrants specified in the
above-mentioned purchase form together with applicable stock transfer taxes, if
any; and (iii) delivery to the Company of a duly executed agreement signed by
the person(s) designated in the purchase form to the effect that such person(s)
agree(s) to be bound by the provisions of Paragraph 5 and subparagraphs (b), (c)
and (d) of Paragraph 6 hereof. This Underwriter's Option shall be deemed to
have been exercised, in whole or in part to the extent specified, immediately
prior to the close of business on the date this Underwriter's Option is
surrendered and payment is made in accordance with the foregoing provisions of
this Paragraph 1, and the person or persons in whose name or names the
certificates for the Securities shall be issuable upon such exercise shall
become the holder or holders of record of such Common Stock and Warrants at that
time and date. The Common Stock and Warrants so purchased shall be delivered to
the Holder within a reasonable time, not exceeding ten (10) business days, after
the rights represented by this Underwriter's Option shall have been so
exercised.
(c) Notwithstanding anything to the contrary contained in
subparagraph (b) of paragraph 1, the Holder may elect to exercise this
Underwriter's Warrant in whole or in part by
2
<PAGE>
receiving Shares and/or Warrants equal to the value (as determined below) of
this Underwriter's Warrant at the principal office of the Company together with
notice of such election in which event the Company shall issue to the Holder a
number of Shares and/or Warrants computed using the following formula:
X = Y(A-B)
----------
A
-
WHERE: X = the number of Shares and/or Warrants to be issued to the
Holder;
Y = the number of Shares and/or Warrants to be exercised under
this Underwriter's Warrant;
A = the current fair market value of one share of Common Stock
and/or one Warrant (calculated as described below); and
B = the Share Exercise Price and/or the Warrant Exercise Price,
as the case may be.
As used herein, the current fair market value of one share of Common
Stock shall mean the greater of (x) the average of the closing prices of the
Company's Common Stock sold on all securities exchanges on which the Common
Stock may at the time be listed and the NASDAQ National Market, or, if there
have been no sales on any such exchange or the NASDAQ National Market on such
day, the average of the highest bid and lowest asked price on such day on The
Nasdaq Stock Market or otherwise in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization (the "Market Price"), on the trading day immediately
preceding the date notice of exercise of this Underwriter's Warrant is given or
(y) the average of the Market Price per share of Common Stock for the five
trading days immediately preceding the date notice of exercise of this
Underwriter's Warrant is given. If on any date for which the Market Price per
share of Common Stock is to be determined the Common Stock is not listed on any
securities exchange or quoted on the NASDAQ National Market or on The Nasdaq
Stock Market or otherwise in the over-the-counter market, the Market Price per
share of Common Stock shall be the highest price per share which the Company
could then obtain from a willing buyer (not a current employee or director) for
shares of Common Stock sold by the Company, from authorized but unissued shares,
as determined in good faith by the Board of Directors of the Company, unless
prior to such date the Company has become subject to a merger, acquisition or
other consolidation pursuant to which the Company is not the surviving party, in
which case the Market Price per share of Common Stock shall be deemed to be the
value received by the holders of the Company's Common Stock for each share
thereof pursuant to the Company's acquisition.
The current fair market value of one Warrant shall be determined in a like
manner, with reference to the prices per Warrant.
3
<PAGE>
2. RESTRICTIONS ON TRANSFER.
This Underwriter's Option shall not be transferred, sold, assigned or
hypothecated for a period of one year commencing [________], 1998, except that
it may be transferred to successors of the Holder, and may be assigned in whole
or in part to any person who is an officer of the Underwriter or an officer or
partner of any other member of the selling group during such period. Any such
assignment shall be effected by the Holder by (i) completing and executing the
transfer form at the end hereof and (ii) surrendering this Underwriter's Option
with such duly completed and executed transfer form for cancellation,
accompanied by funds sufficient to pay any transfer tax, at the office or agency
of the Company referred to in Paragraph 1 hereof, accompanied by a certificate
(signed by a duly authorized representative of the Holder), stating that each
transferee is a permitted transferee under this Paragraph 2; whereupon the
Company shall issue, in the name or names specified by the Holder (including the
Holder), a new Underwriter's Option or Underwriter's Options of like tenor and
representing in the aggregate rights to purchase the same number of Securities
as are then purchasable hereunder. The Holder acknowledges that this
Underwriter's Option may not be offered or sold except pursuant to an effective
registration statement under the Act or an opinion of counsel satisfactory to
the Company that an exemption from registration under the Act is available.
3. COVENANTS OF THE COMPANY
(a) The Company covenants and agrees that all Common Stock issuable
upon the exercise of this Underwriter's Option will, upon issuance thereof and
payment therefor in accordance with the terms hereof, and all Common Stock
issuable upon exercise of the Warrants underlying this Underwriter's Option,
will upon the issuance thereof and payment therefor in accordance with the terms
of the Warrant Agreement, be duly and validly issued, fully paid and
nonassessable and no personal liability will attach to the holder thereof by
reason of being such a holder, other than as set forth herein.
(b) The Company covenants and agrees that during the period within
which this Underwriter's Option may be exercised, the Company will at all times
have authorized and reserved a sufficient number of shares of Common Stock to
provide for the exercise of this Underwriter's Option and the Warrants included
therein.
(c) The Company covenants and agrees that for so long as the
Securities shall be outstanding (unless the Securities shall no longer be
registered under Paragraph 12(b) or 12(g) of the Securities Exchange Act of
1934, as amended) the Company shall use its best efforts to cause all shares of
Common Stock issuable upon the exercise of the Underwriter's Option and the
Warrants contained therein, to be quoted by the NASDAQ Stock Market or listed on
a national securities exchange.
4. NO RIGHTS OF STOCKHOLDER.
4
<PAGE>
This Underwriter's Option shall not entitle the Holder to any voting
rights or other rights as a stockholder of the Company, either at law or in
equity, and the rights of the Holder are limited to those expressed in this
Underwriter's Option and are not enforceable against the Company except to the
extent set forth herein.
5. REGISTRATION RIGHTS.
(a) During the four year period following [________], 2003, the
Company shall advise the Holder, whether the Holder holds this Underwriter's
Option or has exercised this Underwriter's Option and holds Common Stock and
Warrants underlying the Units, or Common Stock underlying the Warrants (the
"Warrant Shares"), by written notice at least 30 days prior to the filing of any
post-effective amendment to the Registration Statement or of any new
registration statement or post-effective amendment thereto under the Act,
covering any securities of the Company, for its own account or for the account
of others, and upon the request of the Holder made during such four-year period,
include in any such post-effective amendment or registration statement such
information as may be required to permit a public offering of any of the Common
Stock or Warrants issuable hereunder, and/or the Warrant Shares (the
"Registerable Securities"); provided, that this Paragraph 5(a) shall not apply
to any registration statement filed pursuant to Paragraph 5(b) hereof or to
registrations of shares in connection with an employee benefit plan or a merger,
consolidation or other comparable acquisition or solely for registration of
non-convertible debt or preferred equity securities of the Company; and
provided, further, that, notwithstanding the foregoing, the Holder shall have no
right to include any Registrable Securities in any new registration statement or
post-effective amendment thereto unless as of the effective date thereof the
Registration Statement (as it may hereafter be amended or supplemented) or any
new registration statement under which the Registrable Securities are registered
shall have ceased to be effective or the prospectus contained in such
Registration Statement shall have ceased to be current. The Company shall
supply prospectuses in order to facilitate the public sale or other disposition
of the Registerable Securities, use its reasonable efforts to register and
qualify any of the Registerable Securities for sale in such states in which the
Common Stock and Warrants are offered and sold in the Public Offering as such
Holder reasonably designates and do any and all other acts and things which may
be necessary to enable such Holder to consummate the public sale of the
Registerable Securities, provided that, without limiting the foregoing, the
Company shall not be obligated to execute or file any general consent to service
of process or to qualify as a foreign corporation to do business under the laws
of any such jurisdiction, and furnish indemnification in the manner provided in
Paragraph 6 hereof. The Holder shall furnish information reasonably requested
by the Company in accordance with such post-effective amendments or registration
statements, including its intentions with respect thereto, and shall furnish
indemnification as set forth in Paragraph 6. The Company shall continue to
advise the Holders of the Registerable Securities of its intention to file a
registration statement or amendment pursuant to this Paragraph 5(a) until the
earliest of (i) [______], 2003; or (ii) such time as all of the Registerable
Securities have been registered and sold under the Act; or (iii) all of the
Registrable Securities have been otherwise transferred, new certificates for
them not bearing a legend restricting further transfer shall have been delivered
by the Company and subsequent public distribution of them shall not require
registration or qualification of them under the Act, or (iv) in the opinion of
legal counsel for the Company, the Registrable Securities may be offered and
sold by the holders thereof without being registered under the Act and
5
<PAGE>
such securities, upon receipt by the purchasers thereof pursuant to such
sale, will not constitute "restricted securities" as such term is defined in
Rule 144 under the Act.
(b) If any fifty-one (51%) percent holder (as defined below) shall
give notice to the Company at any time during the four (4) year period beginning
[_____], 1998 to the effect that such holder desires to register under the Act
any Registerable Securities, under such circumstances that a public distribution
(within the meaning of the Act) of any such Registerable Securities will be
involved (and the Registration Statement or any new registration statement under
which such Registerable Securities are registered shall have ceased to be
effective or the Prospectus contained therein shall have ceased to be current),
then the Company will as promptly as practicable after receipt of such notice,
but not later than thirty (30) days after receipt of such notice, at the
Company's option, file a post-effective amendment to the current Registration
Statement or a new registration statement pursuant to the Act to the end that
the Registerable Securities may be publicly sold under the Act as promptly as
practicable thereafter and the Company will use its reasonable efforts to cause
such registration to become and remain effective as provided herein (including
the taking of such steps as are reasonably necessary to obtain the removal of
any stop order); provided, that such fifty-one (51%) percent holder shall
furnish the Company with appropriate information in connection therewith as the
Company may reasonably request; and provided, further, that the Company shall
not be required to file such a post-effective amendment or registration
statement pursuant to this Paragraph 5(b) on more than one occasion; and
provided, further, that, the registration rights of the 51% holder under this
Paragraph 5(b) shall be subject to the "piggyback" registration rights of other
holders of securities of the Company to include such securities in any
registration statement or post-effective amendment filed pursuant to this
Paragraph 5(b). The Company will maintain such registration statement or
post-effective amendment current under the Act for a period of at least nine
months from the effective date thereof. The Company shall supply prospectuses
in order to facilitate the public sale of the Registerable Securities, use its
reasonable efforts to register and qualify any of the Registerable Securities
for sale in such states in which the Common Stock and Warrants are offered and
sold in the Public Offering as such holder reasonably designates and furnish
indemnification in the manner provided in Paragraph 6 hereof, provided that,
without limiting the foregoing, the Company shall not be obligated to execute or
file any general consent to service of process or to qualify as a foreign
corporation to do business under the laws of any such jurisdiction.
(c) The Holder may, in accordance with Paragraphs 5(a) or (b), at his
or its option, and subject to the limitations set forth in Paragraph 1(a)
hereof, request the registration of any of the Registerable Securities in a
filing made by the Company prior to the acquisition of the Securities upon
exercise of this Underwriter's Option. The Holder may thereafter exercise this
Underwriter's Option at any time or from time to time subsequent to the
effectiveness under the Act of the registration statement in which the Common
Stock underlying the Underwriter's Options and Warrants were included.
(d) The term "51% holder," as used in this Paragraph 5, shall
include any owner or combination of owners of Underwriter's Options or
Registerable Securities if the aggregate number of shares of Common Stock and
Warrant Shares included in and underlying the Underwriter's Options and
Registerable Securities held of record by it or them, would constitute a
majority of the aggregate of such shares of Common Stock and Warrant Shares
underlying the
6
<PAGE>
Underwriter's Option and Registrable Securities as of the date of the initial
issuance of the Underwriter's Option.
(e) The following provisions of this Paragraph 5 shall also be
applicable:
(i) Within ten (10) days after receiving any notice pursuant to
Paragraph 5(b), the Company shall give notice to the other Holders of
Underwriter's Options or Registerable Securities, advising that the Company is
proceeding with such post-effective amendment or registration and offering to
include therein the Registerable Securities of such other Holders, provided that
they shall furnish the Company with all information in connection therewith as
shall be necessary or appropriate and as the Company shall reasonably request in
writing. Following the effective date of such post-effective amendment or
registration, the Company shall, upon the request of any Holder of Registerable
Securities, forthwith supply such number of prospectuses meeting the
requirements of the Act, as shall be reasonably requested by such Holder. The
Company shall use its reasonable efforts to qualify the Registerable Securities
for sale in such states in which the Common Stock and Warrants are offered and
sold in the Public Offering as the 51% holder shall reasonably designate at such
times as the registration statement is effective under the Act, provided that,
without limiting the foregoing, the Company shall not be obligated to execute or
file any general consent to service of process or to qualify as a foreign
corporation to do business under the laws of any such jurisdiction.
(ii) The Company shall bear the entire cost and expense of any
registration of securities initiated by it under Paragraph 5(a) hereof
notwithstanding that the Registerable Securities subject to this Underwriter's
Option may be included in any such registration. The Company shall also comply
with the one request for registration made by the 51% holder pursuant to
Paragraph 5(b) hereof at the Company's own expense and without charge to any
holder of the Registerable Securities. Notwithstanding the foregoing, any
Holder whose Registerable Securities are included in any such registration
statement pursuant to this Paragraph 5 shall, however, bear the fees of any
counsel retained by him and any transfer taxes or underwriting discounts or
commissions applicable to the Registerable Securities sold by him pursuant
thereto and, in the case of a registration pursuant to Paragraph 5(a) hereof,
any additional registration or "blue sky" or state securities fees attributable
to the registration or qualification of such Holder's Registerable Securities.
(iii) If the underwriter or managing underwriter in any underwritten
offering made pursuant to Paragraph 5(a) hereof shall advise the Company that it
declines to include a portion or all of the Registerable Securities requested by
the Holders to be included in the registration statement, then distribution of
all or a specified portion of the Registerable Securities shall be excluded from
such registration statement (in case of an exclusion as to a portion of such
Registerable Securities, such portion to be allocated among such Holders in
proportion to the respective numbers of Registerable Securities requested to be
registered by each such Holder). In such event the Company shall give the
Holder prompt notice of the number of Registerable Securities excluded.
Further, in such event the Company shall, commencing six (6) months after the
completion of such underwritten offering, file and use its best efforts to have
declared effective, at its sole expense (subject to the last sentence of
Paragraph 5(a)(ii)), a registration statement relating to such excluded
securities.
7
<PAGE>
(iv) Notwithstanding anything to the contrary contained herein, the
Company shall have the right at any time after it shall have given written
notice pursuant to Paragraph 5(a) or 5(b) (irrespective of whether a written
request for inclusion of any Registerable Securities shall have been made) to
elect not to file or to delay any such proposed registration statement or
post-effective amendment thereto, or to withdraw the same after the filing but
prior to the effective date thereof. In addition, the Company may delay the
filing of any registration statement or post-effective amendment requested
pursuant to Paragraph 5(b) hereof by not more than 120 days if the Company,
prior to the time it would otherwise have been required to file such
registration statement or post-effective amendment thereto, determines in good
faith that the filing of the registration statement would require the disclosure
of non-public material information that, in its judgment, would be detrimental
to the Company if so disclosed or would otherwise adversely affect a financing,
acquisition, disposition, merger or other material transaction.
(v) If a registration pursuant to Paragraph 5(a) hereof involves an
underwritten offering, the Company shall have the right to select the investment
banker or investment bankers and manager or managers that will serve as
underwriter with respect to the underwritten offering. No Holder of
Registerable Securities may participate in any underwritten offering under this
Agreement unless such holder completes and executes all questionnaires, powers
of attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwritten offering, in each case, in the form and
upon terms reasonably acceptable to the Company and the underwriters. The
requested registration pursuant to Paragraph 5(b) hereof shall not involve an
underwritten offering unless the Company shall first give its written approval
of each underwriter that participates in the offering, such approval not to be
unreasonably withheld.
6. INDEMNIFICATION.
(a) Whenever pursuant to Paragraph 5, a registration statement
relating to any Registerable Securities is filed under the Act, amended or
supplemented, the Company will indemnify and hold harmless each Holder of the
Registerable Securities covered by such registration statement, amendment or
supplement (such holder hereinafter referred to as the "Distributing Holder"),
each person, if any, who controls (within the meaning of the Act) the
Distributing Holder, and each officer, employee, partner or agent of the
Distributing Holder, if the Distributing Holder is a broker or dealer, and each
underwriter (within the meaning of the Act) of such securities and each person,
if any, who controls (within the meaning of the Act) any such underwriter and
each officer, employee, agent or partner of such underwriter against any losses,
claims, damages or liabilities, joint or several, to which the Distributing
Holder, any such underwriter or any other person may become subject under the
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any such
registration statement or any preliminary prospectus or final prospectus
constituting a part thereof or any amendment or supplement thereto, or arise out
of or are based upon the omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading; and will
reimburse the Distributing Holder and each such underwriter or such other person
for any legal or other expenses reasonably incurred by the Distributing Holder,
or underwriter or such other person, in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
8
<PAGE>
that the Company will not be liable in any such case (i) to the extent that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
said registration statement, said preliminary prospectus, said final prospectus
or said amendment or supplement in reliance upon and in conformity with written
information furnished by such Distributing Holder, any other Distributing Holder
or any such underwriter for use in the preparation thereof, or (ii) such losses,
claims, damages or liabilities arise out of or are based upon any actual or
alleged untrue statement or omission made in or from any preliminary prospectus,
but corrected in the final prospectus, as amended or supplemented.
(b) Whenever pursuant to Paragraph 5 a registration statement
relating to the Registerable Securities is filed under the Act, or is amended or
supplemented, the Distributing Holder will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed said
registration statement and such amendments and supplements thereto, and each
person, if any, who controls the Company (within the meaning of the Act) against
any losses, claims, damages or liabilities to which the Company or any such
director, officer or controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue or alleged untrue
statement of any material fact contained in any such registration statement or
any preliminary prospectus or final prospectus constituting a part thereof, or
any amendment or supplement thereto, or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent that such untrue statement or
alleged untrue statement or omission or alleged omission was made in said
registration statement, said preliminary prospectus, said final prospectus or
said amendment or supplement in reliance upon and in conformity with written
information furnished by such Distributing Holder for use in the preparation
thereof; and will reimburse the Company or any such director, officer or
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action.
(c) Promptly after receipt by an indemnified party under this
Paragraph 6 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof; but the
omission to so notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Paragraph 6.
(d) In case any such action is brought against any indemnified party,
and it notifies an indemnifying party of the commencement thereof, the
indemnifying party 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 with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election to so assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Paragraph 6 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.
7. ADJUSTMENTS OF WARRANT PRICE AND NUMBER OF
9
<PAGE>
SHARES OF COMMON STOCK.
(a) COMPUTATION OF ADJUSTED PRICE. Except as hereinafter
provided, in case the Company shall, at any time after the date of closing of
the sale of securities pursuant to the IPO (the "Closing Date"), issue or sell
any shares of Common Stock (other than the issuances or sales referred to in
Paragraph 7(f) hereof), including shares held in the Company's treasury and
shares of Common Stock issued upon the exercise of any options, rights or
warrants to subscribe for shares of Common Stock (other than the issuances or
sales of Common Stock pursuant to rights to subscribe for such Common Stock
distributed pursuant to Paragraph 7(j) hereof) and shares of Common Stock issued
upon the direct or indirect conversion or exchange of securities for shares of
Common Stock, for a consideration per share less than both the "Market Price"
(as defined in Paragraph 7(a)(vi) hereof) per share of Common Stock on the
trading day immediately preceding such issuance or sale and the Warrant Price in
effect immediately prior to such issuance or sale, or without consideration,
then forthwith upon such issuance or sale, the Warrant Price in respect of the
Common Stock issuable upon exercise of the Underwriter's Option (but not the
exercise price of the Warrants underlying the Underwriter's Option, which shall
be adjusted only in accordance with the Warrant Agreement) shall (until another
such issuance or sale) be reduced to the price (calculated to the nearest full
cent) determined by multiplying the Warrant Price in effect immediately prior to
such issuance or sale by a fraction, the numerator of which shall be the sum of
(1) the number of shares of Common Stock outstanding immediately prior to such
issuance or sale multiplied by the Warrant Price immediately prior to such
issuance or sale plus (2) the consideration received by the Company upon such
issuance or sale, and the denominator of which shall be the product of (x) the
total number of shares of Common Stock outstanding immediately after such
issuance or sale, multiplied by (y) the Warrant Price immediately prior to such
issuance or sale; provided, however, that in no event shall the Warrant Price be
adjusted pursuant to this computation to an amount in excess of the Warrant
Price in effect immediately prior to such computation, except in the case of a
combination of outstanding shares of Common Stock, as provided by Paragraph 7(c)
hereof. For the purposes of this Paragraph 7, the term "Warrant Price" shall
mean the exercise price per share of Common Stock issuable upon exercise of the
Underwriter's Option (initially $(____) per share), as adjusted from time to
time pursuant to the provisions of this Paragraph 7.
For the purposes of any computation to be made in accordance with this
Paragraph 7(a), the following provisions shall be applicable:
(i) In case of the issuance or sale of shares of Common
Stock for a consideration part or all of which shall be cash, the amount of the
cash consideration therefor shall be deemed to be the amount of cash received by
the Company for such shares (or, if shares of Common Stock are offered by the
Company for subscription, the subscription price, or, if such securities shall
be sold to underwriters or dealers for public offering without a subscription
offering, the public offering price) before deducting therefrom any compensation
paid or discount allowed in the sale, underwriting or purchase thereof by
underwriters or dealers or others performing similar services, or any expenses
incurred in connection therewith.
(ii) In case of the issuance or sale (otherwise than as a
dividend or other distribution on any stock of the Company) of shares of Common
Stock for a consideration part or all of which shall be other than cash, the
amount of the consideration therefor other than cash
10
<PAGE>
shall be deemed to be the value of such consideration as determined in good
faith by the Board of Directors of the Company.
(iii) Shares of Common Stock issuable by way of dividend or
other distribution on any stock of the Company shall be deemed to have been
issued immediately after the opening of business on the day following the record
date for the determination of shareholders entitled to receive such dividend or
other distribution and shall be deemed to have been issued without
consideration.
(iv) The reclassification of securities of the Company
other than shares of Common Stock into securities including shares of Common
Stock shall be deemed to involve the issuance of such shares of Common Stock for
a consideration other than cash immediately prior to the close of business on
the date fixed for the determination of security holders entitled to receive
such shares, and the value of the consideration allocable to such shares of
Common Stock shall be determined as provided in subparagraph (ii) of this
Paragraph 7(a).
(v) The number of shares of Common Stock at any one time
outstanding shall include the aggregate number of shares issued or issuable upon
the exercise of options, rights, warrants and upon the conversion or exchange of
convertible or exchangeable securities.
(vi) As used herein, the phrase "Market Price" at any date
shall be deemed to be the average of the last reported sale price, or, in case
no such reported sale takes place on such day, the average of the last reported
sale prices for the last three trading days, in either case as officially
reported by the principal securities exchange on which the Common Stock is
listed or admitted to trading or as reported in the NASDAQ Stock Market, or, if
the Common Stock is not listed or admitted to trading on any national securities
exchange or quoted on the NASDAQ Stock Market, the closing bid quotation as
furnished by the National Association of Securities Dealers, Inc. through NASDAQ
or a similar organization if NASDAQ is no longer reporting such information, or
if the Common Stock is not quoted on NASDAQ, as determined in good faith by
resolution of the Board of Directors of the Company, based on the best
information available to it for the day immediately preceding such issuance or
sale, the day of such issuance or sale and the day immediately after such
issuance or sale. If the Common Stock is listed or admitted to trading on a
national securities exchange and also quoted on the NASDAQ Stock Market, the
Market Price shall be determined as hereinabove provided by reference to the
prices reported in the NASDAQ Stock Market; provided that if the Common Stock is
listed or admitted to trading on the New York Stock Exchange, the Market Price
shall be determined as hereinabove provided by reference to the prices reported
by such exchange.
(b) OPTIONS, RIGHTS, WARRANTS AND CONVERTIBLE AND EXCHANGEABLE
SECURITIES. Except in the case of the Company issuing rights to subscribe for
shares of Common Stock distributed pursuant to Paragraph 7(j) hereof, if the
Company shall at any time after the Closing Date issue options, rights or
warrants to subscribe for shares of Common Stock, or issue any securities
convertible into or exchangeable for shares of Common Stock, in each case other
than the issuances or sales referred to in Paragraph 7(f) hereof, (i) for a
consideration per share less than the lesser of (a) the Warrant Price in effect
immediately prior to the issuance of such options, rights or
11
<PAGE>
warrants, or such convertible or exchangeable securities, or (b) the Market
Price on the trading day immediately preceding such issuance, or (ii) without
consideration, the Warrant Price in effect immediately prior to the issuance of
such options, rights or warrants, or such convertible or exchangeable
securities, as the case may be, shall be reduced to a price determined by making
a computation in accordance with the provisions of Paragraph 7(a) hereof,
provided that:
(i) The aggregate maximum number of shares of Common Stock,
as the case may be, issuable under all the outstanding options, rights or
warrants shall be deemed to be issued and outstanding at the time all the
outstanding options, rights or warrants were issued, and for a consideration
equal to the minimum purchase price per share provided for in the options,
rights or warrants at the time of issuance, plus the consideration (determined
in the same manner as consideration received on the issue or sale of shares in
accordance with the terms of Paragraph 7(a) hereof), if any, received by the
Company for the options, rights or warrants, and if no minimum price is provided
in the options, rights or warrants, then the consideration shall be equal to
zero; provided, however, that upon the expiration or other termination of the
options, rights or warrants, if any thereof shall not have been exercised, the
number of shares of Common Stock deemed to be issued and outstanding pursuant to
this subparagraph (b) (and for the purposes of subparagraph (v) of Paragraph
7(a) hereof) shall be reduced by such number of shares as to which options,
warrants and/or rights shall have expired or terminated unexercised, and such
number of shares shall no longer be deemed to be issued and outstanding, and the
Warrant Price then in effect shall forthwith be readjusted and thereafter be the
price which it would have been had adjustment been made on the basis of the
issuance only of shares actually issued or issuable upon the exercise of those
options, rights or warrants as to which the exercise rights shall not have
expired or terminated unexercised.
(ii) The aggregate maximum number of shares of Common Stock
issuable upon conversion or exchange of any convertible or exchangeable
securities shall be deemed to be issued and outstanding at the time of issuance
of such securities, and for a consideration equal to the consideration
(determined in the same manner as consideration received on the issue or sale of
shares of Common Stock in accordance with the terms of Paragraph 7(a) hereof)
received by the Company for such securities, plus the minimum consideration, if
any, receivable by the Company upon the conversion or exchange thereof;
provided, however, that upon the expiration or other termination of the right to
convert or exchange such convertible or exchangeable securities (whether by
reason of redemption or otherwise), the number of shares deemed to be issued and
outstanding pursuant to this subparagraph (ii) (and for the purpose of
subparagraph (v) of Paragraph 7(a) hereof) shall be reduced by such number of
shares as to which the conversion or exchange rights shall have expired or
terminated unexercised, and such number of shares shall no longer be deemed to
be issued and outstanding, and the Warrant Price then in effect shall forthwith
be readjusted and thereafter be the price which it would have been had
adjustment been made on the basis of the issuance only of the shares actually
issued or issuable upon the conversion or exchange of those convertible or
exchangeable securities as to which the conversion or exchange rights shall not
have expired or terminated unexercised. No adjustment will be made pursuant to
this subparagraph (ii) upon the issuance by the Company of any convertible or
exchangeable securities pursuant to the exercise of any option, right or warrant
exercisable therefor, to the extent that adjustments in respect of such options,
rights or warrants were previously made pursuant to the provisions of
subparagraph (i) of this subparagraph 7(b).
12
<PAGE>
(iii) If any change shall occur in the price per share
provided for in any of the options, rights or Warrants referred to in
subparagraph (i) of this Paragraph 7(b), or in the price per share at which the
securities referred to in subparagraph (ii) of this Paragraph 7(b) are
convertible or exchangeable, or if any such option, rights or warrants are
exercised at a price greater than the minimum purchase price provided for in
such options, rights or warrants, or any such securities are converted or
exercised for more than the minimum consideration receivable by the Company upon
such conversion or exchange, the options, rights or warrants or conversion or
exchange rights, as the case may be, shall be deemed to have expired or
terminated on the date when such price change became effective in respect of
shares not theretofore issued pursuant to the exercise or conversion or exchange
thereof, and the Company shall be deemed to have issued upon such date new
options, rights or warrants or convertible or exchangeable securities at the new
price in respect of the number of shares issuable upon the exercise of such
options, rights or warrants or the conversion or exchange of such convertible or
exchangeable securities; PROVIDED, HOWEVER, that no adjustment shall be made
pursuant to this subparagraph (iii) with respect to any change in the price per
share provided for in any of the options, rights or warrants referred to in
subparagraph (i) of this Paragraph 7, or in the price per share at which the
securities referred to in subparagraph (ii) of this Paragraph 7(b) are
convertible or exchangeable, which change results from the application of the
anti-dilution provisions thereof in connection with an event for which, subject
to subparagraph (iv) of Paragraph 7(f), an adjustment to the Warrant Price and
the number of securities issuable upon exercise of the Warrants will be required
to be made pursuant to this Paragraph 7.
(c) SUBDIVISION AND COMBINATION. In case the Company shall at
any time after the Closing Date subdivide or combine the outstanding shares of
Common Stock, the Warrant Price shall forthwith be proportionately decreased in
the case of subdivision or increased in the case of combination.
(d) ADJUSTMENT IN NUMBER OF SHARES. Upon each adjustment of the
Warrant Price pursuant to the provisions of this Paragraph 7, the number of
shares of Common Stock (but not the number of Warrants, which are subject to
adjustment as set forth in the Warrant Agreement) issuable upon the exercise of
the Underwriter's Option shall be adjusted to the nearest full whole number by
multiplying a number equal to the Warrant Price in effect immediately prior to
such adjustment by the number of shares of Common Stock issuable upon exercise
of the Underwriter's Option immediately prior to such adjustment and dividing
the product so obtained by the adjusted Warrant Price.
(e) RECLASSIFICATION, CONSOLIDATION, MERGER, ETC. In case of
any reclassification or change of the outstanding shares of Common Stock (other
than a change in par value to no par value, or from no par value to par value,
or as a result of a subdivision or combination), or in the case of any
consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger which does not result in any
reclassification or change of the outstanding shares of Common Stock, except a
change as a result of a subdivision or combination of such shares or a change in
par value, as aforesaid), or in the case of a sale or conveyance to another
corporation of the property of the Company as an entirety, the Holder shall
thereafter have the right to purchase the kind and number of shares of stock and
other securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance as if the Holder were the owner of the
shares of Common Stock underlying the Underwriter's Option immediately prior to
any such events (but not the shares of Common Stock issuable upon exercise of
any Warrants underlying the
13
<PAGE>
Underwriter's Option) at a price equal to the product of (x) the number of
shares issuable upon exercise of the Underwriter's Option (but not the shares of
Common Stock issuable upon exercise of any Warrants underlying the Underwriter's
Option) and (y) the Warrant Price in effect immediately prior to the record date
for such reclassification, change, consolidation, merger, sale or conveyance as
if such Holder had exercised the Underwriter's Option.
(f) NO ADJUSTMENT OF WARRANT PRICE IN CERTAIN CASES.
Notwithstanding anything herein to the contrary, no adjustment of the Warrant
Price shall be made:
(i) Upon the issuance or sale of the Underwriter's Option,
the shares of Common Stock or Warrants issuable upon the exercise of the
Underwriter's Option or the shares of Common Stock issuable upon exercise of the
Warrants underlying the Underwriter's Option; or
(ii) Upon the issuance or sale of (A) the shares of Common
Stock or Warrants issued by the Company in the Public Offering (including
pursuant to the Underwriter's overallotment option) or other shares of Common
Stock or warrants issued by the Company upon consummation of the IPO, (B) the
shares of Common Stock (or other securities) issuable upon exercise of Warrants;
or
(iii) Upon (i) the issuance of options pursuant to the
Company's employee stock option plan in effect on the date hereof or as
hereafter amended in accordance with the terms thereof or any other employee or
executive stock option plan approved by stockholders of the Company or the sale
by the Company of any shares of Common Stock pursuant to the exercise of any
such options, or (ii) the sale by the Company of any shares of Common Stock
pursuant to the exercise of any options or warrants issued and outstanding on
the date of closing of the sale of Common Stock and Warrants pursuant to the
Public Offering or (iii) the issuance or sale by the Company of any shares of
Common Stock pursuant to the Company's restricted stock plan in effect on the
date hereof; or
(iv) If the amount of said adjustment shall be less than
two cents (2 CENTS) per share of Common Stock.
(g) ADJUSTMENT OF WARRANTS UNDERLYING UNDERWRITER'S OPTION.
With respect to the Warrants underlying the Underwriter's Option, the exercise
price of such Warrants and the number of shares of Common Stock purchasable
pursuant to such Warrants shall be automatically adjusted in accordance with the
applicable provisions of the Warrant Agreement, upon the occurrence, at any time
after the date hereof, of any of the events described in the Warrant Agreement
requiring such adjustment, with the same force and effect as if such Warrants
had been issued as of this date, whether or not such Warrants shall have been
exercised (or exercisable) at the time of the occurrence of such event and
whether or not such Warrants shall be issued and outstanding at the time of the
occurrence of such event. Thereafter, such Warrants shall be exercisable at
such adjusted Warrant's exercise price for such adjusted number of shares of
Common Stock or other securities, properties or rights.
14
<PAGE>
(h) REDEMPTION OF UNDERWRITER'S OPTION. Notwithstanding
anything to the contrary contained in this Agreement or elsewhere, the
Underwriters Option cannot be redeemed by the Company under any circumstances.
(i) DIVIDENDS AND OTHER DISTRIBUTIONS WITH RESPECT TO
OUTSTANDING SECURITIES. In the event that the Company shall at any time after
the Closing Date and prior to the exercise and expiration of the Underwriter's
Option declare a dividend (other than a dividend consisting solely of shares of
Common Stock or a cash dividend or distribution payable out of current or
retained earnings) or otherwise distribute to the holders of Common Stock any
monies, assets, property, rights, evidences of indebtedness, securities (other
than such a cash dividend or distribution or dividend consisting solely of
shares of Common Stock), whether issued by the Company or by another person or
entity, or any other thing of value, the Holders of the unexercised
Underwriter's Option shall thereafter be entitled, in addition to the shares of
Common Stock or other securities receivable upon the exercise thereof, to
receive, upon the exercise of such Underwriter's Option, the same monies,
property, assets, rights, evidences of indebtedness, securities or any other
thing of value that they would have been entitled to receive at the time of such
dividend or distribution as if the Holders were the owners of the shares of
Common Stock underlying the Underwriter's Option (but not the shares of Common
Stock issuable upon exercise of any Warrants underlying the Underwriter's
Option). At the time of any such dividend or distribution, the Company shall
make appropriate reserves to ensure the timely performance of the provisions of
this Paragraph 7(i).
(j) SUBSCRIPTION RIGHTS FOR SHARES OF COMMON STOCK OR OTHER
SECURITIES. In case the Company or an affiliate of the Company shall at any
time after the date hereof and prior to the exercise of the Underwriter's Option
in full issue any rights to subscribe for shares of Common Stock or any other
securities of the Company or of such affiliate to all the holders of Common
Stock of the Company, the Holders of the unexercised Underwriter's Option shall
be entitled, in addition to the shares of Common Stock or other securities
receivable upon the exercise of the Underwriter's Option, to receive such rights
at the time such rights are distributed to the other stockholders of the Company
but only to the extent of the number of shares of Common Stock, if any, for
which the Underwriter's Option remains exercisable.
(k) NOTICE IN EVENT OF DISSOLUTION. In case of the dissolution,
liquidation or winding-up of the Company, all rights under the Underwriter's
Option shall terminate on a date fixed by the Company, such date to be no
earlier than ten (10) days prior to the effectiveness of such dissolution,
liquidation or winding-up and not later than five (5) days prior to such
effectiveness. Notice of such termination of purchase rights shall be given to
the last registered Holder of the Underwriter's Option, as the same shall appear
on the books and records of the Company, by registered mail at least thirty (30)
days prior to such termination date.
(l) COMPUTATIONS. The Company may retain a firm of independent
public accountants (who may be any such firm regularly employed by the Company)
to make any computation required under this Paragraph, and any certificate
setting forth such computation signed by such firm shall be conclusive evidence
of the correctness of any computation made under this Paragraph 7.
15
<PAGE>
8. FRACTIONAL SHARES.
(a) The Company shall not be required to issue fractions of shares of
Common Stock or fractional Warrants on the exercise of this Underwriter's
Option, provided, however, that if the Holder exercises the Underwriter's Option
in full, any fractional shares of Common Stock shall be eliminated by rounding
any fraction up to the nearest whole number of shares of Common Stock.
(b) The Holder of this Underwriter's Option, by acceptance hereof,
expressly waives his right to receive any fractional share of Common Stock or
fractional Warrant upon exercise of this Underwriter's Option.
9. REDEMPTION OF WARRANTS UNDERLYING THE UNDERWRITER'S OPTION
The Warrants underlying the Underwriter's Option are redeemable by
the Company at a redemption price of $.05 per Warrant, in whole or in part,
commencing 14 months after the date hereof and prior to their expiration upon
not less than thirty (30) days' prior written notice to the holders of the
Warrants; provided that the average closing bid quotation of the Common Stock as
reported on The Nasdaq Stock Market, if traded thereon, or if not traded
thereon, the average closing sale price if listed on a national securities
exchange (or other reporting system that provides last sales prices), has been
at least 150% of the then current Exercise Price for a period of 20 consecutive
trading days ending on the third day prior to the date on which the Company
gives notice of redemption. Any redemption in part shall be made pro rata to
all Warrant holders. The redemption notice shall be mailed to the holders of
the Warrants at their respective addresses appearing in the Warrant register.
Holders of the Warrants will have exercise rights until the close of business on
the day immediately preceding the date fixed for redemption (at which time this
Underwriter's Option shall no longer be exercisable for Warrants).
9. MISCELLANEOUS.
(a) This Underwriter's Option shall be governed by and in accordance
with the laws of the State of New York without regard to the conflicts of law
principles thereof.
(b) All notices, requests, consents and other communications
hereunder shall be made in writing and shall be deemed to have been duly made
when delivered, or mailed by registered or certified mail, return receipt
requested: (i) if to a Holder, to the address of such Holder as shown on the
books of the Company, or (ii) if to the Company, 190 SW Harrison, Portland, OR
97201.
(c) The Company and the Underwriter may from time to time supplement
or amend this Underwriter's Option without the approval of any other Holders in
order to cure any ambiguity, to correct or supplement any provision contained
herein which may be defective or inconsistent with any provisions herein, or to
make any other provisions in regard to matters or questions arising hereunder
which the Company and the Underwriter may deem necessary or desirable and which
the Company and the Underwriter deem not to materially adversely affect the
interest of the Holders.
16
<PAGE>
(d) All the covenants and provisions of this Underwriter's Option by
or for the benefit of the Company and the Holders shall bind and inure to the
benefit of their respective successors and assigns hereunder.
(e) Nothing in this Underwriter's Option shall be construed to give
to any person or corporation other than the Company and the Underwriter and any
other registered Holder or Holders, any legal or equitable right, and this
Underwriter's Option shall be for the sole and exclusive benefit of the Company
and the Underwriter and any other Holder or Holders.
(f) This Underwriter's Option may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
IN WITNESS WHEREOF, the Company has caused this Underwriter's Warrant
to be signed by its duly authorized officer and this Underwriter's Option to be
dated [___________],1998.
FIRSTLINK COMMUNICATIONS, INC.
By:
---------------------------
A. Roger Pease
17
<PAGE>
PURCHASE FORM
(To be signed only upon exercise of the Underwriter's Option)
The undersigned, the Holder of the foregoing Underwriter's Option,
hereby irrevocably elects to exercise the purchase rights represented by such
Underwriter's Option for, and to purchase thereunder, ______ shares of Common
Stock and/or ____ Warrants of Firstlink Communications, Inc. and herewith makes
payment of $________ therefor, and requests that the certificates for Common
Stock and/or Warrants be issued in the name(s) of, and delivered to
________________________________ whose address(es) is (are)
___________________________________________________________ and whose social
security or taxpayer identification number is
______________________.
Dated:
--------------------
- -------------------------*
- --------------------------
Address
* Signature must conform in all respects to name of registered Holder.
18
<PAGE>
TRANSFER FORM
(To be signed only upon transfer of the Underwriter's Option)
For value received, the undersigned hereby sells, assigns, and
transfers unto _____________________ the right to purchase shares of Common
Stock and/or Warrants of Firstlink Communications, Inc. represented by the
foregoing Underwriter's Option to the extent of __________ shares of Common
Stock and/or ______ Warrants, and appoints ________________, attorney to
transfer such rights on the books of Firstlink Communications, Inc., with full
power of substitution in the premises.
Dated:
------------------
- -------------------------
(name of holder)
- -------------------------
Address
- -------------------------
In the presence of:
- -------------------------
- -------------------------
19
<PAGE>
Exhibit 4.1
NUMBER SHARES
FIRSTLINK
FIRSTLINK COMMUNICATIONS, INC.
Incorporated Under the Laws of the State of Oregon
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF
FIRSTLINK COMMUNICATIONS, INC.
transferable only on the books of the Company in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid unless countersigned by the Transfer Agent and Registrar.
IN WITNESS WHEREOF, the said Company has caused this Certificate to be
executed by the facsimile signatures of its duly authorized officers and to be
sealed with the facsimile seal of the Company.
Dated:
Secretary President
SEAL
<PAGE>
FIRSTLINK COMMUNICATIONS, INC.
AN OREGON CORPORATION
KASHNER DAVIDSON SECURITIES CORP.
AND
JOSEPH CHARLES & ASSOCIATES, INC.
AND
AMERICAN SECURITIES TRANSFER & TRUST, INCORPORATED
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
1. APPOINTMENT OF WARRANT AGENT . . . . . . . . . . . . . . . . . . . . . . 2
2. FORM OF WARRANT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3. COUNTERSIGNATURE AND REGISTRATION. . . . . . . . . . . . . . . . . . . . 5
4. TRANSFERS AND EXCHANGES. . . . . . . . . . . . . . . . . . . . . . . . . 5
5. EXERCISE OF WARRANTS; PAYMENT OF WARRANT SOLICITATION FEE. . . . . . . . 6
6. PAYMENT OF TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7. MUTILATED OR MISSING WARRANTS. . . . . . . . . . . . . . . . . . . . . . 11
8. RESERVATION OF COMMON STOCK. . . . . . . . . . . . . . . . . . . . . . . 12
9. ADJUSTMENTS OF WARRANT PRICE AND NUMBER
OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
10. FRACTIONAL INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . 26
11. NOTICES TO WARRANTHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . 26
12. DISPOSITION OF PROCEEDS ON EXERCISE OF WARRANTS. . . . . . . . . . . . . 28
13. REDEMPTION OF WARRANTS . . . . . . . . . . . . . . . . . . . . . . . . . 29
14. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF WARRANT AGENT . . . . . . . 30
15. DUTIES OF WARRANT AGENT. . . . . . . . . . . . . . . . . . . . . . . . . 31
16. CHANGE OF WARRANT AGENT. . . . . . . . . . . . . . . . . . . . . . . . . 34
17. IDENTITY OF TRANSFER AGENT . . . . . . . . . . . . . . . . . . . . . . . 35
18. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
19. SUPPLEMENTS AND AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . 37
20. NEW YORK CONTRACT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
21. BENEFITS OF THIS AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . 37
22. SUCCESSORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>
i
<PAGE>
WARRANT AGENT AGREEMENT, dated as of [______], 1998, among FIRSTLINK
COMMUNICATIONS, INC., an Oregon corporation (the "Company"), KASHNER DAVIDSON
SECURITIES CORP. and JOSEPH CHARLES & ASSOCIATES, INC. (collectively, the
"Underwriter"), and AMERICAN SECURITIES TRANSFER & TRUST, INCORPORATED, as
warrant agent (hereinafter called the "Warrant Agent").
WHEREAS, the Company proposes to issue and sell through an initial
public offering (the "IPO") underwritten by the Underwriters, an aggregate of up
to 1,400,000 units (the "Units"), each Unit consisting of one share of common
stock, no par value per share (the "Common Stock"), and one Common Stock
purchase warrant (the "Warrants") and, pursuant to the Underwriters'
overallotment option (the "Underwriters' Overallotment Option"), an additional
210,000 Units;
WHEREAS, two Warrants will entitle the holder to purchase one share of
Common Stock;
WHEREAS, in connection with the IPO the Company proposes to sell to
the Underwriters warrants (the "Underwriter's Option") to purchase up to 140,000
Units;
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and exercise of the Warrants;
NOW, THEREFORE, in consideration of the promises and the mutual
agreements herein set forth, and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the
Underwriters, the holders of certificates representing the Warrants and the
Warrant Agent, the parties hereto agree as follows:
Section 1. APPOINTMENT OF WARRANT AGENT. The Company hereby
appoints the Warrant Agent to act as Warrant Agent for the Company in accordance
with the instructions hereinafter set forth in this Agreement, and the Warrant
Agent hereby accepts such appointment.
Upon the execution of this Agreement, certificates representing
1,400,000 Warrants to purchase up to an aggregate of 700,000 shares of Common
Stock (subject to modification and adjustment as provided in Section 9 hereof)
shall be executed by the Company and delivered to the Warrant Agent.
Upon the exercise of the Underwriter's Overallotment Option,
certificates representing up to 210,000 Warrants to purchase up to an aggregate
of 105,000 shares of Common Stock (subject to modification and adjustment as
provided in Section 9 hereof) shall be executed by the Company and delivered to
the Warrant Agent.
<PAGE>
Upon exercise of the Underwriter's Option as provided therein,
certificates representing up to 140,000 Warrants to purchase up to an aggregate
of 70,000 shares of Common Stock (subject to modification and adjustment as
provided in Section 9 hereof) shall be executed by the Company and delivered to
the Warrant Agent.
Section 2. FORM OF WARRANT. The text of the Warrants and of the
form of election to purchase Common Stock to be printed on the reverse thereof
shall be substantially as set forth in EXHIBIT A attached hereto (the provisions
of which are hereby incorporated herein). All of the certificates for the
Warrants may have such letters, numbers or other marks of identification or
designation and such legends, summaries or endorsements printed, lithographed or
engraved thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
law or with any rule or regulation made pursuant thereto or with any rule or
regulation of any stock exchange on which the Warrants may be listed, or to
conform to usage. Two Warrants shall initially entitle the registered holder
thereof to purchase one share of Common Stock at a purchase price of
[__________] dollars ($___) (the "Warrant Price"), at any time during the period
(the "Exercise Period") commencing on effective date of the Company's
Registration Statement (the "Effective Date") pursuant to which the Warrants are
being sold in the IPO and expiring at 5:00 p.m. New York time, on _______, 2001
(three years after the date of the Prospectus). The Warrant Price and the
number of shares of Common Stock issuable upon exercise of the Warrants are
subject to adjustment upon the occurrence of certain events, all as hereinafter
provided. The Warrants shall be executed on behalf of the Company by the manual
or facsimile signature of the present or any future President or Vice President
of the Company, and attested to by the manual or facsimile signature of the
present or any future Secretary or Assistant Secretary of the Company.
Warrants shall be dated as of the date of issuance by the Warrant
Agent either upon initial issuance or upon transfer or exchange.
In the event the aforesaid expiration date of the Warrants falls on a
day that is not a business day, then the Warrants shall expire at 5:00 p.m. New
York time on the next succeeding business day. For purposes hereof, the term
"business day" shall mean any day other than a Saturday, Sunday or a day on
which banking institutions in New York City, New York, are authorized or
obligated by law to be closed.
Section 3. COUNTERSIGNATURE AND REGISTRATION. The Warrant Agent
shall maintain books for the transfer and registration of the Warrants. Upon
the initial issuance of the Warrants, the Warrant Agent shall issue and register
the Warrants in the names of the respective holders thereof. The Warrants shall
be countersigned manually or by facsimile by the Warrant Agent (or by any
successor to the Warrant Agent then acting as warrant agent under this
Agreement) and shall not be valid for any purpose unless so countersigned. The
Warrants may, however, be so countersigned by the Warrant Agent (or by its
successor as Warrant Agent) and be delivered by the Warrant Agent,
notwithstanding that the persons whose manual or facsimile signatures appear
thereon as proper
2
<PAGE>
officers of the Company shall have ceased to be such officers at the time of
such countersignature or delivery.
Section 4. TRANSFERS AND EXCHANGES. The Warrant Agent shall
transfer, from time to time, any outstanding Warrants upon the books to be
maintained by the Warrant Agent for that purpose, upon surrender thereof for
transfer properly endorsed or accompanied by appropriate instructions for
transfer. Upon any such transfer, a new Warrant shall be issued to the
transferee and the surrendered Warrant shall be cancelled by the Warrant Agent.
Warrants so cancelled shall be delivered by the Warrant Agent to the Company
from time to time upon request. Warrants may be exchanged at the option of the
holder thereof, when surrendered at the office of the Warrant Agent, for another
Warrant, or other Warrants of different denominations of like tenor and
representing in the aggregate the right to purchase a like number of shares of
Common Stock. No certificates for Warrants shall be issued except for (i)
Warrants initially issued hereunder in accordance with Section 1 hereof, (ii)
Warrants issued upon any transfer or exchange of Warrants, (iii) Warrants issued
in replacement of lost, stolen, destroyed or mutilated certificates for Warrants
pursuant to Section 7 hereof, and (iv) at the option of the Board of Directors
of the Company, Warrants in such form as may be approved by its Board of
Directors, to reflect any adjustment or change in the exercise price or the
number of shares of Common Stock purchasable upon exercise of the Warrants made
pursuant to Section 9 hereof.
Section 5. EXERCISE OF WARRANTS; PAYMENT OF WARRANT SOLICITATION
FEE. Subject to the provisions of this Agreement, each registered holder of
Warrants shall have the right, at any time during the Exercise Period, to
exercise such Warrants and purchase the number of fully paid and non-assessable
shares of Common Stock specified in such Warrants upon presentation and
surrender of such Warrants to the Company at the corporate office of the Warrant
Agent, with the exercise form on the reverse thereof duly executed, and upon
payment to the Company of the Warrant Price, determined in accordance with the
provisions of Sections 2, 9 and 10 of this Agreement, for the number of shares
of Common Stock in respect of which such Warrants are then exercised. Payment
of such Warrant Price shall be made in cash or by certified or bank check
payable to the Company. Subject to Section 6 hereof, upon such surrender of
Warrants and payment of the Warrant Price, the Warrant Agent on behalf of the
Company shall cause to be issued and delivered with all reasonable dispatch to
or upon the written order of the registered holder of such Warrants and in such
name or names as such registered holder may designate, a certificate or
certificates for the number of full shares of Common Stock so purchased upon the
exercise of such Warrants. Such certificate or certificates shall be deemed to
have been issued and any person so designated to be named therein shall be
deemed to have become a holder of record of such shares of Common Stock
immediately prior to the close of business on the date of the surrender of such
Warrants and payment of the Warrant Price as aforesaid. The rights of purchase
represented by the Warrants shall be exercisable during the Exercise Period, at
the election of the registered holders thereof, either as an entirety or from
time to time for a portion of the shares specified therein and, in the event
that any Warrant is exercised in respect of less than all of the shares of
Common Stock specified therein at any time prior to the date of expiration of
the Warrants, a new Warrant or Warrants will be issued to the registered holder
for the remaining number of shares of Common Stock specified in the Warrant so
3
<PAGE>
surrendered, and the Warrant Agent is hereby irrevocably authorized to
countersign and to deliver the required new Warrants pursuant to the provisions
of this Section and of Section 3 of this Agreement and the Company, whenever
requested by the Warrant Agent, will supply the Warrant Agent with Warrants duly
executed on behalf of the Company for such purpose. Upon the exercise of any
one or more Warrants, the Warrant Agent shall promptly notify the Company in
writing of such fact and of the number of securities delivered upon such
exercise and, subject to the provisions below, shall cause all payments of an
amount, in cash or by check made payable to the order of the Company, equal to
the aggregate Warrant Price for such Warrants, less any amounts payable to the
Underwriter, as provided below, to be deposited promptly in the Company's bank
account. The Company and Warrant Agent shall determine, in their sole and
absolute discretion, whether a Warrant certificate has been properly completed
for exercise by the registered holder thereof.
Anything in the foregoing to the contrary notwithstanding, no Warrant
will be exercisable and the Company shall not be obligated to deliver any
securities pursuant to the exercise of any Warrant unless at the time of
exercise the Company has filed with the Securities and Exchange Commission a
registration statement under the Securities Act of 1933 (the "Act") covering the
securities issuable upon exercise of such Warrant and such registration
statement shall have been declared and shall remain effective and shall be
current, and such shares have been registered or qualified or deemed to be
exempt under the securities laws of the state or other jurisdiction of residence
of the holder of such Warrant and the exercise of such Warrant in any state or
other jurisdiction shall not otherwise be unlawful. During the Exercise Period,
the Company shall use its reasonable efforts to have a current registration
statement on file with the Securities and Exchange Commission covering the
issuance of Common Stock underlying the Warrants so as to permit the Company to
deliver to each person exercising a Warrant a prospectus meeting the
requirements of Section 10(a)(3) of the Act and otherwise complying therewith,
and will deliver such prospectus to each such person. In that connection, prior
to commencement of the Exercise Period, the Company will either file a
post-effective amendment to its Registration Statement on Form SB-2 (No.
33-________) under the Act covering the Common Stock underlying the Warrants or
file a new registration statement under the Act covering the Common Stock
underlying the Warrants, with the intent that such post-effective amendment or
such new registration statement will become effective upon the commencement of
the Exercise Period. During the Exercise Period, the Company shall also use its
reasonable efforts to effect appropriate qualifications of the Common Stock
underlying the Warrants under the laws and regulations of the states and other
jurisdictions in which the Common Stock and Warrants are sold by the Underwriter
in the IPO in order to comply with applicable laws in connection with the
exercise of the Warrants.
(a) If at the time of exercise of any Warrant (i) the market
price of the Common Stock is equal to or greater than the then exercise price of
the Warrant, (ii) the exercise of the Warrant is solicited by either of the
Underwriters at such time as it is a member of the National Association of
Securities Dealers, Inc. ("NASD"), (iii) the Warrant is not held in a
discretionary account, (iv) disclosure of the compensation arrangement is made
in documents provided to the holders of the Warrants, and (v) the solicitation
of the exercise of the Warrant is not in violation of Rule 10b-6 (as such rule
or any successor rule may be in effect as of such time of exercise)
4
<PAGE>
promulgated under the Securities Exchange Act of 1934, then the Underwriter
soliciting the exercise of such Warrant shall be entitled to receive from the
Company following exercise of each of the Warrants so exercised a fee of five
percent (5%) of the aggregate exercise price of the Warrants so exercised (the
"Exercise Fee"). The procedures for payment of the Exercise Fee are set forth
in Section 5(b) below.
(b) (1) Within five (5) days after the last day of each month
following the Effective Date, the Warrant Agent will notify the Underwriters of
each Warrant certificate which has been properly completed for exercise by
holders of Warrants during the last month. The Warrant Agent will provide the
Underwriters with such information, in connection with the exercise of each
Warrant, as the Underwriters shall reasonably request.
(2) The Company hereby authorizes and instructs the Warrant
Agent to deliver to the Underwriter the Exercise Fee, if payable, in respect of
each exercise of Warrants, promptly after receipt by the Warrant Agent from the
Company of a check payable to the order of the Underwriter in the amount of such
Exercise Fee. In the event that an Exercise Fee is paid to an Underwriter with
respect to a Warrant which the Company or the Warrant Agent determines is not
properly completed for exercise or in respect of which the Underwriter is not
entitled to an Exercise Fee, the Underwriter will return such Exercise Fee to
the Warrant Agent which shall forthwith return such fee to the Company.
The Underwriters and the Company may at any time during business hours
examine the records of the Warrant Agent, including its ledger of original
Warrant certificates returned to the Warrant Agent upon exercise of Warrants.
Notwithstanding any provision to the contrary, the provisions of paragraph 5(a)
and 5(b) may not be modified, amended or deleted without the prior written
consent of the Underwriter.
Section 6. PAYMENT OF TAXES. The Company will pay any documentary
stamp taxes attributable to the initial issuance of Common Stock issuable upon
the exercise of Warrants; provided, however, that the Company shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance or delivery of any certificates of shares of Common Stock in a
name other than that of the registered holder of Warrants in respect of which
such shares are issued, and in such case neither the Company nor the Warrant
Agent shall be required to issue or deliver any certificate for shares of Common
Stock or any Warrant until the person requesting the same has paid to the
Company the amount of such tax or has established to the Company's satisfaction
that such tax has been paid.
Section 7. MUTILATED OR MISSING WARRANTS. In case any of the
Warrants shall be mutilated, lost, stolen or destroyed, the Company may, in its
discretion, issue and the Warrant Agent shall countersign and deliver in
exchange and substitution for and upon cancellation of the mutilated Warrant, or
in lieu of and in substitution for the Warrant lost, stolen or destroyed, a new
Warrant of like tenor and representing an equivalent right or interest, but only
upon receipt of evidence satisfactory to the Company and the Warrant Agent of
such loss, theft or destruction and, in case of
5
<PAGE>
a lost, stolen or destroyed Warrant, indemnity, if requested, also satisfactory
to them. Applicants for such substitute Warrants shall also comply with such
other reasonable regulations and pay such reasonable charges as the Company or
the Warrant Agent may prescribe.
Section 8. RESERVATION OF COMMON STOCK. There have been reserved,
and the Company shall at all times keep reserved, out of its authorized shares
of Common Stock, a number of shares of Common Stock sufficient to provide for
the exercise of the rights of purchase represented by the Warrants, and the
transfer agent for the shares of Common Stock and every subsequent transfer
agent for any shares of Common Stock issuable upon the exercise of any of the
aforesaid rights of purchase are irrevocably authorized and directed at all
times to reserve such number of authorized shares of Common Stock as shall be
required for such purpose. The Company agrees that all shares of Common Stock
issued upon exercise of the Warrants shall be, at the time of delivery of the
certificates for such shares against payment of the Warrant Price therefor,
validly issued and outstanding, fully paid and nonassessable and listed on any
national securities exchange upon which the other shares of outstanding Common
Stock are then listed. The Company will keep a copy of this Agreement on file
with the transfer agent for the shares of Common Stock (which may be the Warrant
Agent) and with every subsequent transfer agent for any shares of Common Stock
issuable upon the exercise of the rights of purchase represented by the
Warrants. The Warrant Agent is irrevocably authorized to requisition from time
to time from such transfer agent stock certificates required to honor
outstanding Warrants. The Company will supply such transfer agent with duly
executed stock certificates for that purpose. All Warrants surrendered in the
exercise of the rights thereby evidenced shall be canceled by the Warrant Agent
and shall thereafter be delivered to the Company, and such canceled Warrants
shall constitute sufficient evidence of the number of shares of Common Stock
which have been issued upon the exercise of such Warrants. Promptly after the
date of expiration of the Warrants, the Warrant Agent shall certify to the
Company the total aggregate amount of Warrants then outstanding, and thereafter
no shares of Common Stock shall be subject to reservation in respect of such
Warrants which shall have expired.
9. ADJUSTMENTS OF WARRANT PRICE AND NUMBER OF SECURITIES.
(a) COMPUTATION OF ADJUSTED PRICE. Except as hereinafter
provided, in case the Company shall, at any time after the date of closing of
the sale of securities pursuant to the IPO (the "Closing Date"), issue or sell
any shares of Common Stock (other than the issuances or sales referred to in
Section 9(f) hereof), including shares held in the Company's treasury and shares
of Common Stock issued upon the exercise of any options, rights or warrants to
subscribe for shares of Common Stock (other than the issuances or sales of
Common Stock pursuant to rights to subscribe for such Common Stock distributed
pursuant to Section 9(h) hereof) and shares of Common Stock issued upon the
direct or indirect conversion or exchange of securities for shares of Common
Stock, for a consideration per share less than both the "Market Price" (as
defined in Section 9(a)(vi) hereof) per share of Common Stock on the trading day
immediately preceding such issuance or sale and the Warrant Price in effect
immediately prior to such issuance or sale, or without consideration, then
forthwith upon such issuance or sale, the Warrant Price shall (until another
such issuance or sale) be reduced to the price (calculated to the nearest full
cent) determined by multiplying the Warrant
6
<PAGE>
Price in effect immediately prior to such issuance or sale by a fraction, the
numerator of which shall be the sum of (1) the number of shares of Common Stock
outstanding immediately prior to such issuance or sale multiplied by the Warrant
Price immediately prior to such issuance or sale plus (2) the consideration
received by the Company upon such issuance or sale, and the denominator of which
shall be the product of (x) the total number of shares of Common Stock
outstanding immediately after such issuance or sale, multiplied by (y) the
Warrant Price immediately prior to such issuance or sale; provided, however,
that in no event shall the Warrant Price be adjusted pursuant to this
computation to an amount in excess of the Warrant Price in effect immediately
prior to such computation, except in the case of a combination of outstanding
shares of Common Stock, as provided by Section 9(c) hereof.
For the purposes of any computation to be made in accordance with this
Section 9(a), the following provisions shall be applicable:
(i) In case of the issuance or sale of shares of Common
Stock for a consideration part or all of which shall be cash, the amount of the
cash consideration therefor shall be deemed to be the amount of cash received by
the Company for such shares (or, if shares of Common Stock are offered by the
Company for subscription, the subscription price, or, if such securities shall
be sold to underwriters or dealers for public offering without a subscription
offering, the public offering price) before deducting therefrom any compensation
paid or discount allowed in the sale, underwriting or purchase thereof by
underwriters or dealers or others performing similar services, or any expenses
incurred in connection therewith.
(ii) In case of the issuance or sale (otherwise than as a
dividend or other distribution on any stock of the Company) of shares of Common
Stock for a consideration part or all of which shall be other than cash, the
amount of the consideration therefor other than cash shall be deemed to be the
value of such consideration as determined in good faith by the Board of
Directors of the Company.
(iii) Shares of Common Stock issuable by way of dividend or
other distribution on any stock of the Company shall be deemed to have been
issued immediately after the opening of business on the day following the record
date for the determination of shareholders entitled to receive such dividend or
other distribution and shall be deemed to have been issued without
consideration.
(iv) The reclassification of securities of the Company
other than shares of Common Stock into securities including shares of Common
Stock shall be deemed to involve the issuance of such shares of Common Stock for
a consideration other than cash immediately prior to the close of business on
the date fixed for the determination of security holders entitled to receive
such shares, and the value of the consideration allocable to such shares of
Common Stock shall be determined as provided in subsection (ii) of this Section
9(a).
7
<PAGE>
(v) The number of shares of Common Stock at any one time
outstanding shall include the aggregate number of shares issued or issuable upon
the exercise of options, rights, warrants and upon the conversion or exchange of
convertible or exchangeable securities.
(vi) As used herein, the phrase "Market Price" at any date
shall be deemed to be the average of the last reported sale price, or, in case
no such reported sale takes place on such day, the average of the last reported
sale prices for the last three trading days, in either case as officially
reported by the principal securities exchange on which the Common Stock is
listed or admitted to trading or as reported in the NASDAQ Stock Market, or, if
the Common Stock is not listed or admitted to trading on any national securities
exchange or quoted on the Nasdaq Stock Market, the closing bid quotation as
furnished by the National Association of Securities Dealers, Inc. through NASDAQ
or a similar organization if NASDAQ is no longer reporting such information, or
if the Common Stock is not quoted on NASDAQ, as determined in good faith by
resolution of the Board of Directors of the Company, based on the best
information available to it for the day immediately preceding such issuance or
sale, the day of such issuance or sale and the day immediately after such
issuance or sale. If the Common Stock is listed or admitted to trading on a
national securities exchange and also quoted on the NASDAQ Stock Market, the
Market Price shall be determined as hereinabove provided by reference to the
prices reported in the NASDAQ Stock Market; provided that if the Common Stock is
listed or admitted to trading on the New York Stock Exchange, the Market Price
shall be determined as hereinabove provided by reference to the prices reported
by such exchange.
(b) OPTIONS, RIGHTS, WARRANTS AND CONVERTIBLE AND
EXCHANGEABLE SECURITIES. Except in the case of the Company issuing rights to
subscribe for shares of Common Stock distributed pursuant to Section 9(h)
hereof, if the Company shall at any time after the Closing Date issue options,
rights or warrants to subscribe for shares of Common Stock, or issue any
securities convertible into or exchangeable for shares of Common Stock, in each
case other than the issuances or sales referred to in Section 9(f) hereof, (i)
for a consideration per share less than the lesser of (a) the Warrant Price in
effect immediately prior to the issuance of such options, rights or warrants, or
such convertible or exchangeable securities, or (b) the Market Price on the
trading day immediately preceding such issuance, or (ii) without consideration,
the Warrant Price in effect immediately prior to the issuance of such options,
rights or warrants, or such convertible or exchangeable securities, as the case
may be, shall be reduced to a price determined by making a computation in
accordance with the provisions of Section 9(a) hereof, provided that:
(i) The aggregate maximum number of shares of Common Stock,
as the case may be, issuable under all the outstanding options, rights or
warrants shall be deemed to be issued and outstanding at the time all the
outstanding options, rights or warrants were issued, and for a consideration
equal to the minimum purchase price per share provided for in the options,
rights or warrants at the time of issuance, plus the consideration (determined
in the same manner as consideration received on the issue or sale of shares in
accordance with the terms of Section 9(a)), if any, received by the Company for
the options, rights or warrants, and if no minimum price is
8
<PAGE>
provided in the options, rights or warrants, then the consideration shall be
equal to zero; provided, however, that upon the expiration or other termination
of the options, rights or warrants, if any thereof shall not have been
exercised, the number of shares of Common Stock deemed to be issued and
outstanding pursuant to this subsection (b) (and for the purposes of subsection
(v) of Section 9(a) hereof) shall be reduced by such number of shares as to
which options, warrants and/or rights shall have expired or terminated
unexercised, and such number of shares shall no longer be deemed to be issued
and outstanding, and the Warrant Price then in effect shall forthwith be
readjusted and thereafter be the price which it would have been had adjustment
been made on the basis of the issuance only of shares actually issued or
issuable upon the exercise of those options, rights or warrants as to which the
exercise rights shall not have expired or terminated unexercised.
(ii) The aggregate maximum number of shares of Common Stock
issuable upon conversion or exchange of any convertible or exchangeable
securities shall be deemed to be issued and outstanding at the time of issuance
of such securities, and for a consideration equal to the consideration
(determined in the same manner as consideration received on the issue or sale of
shares of Common Stock in accordance with the terms of Section 9(a)) received by
the Company for such securities, plus the minimum consideration, if any,
receivable by the Company upon the conversion or exchange thereof; provided,
however, that upon the expiration or other termination of the right to convert
or exchange such convertible or exchangeable securities (whether by reason of
redemption or otherwise), the number of shares deemed to be issued and
outstanding pursuant to this subsection (ii) (and for the purpose of subsection
(v) of Section 9(a) hereof) shall be reduced by such number of shares as to
which the conversion or exchange rights shall have expired or terminated
unexercised, and such number of shares shall no longer be deemed to be issued
and outstanding, and the Warrant Price then in effect shall forthwith be
readjusted and thereafter be the price which it would have been had adjustment
been made on the basis of the issuance only of the shares actually issued or
issuable upon the conversion or exchange of those convertible or exchangeable
securities as to which the conversion or exchange rights shall not have expired
or terminated unexercised. No adjustment will be made pursuant to this
subsection (ii) upon the issuance by the Company of any convertible or
exchangeable securities pursuant to the exercise of any option, right or warrant
exercisable therefor, to the extent that adjustments in respect of such options,
rights or warrants were previously made pursuant to the provisions of subsection
(i) of this subsection 9(b).
(iii) If any change shall occur in the price per share
provided for in any of the options, rights or warrants referred to in subsection
(i) of this Section 9(b), or in the price per share at which the securities
referred to in subsection (ii) of this Section 9(b) are convertible or
exchangeable, or if any such options, rights or warrants are exercised at a
price greater than the minimum purchase price provided for in such options,
rights or warrants, or any such securities are converted or exercised for more
than the minimum consideration receivable by the Company upon such conversion or
exchange, the options, rights or warrants or conversion or exchange rights, as
the case may be, shall be deemed to have expired or terminated on the date when
such price change became effective in respect of shares not theretofore issued
pursuant to the exercise or conversion or exchange thereof, and the Company
shall be deemed to have issued upon such date new options,
9
<PAGE>
rights or warrants or convertible or exchangeable securities at the new price in
respect of the number of shares issuable upon the exercise of such options,
rights or warrants or the conversion or exchange of such convertible or
exchangeable securities; PROVIDED, HOWEVER, that no adjustment shall be made
pursuant to this subsection (iii) with respect to any change in the price per
share provided for in any of the options, rights or warrants referred to in
subsection (b)(i) of this Section 9(b), or in the price per share at which the
securities referred to in subsection (b)(ii) of this Section 9(b) are
convertible or exchangeable, which change results from the application of the
anti-dilution provisions thereof in connection with an event for which, subject
to subsection (iv) of this Section 9(f), an adjustment to the Warrant Price and
the number of securities issuable upon exercise of the Warrants will be required
to be made pursuant to this Section 9.
(c) SUBDIVISION AND COMBINATION. In case the Company shall
at any time after the Closing Date subdivide or combine the outstanding shares
of Common Stock, the Warrant Price shall forthwith be proportionately decreased
in the case of subdivision or increased in the case of combination.
(d) ADJUSTMENT IN NUMBER OF SHARES. Upon each adjustment of
the Warrant Price pursuant to the provisions of this Section 9, the number of
shares of Common Stock issuable upon the exercise of the Warrants shall be
adjusted to the nearest full whole number by multiplying a number equal to the
Warrant Price in effect immediately prior to such adjustment by the number of
shares of Common Stock issuable upon exercise of the Warrants immediately prior
to such adjustment and dividing the product so obtained by the adjusted Warrant
Price.
(e) RECLASSIFICATION, CONSOLIDATION, MERGER, ETC. In case of
any reclassification or change of the outstanding shares of Common Stock (other
than a change in par value to no par value, or from no par value to par value,
or as a result of a subdivision or combination), or in the case of any
consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger which does not result in any
reclassification or change of the outstanding shares of Common Stock, except a
change as a result of a subdivision or combination of such shares or a change in
par value, as aforesaid), or in the case of a sale or conveyance to another
corporation of the property of the Company as an entirety, the Holder shall
thereafter have the right to purchase the kind and number of shares of stock and
other securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance as if the Holder were the owner of the
shares of Common Stock underlying the Warrants immediately prior to any such
events at a price equal to the product of (x) the number of shares issuable upon
exercise of the Warrants and (y) the Warrant Price in effect immediately prior
to the record date for such reclassification, change, consolidation, merger,
sale or conveyance as if such Holder had exercised the Warrant.
(f) NO ADJUSTMENT OF WARRANT PRICE IN CERTAIN CASES.
Notwithstanding anything herein to the contrary, no adjustment of the Warrant
Price shall be made:
10
<PAGE>
(i) Upon the issuance or sale of the Underwriter's Option,
the shares of Common Stock or Warrants underlying the Units issuable
upon the exercise of the Underwriter's Option or the shares of Common
Stock issuable upon exercise of the Warrants underlying the
Underwriter's Option; or
(ii) Upon the issuance or sale of (A) the shares of Common
Stock or Warrants underlying the Units issued by the Company in the
IPO (including pursuant to the Underwriter's Overallotment Option) or
other shares of Common Stock or warrants issued by the Company upon
consummation of the IPO, (B) the shares of Common Stock (or other
securities) issuable upon exercise of Warrants; or
(iii) Upon (i) the issuance of options pursuant to the
Company's employee stock option plan in effect on the date hereof or
as hereafter amended in accordance with the terms thereof or any other
employee or executive stock option plan approved by stockholders of
the Company or the sale by the Company of any shares of Common Stock
pursuant to the exercise of any such options, or (ii) the sale by the
Company of any shares of Common Stock pursuant to the exercise of any
options or warrants issued and outstanding on the date of closing of
the sale of Units pursuant to the IPO or (iii) the issuance or sale by
the Company of any shares of Common Stock pursuant to the Company's
restricted stock plan in effect on the date hereof; or
(iv) If the amount of said adjustment shall be less than
two cents (2CENTS) per share of Common Stock.
(g) DIVIDENDS AND OTHER DISTRIBUTIONS WITH RESPECT TO
OUTSTANDING SECURITIES. In the event that the Company shall at any time after
the Closing Date and prior to the exercise and expiration of all Warrants
declare a dividend (other than a dividend consisting solely of shares of Common
Stock or a cash dividend or distribution payable out of current or retained
earnings) or otherwise distribute to the holders of Common Stock any monies,
assets, property, rights, evidences of indebtedness, securities (other than such
a cash dividend or distribution or dividend consisting solely of shares of
Common Stock), whether issued by the Company or by another person or entity, or
any other thing of value, the Holders of the unexercised Warrants shall
thereafter be entitled, in addition to the shares of Common Stock or other
securities receivable upon the exercise thereof, to receive, upon the exercise
of such Warrants, the same monies, property, assets, rights, evidences of
indebtedness, securities or any other thing of value that they would have been
entitled to receive at the time of such dividend or distribution as if the
Holders were the owners of the shares of Common Stock underlying such Warrants.
At the time of any such dividend or distribution, the Company shall make
appropriate reserves to ensure the timely performance of the provisions of this
Section 9(g).
(h) SUBSCRIPTION RIGHTS FOR SHARES OF COMMON STOCK OR OTHER
SECURITIES. In case the Company or an affiliate of the Company shall at any
time after the date hereof and prior
11
<PAGE>
to the exercise of all the Warrants issue any rights to subscribe for shares of
Common Stock or any other securities of the Company or of such affiliate to all
the holders of Common Stock, the Holders of the unexercised Warrants shall be
entitled, in addition to the shares of Common Stock or other securities
receivable upon the exercise of the Warrants, to receive such rights at the time
such rights are distributed to the other stockholders of the Company but only to
the extent of the number of shares of Common Stock, if any, for which the
Warrants remain exercisable.
(i) NOTICE IN EVENT OF DISSOLUTION. In case of the dissolution,
liquidation or winding-up of the Company, all rights under the Warrants shall
terminate on a date fixed by the Company, such date to be no earlier than ten
(10) days prior to the effectiveness of such dissolution, liquidation or
winding-up and not later than five (5) days prior to such effectiveness. Notice
of such termination of purchase rights shall be given to the last registered
holder of the Warrants, as the same shall appear on the books of the Company
maintained by the Warrant Agent, by registered mail at least thirty (30) days
prior to such termination date.
(j) COMPUTATIONS. The Company may retain a firm of independent
public accountants (who may be any such firm regularly employed by the Company)
to make any computation required under this Section 9, and any certificate
setting forth such computation signed by such firm shall be conclusive evidence
of the correctness of any computation made under this Section 9.
Section 10. FRACTIONAL INTERESTS. The Warrants may only be exercised
to purchase full shares of Common Stock and the Company shall not be required to
issue fractions of shares of Common Stock on the exercise of Warrants. However,
if a Warrantholder exercises all Warrants then owned of record by him and such
exercise would result in the issuance of a fractional share, the Company will
pay to such Warrantholder, in lieu of the issuance of any fractional share
otherwise issuable, an amount of cash based on the Market Price on the last
trading day prior to the exercise date.
Section 11. NOTICES TO WARRANTHOLDERS.
(a) Upon any adjustment of the Warrant Price and the number of
shares of Common Stock issuable upon exercise of a Warrant, then and in each
such case, the Company shall give written notice thereof to the Warrant Agent,
which notice shall state the Warrant Price resulting from such adjustment and
the increase or decrease, if any, in the number of shares purchasable at such
price upon the exercise of a Warrant, setting forth in reasonable detail the
method of calculation and the facts upon which such calculation is based. The
Company shall also mail such notice to the holders of the Warrants at their
respective addresses appearing in the Warrant register. Failure to give or mail
such notice, or any defect therein, shall not affect the validity of the
adjustments.
(b) In case at any time after the Closing Date:
12
<PAGE>
(i) the Company shall pay dividends payable in stock upon
its Common Stock or make any distribution (other than regular cash dividends) to
the holders of Common Stock; or
(ii) the Company shall offer for subscription pro rata to
all of the holders of Common Stock any additional shares of stock of any class
or other rights; or
(iii) there shall be any capital reorganization or
reclassification of the capital stock of the Company, or consolidation or merger
of the Company with, or sale of substantially all of its assets to another
corporation; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
(v) then in any one or more of such cases, the Company
shall give written notice to the Warrant Agent and the holders of the Warrants
in the manner set forth in Section 11(a) of the date on which (A) a record shall
be taken for such dividend, distribution or subscription rights, or (B) such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up shall take place, as the case may be. Such notice
shall also specify the date as of which the holders of Common Stock of record
shall participate in such dividend, distribution or subscription rights, or
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding-up, as the case may be. Such
notice shall be given at least ten (10) days prior to the action in question and
not less than ten (10) days prior to the record date in respect thereof.
Failure to give such notice, or any defect therein, shall not affect the
legality or validity of any of the matters set forth in this Section 11(b).
(c) The Company shall cause copies of all financial statements
and reports, proxy statements and other documents that are sent to its
stockholders to be sent by first-class mail, postage prepaid, on the date of
mailing to such stockholders, to each registered holder of Warrants at his
address appearing in the Warrant register as of the record date for the
determination of the stockholders entitled to such documents.
Section 12. DISPOSITION OF PROCEEDS ON EXERCISE OF WARRANTS.
(a) The Warrant Agent shall promptly forward to the Company all
monies received by the Warrant Agent for the purchase of shares of Common Stock
through the exercise of such Warrants.
(b) The Warrant Agent shall keep copies of this Agreement
available for inspection by holders of Warrants during normal business hours.
13
<PAGE>
Section 13. REDEMPTION OF WARRANTS. The Warrants are redeemable by
the Company commencing any time after the Effective Date, in whole or in part,
on not less than thirty (30) days' prior written notice at a redemption price of
$.05 per Warrant, provided the average closing bid quotation of the Common Stock
as reported on the Nasdaq Stock Market, if traded thereon, or if not traded
thereon, the average closing sale price if listed on a national securities
exchange (or other reporting system that provides last sales prices), has been
at least 150% of the then current Exercise Price of the Warrants, for a period
of at least 20 of the 30 consecutive trading days immediately preceding the date
on which the Company gives notice of redemption. Any redemption in part shall
be made pro rata to all Warrant holders. The redemption notice shall be mailed
to the holders of the Warrants at their respective addresses appearing in the
Warrant register. Any such notice mailed in the manner provided herein shall be
conclusively presumed to have been duly given in accordance with this Agreement
whether or not the registered holder receives such notice. No failure to mail
such notice nor any defect therein or in the mailing thereof shall affect the
validity of the proceedings for such redemption except as to a registered holder
of a Warrant (i) to whom notice was not mailed or (ii) whose notice was
defective. An affidavit of the Warrant Agent or the Secretary or Assistant
Secretary of the Company that notice of redemption has been mailed shall, in the
absence of fraud, be prima facie evidence of the facts stated therein. Holders
of the Warrants will have exercise rights until the close of business on the day
immediately preceding the date fixed for redemption.
Section 14. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF WARRANT
AGENT. Any corporation or company which may succeed to the corporate trust
business of the Warrant Agent by any merger or consolidation or otherwise shall
be the successor to the Warrant Agent hereunder without the execution or filing
of any paper or any further act on the part of any of the parties hereto,
provided that such corporation would be eligible for appointment as a successor
Warrant Agent under the provisions of Section 16 of this Agreement. In case at
the time such successor to the Warrant Agent shall succeed to the agency created
by this Agreement, any of the Warrants shall have been countersigned but not
delivered, any such successor to the Warrant Agent may adopt the
countersignature of the original Warrant Agent and deliver such Warrants so
countersigned.
In case at any time the name of the Warrant Agent shall be changed and
at such time any of the Warrants shall have been countersigned but not
delivered, the Warrant Agent may adopt the countersignature under its prior name
and deliver Warrants so countersigned. In all such cases such Warrants shall
have the full force provided in the Warrants and in the Agreement.
Section 15. DUTIES OF WARRANT AGENT. The Warrant Agent undertakes
the duties and obligations imposed by this Agreement upon the following terms
and conditions, by all of which the Company and the holders of Warrants, by
their acceptance thereof, shall be bound:
(a) The statements of fact and recitals contained herein and in
the Warrants shall be taken as statements of the Company, and the Warrant Agent
assumes no responsibility for the correctness of any of the same except as such
describe the Warrant Agent or action taken or to be taken by it. The Warrant
Agent assumes no responsibility with respect to the distribution of the Warrants
except as herein expressly provided.
14
<PAGE>
(b) The Warrant Agent shall not be responsible for any failure
of the Company to comply with any of the covenants in this Agreement or in the
Warrants to be complied with by the Company.
(c) The Warrant Agent may consult at any time with counsel
satisfactory to it (who may be counsel for the Company) and the Warrant Agent
shall incur no liability or responsibility to the Company or to any holder of
any Warrant in respect of any action taken, suffered or omitted by it hereunder
in good faith and in accordance with the opinion or the advice of such counsel.
(d) The Warrant Agent shall incur no liability or responsibility
to the Company or to any holder of any Warrant for any action taken in reliance
on any notice, resolution, waiver, consent, order, certificate or other
instrument believed by it to be genuine and to have been signed, sent or
presented by the proper party or parties.
(e) The Company agrees to pay to the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the execution of
this Agreement, to reimburse the Warrant Agent for all expenses, taxes and
governmental charges and other charges incurred by the Warrant Agent in the
execution of this Agreement and to indemnify the Warrant Agent and save it
harmless against any and all liabilities, including judgments, costs and
reasonable counsel fees, for anything done or omitted by the Warrant Agent in
the execution of this Agreement except as a result of the Warrant Agent's
negligence, willful misconduct or bad faith.
(f) The Warrant Agent shall be under no obligation to institute
any action, suit or legal proceeding or to take any other action likely to
involve expenses unless the Company or one or more registered holders of
Warrants shall furnish the Warrant Agent with reasonable security and indemnity
for any costs and expenses which may be incurred, but this provision shall not
affect the power of the Warrant Agent to take such action as the Warrant Agent
may consider proper, whether with or without any such security or indemnity.
All rights of action under this Agreement or under any of the Warrants may be
enforced by the Warrant Agent without the possession of any of the Warrants or
the production thereof at any trial or other proceeding, and any such action,
suit or proceeding instituted by the Warrant Agent shall be brought in its name
as Warrant Agent, and any recovery of judgment shall be for the ratable benefit
of the registered holders of the Warrants, as their respective rights and
interests may appear.
(g) The Warrant Agent and any stockholder, director, officer,
partner or employee of the Warrant Agent may buy, sell or deal in any of the
Warrants or other securities of the Company or become pecuniarily interested in
any transaction in which the Company may be interested, or contract with or lend
money to or otherwise act as fully and freely as though it were not the Warrant
Agent under this Agreement. Nothing herein shall preclude the Warrant Agent
from acting in any other capacity for the Company or for any other legal entity.
15
<PAGE>
(h) The Warrant Agent shall act hereunder solely as agent and
its duties shall be determined solely by the provisions hereof.
(i) The Warrant Agent may execute and exercise any of the rights
or powers hereby vested in it or perform any duty hereunder either itself or by
or through its attorneys, agents or employees, and the Warrant Agent shall not
be answerable or accountable for any such attorneys, agents or employees or for
any loss to the Company resulting from such neglect or misconduct, provided
reasonable care had been exercised in the selection and continued employment
thereof.
(j) Any request, direction, election, order or demand of the
Company shall be sufficiently evidenced by an instrument signed in the name of
the Company by its President or a Vice President or its Secretary or an
Assistant Secretary or its Treasurer or an Assistant Treasurer (unless other
evidence in respect thereof be herein specifically prescribed); and any
resolution of the Board of Directors may be evidenced to the Warrant Agent by a
copy thereof certified by the Secretary or an Assistant Secretary of the
Company.
Section 16. CHANGE OF WARRANT AGENT. The Warrant Agent may resign
and be discharged from its duties under this Agreement by giving to the Company
notice in writing, and to the holders of the Warrants notice by mailing such
notice to the holders at their respective addresses appearing on the Warrant
register, of such resignation, specifying a date when such resignation shall
take effect. The Warrant Agent may be removed by like notice to the Warrant
Agent from the Company and the like mailing of notice to the holders of the
Warrants. If the Warrant Agent shall resign or be removed or shall otherwise
become incapable of action, the Company shall appoint a successor to the Warrant
Agent. If the Company shall fail to make such appointment within a period of
thirty (30) days after such removal or after it has been notified in writing of
such resignation or incapacity by the resigning or incapacitated Warrant Agent
or after the Company has received such notice from a registered holder of a
Warrant (who shall, with such notice, submit his Warrant for inspection by the
Company), then the registered holder of any Warrant may apply to any court of
competent jurisdiction for the appointment of a successor to the Warrant Agent.
Any successor Warrant Agent, whether appointed by the Company or by such a
court, shall be a bank or trust company, in good standing, incorporated under
New York or federal law. After appointment, the successor Warrant Agent shall
be vested with the same powers, rights, duties and responsibility as if it had
been originally named as Warrant Agent without further act or deed and the
former Warrant Agent shall deliver and transfer to the successor Warrant Agent
all cancelled Warrants, records and property at the time held by it hereunder,
and execute and deliver any further assurance or conveyance necessary for the
purpose. Failure to file or mail any notice provided for in this Section,
however, or any defect therein, shall not affect the validity of the resignation
or removal of the Warrant Agent or the appointment of the successor Warrant
Agent, as the case may be.
Section 17. IDENTITY OF TRANSFER AGENT. Forthwith upon the
appointment of any transfer agent (other than American Securities Transfer &
Trust, Incorporated) for the shares of Common Stock or of any subsequent
transfer agent for the shares of Common Stock or other shares
16
<PAGE>
of the Common Stock issuable upon the exercise of the rights of purchase
represented by the Warrants, the Company will file with the Warrant Agent a
statement setting forth the name and address of such transfer agent.
Section 18. NOTICES. Any notice pursuant to this Agreement to be
given by the Warrant Agent, or by the registered holder of any Warrant to the
Company, shall be sufficiently given if sent by first-class mail, postage
prepaid, addressed (until another is filed in writing by the Company with the
Warrant Agent) as follows:
FirstLink Communications, Inc.
190 SW Harrison
Portland, OR 97201
Attention: Mr. A. Roger Pease, President
and a copy thereof to:
Neuman Drennen & Stone, LLC.
5350 South Roslyn Street
Suite 380
Englewood, CO 80111.
Attention: David H. Drennen, Esq.
Any notice pursuant to this Agreement to be given by the Company or by
the registered holder of any Warrant to the Warrant Agent shall be sufficiently
given if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing by the Warrant Agent with the Company) as follows:
American Securities Transfer & Trust, Incorporated
1825 Lawrence Street
Denver, CO 80202
Any notice pursuant to this Agreement to be given to the Warrant Agent
or by the Company to the Underwriters shall be sufficiently given if sent by
first-class mail, postage prepaid, addressed (until another address if filed in
writing with the Warrant Agent) as follows:
Kashner Davidson Securities Corp.
77 South Palm Avenue
Sarasota, FL 34236
Attention: Mr. Victor Kashner
17
<PAGE>
and to
Joseph Charles & Associates, Inc.
Mellon Financial Center
1775 Sherman Street, Suite 900
Denver, CO 80203
Attention: Mr. James E. Hosch
and a copy thereof to:
Sichenzia, Ross & Friedman, LLP
135 West 50th Street
New York, New York 10020
Attention: Gregory Sichenzia, Esq.
Section 19. SUPPLEMENTS AND AMENDMENTS. The Company and the Warrant
Agent may from time to time supplement or amend this Agreement in order to cure
any ambiguity or to correct or supplement any provision contained herein which
may be defective or inconsistent with any other provision herein, or to make any
other provisions in regard to matters or questions arising hereunder which the
Company and the Warrant Agent may deem necessary or desirable and which shall
not be inconsistent with the provisions of the Warrants and which shall not
materially adversely affect the interest of the holders of Warrants; and in
addition the Company and the Warrant Agent may modify, supplement or alter this
Agreement (other than as otherwise prescribed in this Agreement) with the
consent in writing of the registered holders of the Warrants representing not
less than a majority of the Warrants then outstanding.
Section 20. NEW YORK CONTRACT. This Agreement and each Warrant
issued hereunder shall be deemed to be a contract made under the laws of the
State of New York and shall be construed in accordance with the laws of New York
without regard to the conflicts of law principles thereof.
Section 21. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement
shall be construed to give to any person or corporation other than the Company,
the Warrant Agent and the registered holders of the Warrants any legal or
equitable right, remedy or claim under this Agreement; but this Agreement shall
be for the sole and exclusive benefit of the Company, the Warrant Agent and the
registered holders of the Warrants.
Section 22. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Warrant Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
18
<PAGE>
IN WITNESS WHEREOF, the parties have entered into this Agreement on
the date first above written.
FIRSTLINK COMMUNICATIONS, INC.
By: _______________________________
A. Roger Pease, President
AMERICAN SECURITIES TRANSFER AND TRUST,
INCORPORATED
By: _______________________________
KASHNER DAVIDSON SECURITIES CORP.
By: _______________________________
JOSEPH CHARLES & ASSOCIATES, INC.
By: _______________________________
19
<PAGE>
No. W_____________ VOID AFTER _________, 2001
WARRANTS
REDEEMABLE WARRANT CERTIFICATE TO
PURCHASE ONE-HALF SHARE OF COMMON STOCK
FIRSTLINK COMMUNICATIONS, INC.
CUSIP [_________]
THIS CERTIFIES THAT, FOR VALUE RECEIVED ________________________________________
or registered assigns (the "Registered Holder") is the owner of the number of
common stock purchase warrants (the "Warrants") specified above. Two Warrants
initially entitle the Registered Holder to purchase, subject to the terms and
conditions set forth in this Certificate and the Warrant Agreement (as
hereinafter defined), one fully paid and nonassessable share of common stock, no
par value per share (the "Common Stock"), of FirstLink Communications, Inc., an
Oregon corporation (the "Company"), at any time from ___________, 1998 (the
"Initial Warrant Exercise Date"), and prior to the Expiration Date (as
hereinafter defined), upon the presentation and surrender of this Warrant
Certificate with the Exercise Form on the reverse hereof duly executed, at the
corporate office of American Securities Transfer & Trust, Incorporated, 1825
Lawrence Street, Denver, CO 80202, as Warrant Agent, or its successor (the
"Warrant Agent"), accompanied by payment of $_____, [150% of the initial public
offering price of the Common Stock underlying the Units] subject to adjustment
(the "Exercise Price"), in lawful money of the United States of America in cash
or by certified or bank check made payable to the Company.
This Warrant Certificate and each Warrant represented hereby are
issued pursuant to and are subject in all respects to the terms and conditions
set forth in the Warrant Agreement, dated as of ____, 1998 [date of the
Prospectus] (the "Warrant Agreement"), between the Company, Kashner Davidson
Securities Corp., Joseph Charles & Associates, Inc. (Collectively, the
"Underwriters") and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Exercise Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional interests will be issued. In the case of
the exercise of less than all the Warrants represented hereby, the Company shall
cancel this Warrant Certificate upon the surrender hereof and shall execute and
20
<PAGE>
deliver a new Warrant Certificate or Warrant Certificates of like tenor, which
the Warrant Agent shall countersign, for the balance of such Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on
________, 2002 [the date which is the fourth anniversary of the Initial Warrant
Exercise Date]; provided, that if such date is not a business day, it shall mean
5:00 p.m., New York City time, on the next following business day. For purposes
hereof, the term "business day' shall mean any day other than a Saturday, Sunday
or a day on which banking institutions in New York City, New York, are
authorized or obligated by law to be closed.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of the Warrants represented hereby unless at the time of
exercise the Company has filed with the Securities and Exchange Commission a
registration statement under the Securities Act of 1933, as amended (the "Act"),
covering the securities issuable upon exercise of the Warrants represented
hereby and such registration statement has been declared and shall remain
effective and shall be current, and such securities have been registered or
qualified or deemed to be exempt under the securities laws of the state or other
jurisdiction of residence of the Registered Holder and the exercise of the
Warrants represented hereby in any state or other jurisdiction shall not
otherwise be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon the presentment and payment of any tax or other
charge imposed in connection therewith or incident thereto, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder, as such, shall not be entitled to any rights of a shareholder
of the Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Subject to the provisions of the Warrant Agreement, this Warrant may
be redeemed at the option of the Company, at a redemption price of $.05 per
Warrant, at any time Initial Warrant Exercise Date, provided that the average
closing bid quotation of the Common Stock as reported on The Nasdaq Stock
Market, if traded thereon, or is not traded thereon, the average closing sale
price if listed on a national exchange (or other reporting system that provides
last sales prices), shall have for a period of at least 20 of the 30 consecutive
days on which such market is open for trading immediately preceding the date on
which the Company gives the Notice of Redemption, as defined below, equaled or
exceeded 150% of the then current Exercise Price. Notice of redemption (the
"Notice of Redemption") shall be given by the Company not later than the
thirtieth day before the date fixed for redemption, all as provided in the
Warrant Agreement. On and after the date fixed for redemption, the Registered
Holder shall have no right with respect to this Warrant except to receive the
$.05 per Warrant upon surrender of this Certificate.
21
<PAGE>
Under certain circumstances described in the Warrant Agreement, the
Underwriters shall be entitled to receive as a solicitation fee an aggregate of
five percent (5%) of the Exercise Price of the Warrants represented hereby.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary, except as provided in the
Warrant Agreement.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York without regard to the
conflicts of law principles thereof.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
22
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated _______________________, 1998
SEAL FIRSTLINK COMMUNICATIONS, INC.
By:__________________________
President
By:__________________________
Secretary
COUNTERSIGNED:
AMERICAN SECURITIES TRANSFER & TRUST, INCORPORATED,
as Warrant Agent
By:_________________________
Authorized Officer
23
<PAGE>
EXERCISE FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrant
The undersigned Registered Holder hereby irrevocably elects to
exercise ________ Warrants represented by this Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
__________________
__________________
__________________
(please print or type name and address)
and be delivered to
__________________
__________________
__________________
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
IMPORTANT: PLEASE COMPLETE THE FOLLOWING:
1. The exercise of this Warrant was solicited by Kashner Davidson
Securities Corp. unless the following box is checked. / /
2. The exercise of this Warrant was solicited by Joseph Charles &
Associates, Inc. unless the following box is checked. / /
3. The exercise of this Warrant was solicited by
__________________________________________
24
<PAGE>
3. If the exercise of this Warrant was not solicited, please check the
following box. / /
Dated:_______________________ X_____________________________
______________________________
______________________________
Address
______________________________
Social Security or Taxpayer
Identification Number
______________________________
Signature Guaranteed
25
<PAGE>
ASSIGNMENT
To be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, _________________, hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
__________________
__________________
__________________
(please print or type name and address)
____________ of the Warrants represented by this Warrant Certificate, and hereby
irrevocably constitutes and appoints _______________ as its/his/her
attorney-in-fact to transfer this Warrant Certificate on the books of the
Company, with full power of substitution in the premises.
Dated:________________ X____________________
Signature Guaranteed
THE SIGNATURE TO THE ASSIGNMENT OR THE EXERCISE FORM MUST CORRESPOND TO THE NAME
AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION ON OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST BE
GUARANTEED BY A BANK, BROKER, DEALER, CREDIT UNION, SAVINGS ASSOCIATION OR OTHER
ENTITY WHICH IS A MEMBER IN GOOD STANDING OF THE SECURITIES TRANSFER AGENTS
MEDALLION PROGRAM.
26
<PAGE>
Exhibit 4.6
, 1998
--------------
Kashner Davidson Securities Corporation
77 Palm Avenue
Sarasota, Florida 34236
Joseph Charles & Associates, Inc.
RE: FIRSTLINK COMMUNICATIONS, INC.
AGREEMENT NOT TO SELL
Ladies and Gentlemen:
Reference is made to a proposed public offering of 1,400,000 Units
consisting of 1,400,000 Shares of Common Stock and 1,400,000 Warrants
(collectively, the "Securities") of FirstLink Communications, Inc. (the
"Company") pursuant to a Registration Statement and prospectus included therein
(the "Registration Statement" and the "Prospectus") to be filed with the
Securities and Exchange Commission and to be underwritten by Kashner Davidson
Securities Corporation as representative of the several underwriters to be named
in an underwriting agreement (the "Representative").
In consideration of the offer and sale of the Securities by the Company and
the underwriters and of other valuable consideration, the receipt of which is
hereby acknowledged, the undersigned agrees not to offer, sell, contract to
sell, pledge, hypothecate, grant any option to purchase or otherwise dispose of
(the "Resale Restrictions") any shares of common stock of the Company or any
securities convertible into or exchangeable for common stock of the Company
beneficially owned or otherwise held by the undersigned as of the date of this
letter or acquired on or prior to the date of effectiveness of the Registration
Statement or issuable upon exercise of options or warrants held by the
undersigned on such dates (collectively, the "Shares") for the period specified
hereafter without the prior written consent of the Representative. Such
restrictions shall apply to the total number of Shares for a period of twelve
months after the date of the Final Prospectus (the "Restriction Period").
As a reasonable means of ensuring compliance with the terms of this
Agreement, the undersigned further agrees that the Company may instruct the
transfer agent for the Shares to place a transfer restriction on such transfer
agent's records.
Notwithstanding the foregoing, if the undersigned is an individual, he or
she may transfer any or all of the Shares either during his or her lifetime or
on death by will or intestacy to his or her immediate family or to a trust, the
beneficiaries of which are exclusively the undersigned and/or a member or
members of his or her immediate family; provided, however, that in any such case
it shall be a condition to the transfer that the transferee execute an agreement
stating that the transferee is receiving and holding the Shares subject to the
provisions of this Agreement, and there shall be no further transfer of such
Shares except in accordance with this Agreement. For purposes of this
paragraph, "immediate family" shall mean spouse, lineal descendant, father,
mother, brother or sister of the transferor.
In addition, notwithstanding the foregoing, if the undersigned is a
partnership, the partnership may transfer any Shares to a partner of such
partnership or a retired partner of such partnership who retires after the date
hereof, or to the estate of any such partner or retired partner, and any partner
who is an individual may transfer Shares by gift, will or intestate succession
to his or her immediate family (as defined above) or ancestors; and if the
undersigned is a corporation, the corporation may transfer Shares to any
shareholder of such corporation and any shareholder who is an individual may
transfer Shares by gift, will or intestate succession to his or her immediate
family (as defined above) or ancestors; provided, however, that in any such
case, it shall be a condition to the transfer that the transferee execute an
agreement stating that the transferee is receiving and holding the Shares
<PAGE>
FirstLink Communications, Inc.
Lock-up Agreement
Page 2
subject to the provisions of this Agreement, and there shall be no further
transfer of such Shares except in accordance with this Agreement.
This agreement shall be enforceable by the Company and the Representative,
or either of them, and shall bind and inure to the benefit of their respective
successors, personal representatives, heirs, and assigns.
Very truly yours,
By:
- -------------------------------- ----------------------------------
Shares of common stock subject Signature
to this Agreement after closing of
public offering
----------------------------------
Printed name of person or entity
----------------------------------
Title if signing for an entity
<PAGE>
Exhibit No. 5.1 Opinion of Neuman Drennen & Stone, LLC.
<PAGE>
[NEUMAN DRENNEN & STONE, LLC LETTERHEAD]
May 29, 1998
FirstLink Communications, Inc.
190 SW Harrison
Portland, Oregon 97201
Ladies and Gentlemen:
We have acted as legal counsel for FirstLink Communications, Inc. (the
"Company") in connection with the Company's Registration Statement on Form
SB-2 (the "Registration Statement") to be filed by the Company with the
Securities and Exchange Commission under the Securities Act of 1933, as
amended, and the Prospectus included as a part of the Registration Statement
(the "Prospectus"), relating to 1,400,000 Units (the "Units") consisting of
1,400,000 shares (the "Shares") of Common Stock, no par value per share (the
"Common Stock") and 1,400,000 Common Stock Purchase Warrants (the "Warrants")
to be offered and sold by the Company in the manner set forth in the
Registration Statement and Prospectus.
In connection therewith, we have examined: (a) the Registration Statement and
the Prospectus included therein; (b) the Articles of Incorporation and Bylaws of
the Company; and (c) the relevant corporate proceedings of the Company. In
addition to such examination we have reviewed such other proceedings, documents,
and records and have ascertained or verified such additional facts as we deem
necessary or appropriate for purposes of this opinion.
Based upon the foregoing, we are of the opinion that:
1. The Company has been legally incorporated and is validly existing under the
laws of the State of Oregon.
2. The Shares and the Warrants, and shares of Common Stock into which Warrants
are exercisable, upon issuance and payment therefor, as contemplated by the
Registration Statement and Prospectus, will be validly issued, fully paid, and
nonassessable.
3. We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus. In giving this consent, we do not admit that we
come within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
/s/ David H. Drennen
NEUMAN DRENNEN & STONE, LLC
<PAGE>
Exhibit 10.2.1
Standard Form of OFFICE BUILDING LEASE
Developed by PORTLAND METROPOLITAN ASSOCIATION OF BUILDING OWNERS AND MANAGERS
OFFICE LEASE
This lease, made and entered into at Portland, Oregon, this 15th day of April,
1998, by and between:
LANDLORD: Suzanne D. Kline, an individual
and
TENANT: FirstLink Communications, Inc., an Oregon Corporation
Landlord hereby leases to Tenant the following: Suite 300, containing
approximately 4,800 rentable square feet.
Tenant shall have the right to verify the size of the Premises before taking
possession of the Premises. (the Premises)
In The Mikado Building (the Building)
At 117 SW Taylor Street, Portland, Oregon, containing approximately 4600
rentable square feet as shown on the attached floor plan.
Calculated using a load factor of 0 percent.
Tenant's Proportion Share for purposes of Section 19 shall be 33.33%.
This lease is for a term commencing on or about [blank] and continuing [blank]
for a term of eight (8) years thereafter at a Monthly Base Rental as follows:
Years 1 and 2: $15.50 per square foot, full service
Years 3 - 5: $18.00 per square foot, full service
Years 6 - 8: $17.00 per square foot, full service
Rent is payable in advance on the first day of each month commencing September
1, 1998.
Landlord and Tenant covenant and agree as follows:
**August 15, 1998, or sooner if Landlord can deliver the premises and tenant
improvements have been substantially completed. It is understood the existing
tenant is entitled to a 120 day period of notification to vacate, which will be
given by Landlord upon execution of this lease.
**First month's estimated prorated rent of $2,250.00 shall be paid upon lease
execution.
1.1 DELIVERY OF POSSESSION.
[Blank]
2.1 RENT PAYMENT.
Tenant shall pay the Base Rent for the Premises and any additional rent
provided herein without deduction or offset. Rent for any partial month during
the lease term shall be prorated to reflect the number of days during the month
that Tenant occupies the Premises. Additional rent means amounts determined
under Section 19 of this Lease and any other sums payable by Tenant to Landlord
under this Lease. Rent not paid when due shall bear
<PAGE>
interest at the rate of one-and-one-half percent per month until paid. Landlord
may at its option impose a late charge of $.05 for each $1 of rent for rent
payments made more than 10 days later in lieu of interest for the first month of
delinquency, without waiving any other remedies available for default. Failure
to impose a late charge shall not be a waiver of Landlord's rights hereunder.
3.1 LEASE CONSIDERATION.
Upon execution of the lease Tenant has paid the Base Rent for the first
full month of the lease term for which rent is payable and in addition has paid
the sum of $6,375.00 as lease consideration. Landlord may apply the lease
consideration to pay the cost of performing any obligation which Tenant fails to
perform within the time required by this lease, but such application by Landlord
shall not be the exclusive remedy for Tenant's default. If the lease
consideration is applied by Landlord, Tenant shall on demand pay the sum
necessary to replenish the lease consideration to its original amount. To the
extent not applied by Landlord to cure defaults by Tenant, the lease
consideration shall be applied against the rent payable for the last month of
the term. The lease consideration shall not be applied against the rent payable
for the last month of the term. The lease consideration shall not be
refundable.
4.1 USE.
Tenant shall use the Premises as business for business offices and
telecommunications facility and for no other purpose without Landlord's written
consent. In connection with its use, Tenant shall at its expense promptly
comply and cause the Premises to comply with all applicable laws, ordinances,
rules and regulations of any public authority made applicable because of its use
and shall not annoy, obstruct, or interfere with the rights of other tenants of
the Building. Tenant shall create no nuisance nor allow any objectionable
fumes, noise, or vibrations to be emitted from the Premises. Tenant shall not
conduct any activities that will increase Landlord's insurance rates for any
portion of the Building or that will in any manner degrade or damage the
reputation of the Building.
4.2 EQUIPMENT.
Tenant shall install in the Premises only such office equipment as is
customary for general office use and shall not overload the floors or electrical
circuits of the Premises or Building or alter the plumbing or wiring of the
Premises or Building. Landlord must approve in advance the location of and
manner of installing any wiring or electrical, heat generating or communication
equipment or exceptionally heavy articles. All telecommunications equipment,
conduit, cables and wiring, additional dedicated circuits and any additional air
conditioning required because of heat generating equipment or special lighting
installed by Tenant shall be installed and operated at Tenant's expense.
Landlord shall have no obligation to permit the installation of equipment by any
telecommunications provider whose equipment is not then servicing the Building.
4.3 SIGNS.
No signs, awnings, antennae, or other apparatus shall be painted on or
attached to the Building or anything placed on any glass or woodwork of the
Premises or positioned so as to be viable from outside the Premises without
landlord's written approval as to design, size, location, and color. All signs
installed by Tenant shall comply with Landlord's standards for signs and all
applicable codes and all signs and sign hardware shall be removed upon
termination of this lease with the sign location restored to its former state
unless Landlord elects to retain all or any portion thereof. Landlord shall
provide a sign in the lobby directory and on Tenant's floor(s) which shall not
be charged to the Tenant Improvement allowance.
5.1 UTILITIES AND SERVICES.
Landlord will furnish potable water and electricity to the Building at all
times and will furnish heat and air conditioning (if the Building is air
conditioned) during the normal Building hours as established by Owner.
Janitorial service will be provided in accordance with the regular schedule of
the Building, which schedule and service may change from time to time. Tenant
shall comply with all government laws or regulations regarding the use or
reduction of use of utilities on the Premises. Interruption of services or
utilities shall not be deemed an eviction or disturbance of Tenant's use and
possession of the Premises, render Landlord liable to Tenant for
<PAGE>
damages, or relieve Tenant from performance of Tenant's obligations under this
lease. Landlord shall take all reasonable steps to correct any interruptions in
service, Electrical service furnished will be 110 volts unless different service
already exists in the premises. Tenant shall provide its own surge protection
for power furnished to the Premises.
5.2 EXTRA USAGE.
If Tenant uses excessive amounts of utilities or services of any kind
because of operation outside of normal Building hours, high demands from office
machinery and equipment, nonstandard lighting, or any other cause, Landlord may
impose a reasonable charge for supplying such extra utilities or services, which
charge shall be payable monthly by Tenant in conjunction with rent payments. In
case of dispute over any extra charge under this paragraph, Landlord shall
designate a qualified independent engineer whose decision shall be conclusive on
both parties. Landlord and Tenant shall each pay one-half of the cost of such
determination.
5.3 SECURITY.
Landlord shall provide a lock-off for the elevators on all floors occupied
by Tenant, the cost of which shall not be charged to the Tenant Improvement
allowance. Tenant may install a security system within the leased Premises with
Landlord's written consent which will not be unreasonably withheld. Landlord
will be provided with an access code to any security system and shall not have
any liability for accidentally setting off Tenant's security system.
6.1 MAINTENANCE AND REPAIR.
Landlord shall have no liability for failure to perform required
maintenance and repair unless written notice of such maintenance or repair is
given by Tenant and Landlord fails to commence efforts to remedy the problem in
a reasonable time and manner. Landlord shall have the right to erect
scaffolding and other apparatus necessary for the purpose of making repairs, and
Landlord shall have no liability for interference with Tenant's use because of
repairs and installations. Tenant shall have no claim against Landlord for any
interruption or reduction or services or interference with Tenant's occupancy,
and no such interruption or reduction shall be construed as a constructive or
other eviction of Tenant. Repair of damage caused by negligent or intentional
acts or breach of this lease by Tenant, its employees or invitees shall be at
Tenant's expense.
6.2 ALTERATIONS.
Tenant shall not make any alterations, additions, or improvements to the
Premises, change the color of the interior, or install any wall or floor
covering without Landlord's prior written consent which will not be unreasonably
withheld. Any such improvements, alterations, wiring, cables or conduit
installed by Tenant shall at once become part of the Premises and belong to
Landlord except for removable machinery and unattached movable trade fixtures.
Landlord may at its option require that Tenant remove any improvements,
alterations, wiring, cables or conduit installed by or for Tenant and restore
the Premises to the original condition upon termination of this lease. Landlord
shall have the right to approve the contractor used by Tenant for any work in
the premises, and to post notices of non-responsibility in connection with work
being performed by Tenant in the Premises. Work by Tenant shall comply with all
laws then applicable to the Premises.
7.1 INDEMNITY.
Tenant shall not allow any items to attach to the Building or Tenant's
interest in the Premises as a result of its activities. Tenant shall indemnify
and defend Landlord and the managing agents from any claim, liability, damage,
or loss occurring on the Premises, arising out of any activity by Tenant, its
agents, or invitees or resulting from Tenant's failure to comply with any term
of this lease except to the extent caused by Landlord's negligence or breach of
this Lease. Neither Landlord nor its managing agent shall have any liability to
Tenant because of loss or damage to Tenant's property or for death or bodily
injury caused by the acts or omissions of other Tenants of the Building, or by
third parties (including criminal acts).
<PAGE>
7.2 INSURANCE.
Tenant shall carry liability insurance with limits of not less than One
Million Dollars ($1,000,000) combined single limit bodily injury and property
damage which insurance shall have an endorsement naming Landlord and Landlord's
managing agent, if any, as an additional insured, cover the liability insured
under paragraph 7.1 of this lease and be in form and with companies reasonably
acceptable to Owner. Prior to occupancy, Tenant shall furnish a certificate
evidencing such insurance which shall state that the coverage shall not be
cancelled or materially changed without 10 days advance notice to Landlord and
Landlord's managing agent, if any. A renewal certificate shall be furnished at
least 10 days prior to expiration of any policy.
8.1 FIRE OR CASUALTY.
"Major Damage" means damage by fire or other casualty to the Building or
Premises which causes the Premises or any substantial portion of the Building to
be unusable, or which will cost more than 25 percent of the pre-damage value of
the Building to repair, or which is not covered by insurance. In case of Major
Damage, Landlord may elect to terminate this lease by notice in writing to the
Tenant within 30 days after such date. If this lease is not terminated
following Major Damage, or if damage occurs which is not Major Damage, Landlord
shall promptly restore the Premises to the condition existing just prior to the
damage. Tenant shall promptly restore all damage to tenant improvements or
alterations installed by Tenant or pay the cost of such restoration to Landlord
if Landlord elects to do the restoration of such improvements. Rent shall be
reduced from the date of damage until the date restoration work being performed
by Landlord is substantially complete, with the reduction to be in proportion to
the area of the Premises not useable by Tenant.
8.2 WAIVER OF SUBROGATION.
Tenant shall be responsible for insuring its personal property and trade
fixtures located on the Premises and any alterations or tenant improvements it
has made to the Premises. Neither Landlord, its managing agent nor Tenant shall
be liable to the other for any loss or damage caused by water damage, sprinkler
leakage, or any of the risks that are or could be covered by a special all risk
property insurance policy, or for any business interruption, and there shall be
no subrogated claim by one party's insurance carrier against the other party
arising out of any such loss. This waiver is binding only if it does not
invalidate the insurance coverage of either party hereto.
9.1 EMINENT DOMAIN.
If a condemning authority takes title by eminent domain or by agreement in
lieu thereof to the entire Building or a portion sufficient to render the
Premises unsuitable for Tenant's use, then either party may elect to terminate
this lease effective on the date that possession is taken by the condemning
authority. Rent shall be reduced for the remainder of the term in an amount
proportionate to the reduction in area of the Premises caused by the taking.
All condemnation proceeds shall belong to Landlord, and Tenant shall have no
claim against Landlord or the condemnation award because of the taking.
10.1 ASSIGNMENT AND SUBLETTING.
This lease shall bind and inure to the benefit of the parties, their
respective heirs, successors, and assigns, provided that Tenant shall not assign
its interest under this lease or sublet all or any portion of the Premises
without first obtaining Landlord's consent in writing. This provision shall
apply to all transfers by operation of law including but not limited to mergers
and changes in control of Tenant. No assignment shall relieve Tenant of its
obligation to pay rent or perform other obligations required by this lease, and
no consent to one assignment or subletting shall be a consent to any further
assignment or subletting. Landlord shall not unreasonably withhold its consent
to any assignment or subletting.
11.1 DEFAULT.
Any of the following shall constitute a default by Tenant under this
lease:
(a) Tenant's failure to pay rent or any other charge under this lease
within 10 days after written notice that it is due, provided that Landlord shall
not be obligated to give more than two (2) such written notices in any
<PAGE>
calendar year during the lease term or failure to comply with any other term or
condition within 20 days following written notice from Landlord specifying the
noncompliance. If such noncompliance cannot be cured within the 20-day period,
this provision shall be satisfied if Tenant commences correction within such
period and thereafter proceeds in good faith and with reasonable diligence to
effect compliance as soon as possible. Time is of the essence of this lease.
(b) Tenant's insolvency, business failure or assignment for the benefit
of its creditors. Tenant's commencement of proceedings under any provision of
any bankruptcy or insolvency law or failure to obtain dismissal of any petition
filed against it under such laws within the time required to answer; or the
appointment of a receiver for all or any portion of Tenant's properties or
financial records.
(c) Assignment or subletting by Tenant in violation of paragraph 10.1.
(d) Vacation or abandonment of the Premises without the written consent
of Landlord or failure to occupy the Premises within 20 days after notice from
Landlord tendering possession.
11.2 REMEDIES FOR DEFAULT.
In case of default as described in paragraph 11.1 Landlord shall have the
right to the following remedies which are intended to be cumulative and in
addition to any other remedies provided under applicable law:
(a) Landlord may at its option terminate the lease by notice to Tenant.
With or without termination, Landlord may retake possession of the Premises and
may use or relet the Premises without accepting a surrender or waiving the right
to damages. Following such retaking of possession, efforts by Landlord to relet
the Premises shall be sufficient if Landlord follows its usual procedures for
finding tenants for the space at rates not less than the current rates for other
comparable space in the Building. If Landlord has other vacant space in the
Building, prospective tenants my be placed in such other space without prejudice
to landlord's claim to damages or loss of rentals from Tenant.
(b) Landlord may recover all damages caused by Tenant's default which
shall include an amount equal to rentals lost because of the default, lease
commissions paid for this lease, and the unamortized cost of any tenant
improvements installed by Landlord to meet Tenant's special requirements.
Landlord may sue periodically to recover damages as they occur throughout the
lease term, and no action for accrued damages shall bar a later action for
damages subsequently accruing. Landlord may elect in any one action to recover
accrued damages plus damages attributable to the remaining term of the lease.
Such damages shall be measured by the difference between the rent under this
lease and the reasonable rental value of the Premises for the remainder of the
term, discounted to the time of judgment at the prevailing interest rate on
judgments.
(c) Landlord may make any payment or perform any obligation which Tenant
has failed to perform, in which case Landlord shall be entitled to recover from
Tenant upon demand all amounts so expended, plus interest from the date of the
expenditure at the rate of one-and-one-half percent per month. Any such payment
or performance by Landlord shall not waive Tenant's default.
12.1 SURRENDER.
On expiration or early termination of this lease Tenant shall deliver all
keys to Landlord and surrender the premises vacuumed, swept, and free of debris
and in the same condition as at the commencement of the term subject only to
approved alterations and reasonable wear from ordinary use. Tenant shall remove
all of its furnishings and trade fixtures that remain its property and repair
all damage resulting from such removal. Failure to remove shall be an
abandonment of the property, and Landlord may dispose of it in any manner
without liability. If Tenant fails to vacate the Premises when required,
including failure to remove all the personal property, Landlord may elect
either: (I) to treat Tenant as a tenant from month to month, subject to the
provisions of this lease except that rent shall be one-and-one-half times the
total rent being charged when the lease term expired, and any option or other
rights regarding extension of the term or expansion of the Premises shall no
longer apply; or (II) to eject Tenant from the Premises and recover damages
caused by wrongful holdover.
13.1 REGULATIONS.
Landlord shall have the right but shall not be obligated to make, revise
and enforce regulations or policies consistent with this lease for the purpose
of promoting safety, health (including moving, use of common areas and
prohibition of smoking), order, economy, cleanliness, and good service to all
tenants of the Building. All such regulations and policies shall be compiled
with as if part of this lease.
<PAGE>
14.1 ACCESS.
During times other than normal Building hours Tenant's officers and
employees or those having business with Tenant may be required to identify
themselves or show passes in order to gain access to the Building. Landlord
shall have no liability for permitting or refusing to permit access by anyone.
Landlord may regulate access to any Building elevators outside of normal
Building hours. Landlord shall have the right to enter upon the Premises at any
time by passkey or otherwise to determine Tenant's compliance with this lease,
to perform necessary services, maintenance and repairs or alterations to the
Building or the Premises, or to show the Premises to any prospective tenant or
purchasers. Except in case of emergency such entry shall be at such times and
in such manner as to minimize interference with the reasonable business use of
the premises by Tenant and shall be after reasonable advance notice.
14.2 FURNITURE AND BULKY ARTICLES.
Tenant shall move furniture and bulky articles in and out of the Building
or make independent use of the elevators only at times approved by Landlord
following at least 24 hours written notice to Landlord of the Intended move.
Landlord will not unreasonably withhold its consent under this paragraph.
15.1 NOTICES.
Notices between the parties relating to this lease shall be in writing,
effective when delivered, or if mailed, effective on the second day following
mailing, postage prepaid, to the address for the party stated in this lease or
to such other address as either party may specify by notice to the other.
Notice to Tenant may always be delivered to the Premises. Rent shall be payable
to landlord at the same address and in the same manner, but shall be considered
paid only when received.
16.1 SUBORDINATION AND ATTORNMENT.
This lease shall be subject to and subordinate to any mortgages, deeds of
trust, or land sale contracts (here after collectively referred to as
encumbrances) now existing against the Building. At Landlord's option this
lease shall be subject and subordinate to any future encumbrance hereafter
placed against the Building (including the underlying land) or any modifications
of existing encumbrances, and Tenant shall execute such documents as may
reasonably be requested by Landlord or the holder of the encumbrance to evidence
this subordination. If any encumbrance is foreclosed, then if the purchaser at
foreclosure sale gives to Tenant a written agreement to recognize Tenant's
lease, Tenant shall attorn to such purchaser and this Lease shall continue.
16.2 TRANSFER OF BUILDING.
If the Building is sold or otherwise transferred by Landlord or any
successor, Tenant shall attorn to the purchaser or transferee and recognize it
as the lessor under this lease, and, provided the purchaser or transferee
assumes all obligations hereunder, the transferor shall have no further
liability hereunder except for breaches occurring prior to the transfer.
6.3 ESTOPPELS.
Either party will within 10 days after notice from the other execute,
acknowledge and deliver to the other party a certificate certifying whether or
not this lease has been modified and is in full force and effect; whether there
are any modifications or alleged breaches by the other party; the dates to which
rent has been paid in advance, and the amount of any security deposit or prepaid
rent; and any other facts that may reasonably be requested. Failure to deliver
the certificate within the specified time shall be conclusive upon the party of
whom the certificate was requested that the lease is in full force and effect
and has not been modified except as may be represented by the party requesting
the certificate. If requested by the holder of any encumbrance, or any ground
lessor, Tenant will agree to give such holder or lessor notice of and an
opportunity to cure any default by landlord under this lease.
<PAGE>
17.1 ATTORNEYS' FEES.
In any litigation arising out of this lease, the prevailing party shall be
entitled to recover attorneys' fees at trial and on any appeal. If either party
incurs attorneys' fees because of a default by the other, such other party shall
pay all such fees whether or not litigation is filed.
18.1 QUIET ENJOYMENT.
Landlord warrants that so long as Tenant complies with all terms of this
lease it shall be entitled to peaceable and undisturbed possession of the
Premises free from any eviction or disturbance by landlord. Neither Landlord
nor its managing agent shall have any liability to Tenant for loss or damages
arising out of the acts, including criminal acts, of other tenants of the
Building or third parties, nor any liability for any reason which exceeds the
value of its interest in the Building.
19.1 ADDITIONAL RENT - TAX ADJUSTMENT.
Whenever for any July 1 - June 30 tax year the real property taxes levied
against the Building and its underlying land exceed those levied for the 1998-
199 tax year, then the monthly rental for the next succeeding calendar year
shall be increased by one-twelfth of such tax increase times Tenant's
Proportionate Share. "Real property taxes" as used herein means all taxes and
assessments of any public authority against the Building and the land on which
it is located, the cost of contrasting any tax and any form of fee or charge
imposed on Landlord as a direct consequence of owning or leasing the Premises,
including but not limited to rent, taxes, gross receipt taxes, leasing taxes, or
any fee or charge wholly or partially in lieu of or in substitution for ad
valorem real property taxes or assessments, whether now existing or hereafter
enacted. If any portion of the Building is occupied by a tax-exempt tenant so
that the Building has a partial tax exemption under ORS 307.112 or a similar
statute, than real property taxes shall mean taxes computed as if such partial
exemption did not exist. If a separate assessment or identifiable tax increase
arises because of improvements to the premises, then Tenant shall pay 100
percent of such increase.
19.2 [Blank]
19.3 OPERATING EXPENSE ADJUSTMENT.
Tenant shall pay as additional rent Tenant's Proportionate Share of the
amount by which operating expenses for the Building increase over those
experienced by Landlord during the calendar year 1998 (base year). Effective
January 1 of each year Landlord shall estimate the amount by which operating
expenses are expected to increase, if any, over those incurred in the base year.
Monthly rental for that year shall be increased by one-twelfth of Tenant's share
of the estimated increase. Following the end of each calendar year, landlord
shall compute the actual increase in operating expenses and bill Tenant for any
deficiency or credit Tenant with any excess collected. As used herein
"operating expenses" shall mean all costs of operating and maintaining the
Building as determined by standard real estate accounting practice, including,
but not limited to: all water and sewer charges; the cost of natural gas and
electricity provided to the Building; janitorial and cleaning supplies and
services; reasonable administration costs and management fees; superintendent
fees; security services, if any; insurance premiums; licenses, permits for the
operation and maintenance of the Building and all of its component elements and
mechanical systems; the annual amortized capital improvement cost (amortized
over such a period as Landlord may select but not shorter than the period
allowed under the Internal Revenue code and at a current market interest rate
for any capital improvements in the Building required by any governmental
authority or those which have a reasonable probability of improving the
operating efficiency of the Building.
19.4 DISPUTES.
If Tenant disputes any computation of additional rent or rent adjustment
under paragraphs 19.1 through 19.3 of this lease, it shall give notice to
Landlord not later than one year after the notice from Landlord describing the
computation in question, but in any event not later than 30 days after
expiration or earlier termination of this lease. If Tenant fails to give such a
notice, the computation by Landlord shall be binding and conclusive between the
parties for the period in question. If Tenant gives a timely notice, the
dispute shall be resolved by an
<PAGE>
independent certified public accountant selected by Landlord whose decision
shall be conclusive between the parties. Each party shall pay one-half of the
fee for making such determination except that if the adjustment in favor of
Tenant does not exceed ten percent of the escalation amounts for the year in
question. Tenant shall pay (I) the entire cost of any such third-party
determination; and (II) Landlord's out-of-pocket costs and reasonable expenses
for personnel time in responding to the audit. Nothing herein shall reduce
Tenant's obligations to make all payments as required by this lease.
20.1 COMPLETE AGREEMENT; NO IMPLIED COVENANTS.
This lease and the attached Exhibits and Schedules if any, constitute the
entire agreement of the parties and supersede all prior written and oral
agreements and representations and there are no implied covenants or other
agreements between the parties except as expressly set forth in this Lease.
Neither Landlord nor Tenant is relying on any representations other than those
expressly set forth herein.
20.2 SPACE LEASED AS IS.
Unless otherwise stated in this Lease, the Premises are leased AS IS in
the condition now existing with no alterations or other work to be performed by
Landlord.
20.3 CAPTIONS.
The titles to the paragraphs of this lease are descriptive only and are
not intended to change or influence the meaning of any paragraph or to be part
of this lease.
20.4 NONWAIVER.
Failure by Landlord to promptly enforce any regulation, remedy or right of
any kind under this Lease shall not constitute a waiver of the same and such
right or remedy may be asserted at any time after Landlord becomes entitled to
the benefit thereof notwithstanding delay in enforcement.
20.5 EXHIBITS.
The following Exhibits are attached hereto and incorporated as a part of
this lease:
Exhibit "A" - Floor Plan
Exhibit "B" - Addendum
IN WITNESS WHEREOF, the duly authorized representatives of the parties
have executed this lease as of the day and year first written above.
LANDLORD: Suzanne D. Kline By:
------------------------------ ------------------------
Address for notices: Title: /s/ Suzanne D. Kline
c/o Norris & Stevens, Inc. ------------------------
- ----------------------------------------
820 SW Fifth Avenue, Suite 400, By:
Portland, OR 82204 ------------------------
- ---------------------------------------- Title:
------------------------
TENANT: FirstLink Communications, Inc.
----------------------------------
By: /s/ A. Roger Pease
------------------------
Address for notices:
117 SW Taylor, Suite 300 Title: CEO
- ---------------------------------------- ------------------------
Portland, OR 97204 By:
- ---------------------------------------- ------------------------
Title:
------------------------
<PAGE>
ADDENDUM TO LEASE
DATED APRIL 15, 1998
BY AND BETWEEN
SUZANNE D. KLINE, AS LANDLORD
AND
FIRSTLINK COMMUNICATIONS, INC., AS TENANT
The following additional terms and conditions are added to this Lease, and
in case of any conflict, the terms of this Addendum shall prevail:
1. TENANT IMPROVEMENTS: Landlord shall provide a $6.00 per rentable
square foot tenant improvement allowance for Tenant. All improvements
shall be approved by Landlord, such approval not to be unreasonably
withheld or delayed. The allowance shall be paid as billings are
received from Tenant's contractor with any unused allowance credited
to Tenant's next rent payments.
2. OPTION TO EXPAND: Tenant shall have the option of expending into the
full second floor suite of 4,500 rentable square feet when it becomes
available on October 31, 1999, so long as Tenant is not in default of
the Lease. All terms and conditions of this Lease, including rental
and tenant improvement allowances shall apply, and the term for the
second floor shall be the same as the remaining term of this Lease.
Tenant shall provide Landlord with written notice of intent to
exercise said option by no later than May 1, 1999, and rent will
commence when Tenant improvements are substantially completed in the
new space.*
3. TERMINATION OPTION: Tenant shall have the right to terminate this
Lease at any time after the sixtieth (60th) month, having provided one
hundred eighty (180) days' advance written notice to Landlord. Tenant
will repay Landlord a sum equal to unamortized commissions which will
be calculated at a rate of twelve percent (12%) per annum for the
term. Such payment will be due thirty (30) days prior to termination
of this Lease. In the event Tenant exercises its Option to Expand,
the termination option will be deferred until the sixtieth (60th)
month following the rent commencement for the expansion space.
4. LANDLORD'S MAINTENANCE AND REPAIR: Landlord shall (i) maintain the
building foundation, structure, roof, exterior walls, mechanical and
electrical systems, common areas and entrances; (ii) be responsible
for any work necessary to comply with seismic codes, Americans with
disability Act or environmental laws; (iii) clean carpets in and
upgrade the lighting and decor in the elevators of the Building to
standards comparable to the lobby areas prior to Tenant's occupancy;
and (iv) provide HVAC service creating comfortable occupancy for
business purposes during operating hours. Tenant shall have the right
to request HVAC service at other hours and will pay a reasonable
hourly charge not to exceed Landlord's cost of providing such extra
service.
5. INSTALLATION OF EQUIPMENT: Tenant may from time to time without
Landlord's consent install data, voice or video processing equipment
in the Premises, provided such equipment does not overload the
circuitry of the Building or require additional HVAC service, require
external antennae or in any manner disturb other tenants of the
Building.
<PAGE>
6. TEMPORARY SPACE: At any time prior to Tenant's occupancy of the
Premises, it shall have the option to occupy approximately 600 square
foot of space if available on the ground floor of the Building at a
rate of $550 per month, full service, on a month-to-month basis.
Tenant will not interfere with Landlord or its agents showing the
space to other tenants.
AGREED & ACCEPTED AGREED & ACCEPTED
Tenant Landlord
By: /s/ A. Roger Pease By: /s/ Suzanne D. Kline
-------------------------------- --------------------------------
Date: Date:
------------------------------ ------------------------------
* In the event tenant expands Landlord shall pay a commission equal to 5% of
the total aggregate rent for the expansion premises. Aid commission shall
be paid upon execution of option and shall be split 50/50 between Norris
Beggs & Simpson and Cushman & Wakefield.
<PAGE>
Exhibit 10.21
FIRSTLINK [LOGO]
May 15, 1998
William E. Bloomfield, Jr.
Web Service Company, Inc.
3690 Redondo Beach Avenue
Redondo Beach, California 90278-1165
Re: LETTER OF INTENT CONCERNING EXCLUSIVE WORKING AGREEMENT AND SECURITIES
PURCHASE
Dear Bill:
This letter sets forth our mutual intent to proceed in good faith towards the
consummation of a transaction embodying the following basic terms.
1. PARTIES: FirstLink Communications, Inc. ("FirstLink") and Web Service
Company, Inc. ("WEB").
2. INVESTMENT: WEB will acquire 37,500 shares of FirstLink common at $2.67
per share in a private placement to be completed by May 22. We anticipate a
1.5.1 reverse stock split on the date of FirstLink's initial public offering
(IPO). As a part of the transaction WEB will receive an equal number of
warrants identical to the warrants to be issued at the IPO. These 37,500 shares
may be subject to lockup as required by the IPO underwriter. Such lockup would
be similar to that required of other significant shareholders. These shares are
unregistered shares and subject to SEC Rule 144 provisions. WEB will also
acquire 25,000 shares and related warrants at the IPO.
3. EARNOUT: FirstLink will grant WEB a warrant to purchase an additional 2.0
million shares of FirstLink common.
a. The warrant will vest at the rate of 25 shares per equivalent customer
subscribed to FirstLink services at properties delivered by WEB to
FirstLink for signing.
b. A cable subscriber counts as 1/3 equivalent customer and a telephone
customer counts as 2/3 equivalent customer.
c. the per share exercise price of the warrant will be the IPO price per
share.
d. The minimum required vesting will be:
<TABLE>
<S> <C> <C>
by 12/31/99 100,000 shares
by 12/31/00 150,000 additional shares
by 12/31/01 200,000 additional shares
by 12/31/02 300,000 additional shares
by 12/31/03 500,000 additional shares
by 05/22/04 750,000 additional shares
</TABLE>
e. Any portion of the minimum required vesting each year which is not
vested by the required date will be lost.
f. The warrant to acquire vested shares will expire five years after the
vesting date.
g. The maximum shares which can vest in any year is the lesser of 20% of
FirstLink's outstanding common shares at the vesting date or 2,000,000
shares.
<PAGE>
William E. Bloomfield, Jr.
May 15, 1998
Page 2
4. BUYOUT PROTECTION: If, during the term of this Agreement, there is more
than a 50% change in control of FirstLink, and if the FirstLink/WEB contract is
rescinded, FirstLink will provide WEB cancellation compensation. The
compensation will be whichever of the following WEB selects:
a. Immediate vesting of shares equal to 2.0 million shares times the
number of units in properties signed by WEB at the date the contract
is rescinded divided by 120,000 units, less any previously vested
shares; for example, if an acquisition is consummated in the ninth
month of the Agreement and the Agreement is rescinded and if WEB has
signed properties with 12,000 units, and if 40,000 shares have
previously vested, then 160,000 shares (12,000/120.000 x 2.0 million =
2000,000 - 40,000) will vest immediately; or
b. $200,000.
5. MARKETS: WEB and FirstLink will work exclusively together in agreed upon
markets subject to performance requirements to be defined. The first agreed
markets are Seattle, Denver, Dallas and San Francisco. The exclusive
arrangement will be specified in the Definitive Agreement (see below).
6. COMMISSION: A commission of 1.75% will be paid to WEB on collected
revenues for communications services from all properties covered by this
Agreement; the commission percent will be 2.25% for any property in which
penetration exceeds 60%. Commissions are paid for the life of the contract on
the property.
7. PROPERTY SIZE: WEB will have rights to develop and offer services to
properties with less than 150 units.
8. OTHER SERVICES: WEB retains the rights to payphone services at all
properties.
This letter is furnished as evidence of the mutual intent of WEB and FirstLink
to move in good faith toward concluding a transaction as outlined above. It
does not constitute a binding commitment on the part of either party. Any
legally binding commitments between the parties will only be as specifically set
forth in a duly negotiated definitive agreement ("Definitive Agreement"), which
will be in a form and content satisfactory to both parties, including their
respective legal counsel.
Sincerely, Agreed to in principle this 18th day of
May, 1998.
FIRSTLINK COMMUNICATIONS, INC. WEB SERVICE COMPANY, INC.
By: By:
------------------------------ ------------------------------------
A. Roger Pease William E. Bloomfield, Jr.
Chief Executive Officer President
<PAGE>
Exhibit 10.22
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement ("Agreement") is made effective as of
_______ by and among FirstLink Communications, Inc., an Oregon corporation
having its principal place of business at 190 Harrison, Portland, Oregon 97201
(the "Company"), and each of the individuals and entities listed on Exhibit A to
this Agreement (the "Investors").
RECITALS
A. Each investor listed in Exhibit A has subscribed for securities of the
Company consisting of units ("Units"), each Unit consisting of one share
("Share") of the Company's Common Stock ("Common Stock") and one Common Stock
Purchase Warrant ("Warrant") pursuant to a non-public offering of such
securities by the Company.
B. Each Warrant entitles its holder to purchase one share of Common
Stock. As partial consideration for purchase of the Units by the Investors, the
Company has offered to provide the Investors with certain registration rights as
set forth herein.
C. Each Investor, concurrent with entering this Agreement, has also
entered into a Subscription Agreement, a Lock Up Agreement, and a Custody
Agreement, each of which are exhibits tot he Private Placement Memorandum for
the Private Offering.
In consideration of the foregoing and the promises and covenants contained
herein, the parties agree as follows:
SECTION 1
DEFINITIONS
As used in this Agreement the following terms shall have the following
meanings:
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly controls or is controlled by or under common control with
such Person. For the purposes of this definition on, "control," when used with
respect to any Person, means the possession, direct or indirect of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "affiliated," "controlling" and "controlled" have meanings
correlative to the foregoing.
"BUSINESS DAY" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the State of
Oregon generally are authorized or required by law or other governmental actions
to close.
"CLOSING DATE" shall mean the date by which the first sale in the Private
Placement is accepted by the Company, as defined in the Memorandum.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the Company's Common Stock, no par value per share.
"EFFECTIVE DATE" means the date on which the Registration Statement is
declared effective.
"EFFECTIVE PERIOD" means the period beginning on the Effective Date and
ending on the earlier of (i) the date all of the Registered Securities have been
sold, or (ii) three years after the Effective Date.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE WARRANTS" means the warrants to purchase shares of the Company's
Common Stock which will be issued in exchange for the Private Warrants, as
described herein.
<PAGE>
"HOLDER" or HOLDERS" means the holder or Holders, as the case may be, from
time to time of Registrable Securities.
"LOCK-UP AGREEMENT" means the Lock-Up Agreement to be entered into between
the Company and the Purchaser concurrently herewith.
"PERSON" mans an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, Limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"PRIVATE PLACEMENT" means the offering of securities of the Company made
pursuant to the Memorandum dated February 13, 1998, through Bathgate McColley
Capital Group, LLC as the Placement Agent.
"PRIVATE WARRANTS" means the warrants to purchase shares of the Company's
Common stock which are issued with the Company's other securities in the Private
Placement.
"PROCEEDING" means an action, claim, suit, investigation or proceeding
(including without limitation, an investigation or partial proceeding, such as a
deposition), whether commenced or threatened.
"PROSPECTUS" means the prospectus included in the Registration Statement
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement with respect to the terms
of the offering of any portion of the Registrable Securities covered by the
Registration Statement, and an other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
"REGISTRABLE SECURITIES" means the Exchange Warrants and the Warrant
Shares. Any Registrable Securities previously sold to the public pursuant to a
registered public offering or Rule 144 of the Securities Act shall cease to be
Registrable Securities. For the purpose of determining the number of
Registrable Securities held by any Investor, Holder or permitted transferee, or
any combination thereof, the Private Warrants and the Exchange Warrants shall be
counted on the basis of the number of shares of Common Stock and the Warrant
Shares, respectively, that are issuable upon exercise thereof.
"REGISTRATION EXPENSES" shall mean all expenses described in Section 4
hereof.
"REGISTRATION STATEMENT" means the registration statement contemplated by
Section 2 of this Agreement, including the Prospectus, amendments and
supplements to such registration statement or Prospectus, including pre- and
post-effective amendments, all exhibits thereto, and all material incorporated
by reference or deemed to be incorporated by reference in such registration
statement.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELLING EXPENSES" shall mean all underwriting documents and selling
commissions applicable to the sale and all fees and disbursements of special
counsel for any Holder (except those expenses that are Registration Expenses).
"UNDERWRITTEN OFFERING" means an offering in connection with which
securities of the Company are sold to an underwriter for reoffering to the
public pursuant to an effective Registration Statement.
"WARRANT SHARES" means the shares of Common Stock that are receivable by a
holder upon exercise of an Exchange Warrant.
2
<PAGE>
SECTION 2
REGISTRATION RIGHTS
2.1 PIGGYBACK REGISTRATION RIGHTS. The Company will cause to be
registered, on the first Registration Statement filed by the Company after the
date of this Agreement, all of the Registrable Securities, and to use its best
efforts to cause the Registration Statement to be declared effective under the
Securities Act as promptly as practicable after its filing. The Registration
Statement shall be on Form SB-2, Form S-1, Form S-3, or such other form as is
appropriate in order to register securities with the Commission pursuant to
Section 5 of the Securities Act. The Company covenants to maintain the
Registration Statement continually effective under the Securities Act for the
Effective Period. An offering of Registrable Securities pursuant to the
Registration Statement may be effected in the form of an Underwritten Offering.
2.2 In connection with the Registration Statement, if and when it is filed
hereunder, the Company shall:
(a) Prepare and file with the Commission such amendments, including
post-effective amendments, to the Registration Statement as may be necessary to
keep the Registration Statement continuously effective for the Effective Period.
(b) Cause the related Prospectus to be amended or supplemented by any
required Prospectus supplement, and as so supplemented or amended, cause it
to be filed pursuant to Rule 424 (or any similar provisions then in force)
promulgated under the Securities Act.
(c) Respond as promptly as practicable to any comments received from
the Commission with respect to the Registration Statement or any amendment
thereto.
(d) Notify the Holders of Registrable Securities as to (i) when a
Prospectus or any Prospectus supplement or post-effective amendment to the
Registration Statement is proposed to be filed and, with respect to the
Registration Statement or any post-effective amendment, when the same has
become effective; (ii) the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for
that purpose; (iii) if at any time any of the representations and
warranties of the Company contained in any agreement contemplated hereby
ceases to be true and correct in all material respects; (iv) the receipt by
the Company of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening
of any Proceeding for such purpose; and (v) the occurrence of any event
that makes any statement made in the Registration Statement or Prospectus
or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires any revisions to
the Registration Statement, Prospectus or other documents so that, in the
case of the Registration Statement or the Prospectus, as the case may be,
it will not contain 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, in light of the circumstances under which they were
made, not misleading.
(e) Use its best efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of (i) any order suspending the effectiveness of the
Registration Statement or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale
in any jurisdiction, at the earliest practicable moment.
(f) Furnish to Bathgate McColley Capital Group, LLC ("BMCG"), as
agent for each Holder, without charge, at least one copy of each
Registration Statement and each amendment thereto, including financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference, and all exhibits to the extent required
by such Person (including those previously furnished or incorporated by
reference) promptly after the filing of such documents with the Commission.
(g) Promptly deliver to BMCG, without charge, as many copies of the
Prospectus or Prospectuses (including each form of prospectus) and each
amendment or supplement thereto as such
3
<PAGE>
persons may reasonably request. The Company hereby consents to the use of
each Prospectus and each amendment or supplement thereto by each of the
selling Holders and any underwriters in connection with the offering and
sale of the Registrable Securities covered by such Prospectus and any
amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities, use its
best efforts to keep each such registration or qualification (or exemption
therefrom) effective during the Effective Period and to do any and all
other acts or things necessary or advisable to enable the disposition in
such jurisdictions of the Registrable Securities covered by the
Registration Statement; provided, however, that the Company shall not be
required to qualify generally to do business in any jurisdiction where it
is not then so qualified or to take any action that would subject it to
general service of process in any such jurisdiction where it is not then so
subject or subject the Company to any material tax in any such jurisdiction
where it is not then so subject.
(i) Cooperate with the Holders to facilitate the timely preparation
and delivery of certificates representing Registrable Securities to be
sold, which certificates shall be free of all restrictive legends, and to
enable such Registrable Securities to be in such denominations and
registered in such names as any such Holders may request at least two
Business Days prior to any sale of Registrable Securities.
(j) As promptly as practicable, prepare a supplement or amendment,
including a post-effective amendment, to the Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed
to be incorporated therein by reference, and file any other required
document so that, as thereafter delivered, neither the Registration
Statement nor such Prospectus will contain an untrue statement of a
material factor omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(k) Use its best efforts to cause all Registrable Securities relating
to such Registration Statement to be listed on each securities exchange or
market, if any, on which similar securities issued by the Company are then
listed.
(l) Comply with all applicable rules and regulations of the
Commission.
(m) Provide a CUSIP number for all Registrable Securities as soon as
practicable but prior to the effective date of the Registration Statement.
(n) The Company may require each selling Holder to furnish to the
Company such information regarding the distribution of such Registrable
Securities as is required by law to be disclosed in the Registration
Statement and the Company may exclude from such registration the
Registrable Securities of any such Holder who unreasonably fails to furnish
such information within a reasonable time after receiving such request.
(o) If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder
shall have the right to require (i) the inclusion therein of language, in
form and substance reasonably satisfactory to such Holder, to the effect
that the ownership by such Holder of such securities is not to be construed
as a recommendation by such Holder of the investment quality of the
Company's securities covered thereby and that such ownership does not imply
that such Holder will assist in meeting any future financial requirements
of the Company, or (ii) if such reference to such Holder by name or
otherwise is not required by the Securities Act or any similar federal
statute then in force, the deletion of the reference to such Holder in any
amendment or supplement to the Registration Statement filed or prepared
subsequent to the time that such reference ceases to be required.
2.3 "MARKET STAND-OFF" AGREEMENT. The Investor in the Units understands
that an Underwritten Offering requires that the Underwriter in such Underwritten
Offering obtain approval of terms of the offering from the Corporate Financing
Department of NASD Regulation, Inc. In addition, in order to list the Company's
securities on the Nasdaq Stock Market, terms of the offering must be approved by
The Nasdaq Stock Market, Inc. In the past
4
<PAGE>
such entities have imposed conditions on owners of securities of issuers who
purchase securities prior to the Company's initial public offering, including
that such persons agree not to sell or otherwise transfer their securities for a
period of time (a "Lock-Up"). As additional consideration for the Company
accepting the Investors subscription in the Private Offering, the Investor
agrees that he will not sell or otherwise transfer or dispose of any of the
Shares, the Exchange Warrants, or the Warrant Shares for a period required by
NASDR or Nasdaq not to exceed one year following the effective date of the
Registration Statement. Such agreement shall be confirmed in writing in a form
satisfactory to the Company and such Underwriter. The Company may impose
stop-transfer instructions with respect to the Shares, the Exchange Warrants,
and/or the Warrant Shares subject to the foregoing restriction until the end of
such period. The Company agrees to use its best efforts, and to cause the
Underwriter to use its best efforts, to limit the securities that must be the
subject of the Lock-Up and/or the length of such Lock-Up.
2.4. TERMINATION OF REGISTRATION RIGHTS. The rights granted pursuant to
this Agreement shall terminate as to each Investor (and permitted transferee
under Section 2.5 below) upon the occurrence of any of the following:
(a) Following the Company's first registered offering to the public, at
such time as all Registrable Securities held by such Investor or
permitted transferee can be sold pursuant to Rule 144 (or its
successor provision);
(b) At such time as all Registrable Securities held by such Holder can be
sold under Rule 144(k) (or its successor provision); or
(c) Three (3) years from the effective date of the Company's first
Registration Statement.
2.5 ASSIGNMENT OF REGISTRATION RIGHTS. The rights granted each Investor
under this Agreement may not be assigned except: (i) to a purchaser of more than
5,000 Registrable Securities (as appropriately adjusted for stock dividends,
stock splits, stock combinations, recapitalizations, consolidations and the
like); (ii) to a successor entity to an Investor pursuant to a reorganization
or recapitalization of an Investor; (iii) to an Affiliate of an Investor; or
(iv) to the partners of an Investor or to the estate or heirs of such a partner
or to a trust for the benefit of such a partner, his or her spouse or
descendants; provided, that the Company receives notice within twenty (20) days
following such assignment.
SECTION 3
PURCHASER COVENANTS
3.1 Each Purchaser covenants and agrees that (i) he will not offer or sell
any Registrable Securities under the Registration Statement until he has
received copies of the Prospectus as then amended or supplemented as
contemplated in this Agreement and notice from the Company that such
Registration statement and any post-effective amendments thereto have become
effective as contemplated in this Agreement, and (ii) the Purchaser and its
officers, directors or Affiliates, if any, will comply with the prospectus
delivery requirements of the Securities Act as applicable to them in connection
with sales of Registrable Securities pursuant to the Registration Statement.
3.2 Each Purchaser agrees by its acquisition of such Registrable
Securities that upon receipt of a notice from the Company of the occurrence of
any event of the kind which renders the current Prospectus misleading, such
Purchaser will forthwith discontinue disposition of such Registrable Securities
until such Purchaser's receipt of the copies of the supplemented Prospectus
and/or amended Registration Statement, or until it is advised in writing by the
Company that the use of the applicable Prospectus may be resumed, and, in either
case, has received copies of any additional or supplemental filings that are
incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement.
3.3 Each Purchaser agrees to sell its Registrable Securities on the basis
provided in the Prospectus and in accordance with the terms of the Lock-Up
Agreement.
5
<PAGE>
SECTION 4
REGISTRATION EXPENSES
All fees and expenses incident to the performance of or compliance with
this Agreement by the Company shall be borne by the Company, whether or not the
Registration Statement becomes effective and whether or not all Registrable
Securities are sold pursuant to the Registration Statement. The fees and
expenses referred to in the foregoing sentence shall not include any fees or
expenses incurred by the Holders, but shall include, without limitation, (i) all
registration and filing fees (A) with respect to filings required to be made
with NASDR and (B) in compliance with state securities or Blue Sky laws for the
Holders in connection with Blue Sky qualifications of the Registrable Securities
and determination of the eligibility of the Registrable Securities for
investment under the laws of such jurisdictions as the managing underwriters, if
any, or Holders of a majority of Registrable Securities may designate, (ii)
printing expenses (including, without limitation, expenses of printing
certificates for Registrable Securities, (iii) messenger, telephone and delivery
expenses, (iv) fees and disbursements of counsel for the Company but not for the
Holders, (v) fees and disbursements of all independent certified public
accountants for the Company (including, without limitation, the expenses of any
special audit and "cold comfort" letters required by or incident to such
performance), (vi) Securities Act liability insurance, if the Company so desires
such insurance, and (vii) fees and EXPENSES of all other Persons retained by the
Company in connection with the consummation of the transactions contemplated by
this Agreement. In addition, the Company shall be responsible for all of its
internal expenses incurred in connection with the consummation of the
transactions contemplated by this Agreement (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit, and the fees and expenses
incurred in connection with the listing of Registrable Securities on any
securities exchange or on the Nasdaq Stock Market.
SECTION 5
MISCELLANEOUS
5.1 RULE 144. After the Effective Date, the Company shall file the
reports required to be filed by it under the Securities Act and the Exchange Act
in a timely manner and, if at any time the Company is not required to file such
reports, they will, upon the request of any Holder, make publicly available
other information so long as necessary to permit sales of its securities
pursuant to Rule 144. The Company further covenants that it will take such
further action as any Holder may reasonably request, all to the extent required
from time to time to enable such Holder to sell Registrable Securities without
registration under the Securities Act within limitation of the exemptions
provided by Rule 144.
5.2 REMEDIES. In the event of a breach by the Company or by a Holder of
any of their obligations under this Agreement, each Holder or the Company, as
the case may be, in addition to being entitled to exercise all rights granted by
law and under this agreement, including recovery of damages, will be entitled
to specific performance of its rights under this Agreement. The Company and
each Holder agree that monetary damages would not provide adequate compensation
any losses incurred by reason of breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.
5.3 NO INCONSISTENT AGREEMENTS. The Company has not, as of the date
hereof, nor shall the Company on or after the date of this Agreement, enter into
any agreement with respect to its securities that is inconsistent with the
rights granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof.
5.4 ENTIRE AGREEMENT; AMENDMENTS. This Agreement together with the
Exhibits hereto, the Subscription Agreement, the Lock Up Agreement, and the
Custody Agreement, contain the entire understanding of the parties with respect
to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters.
5.5 AMENDMENTS AND WAIVERS. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, unless the same shall be in writing and signed by the Company and the
Holders of at least a majority of the then outstanding Registrable Securities;
provided, however, that, for the purposes of this sentence, Registrable
Securities that are owned, directly or indirectly, by the Company or an
Affiliate of the
6
<PAGE>
Company are not deemed outstanding. Notwithstanding the foregoing, a waiver or
consent to depart from the provisions hereof with respect to a matter that
relates exclusively to the rights of Holders and that does not directly or
indirectly affect the rights of other Holders may be given by Holders of at
least a majority of the Registrable Securities to which such waiver or consent
relates; provided, however, that the provisions of this sentence may not be
amended, modified, or supplemented except in accordance with the provisions of
the immediately preceding sentence.
5.6 NOTICES. Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be deemed to have been received
(a) upon hand delivery (receipt acknowledged) or delivery by telex (with correct
answer back received), telecopy or facsimile (with transmission confirmation
report) at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the second business day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The address for such
communications shall be:
If to the Company:
FirstLink Communications, Inc.
190 SW Harrison
Portland, Oregon 97201
Attention: President
With copies to:
David H. Drennen
Neuman & Drennen, LLC
5350 South Roslyn Street, Suite 380
Englewood, Colorado 80111
If to the Purchaser: To the address of such Purchaser that appears in the stock
transfer books of the Company.
5.7 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the successors and permitted assigns of each of the parties
and shall inure to the benefit of each Holder. The company may not assign its
rights or obligations hereunder without the prior written consent of each
Holder.
5.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same Agreement. In
the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.
5.9 GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL. This
Agreement shall be governed by and construed in accordance with the laws of the
State of Oregon, without regard to principles of conflicts of law. The Company
hereby irrevocably submits to the jurisdiction of any state or federal court
sitting in Multnomah County, Oregon (collectively, the "Courts") in respect of
any Proceeding arising out of or in relation to this Agreement, and irrevocably
accepts for itself and in respect of its property, generally and
unconditionally, jurisdiction of the Courts. The Company irrevocably waives to
the fullest extent it may effectively do so under applicable law any objection
that it may now or hereafter have to the laying of the venue of any such
proceeding brought in any Court and any claim that any such Proceeding brought
in any Court has been brought in an inconvenient forum.
5.10 CUMULATIVE REMEDIES. The remedies provided herein are cumulative and
not exclusive of any remedies provided by law.
7
<PAGE>
5.11 SEVERABILITY. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their reasonable efforts to find and employ an alternative means to achieve the
same or substantially the same result as that contemplated by, such term,
provision, covenant or restriction. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may
hereafter be declared invalid, illegal, void or unenforceable.
5.12 HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
PURCHASER: COMPANY:
See Attached List FIRSTLINK COMMUNICATIONS, INC.
By: /s/ A. ROGER PEASE
---------------------------
A. Roger Pease, President
See Attached List
8
<PAGE>
When the transaction referred to in note 2(c) of the notes to the financial
statements has been consummated, we will be in a position to render the
following consent.
Consent of Independent Accountants
The Board of Directors
FirstLink Communications, Inc.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the Prospectus.
Our report dated January 21, 1998, except as to note 9 which is as of April 8,
1998 and note 2(e) which is as of June __, 1998, contains an explanatory
paragraph that states that the Company has suffered recurring losses from
operations, which raise substantial doubt about its ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of that uncertainty.
/s/ KPMG Peat Marwick LLP
Portland, Oregon
May 28, 1998
<PAGE>
FIRSTLINK COMMUNICATIONS, INC.
1,400,000 Units, Each Unit Consisting of
One Share of Common Stock and
One Common Stock Purchase Warrants
SELECTED DEALER'S AGREEMENT
[ ], 1998
----------
Dear Sirs:
1. Kashner Davidson Securities Corp. ("KDSC") and Joseph Charles & Associates,
Inc. (the "Underwriters") is the underwriter named in the Prospectus dated
[_______], 1998. Rickel has agreed to purchase, subject to the terms and
conditions set forth in the Underwriting Agreement referred to in the
Prospectus, an aggregate of 1,400,000 units (the "Units"),each Unit consisting
of one share of common stock, no par value per share (the "Common Stock"), and
one common stock purchase warrant (the "Warrants") of FirstLink Communications,
Inc. (the "Company"), from the Company, and up to 210,000 additional Units (the
"Additional Securities"), pursuant to an option for the purpose of covering
over-allotments (the Units, and the Common Stock and Warrants underlying the
Units, plus any of the Additional Securities purchased upon exercise of the
option being herein collectively called the "Securities"). The Securities and
the terms upon which they are to be offered for sale by the Underwriter are more
particularly described in the Prospectus.
1. The Securities are to be offered to the public by the Underwriter at a
price of $5.50 per Unit (herein called the "Public Offering Price") and in
accordance with the terms of the offering set forth in the Prospectus.
<PAGE>
2. The Underwriter is offering, subject to the terms and conditions
hereof, a portion of the Securities for sale to certain dealers which are
members of the National Association of Securities Dealers, Inc. and agree to
comply with the provisions of Section 24 of Article III of the Rules of Fair
Practice of such Association and to foreign dealers or institutions ineligible
for membership in said Association which agree (a) not to resell Securities (i)
to purchasers located in, or to persons who are nationals of, the United States
of America or (ii) when there is a public demand for the Securities to persons
specified as those to whom members of said Association participating in a
distribution may not sell and (b) to comply, as though such foreign dealer or
institution were a member of such Association, with Sections 8, 24, 25 (to the
extent applicable to foreign nonmember brokers or dealers) and Section 36 of
such Rules (such dealers and institutions agreeing to purchase Common Stock
and/or Warrants hereunder being hereinafter referred to as "Selected Dealers")
at the Public Offering Price less a selling concession of $.__ per Unit, payable
as hereinafter provided, out of which concession an amount not exceeding $.__
per Unit may be reallowed by Selected Dealers to members of the National
Association of Securities Dealers, Inc. or to foreign dealers or institutions
ineligible for membership therein which agree as aforesaid. The Underwriter may
be included among the Selected Dealers.
3. The Underwriter shall act as your representative under this Agreement
and shall have full authority to take such action as the Underwriters may deem
advisable in respect to all matters pertaining to the public offering of the
Securities.
4. If you desire to purchase any of the Securities, your application
should reach us promptly by telephone or facsimile at the office of KDSC, and we
will use our best efforts to fill the same. We reserve the right to reject all
subscriptions in whole or in part, to make allotments and to close the
subscription books at any time without notice. The Units allotted to you will
be confirmed, subject to the terms and conditions of this Agreement.
5. The privilege of purchasing the Units is extended to you by the
Underwriter only if they may lawfully sell the Securities to dealers in your
state.
6. Any of the Units purchased by you under the terms of this Agreement
may be immediately reoffered to the public in accordance with the terms of the
offering set forth herein and in the Prospectus, subject to the securities laws
of the various states. Neither you nor any other
2
<PAGE>
person is or has been authorized to give any information or to make any
representations in connection with the sale of Securities other than as
contained in the Prospectus.
7. This Agreement will terminate when we shall have determined that the
public offering of the Securities has been completed and upon telegraphic notice
to you of such termination, but, if not previously terminated, this Agreement
will terminate at the close of business on the 20th full business day after the
date hereof; provided, however, that we shall have the right to extend this
Agreement for an additional period or periods not exceeding 20 full business
days in the aggregate upon telegraphic notice to you. Promptly after the
termination of this Agreement there shall become payable to you the selling
concession on all Units which you shall have purchased hereunder and which shall
not have been purchased or contracted for (including certificates issued upon
transfer) by us, in the open market or otherwise (except pursuant to Section 10
hereof), during the terms of this Agreement for the account of the Underwriter.
8. For the purpose of stabilizing the market in the Units, and the Common
Stock and Warrants underlying the Units, we have been authorized to make
purchases and sales thereof, in the open market or otherwise, and, in arranging
for sale of the Securities, to over-allot.
9. You agree to advise us from time to time, upon request, prior to the
termination of this Agreement, of the number of Securities purchased by you
hereunder and remaining unsold at the time of such request, and, if in our
opinion any such Securities shall be needed to make delivery of the Securities
sold or over-allotted for the account of the Underwriters, you will, forthwith
upon our request, grant to us, or such party as we determine for, our account
the right, exercisable promptly after receipt of notice from you that such right
has been granted, to purchase, at the Public Offering Price less the selling
concession as we shall determine, such number of Securities owned by you as
shall have been specified in our request.
10. On becoming a Selected Dealer and in offering and selling the
Securities, you agree to comply with all applicable requirements of the
Securities Act of 1933, the Securities Exchange Act of 1934 and the NASD Rules
of Fair Practice.
11. Upon application, you will be informed as to the jurisdictions in
which we have been advised that the Securities have been qualified for sale
under the respective securities or blue sky
3
<PAGE>
laws of such jurisdictions, but we assume no obligation or responsibility as to
the right of any Selected Dealer to sell the Securities in any jurisdiction or
as to any sale therein.
12. Additional copies of the Prospectus will be supplied to you in
reasonable quantities upon request.
13. It is expected that public advertisement of the Securities will be
made on the first day after the effective date of the Registration Statement.
Twenty-four hours after such advertisement shall have appeared but not before,
you will be free to advertise at your own expense, over your own name, subject
to any restrictions of local laws, but your advertisement must conform in all
respects to the requirements of the Securities Act of 1933, and we will not be
under any obligation or liability in respect of your advertisement.
14. No Selected Dealer is authorized to act as our agent or to make any
representation as to the existence of an agency relationship otherwise to act on
our behalf in offering or selling the Securities to the public or otherwise.
15. We shall not be under any liability for or in respect of the value,
validity or form of the certificates for the shares of Common Stock and Warrants
underlying the Units, or delivery of such certificates, or the performance by
anyone of any agreement on his part, or the qualification of the Securities for
sale under the laws of any jurisdiction, or for or in respect of any matter
connected with this Agreement, except for lack of good faith and for obligations
expressly assumed by us in this Agreement. The foregoing provisions shall be
deemed a waiver of any liability imposed under the Securities Act of 1933.
16. Payment for the Securities sold to you hereunder is to be made at the
Public Offering Price, on or about [________], 1998, or such later date as we
may advise, by certified or official bank check payable to the order of Kashner
Davidson Securities Corp., in current New York Clearing House funds at such
place as we shall specify on one day's notice to you against delivery of
certificates for the Common Stock and Warrants.
17. Notice to us should be addressed to us at the office of Kashner
Davidson Securities Corp., 77 South Palm Avenue, Sarasota, FL 34236, attention:
Victor Kashner and to Joseph Charles & Associates, Inc., Mellon Financial
Center, 1775 Sherman Street, Suite 900, Denver, CO 80203,
4
<PAGE>
attention: James E. Hosch. Notices to you shall be deemed to have been duly
given if telefaxed or mailed to you at the address to which this letter is
addressed.
18. If you desire to purchase any of the Securities, please confirm your
application by signing and returning to us your confirmation on the duplicate
copy of this letter enclosed herewith even though you have previously advised us
thereof by telephone or facsimile.
Dated: [ ], 1998 KASHNER DAVIDSON SECURITIES CORP.
------
By:
-----------------------
JOSEPH CHARLES & ASSOCIATES, INC.
By:
-----------------------
Accepted and agreed
as to _________ shares of Common Stock and ___________ Warrants
this ____ day of , 1998.
By:
----------------------------------
5
<PAGE>
AGREEMENT AMONG UNDERWRITERS
Agreement dated as of [______], 1998 between Kashner Davidson
Securities Corp. ("KDSC") and Joseph Charles & Associates, Inc. ("JCAI"). KDSC
and JCAI are herein collectively referred to as the "Underwriters."
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, FirsLink Communications, Inc. (the "Company") has filed with
the Securities and Exchange Commission ("Commission"), a registration statement
on Form SB-2 (Registration No. 333-[______]) and one or more amendments thereto
(collectively, the "Registration Statement") for the public sale ("Offering")
through the Underwriters, severally and not jointly, of 1,400,000 units (the
"Units"), each Unit consisting of one share of common stock, no par value per
share (the "Common Stock"), and one common stock purchase warrant (the
"Warrants"), _______ Units to be underwritten by KDSC and _____ Units to be
underwritten by JCAI, plus an option, exercisable for a period of 45 days from
the effective date of the Registration Statement, to purchase up to an
additional 210,000 Units to cover over-allotments, if any (the "Over-allotment
Option"); and
WHEREAS, the Company and the Underwriters are, on the date hereof,
entering into an underwriting agreement (the "Underwriting Agreement") which
provides that the Underwriters will (a) purchase the Units (the Units, and the
Common Stock and Warrants underlying the Units are sometimes collectively
referred to herein as the "Securities"), severally and not jointly, at a price
that reflects a 10% discount, (b) receive an expense allowance equal to 3% of
the gross proceeds of the offering the ("Expense Allowance"), and (c) be sold,
for nominal consideration, five-year warrants to purchase up to an aggregate of
140,000 Units (the "Underwriters' Warrants").
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. UNDERWRITING FEES AND EXPENSES. Of the 10% underwriting discount
per Unit, each Underwriter shall receive 2% with respect to underwritten
Securities and an additional 8% with respect to Securities actually sold. Each
Underwriter shall bear its own expenses in connection with the transactions
contemplated herein, provided that the following expenses shall be deducted from
the Expense Allowance prior to distribution: fees and disbursements of
Sichenzia, Ross & Friedman, LLP, counsel to the Underwriters in connection with
the transaction (other than for blue sky matters which, pursuant to the
Underwriting Agreement, shall be borne by the Company). It is understood amount
the Underwriters that Sichenzia, Ross & Friedman, LLP is acting as legal counsel
for all the Underwriters and that the interests of one Underwriter is not
superior to the others.
<PAGE>
After such deductions, the balance of the Expense Allowance shall be divided
equally among the Underwriters. However, any reduction in compensation payable
to the Underwriters in connection with the Offering as a result of the
determination of the National Association of Securities Dealers, Inc. that
compensation had previously accrued to one, but not all the Underwriters, shall
be deducted in its entirety from the compensation otherwise payable to such
Underwriter pursuant to the terms of this Agreement
2. PURCHASE OF COMMON STOCK AND WARRANTS AND OVER-ALLOTMENT OPTION.
Each Underwriter shall underwrite, severally and not jointly, the Units set
forth in the first Whereas clause hereof. KDSC shall retain [_____] Units and
JCAI shall retain [_____] Units. KDSC and JCAI shall have the mutual right to
exercise the Over-allotment Option on a pro-rata basis.
3. UNDERWRITERS' WARRANTS. Each Underwriter shall be entitled to
purchase a pro rata portion of the Underwriters' Warrants.
4. NOMINEE TO BOARD OF DIRECTORS. The Underwriters shall be
entitled to designate one mutually agreed upon nonvoting advisor to the
Company's Board of Directors as set forth in the Underwriting Agreement.
5. INDEMNITY AND CONTRIBUTION.
5.1. Each Underwriter agrees to indemnify and hold harmless the
other Underwriters, its officers, directors, partners, employees, agents, and
counsel and each person, if any, who controls any such Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act ("Control
Persons"), with respect to written information provided to the Company by such
Underwriter as stated in Section 2(c) of the Underwriting Agreement, to the
extent and upon the terms which the Underwriters agree to indemnify and hold
harmless the Company as set forth in the Underwriting Agreement.
5.2. Each Underwriter will pay as contribution, its ratable share
(based upon the number of Units underwritten by each) of any losses,
liabilities, claims, or damages, joint or several, paid or incurred by any
Underwriter to any person other than an Underwriter, arising out of, based upon,
or in connection with any untrue statement or alleged untrue statement of any
material fact contained in any preliminary prospectus, the Registration
Statement, the Prospectus (as from time to time amended or supplemented), any
amendment or supplement thereto, or in any application or other document or
communication executed by or on behalf of the Company or based upon written
information furnished by or on behalf of the Company filed in any jurisdiction
in order to qualify the Units under the "blue sky" or securities laws thereof or
filed with the Commission or any securities exchange, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading (other than a statement
or omission made in reliance upon and in conformity with written information
furnished to the Company as stated in Section 2(c) of the Underwriting Agreement
with respect to any Underwriter by or on behalf of such Underwriter expressly
for inclusion therein); and will pay its
2
<PAGE>
pro rata portion of all attorney's fees and any and all expenses whatsoever
reasonably incurred in investigating, preparing, or defending against any such
loss, liability, claim, or damage, or any action in respect thereof and any
amounts paid in settlement of any claim or litigation. In determining the
amount of each of the Underwriters' obligation under this Section 5, appropriate
adjustment will be made to reflect any amounts received by any Underwriter in
respect of such untrue statement, alleged untrue statement, omission, or alleged
omission from the Company pursuant to Section 10 of the Underwriting Agreement
or otherwise. There shall be credited against any amount paid or payable by the
Underwriters pursuant to this Section 5.2 any loss, liability, claim, damage, or
expense which is reasonably incurred as a result of any such claim asserted
against the Underwriters (other than fees and disbursements of an Underwriter's
separate counsel if such counsel is not jointly approved by the Underwriters as
provided in the next sentence), and if such loss, liability, claim, damage, or
expense is incurred by the Underwriters subsequent to any payment by the
Underwriters pursuant to this Section 5.2, appropriate provision shall made to
effect such credit, by refund or otherwise. If any such claim is asserted or
any action in connection therewith as we jointly deem necessary or desirable,
including retaining counsel for the Underwriters, and in the Underwriters' joint
discretion separate counsel for any particular Underwriter and the fees and
disbursements of any counsel so retained shall be included in the amounts
payable pursuant to this Section 5.2.
5.3. The indemnity and contribution contained in this Section 5
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of such other Underwriter or its officers,
directors, partners, employees, agents, counsel, or Control Persons (if any) and
shall survive the delivery of the Units to the Underwriters and the termination
of this Agreement. In determining amounts payable pursuant to Section 5.2
hereof, any loss, liability, claim, damage or expense incurred by any person who
controls any Underwriter within the meaning of Section 15 of the Act or any
Underwriter which has been incurred by reason of such control or other
relationship shall be deemed to have been incurred by such Underwriter. Any
Underwriter shall have the right to employ its own counsel, but the fees and
expenses of such counsel shall be at the expense of such Underwriter. No
Underwriter may settle any such claim or action without the prior written
consent of the other. Whenever an Underwriter receives notice of the assertion
of any claim or the commencement of any action to which the provisions of
Section 5.2 hereof would be applicable, such Underwriter will give prompt notice
thereof to the other Underwriter.
6. REDEMPTION OF WARRANTS. It is hereby agreed that during such
period as the redemption of the Warrants requires the mutual consent of the
Underwriters pursuant to the Underwriting Agreement.
7. BOARD OF DIRECTOR DESIGNEE. Pursuant to the provisions of the
Underwriting Agreement, a mutually agreed upon designee of each of the
Underwriters will be invited to attend meetings of the Board of Directors of the
Company. Subject to obligations of confidentiality, upon the request of any
other Underwriter, the designee will inform such Underwriter on a timely basis
of any material information regarding the Company or its business or operations.
Provided, however, that nothing contained herein shall obligate such designee to
attend any meeting or
3
<PAGE>
meetings of the Board of Directors.
8. MISCELLANEOUS. This Agreement is made solely for the benefit of
the Underwriters and their respective officers, partners, agents, counsel and
Control Persons and their respective successors and assigns, and not other
person shall acquire or have any rights by virtue of this Agreement. The
validity, interpretation and construction of this Agreement and of each part
hereof will be governed by, and construed in accordance with, the laws of the
State of New York without giving effect to conflicts of laws. This Agreement
constitutes the parties' full agreement and may not be modified by anything
other than a writing signed by the parties. This Agreement may be executed in
any number of counterparts, each of which may be deemed an original and all of
which together will constitute one and the same instrument.
All notices, requests, demands and other communications which are
required or permitted to be given under this Agreement shall be in writing and
shall be deemed to have been duly given upon the delivery or mailing thereof, as
the case may be, if delivered personally or sent by registered or certified
mail, return receipt requested, postage prepaid:
(a) If to KDSC, to: Kashner Davidson Securities Corp.
77 South Palm Avenue
Sarasota, FL 34236
Attention: Mr. Victor Kashner
If to Aegis, to: Joseph Charles & Associates, Inc.
Mellon Financial Center
1775 Sherman Street, Suite 900
Denver, CO 80203
Attention: Mr. James E. Hosch
(b) With a copy of all notices to either KDSC or JCAI to:
Sichenzia, Ross & Friedman, LLP
135 West 50th Street
20th Floor
New York, NY 10020
Attn.: Gregory Sichenzia, Esq.
or to such other addresses as any party shall have specified by notice in
writing to the others.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the date first above written.
KASHNER DAVIDSON SECURITIES CORP.
By:
------------------------------
JOSEPH CHARLES & ASSOCIATES, INC.
By:
------------------------------
5
