U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED MARCH 31, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
Commission file number 0 - 26013
MULTI-LINK TELECOMMUNICATIONS, INC.
---------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Colorado 84-1334687
------------------------------ -------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4704 Harlan St, Suite 420, Denver, Colorado, 80212
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(Address of principal executive offices)
(303) 831 1977
-------------------------
(Issuer's telephone number)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [ ] No [X]
State the number of shares outstanding of each of the issuer's classes of
equity, as of the latest practicable date:
Class Outstanding June 25, 1999
- -------------------------- -------------------------
Common Stock, No par value 3,071,542 shares
Transitional Small Business Disclosure format: Yes [ ] No [X]
<PAGE>
INDEX
MULTI-LINK TELECOMMUNICATIONS, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) PAGE
Consolidated Balance Sheets, March 31, 1999 and September 30, 1998. 3
Consolidated Statements of Operations - Three Months Ended 4
March 31, 1999 and 1998; Six months ended March 31, 1999 and 1998
Consolidated Statement of Cash Flows - Six Months Ended 5
March 31, 1999 and 1998;
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of Operations 7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. 11
Item 2. Changes in Securities and Use of Proceeds 11
Item 3. Defaults upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K. 11
2
<PAGE>
Part I. FINANCIAL INFORMATION
Item I. Financial Statements
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEET
CURRENT PERIOD AND LAST AUDITED/YEAR END BALANCE SHEET
March 31, September 30,
1999 1998
ASSETS -------- ------------
<S> <C> <C>
Current Assets
Cash & Cash Equivalents ................................................................ $ 55,474 $ 555,852
Accounts Receivable (Net of allowance for doubtful accounts of $2,949 and $46,563) ..... 181,363 104,284
---------- ----------
Total Current Assets ........................................................... 236,837 660,136
Property & Equipment Net ....................................................................... 682,899 683,966
Other Assets
Deferred Financing and Offering Costs .................................................. 237,792 161,369
Intangible Assets, net of amortization of .............................................. 492,657 241,244
$419,092 and $349,160 respectively .....................................................
---------- ----------
TOTAL ASSETS ................................................................................... $ 1,650,185 $ 1,746,715
========== ==========
LIABILITIES & STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts Payable ....................................................................... $ 104,402 $ 153,432
Accrued Expenses ....................................................................... 61,791 199,639
Deferred Revenue ....................................................................... 146,030 161,431
Notes Payable - Related Parties, Current Portion ....................................... 38,317 421,167
Notes Payable and Current Portion of Long Term Debt .................................... 163,136 179,829
---------- ----------
Total Current Liabilities ...................................................... 513,676 1,115,498
Notes Payable - Related Parties, less Current Portion .......................................... 0 247,807
Long-Term Debt, Net of Current Portion ......................................................... 2,431,068 2,222,065
STOCKHOLDERS' DEFICIT
Preferred Stock, $.01 par value: 5,000,000 shares authorized: none issued
Common Stock no par value; 20,000,000 shares authorized, 1,691,542 (unaudited)
and 1,570,152 shares issued and outstanding, respectively .............................. 822,771 442,591
Accumulated Deficit .................................................................... (2,117,330) (2,281,246)
---------- ----------
Total Stockholders Deficit ..................................................... (1,294,559) (1,838,655)
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT .................................................... $ 1,650,185 $ 1,746,715
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED OPERATING STATEMENT
CURRENT QUARTER AND YEAR TO DATE
Three Months Ended Six Months Ended
March 31, March 31, March 31, March 31,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET REVENUES ............................................. $ 510,701 $ 470,945 $ 1,023,415 $ 883,991
COST OF SERVICES AND PRODUCTS ............................ 106,417 87,059 202,411 179,992
---------- ---------- ---------- ----------
GROSS MARGIN ............................................. 404,284 383,886 821,004 703,999
EXPENSES
Sales & Advertising Expense ...................... 12,604 15,454 22,621 130,001
General & Administrative Expenses ................ 172,523 119,562 342,477 309,947
Depreciation ..................................... 23,812 20,433 45,506 40,801
Amortization ..................................... 42,537 6,078 69,932 7,328
---------- ---------- ---------- ----------
Total Expenses ........................... 251,476 161,527 480,536 488,077
INCOME FROM OPERATIONS ................................... 152,808 222,359 340,468 215,922
INTEREST INCOME (EXPENSE) NET ............................ (73,420) (148,472) (176,554) (286,128)
---------- ---------- ---------- ----------
NET INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) ........ $ 79,388 $ 73,887 $ 163,914 $ (70,206)
========== ========== ========== ==========
NET INCOME/(LOSS) PER COMMON SHARE
Basic ............................................ $ 0.05 $ 0.05 $ 0.10 ($ 0.05)
Diluted .......................................... $ 0.04 $ 0.05 $ 0.09 ($ 0.05)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic ............................................ 1,691,542 1,402,265 1,661,608 1,330,957
Diluted .......................................... 1,891,438 * 1,503,740 1,852,688 1,330,957
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONDENSED CONSOLIDATED CASH FLOW
CURRENT QUARTER AND YEAR TO DATE
Six Months Ended
March 31, March 31,
1999 1998
-------- --------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
NET INCOME (LOSS) ................................................................... $ 163,914 $ (70,206)
ADJUSTMENTS to reconcile net profit to net
cash generated from operating activities ............................................
Depreciation and Amortization ............................................... 115,438 48,129
Amortization of Debt Discount and Issuance Costs ............................ 14,350 0
Common Stock Issued for Services and Loans .................................. 0 13,039
Bad Debt Expense ............................................................ 2,739 33,485
CHANGES IN OPERATING ASSETS & LIABILITIES
(Increase)/Decrease in Accounts Receivable .................................. (70,852) 8,820
(Increase)/Decrease in Factoring Costs & Prepayments ........................ (15,576) 20,154
Increase/(Decrease) in Accounts Payable & Prepayments ....................... (45,950) (60,024)
Increase/(Decrease) in Accrued Expenses ..................................... (137,848) (257,796)
Increase/(Decrease) in Deferred revenue ..................................... (15,401) 31,079
---------- --------
NET CASH (Used in)/Provided by Operating Activities ................................. 10,814 (233,320)
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of Subscriber Accounts ............................................. (321,345) (85,543)
Sale/(Purchase) of Fixed Assets ............................................. (44,533) (1,691)
---------- --------
Total Cash Flow (used in) Investing Activities ...................... (365,878) (87,234)
CASH FLOW FROM FINANCING ACTIVITIES
Offering Costs .............................................................. (326,590) 0
Payment of Related Party Notes Payable ...................................... (659,889) (5,875)
Advances Under Related Party Notes Payable .................................. 80,000 349,161
Payment of Notes Payable .................................................... (123,114) (24,382)
Advances Under Notes Payable ................................................ 300,000 0
Repurchase of Outstanding Shares ............................................ (5,721) 0
Proceeds from Issuance of Common Stock ...................................... 590,000 0
---------- --------
Total Cash Flow (used in)/provided by Financing Activities .......... (145,314) * 318,904
INCREASE/(DECREASE) IN CASH & CASH EQUIVALENTS ...................................... (500,378) (1,650)
Cash and Cash Equivalents at the beginning of the period ............................ 555,852 16,980
---------- --------
Cash and Cash Equivalents at the end of the period .................................. $ 55,474 $ 15,330
========== ========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash Paid for Interest .............................................................. $ 170,344 $ 162,574
---------- --------
Conversion of Note Payable to Equity ................................................ $ 35,000 $ 20,000
---------- --------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 1 Basis of Presentation
The accompanying unaudited financial statements of Multi-Link
Telecommunications, Inc. ("Multi-Link" or the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management the financial statements
include all adjustments (consisting of normal recurring accruals) necessary in
order to make the financial statements not misleading. Operating results for the
three and six month periods ended March 31, 1999 are not necessarily indicative
of the results that may be expected for the year ended September 30, 1999. The
September 30, 1998 balance sheet was derived from audited financial statements,
but does not include all disclosures required by generally accepted accounting
principals. These statements should be read in conjunction with the financial
statements and related notes contained in the Company's Registration Statement
on Form SB-2 that was declared effective on May 14, 1999 which includes audited
financial statements for the period to September 30, 1996, the years ended
September 30, 1997 and 1998 and unaudited interim financial statements for the
three months ended December 31, 1998.
Note 2 Subsequent Events
The Company completed its initial public offering in May 1999. Including
the Underwriter's over allotment option, the Company issued 1,380,000 units
consisting of 1,380,000 shares of Common Stock and 1,380,000 Warrants at $6.00
per unit generating gross proceeds of $8,280,000 and net proceeds of
approximately $6,980,000. The Common Stock and Warrants trade on the Nasdaq
SmallCap Market under the trading symbols MLNK and MLNKW.
6
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation.
This filing by Multi-Link Telecommunications, Inc. ("Multi-Link or the
"Company") contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 and the Company intends that such forward-looking
statements be subject to the safe harbors created thereby. These forward-looking
statements include the plans and objectives of management for future operations,
including plans and objectives relating to services offered by and future
economic performance of the Company.
The forward-looking statements included herein are based upon current
expectations that involve a number of risks and uncertainties that might
adversely affect the Company's operating results in the future in a material
way. Such risks and uncertainties include, but are not limited to; the
availability of future acquisitions, the effects of regional economic and market
conditions, increases in marketing and sales costs, intensity of competition,
cost of technology, the availability of financing, contingencies associated with
Year 2000 compliance and the Company's ability to manage its growth.
OVERVIEW
The Company is a provider of advanced voice and data messaging services for
small and medium sized businesses. Using customized switch platforms, the
Company links together other telecommunications services such as local phone
service, paging, mobile telephone service and voice messaging to create a
cohesive communications environment which is more efficient than using each
service on an independent stand-alone basis.
The Company's revenues are primarily derived from receiving recurring
monthly service fees from messaging and paging services. In addition, the
Company receives some one-time fees from installation charges and the sale of
other telecommunications services. Over 85% of the Company's revenue is residual
in nature.
The Company plans to duplicate its service model in other cities. To fund
its regional growth, and the acquisition of other voice messaging companies, the
company completed an initial public offering of securities in May 1999.
In April 1999 the Company moved its voice messaging equipment to a new
secure location and moved its corporate offices from 811 Lincoln Street, Denver,
CO, 80203 to 4704 Harlan Street, Denver, CO, 80212. Although some minor expenses
of the relocations were incurred in the quarterly period ended March 31, 1999,
most of the relocation expenses will be reflected in the financial results for
the quarterly period ending June 30, 1999 and thus will adversely affect the
financial results of that quarter.
RESULTS OF OPERATIONS
Quarter Ended March 31, 1999 compared to Quarter Ended March 31, 1998.
Net Revenues. Net revenues for the quarter ended March 31, 1999 were
$511,000 compared to $471,000 for the quarter ended March 31, 1998, an increase
of approximately 8%. This increase reflects the net growth in Multi-Link's base
of customers.
Cost of Services and Products. Cost of services and products for the
quarter ended March 31, 1999 was $106,000 compared to $87,000 for the quarter
ended March 31, 1998, an increase of 22%. The increase resulted primarily from a
pager promotion run by the Company in the quarter ended March 31, 1999, which
resulted in higher than normal pager hardware costs.
7
<PAGE>
Gross Profit Margin. Gross profit margin for the quarter ended March 31,
1999 was $404,000 compared to $384,000 for the quarter ended March 31, 1998, an
increase of 5%. The gross profit margin as a percentage of net revenues
decreased from 81% to 79% for the reasons stated above.
Sales and Advertising Expenses. Sales and advertising expenses for the
quarter ended March 31, 1999 were $13,000 compared to $15,000 for the quarter
ended March 31, 1998, a nominal decrease.
General and Administrative Expenses. General and administrative expenses
for the quarter ended March 31, 1999 were $173,000 compared to $120,000 for the
quarter ended March 31, 1998, an increase of 44%. The increase was the result of
increased personnel expenses as the Company has substantially increased its
management infrastructure in advance of the execution of its national industry
consolidation plan. In addition, the Company incurred some expenses in the
relocation of its voice messaging equipment during 1999.
Depreciation. Depreciation expense increased to $24,000 for the quarter
ended March 31, 1999 from $20,000 for the quarter ended March 31, 1998, as a
result of increased fixed assets.
Amortization. Amortization of subscriber accounts and goodwill was $43,000
for the quarter ended March 31, 1999 compared to $6,000 for the quarter ended
March 31, 1998 an increase of 617%. The higher levels of amortization expense
result from the continued growth in the Company's customer base, the acquisition
costs of which are amortized over the expected life of the customer base, or 36
months, whichever is the lesser.
Income from Operations. Income from operations was $153,000 for the quarter
ended March 31, 1999 compared to $222,000 for the quarter ended March 31, 1998,
due to the factors discussed above.
Interest Income (Expense). Interest income (expense) decreased to $(73,000)
for the quarter ended March 31, 1999 from $(148,000) for the quarter ended March
31, 1998, a decrease of 51%. The decrease was a direct result of the refinancing
of most of Multi-Link's high interest debt with a term loan in September 1998 at
a substantially lower rate of interest, and the repayment of debt from a private
placement of its securities in November 1998, which caused a reduction in the
total interest expense.
Net Income and Comprehensive Income Multi-Link realized net income of
$79,000 for the quarter ended March 31, 1999 compared to net income of $74,000
for the quarter ended March 31, 1998 due to the factors outlined above. The net
income and comprehensive income were the same for the quarters presented.
Multi-Link's net income for the quarter ended March 31, 1999 does not reflect an
income tax provision because of the utilization of net operating loss
carryforwards.
Six Months Ended March 31, 1999 compared to Six Months Ended March 31, 1998.
Net Revenues. Revenues for the six months ended March 31, 1999 were
$1,023,000, compared to $884,000 for the six months ended March 31, 1998, an
increase of 16%. This increase reflects the continuing net growth in
Multi-Link's base of customers.
Cost of Services and Products. Cost of services and products for the six
months ended March 31, 1999 was $202,000, compared to $180,000 for the six
months ended March 31, 1998, an increase of 12%. The increase resulted primarily
from a pager promotion run by the Company in the first calendar quarter of 1999
which resulted in higher than normal pager hardware costs.
Gross Profit Margin. Gross profit margin for the six months ended March 31,
1999 was $821,000 compared to $704,000 for the six months ended March 31, 1998,
an increase of 17%. The gross profit margin as a percentage of net revenues was
80% in both periods.
8
<PAGE>
Sales and Advertising Expenses. Sales and advertising expenses for the six
months ended March 31, 1999 were $23,000 compared to $130,000 for the six months
ended March 31, 1998, a decrease of 82%. This resulted from the closure of
Multi-Link's in-house sales and telemarketing operations on December 31, 1997
when Multi-Link began procuring subscriber accounts from independent sales
agencies and capitalizing the cost of acquiring such subscriber accounts.
General and Administrative Expenses. General and administrative expenses
for six months ended March 31, 1999 were $342,000 compared to $310,000 for the
six months ended March 31, 1998, an increase of 10% due to an increase in
personnel expenses and costs of moving the voice messaging platforms to a new
location.
Depreciation. Depreciation expense in the six months ended March 31, 1999
was $46,000 compared to $41,000 for the six months ended March 31, 1998 caused
by a nominal increase in fixed asset levels.
Amortization. Amortization of subscriber accounts and goodwill was $70,000
for the six months ended March 31, 1999 compared to $7,000 for the six months
ended March 31, 1998. Amortization expense associated with subscriber accounts
was first incurred in the quarter ended March 31, 1998 after Multi-Link
commenced procuring subscriber accounts through the base of independent sales
agents as previously described. The higher levels of amortization expense
reflect the continued growth in the Company's customer base, the acquisition
costs of which are amortized over the expected life of the customer base, or 36
months, whichever is the lesser.
Income from Operations. The income from operations was $340,000 for the six
months ended March 31, 1999 compared to $216,000 for the six months ended March
31, 1998, due to the factors discussed above.
Interest Income (Expense). Interest income (expense) for the six months
ended March 31, 1999 was $(177,000), compared to $(286,000) for the six months
ended March 31, 1998, a decrease of 38%. Although the Company's total
indebtedness in 1999 was higher than in 1998, the refinancing of most of
Multi-Link's high interest debt with a term loan at a substantially lower rate
of interest caused a reduction in the total interest expense.
Net Income (Loss) and Comprehensive Income (Loss). The Company realized net
income of $164,000 for the six months ended March 31, 1999 compared to a net
loss of $(70,000) for the six months ended March 31, 1998 due to the factors
outlined above. The net income and comprehensive income were the same for the
quarters presented. Net income for the quarter ended March 31, 1999 does not
reflect an income tax provision because of the utilization of net operating loss
carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999 the Company had cash balances of just $55,474 and no
availability under lines of credit or other borrowing facilities. As a result,
the Company was forced to limit its acquisitions of new customer contracts from
its base of independent agents during the quarter ended March 30, 1999.
The Company completed its initial public offering in May 1999 and received
net proceeds from the offering of approximately $6,980,000. After repaying
certain indebtedness, the Company has approximately $4,800,000 held in cash and
marketable securities.
For the six months ended March 31, 1998 net cash used in operations was
approximately $($233,000) compared to net cash generated from operations of
$10,000 for the six months ended March 31, 1999. Net cash used in investing
activities in the six months ended March 31, 1999 for the purchase of fixed
assets and intangibles was $(366,000) compared to $(87,000) in the six months
ended March 31, 1998. During the six months ended March 31, 1998 financing
activities generated $319,000 of cash compared to the six months ended March 31,
1999 where financing activities used $(145,000) of cash.
9
<PAGE>
Management of the Company believes that its anticipated cash requirements
for the immediate future will be met from internally generated funds and the net
proceeds from the offering. The Company's current industry consolidation plan
calls for use of part of the proceeds from the offering for acquisitions. This
funding will not complete the consolidation plan and, therefore, the Company
will likely seek to obtain additional public, private or debt financing or
combination of the foregoing in the future.
EFFECTS OF INFLATION
Although the Company cannot accurately anticipate the effect of inflation
on its operations, the Company does not believe that inflation has had, or is
likely in the future to have, a material effect on its operating results or
financial condition.
YEAR 2000 ISSUES
Many computer systems, software applications and other electronics
currently in use worldwide are programmed to accept only two digits in the
portion of the date field, which designates the year. The "Year 2000 problem"
arises because these systems and products cannot properly distinguish between a
year that begins with "20" and the familiar "19." If these systems and products
are not modified or replaced, many will fail, create erroneous results and/or
may cause interfacing systems to fail.
The Company has completed its review of all of its internal systems
including its Glenayre messaging equipment and determined that all systems are
compatible with the year 2000.
The Company is dependent upon US West and other central infrastructure
providers including suppliers of electric power and the national telephone
network for the provision of its services to its customers. U S West has
publicly announced that its local telephone network is Year 2000 compliant. The
Company is not aware of any central infrastructure provider that has indicated
that it expects to be adversely affected by the Year 2000 problem. However, the
Company has not obtained assurances from such providers as to whether or not
they will be adversely affected by the Year 2000 issue.
The Company plans to use a portion of the proceeds of this offering to
acquire companies involved in the voice messaging business. The Company intends
to address the Year 2000 issue in detail with all such companies prior to
acquisition. The Company cannot quantify the risks and expenses that may be
incurred through acquisitions of companies that are not Year 2000 compliant.
The Company has not incurred any material costs for Year 2000 modifications
to date and does not anticipate incurring any such material costs in the future.
However, there can be no assurance that the Company will not identify other Year
2000 issues that may require expenditures in the future.
10
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not a party to any legal proceedings.
Item 2. Changes in Securities and Use of Proceeds
On May 14, 1999 a registration statement filed by the Company was
declared effective by the Securities and Exchange Commission (File No.
333-1334687). Pursuant to the registration statement, the Company
registered 1,380,000 units, each comprised of one share of common
stock and one warrant to purchase one share of common stock. After
selling all of the units for $6.00 each, the offering was terminated.
The managing underwriter for the offering was Schneider Securities,
Inc. The total gross proceeds to the Company were $8,280,000. The
expenses incurred by the Company in connection with the issuance and
distribution of the units for underwriting discounts and commissions
and expenses paid to the underwriters were $1,076,400. Other expenses
of the offering paid to date were approximately $219,000. The total
net proceeds minus expenses paid to date were $6,984,600. Since
completion of the offering, the Company has paid $2,140,000 to
Westburg Media Capital L.P. for a revolving loan and paid expenses of
the offering as detailed above.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to Vote of Security Holders
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits.
9.1 Form of Representative's Option for the Purchase of Units.
27.1 Financial Data Schedule
j. Reports on Form 8-K.
The Company was not subject to the periodic reporting requirements of
the Exchange Act during the quarter ended March 31, 1999.
11
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MULTI-LINK TELECOMMUNICATIONS, INC,
(Registrant)
Date: June 25, 1999 /s/ Nigel V. Alexander
-------------------------------------------
Nigel V. Alexander,
Chief Executive Officer.
Date: June 25, 1999 /s/ Shawn B. Stickle
-------------------------------------------
Shawn B. Stickle,
President and Chief Operating Officer.
Date: June 25, 1999 /s/ David J. C. Cutler
-------------------------------------------
David J.C. Cutler,
Chief Financial Officer.
12
WARRANT EXERCISE FEE AGREEMENT
AGREEMENT dated as of the 14th day of May, 1999, by and among Schneider
Securities, Inc. ("Schneider"), Multi-Link Telecommunications, Inc. (the
"Company") and American Securities Transfer & Trust, Inc. (the "Warrant Agent").
W I T N E S S E T H:
WHEREAS, in connection with a public offering of 1,200,000 Units (or up to
1,380,000 Units including the over-allotment option), the Company proposes to
issue, in accordance with an agreement dated as of May 14, 1999, by and between
the Company and the Warrant Agent (the "Warrant Agreement"), Warrants to
purchase shares of Common Stock; and
WHEREAS, the parties hereto wish to provide Schneider, a member of the
National Association of Securities Dealers, Inc. ("NASD"), with certain rights
on an exclusive basis in connection with the exercise of the Warrants.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth, the parties hereto agree as follows:
Section 1. Description of the Warrants. The Company's Warrants may be
exercised on or after May 14, 1999 and expire at 5:00 p.m. Colorado time on May
13, 2002 (the "Expiration Date"), subject to redemption rights commencing on or
after May 14, 2000. In accordance with the provisions of the Warrant Agreement,
the holder of each Warrant shall have the right to purchase from the Company,
and the Company shall issue and sell to such holders of Warrants, one fully paid
and non-assessable share of the Company's Common Stock for every two Warrants
exercised at an exercise price of $9.00 per share (the "Exercise Price"),
subject to adjustment as provided in the Warrant Agreement.
Section 2. Notification of Exercise. Within ten (10) days of the last day
of each month commencing one year from the date of the Company's Prospectus, the
Warrant Agent or the Company will notify Schneider of each Warrant certificate
which has been properly completed and delivered for exercise by holders of
Warrants during each such month, the determination of the proper completion to
be in the sole and absolute reasonable discretion of the Company and the Warrant
Agent. The Company or the Warrant Agent will provide Schneider with such
information, in connection with the exercise of each Warrant, as Schneider shall
reasonably request.
Section 3. Payment to Schneider. The Company hereby agrees to pay to
Schneider an amount equal to five (5%) percent of the exercise price (i.e. ,$.45
per share based on the initial Exercise Price of the Warrants which is $9.00 per
share) for each Warrant exercised (the "Exercise Fee") a portion of which may be
allowed by Schneider to the dealer who solicited the exercise (which may also be
Schneider) provided that:
(a) such Warrant is exercised on or after May 14, 2000, which is one
year from the effective date of the Company's Registration Statement;
(b) at the time of exercise, the market price of the Company's Common
Stock is higher than the applicable Exercise Price of the Warrant being
exercised;
<PAGE>
(c) the holders of Warrants being exercised have specifically
indicated in writing, either in the Form of Election contained on the
specimen Warrant Certificate or by written documents signed and dated by
the holders that the exercise of such Warrants was solicited by Schneider
or another member of the NASD; and
(d) Schneider and/or the member of the NASD which solicited the
exercise of Warrants delivers a certificate to the Company within five (5)
business days of receipt of information relating to such exercised Warrants
from the Company or the Warrant Agent in the form attached hereto as
Exhibit A, stating that:
(1) The Warrants exercised were not held in a discretionary
account;
(2) The member which solicited the exercise of Warrants did not
(unless granted an exemption by the Securities and Exchange Commission
("the Commission") from the provisions thereof), within the applicable
number of business days under Regulation M immediately preceding the
date of exercise of the Warrant bid for or purchase the Common Stock
of the Company or any securities of the Company immediately
convertible into or exchangeable for the Common Stock (including the
Warrants) or otherwise engage in any activity that would be prohibited
by Regulation M under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), to a broker-dealer engaged in a distribution of
the Company's securities; and
(3) In connection with the solicitation, it disclosed the
compensation it would receive upon exercise of the Warrant.
Section 4. Payment of the Exercise Fee. The Company hereby agrees to pay
over to Schneider within two (2) business days after receipt by the Company of
the certificate described in Section 3(d) above, the Exercise Fee out of the
proceeds it received from the applicable Exercise Price paid for the Warrants to
which the certificate relates.
Section 5. Inspection of Records. Schneider may at any time during business
hours, at its expense, examine the records of the Company and the Warrant Agent
which relate to the exercise of the Warrants.
Section 6. Termination. Schneider shall be entitled to terminate this
Agreement prior to the exercise of all Warrants at any time upon five (5)
business days' prior notice to the Company and the Warrant Agent.
Notwithstanding any such termination notice, Schneider shall be entitled to
receive an Exercise Fee for the exercise of any Warrant for which it has already
delivered to the Company prior to any such termination the certificate required
by Section 3(d) of this Agreement.
Section 7. Representations and Warranties of Schneider. At the date of
execution hereof and at the time of solicitation of exercise of Warrants,
Schneider represents that it is, and will, (i) be registered as a broker-dealer
under the Exchange Act, (ii) be a member in good standing of the NASD, and (iii)
maintain its registration, qualification and membership in full force and effect
and in good standing throughout the term of this Agreement. Schneider
acknowledges and agrees that it will not solicit the exercise of Warrants, or
offer or sell the underlying Common Stock, in any state or jurisdiction except
those in which the Common Stock underlying the Warrants has been qualified or
qualification is not required. Further, Schneider agrees to comply with the laws
of the states in which it may solicit exercise of the Warrants or in which the
Common Stock underlying the Warrants may be offered or sold by it, with the
-2-
<PAGE>
applicable rules and regulations of the NASD, and will comply with federal laws
including, but not limited to, the Securities Act of 1933, as amended (the
"Act"), the Exchange Act and the rules and regulations of the Commission
thereunder.
Section 8. Indemnification.
a. Subject to the conditions set forth below, the Company agrees to
indemnify and hold harmless any and all statutory or designated
underwriters (the "Underwriters"), the representative of the Underwriters,
if any (the "Representative"), and each of their officers, directors,
partners, employees, agents, and counsel, and each person, if any, who
controls the Representative or any one of the Underwriters within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act,
against any and all loss, liability, claim, damage, and expense whatsoever
(which shall include, for all purposes of this Section 8, but not be
limited to, attorneys' fees and any and all expense whatsoever incurred in
investigating, preparing, or defending against any litigation, commenced or
threatened, or any claim whatsoever and any and all amounts paid in
settlement of any claim or litigation) as and when incurred arising out of,
based upon, or in connection with (i) any untrue statement or alleged
untrue statement of a material fact contained (A) in any preliminary
prospectus, the registration statement, or any post-effective amendment
thereto, or the prospectus (as from time to time amended and supplemented),
or any amendment or supplement thereto, relating to the offer or sale of
Common Stock underlying the Warrants or the solicitation of exercise of the
Warrants (such preliminary prospectus, registration statement,
post-effective amendment or prospectus hereinafter collectively, the
"Offering Documents") or (B) in any application or other document or
communication (in this Section 8 collectively called an "application") in
any jurisdiction in order to qualify the Common Stock and Warrants 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 a
material fact required to be stated therein or necessary to make the
statements therein not misleading, or (ii) any breach of any
representation, warranty, covenant, or agreement of the Company contained
in this Agreement. The foregoing agreement to indemnify shall be in
addition to any liability the Company may otherwise have, including
liabilities arising under this Agreement; however, the Company shall have
no liability under this Section 8 if such statement or omission was made in
reliance upon and in conformity with written information furnished to the
Company as stated in Section 8(b) with respect to the Underwriters by or on
behalf of the Underwriters expressly for inclusion in any of the Offering
Documents, or in any application, as the case may be.
If any action is brought against the Underwriters, the Representative
or any of their officers, directors, partners, employees, agents, or
counsel, or any controlling persons of an Underwriter or the Representative
(an "indemnified party") in respect of which indemnity may be sought
against the Company pursuant to the foregoing paragraph, such indemnified
party or parties shall promptly notify the Company in writing of the
institution of such action (but the failure so to notify shall not relieve
the Company from any liability it may have other than pursuant to this
Section 8(a)) and the Company shall promptly assume the defense of such
action, including the employment of counsel (satisfactory to such
indemnified party or parties) and payment of expenses. Such indemnified
party or parties shall have the right to employ its or their own counsel in
-3-
<PAGE>
any such case, but the fees and expenses of such counsel shall be at the
expense of such indemnified party or parties unless the employment of such
counsel shall have been authorized in writing by the Company in connection
with the defense of such action or the Company shall not have promptly
employed counsel satisfactory to such indemnified party or parties to have
charge of the defense of such action or such indemnified party or parties
shall have reasonably concluded that there may be one or more legal
defenses available to it or them or to other indemnified parties which are
different from or additional to those available to the Company, in any of
which events such fees and expenses shall be borne by the Company. Anything
in this paragraph to the contrary notwithstanding, the Company shall not be
liable for any settlement of any such claim or action effected without its
written consent. The Company agrees promptly to notify the Underwriters and
the Representative of the commencement of any litigation or proceedings
against the Company or against any of its officers or directors in
connection with the sale of the Common Stock underlying the Warrants, any
Offering Documents, or any application.
b. The Underwriters agree to indemnify and hold harmless the Company,
each director of the Company, each officer of the Company who shall have
signed the Registration Statement, 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 Section 8(a), but only with respect to
statements or omissions, if any, made in any of the Offering Documents, or
in any application, in reliance upon and in conformity with written
information furnished to the Company as stated in this Section 8(b) with
respect to the Underwriters by or on behalf of the Underwriters expressly
for inclusion in any of the Offering Documents, or in any application, as
the case may be; provided, however, that the obligation of the Underwriters
to provide indemnity under the provisions of this Section 8(b) shall be
limited to the amount which represents the product of the number of shares
of Common Stock issued on exercise of Warrants and the Warrant Exercise
Price. For all purposes of this Agreement, the amounts of the Exercise Fee
set forth in the Offering Documents, the information under "Plan of
Distribution" and the identification of counsel to the Representative under
"Legal Matters" constitute the only information furnished in writing by or
on behalf of the Underwriters expressly for inclusion in any of the
Offering Documents, or in any application, as the case may be. If any
action shall be brought against the Company or any other person so
indemnified based on any of the Offering Documents, or any application, and
in respect of which indemnity may be sought against the Underwriters
pursuant to this Section 8(b), the Underwriters shall have the rights and
duties given to the Company, and the Company and each other person so
indemnified shall have the rights and duties given to the indemnified
parties, by the provisions of Section 8(a).
c. In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in this Section
8 is for any reason held to be unavailable to the Underwriters or the
Company, then the Company shall contribute to the damages paid by the
several Underwriters, and the several Underwriters shall contribute to the
damages paid by the Company; provided, however, that no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Act) shall be entitled to contribution from any person who was not guilty
-4-
<PAGE>
of such fraudulent misrepresentation. In determining the amount of
contribution to which the respective parties are entitled, there shall be
considered the relative benefits received by each party from the sale of
the Common Stock underlying the Warrants (taking into account the portion
of the proceeds of the offering realized by each), the parties' relative
knowledge and access to information concerning the matter with respect to
which the claim was asserted, the opportunity to correct and prevent any
statement or omission, and any other equitable considerations appropriate
in the circumstances. The Company and the Underwriters agree that it would
not be equitable if the amount of such contribution were determined by pro
rata or per capita allocation (even if the Underwriters were treated as one
entity for such purpose). No Underwriter or person controlling such
Underwriter shall be obligated to make contribution hereunder which in the
aggregate exceeds the total Exercise Price of the Warrants, exercise of
which was solicited by such Underwriter under this Agreement, less the
aggregate amount of any damages which such Underwriter and its controlling
persons have otherwise been required to pay in respect of the same or any
substantially similar claim. The Underwriters' obligations to contribute
hereunder are several in proportion to their respective underwriting
obligations and not joint. For purposes of this Section, each person, if
any, who controls an Underwriter within the meaning of Section 15 of the
Act shall have the same rights to contribution as such Underwriter, and
each director of the Company, each officer of the Company who signed the
Offering Documents, and each person, if any, who controls the Company
within the meaning of Section 15 of the Act, shall have the same rights to
contribution as the Company. Anything in this Section 8(c) to the contrary
notwithstanding, no party shall be liable for contribution with respect to
the settlement of any claim or action effected without its written consent.
This Section 8(c) is intended to supersede any right to contribution under
the Act, the Exchange Act, or otherwise.
Section 9. Notices. Any notice or other communication required or permitted
to be given pursuant to this Agreement shall be in writing and shall be deemed
sufficiently given if sent by first class certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Company: Shawn B. Stickle, President and Chief
Operating Officer
Nigel V. Alexander, Chief Executive Officer
Multi-Link Telecommunications, Inc.
4704 Harlan Street, Suite 420
Denver, Colorado 80212
With a copy to: Thomas S. Smith, Esq.
Smith McCullough, P.C.
4643 South Ulster Street, Suite 900
Denver, Colorado 80237
If to Schneider: Keith Koch, Director of Corporate Finance
Schneider Securities, Inc.
1120 Lincoln Street, Suite 900
Denver, Colorado 80203
-5-
<PAGE>
With a copy to: Robert W. Walter, Esq.
Berliner Zisser Walter & Gallegos, P.C.
1700 Lincoln Street, Suite 4700
Denver, Colorado 80203
and if to the Warrant Administrative Services
Agent: American Securities Transfer & Trust, Inc.
938 Quail Street, Suite 101
Lakewood, Colorado 80215
or such other address as such party shall have given notice to other parties
hereto in accordance with this Section. All such notices or other communications
shall be deemed given three (3) business days after mailing, as aforesaid.
Section 10. Supplements and Amendments. The Company, the Warrant Agent and
Schneider may from time-to-time supplement or amend this Agreement by a written
instrument signed by the party to be charged, without the approval of any
holders of Warrants in order to cure any ambiguity or to correct or supplement
any provisions contained herein or to make any other provisions in regard to
matters or questions arising hereunder which the Company, the Warrant Agent and
Schneider may deem necessary or desirable and which do not adversely affect the
interest of the holders of Warrants.
Section 11. Assignment. This Agreement may not be assigned by any party
without the express written approval of all other parties, except that Schneider
may assign this Agreement to its successors, if any.
Section 12. Governing Law. This Agreement will be deemed made under the
laws of the State of Colorado with respect to matters of contract law and for
all purposes shall be governed by and construed in accordance with the internal
laws of said State, without regard to the conflicts of laws provisions thereof.
Section 13. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give any person or corporation other than the Company, the Warrant
Agent and Schneider any legal or equitable right, remedy or claim under this
Agreement; and this Agreement shall be for the sole and exclusive benefit of,
and be binding upon, the Company, the Warrant Agent and Schneider and their
respective successors and permitted assigns.
Section 14. Descriptive Headings. The descriptive headings of the sections
of this Agreement are inserted for convenience only and shall not control or
affect the meanings or construction of any of the provisions hereof.
-6-
<PAGE>
Section 15. Superseding Agreement. This Agreement supersedes any and all
prior agreements between the parties with respect to the subject matter hereof.
Section 16. Exclusive Agreement. It is understood that this Agreement is on
an exclusive basis to solicit the exercise of the Warrants and that the Company
shall not engage other broker-dealers to solicit the exercise of Warrants
without the consent of Schneider.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
MULTI-LINK TELECOMMUNICATIONS, INC.
By:
---------------------------------------
Shawn B. Stickle, President and
Chief Operating Officer
By:
---------------------------------------
Nigel V. Alexander, Chief Executive
Officer
SCHNEIDER SECURITIES, INC.
By:
---------------------------------------
Thomas Schneider, President
AMERICAN SECURITIES TRANSFER & TRUST, INC.
By:
---------------------------------------
Gregory Tubbs, Senior Vice President
-8-
<PAGE>
EXHIBIT A
CERTIFICATE
The undersigned, being the _______________ of _________________________
(the "NASD Member") pursuant to Section 3(d) of the Warrant Exercise Fee
Agreement relating to the exercise of Warrants dated May 14, 1999 among
Multi-Link Telecommunications, Inc. (the "Company"), Schneider Securities, Inc.
and American Securities Transfer & Trust, Inc. (the "Warrant Agent") hereby
certifies that:
1. The Company or the Warrant Agent has notified the NASD Member that
____________ Warrants (as defined in the Agreement) have been exercised during
_______________.
2. The exercise of _________ of such Warrants was solicited by the NASD
Member.
3. Such Warrants were not held in a discretionary account.
4. The NASD Member did not, within _____ business days immediately
preceding _______________, bid for or purchase the Common Stock of the Company
or any securities of the Company immediately convertible into or exchangeable
for the Common Stock (including Warrants) or otherwise engage in any activity
that would be prohibited by Regulation M under the Securities Exchange Act of
1934, as amended, to one engaged in a distribution of the Company's securities.
5. In connection with the solicitation of the exercise of the Warrants, the
NASD Member disclosed to holders of the Warrants the compensation it will
receive.
DATED:
----------------
-------------------------------------------
(Firm Name)
By:
----------------------------------------
Title:
-------------------------------------
-9-
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<PERIOD-START> OCT-01-1998
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